Latin America Risk Report - 16 August 2019

Following up on news in Guatemala, Argentina, Paraguay and Venezuela.

Four questions facing Guatemala’s president-elect

Can Giammattei win over the angry majority?

Giammattei won because he was considered the lesser of two evils by the minority of the population that chose to vote. Torres lost big in the urban areas of the country, particularly the capital, and she was unable to mobilize voters beyond her base in rural areas.

The majority of the population disliked both candidates, angry at the corruption in the political system. Having two leading candidates - Zury Rios and Themla Aldana - disqualified from the ballot added to the questions about the legitimacy of the election.

That angry and disappointed majority of the population is perhaps a more important political actor than any of the parties at the moment. Giammattei needs to deliver on security, economic growth and anti-corruption if he is to win them over and prevent his term from being defined by the perception that his election was not completely legitimate.

How does Giammattei deal with legacy corruption? 

Whether or not Giammattei is corrupt (and there are allegations), he will find his government competing with legacy corruption networks run by President Morales, Torres, and other dark financing networks that benefit from their access to powerful politicians.

The challenge is that the president-elect needs to work with at least some of these legacy networks if he is to successfully implement his agenda. Facing a divided Congress, Giammattei must build a working coalition to pass legislation. Torres’s UNE party is the largest party in the Congress and, barring a surprise change of alliances, will serve as the president-elect’s most important opposition.

Does the CICIG have an impact even after it’s gone? 

The CICIG was intended to build up the capacity of Guatemala’s government to conduct its own investigations and prosecutions so that it could someday be phased out. For a time, it appeared that it was successful, particularly in boosting the capabilities and independent influence of the Attorney General’s office. However, the current phase-out of the CICIG is an attempt by the legacy corruption networks to completely undo the influence of the organization and prevent the prosecutions of leading politicians and businessmen. Local media indicate former CICIG staff are not being offered positions in the government where their skills could be used to continue investigating and prosecuting corruption.

Who leaves the country and who enters?

Multiple media outlets have commented that the Trump-Morales agreement related to asylum applicants in Guatemala is the first foreign policy issue on Giammattei’s plate. But that agreement is simply a part of larger and long-term challenges. Guatemalans continue to flee the country in large numbers due to the economic and security conditions. Beyond its own exodus, Guatemala also faces the challenge of managing a large number of migrants from other countries passing through its territory on their way to the US. Whether or not the agreement with the US remains or is modified, the next four years are going to be defined by whether Giammattei and Guatemala’s international partners can find a sustainable and humane solution to reduce this massive movement of people out of and through the country.

Argentina update

As I wrote in my analysis of Argentina’s primaries published on Monday, everyone knew that Argentina’s stocks, bonds and currency would collapse if Fernandez won by a large margin. It was still jarring to see the numbers actually play out. The peso weakened to 60 to the dollar (from 45 to the dollar pre-election) before regaining a small amount of lost ground. The losses in the stock market were historic. The average consumer saw a number of products rise in price.

Macri has flailed for a strategy, blaming Fernandez for the economic losses and then apologizing to those who voted for his opponent. Macri has promised to increase wages and other programs in an attempt to boost the economy, something that will be politically popular but go against his orthodox economic record.

Fernandez has not been solid either, claiming he would not work with Macri and then admitting to a phone call in which the two discussed ways to maintain calm. He has also failed to present a detailed economic plan for what he would do if elected, increasing the nervousness in the markets. 

Fernandez faces two challenges at the moment. First, while he benefits from the sputtering economy, the situation could backfire if the public begins to believe that the opposition is actively sabotaging the economy in order to win the election. Second, Fernandez believes he is the favorite to win and will inherit whatever mess is left after the election.

Venezuela update

Threat to the National Assembly. Guaido claims that the ANC led by Diosdado Cabello plans to shut down the National Assembly and have a large number of its legislators arrested. The threat against the AN was denounced by a many in the international community.

Torture allegations. The NYTimes published a report documenting increasing torture of members of the security forces accused of dissent. While similar stories have been published before, this article added details about events after the 30 April uprising.

Negotiations. Guaido’s strategy of maintaining a willingness to negotiate has created a divide within the Maduro regime over their next move. Military commanders and several civilian Chavista leaders are in favor of continuing negotiations in order to reach early elections and are open to Maduro leaving office during the transition. Maduro is willing to have his people return to the negotiation table, though his interest in transition is not genuine and he is opposed to leaving power prior to any new elections. A separate hardline faction led by Diosdado Cabello is encouraging no negotiations and greater repression.

Not everyone agrees with the analysis above. Some believe the narrative of fractures in the regime is manufactured to generate confusion within the Guaido camp.

Sanctions. Bloomberg reports that PetroChina has cancelled about five million barrels worth of oil orders from Venezuela in the wake of the new sanctions. The same media outlet also reports a key Turkish bank that has helped the Venezuelan government make international payments has stopped working with PDVSA due to the new sanctions.

Poll shows drop in support for Paraguay’s Abdo

A poll from Ultima Hora suggests President Abdo has seen a significant decline in public support. Only 30% rate his government as good or very good against 69% who say it is bad or very bad.

Regarding the wider controversy over the hydroelectric agreement with Brazil, the following comments from me were published in the Inter-American Dialogue’s Energy Advisor:

President Abdo faces criticism on two fronts: the content of the deal and how the deal was negotiated. The multi- year deal was less lucrative than previous one-year agreements between Brazil and Paraguay, with one local report suggesting Paraguay would receive $200 million less for the electricity that the Paraguayan side of the hydroelectric plant produces for Brazil. Last week, local media published images of Abdo’s WhatsApp chats with his advisors, suggesting Paraguay and its president were under significant pressure from Brazil, which was refusing to pay its bills. Also bothering Paraguayan citizens and political opponents is the fact Abdo hid the details of the negotiations, failing to discuss the issue during his address to Congress. Abdo’s denials that he knew the full contents of the agreement suggest he is lying and/or doing a poor job as leader, with neither explanation helping the president. With a portion of Abdo’s own Colorado party in the Paraguayan Congress threatening to impeach him, the government has now broken the deal, and Brazil appears willing to renegotiate. Unlike the previous secret negotiations, every detail of the next round of talks will be under considerable scrutiny by media and political opponents on both sides of the border. Brazilian President Bolsonaro faces a tough balancing act in demonstrating his Brazil-first nationalism without harming his closest ideological ally in South America. In Paraguay, the remainder of Abdo’s presidency remains under threat of a swift impeachment by the Congress if he makes further mistakes.

Corruption Corner

Honduras - The WSJ highlights the difficult job of a top prosecutor in Honduras who is working to investigate and indict corrupt politicians. 

El Salvador - President Bukele has reiterated his promise to start an anti-corruption commission on par with Guatemala’s CICIG. Details remain vague including whether the UN, OAS or another international body will back the commission. The commission’s authorities, personnel and funding are unclear. Additionally, the legal justification for the commission could face significant opposition from other politicians in the country.

Reading List

WSJ - Think U.S. Politics Is Exhausting? Mexico’s President Has a News Conference Every Morning.

Sin Embargo - VIDEO: Presunto líder del CJNG acusa a Alfaro de romper acuerdo; Gobierno de Jalisco lo desmiente

Bloomberg  - South America’s Glaciers May Have a Bigger Problem Than Climate Change (article covers mining in Chile)

Oxy - Why Venezuelan migrants are joining Colombia’s criminal gangs

Washington Post - Latin America was making progress fighting corruption. Now impunity is roaring back.

Yonhap - Seoul urges Central American states to quickly implement free trade deal

While not directly related to Latin America, I recommend these two articles about Russian and Chinese activity in Africa, something that potentially parallels their activity in Venezuela and elsewhere.

CNN - Putin's private army is trying to increase Russia's influence in Africa

WSJ - Huawei Technicians Helped African Governments Spy on Political Opponents

Thanks for reading!

Hello from Bogota, Colombia, my new home for the next few years. Restaurant recommendations are welcome.

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