Latin America Risk Report - 10 October 2019
The Tony Hernandez trial confirms old rumors of Mexican cartel corruption in Central America
In this edition
Mexico - Cartel Corruption in Central America
Brazil - Police killings up; crime down
Argentina - Polls show Fernandez likely to win
Venezuela - Oil production down
Also this week I published newsletters on the political crisis in Ecuador and the election in Bolivia that threatens to create another political crisis in the region. Thanks to everyone who reads and supports this newsletter.
Mexico Cartel Corruption in Central America
Analysts who focus on Honduras are closely following the trial of Tony Hernandez in New York City. The witnesses have described corruption and cocaine trafficking infiltrating the very top levels of the political system. The testimony presents risks to President Juan Orlando Hernandez both domestically and internationally. It also provides details of the crimes of other political and business elites.
Beyond the specific implications for Honduran politics, the trial is exposing the details of how the Sinaloa Cartel has operated in Central America over the past decade. The cartel held meetings and offered seven figure bribes to high level politicians and businessmen. In doing so, criminals and traffickers have been promised protection and impunity.
That level of Mexican cartel influence has been assumed by some and debated by others, but usually at a hypothetical level or in whispered conversations with sources who refused to be named. Anyone who has worked in Central America over the past two decades has heard rumors of this sort of deal. However, there was always some doubt. The narrative of “cartel kingpin pays millions in bribes to the president of a country” seemed too bold to be true, a script for Netflix rather than reality.
Now that evidence is being made public of a large corruption deal at the highest levels in Honduras, it appears to confirm the worst fears of Mexican criminal involvement outside of Mexico’s borders.
Plenty of Central American presidents have been caught up in local corruption schemes in the past decade, but the situation is worse when it’s corruption coming from a large and wealthy foreign criminal group. The Hernandez trial is a transition in the narrative from general concerns about Mexican cartel corruption to some very specific details about the amount of money and the quid pro quo arrangements between Mexican criminal groups and Central American elites.
With El Chapo in a US prison and the scheme exposed in Honduras, the details of the situation in 2019 are certainly different today than they were when the bribes to Hernandez and Ardon were first paid a decade ago. However, nobody should believe that this deal between Chapo and the Hernandez brothers was the only one that occurred in the region.
If that sort of corruption happened in Honduras, it makes it almost certain that similar attempts at corruption were made by the Sinaloa Cartel and criminal groups in Guatemala, El Salvador, Nicaragua and elsewhere. If the Sinaloa Cartel offers those deals, it’s likely the CJNG and Gulf Cartel are doing the same. Some of those offers were almost certainly accepted. Further, some of those politicians and deals are almost certainly still in place today.
Corruption and impunity are at the heart of the region’s governance problems. Exposing the details of additional deals should be a priority.
Brazil - Police killings up; crime down
Both the WSJ and Reuters published important reports on police killings in Brazil. According to the WSJ:
Police in Rio state killed 1,249 people from January through August—nearly one-third of all killings in the period, and an average of more than four a day. That total doesn’t include cases that are still under investigation.
Violent crime is down in Rio and across Brazil. Bolsonaro and his supporters credit the new tough on crime approach in which police can kill suspects with impunity. Most analysts think other structural factors including several regional truces among large criminal groups play a bigger role. Further, the distrust many communities feel for the police due to the violent raids will lead to worsening security down the line.
Argentina Update - Polls show Fernandez likely to win
A useful article from Clarin shows ten polls have Fernandez winning between 52% and 56% with a 17 to 24 point margin over Mauricio Macri. As I wrote last week, there is herding among the pollsters that creates a higher likelihood that they all make a similar error. That error can go in either direction.
With Fernandez as the likely winner, speculation is growing about his potential cabinet and the direction his economic policies will take. The limited signals from Fernandez are that he will be moderate. Of course, it wouldn’t benefit Fernandez to preview a more radical agenda while he’s trying to win moderate voters.
Fernandez’s first cabinet will be a crisis cabinet, forced to deal with the economic fallout of the crash that has taken place since August. In some ways, it’s also worth considering who Fernandez’s second round of cabinet appointments will be as the first round burns out amid crisis. Additionally, and potentially more important than his initial cabinet decisions, is how much of a role former President Cristina Fernandez de Kirchner will have in the Alberto Fernandez administration.
Venezuela Update - Oil production and exports down
After a very active few weeks surrounding the UNGA and debates over the TIAR, events in Venezuela appeared to slow down in early October.
The biggest news is the ongoing decline in oil production and exports. On top of the usual challenges, PDVSA and its joint venture partners have slowed or stopped production at a number of fields due to lack of storage and transport.
The only winners in this are Cuba and Russia. Cuba, facing a major energy crisis, is getting free additional oil shipments simply because Venezuela needs somewhere to send the oil. Russia is getting additional money for assisting Venezuela including $200 billion in debt repayment, something the Maduro regime can hardly afford.
In response, Reuters reports the US will announce new sanctions against Cuba and is again considering sanctions against Russia and Rosneft for their support of Maduro.
Two other notes related to sanctions and oil suggest some potential good news for Maduro:
Analysts believe China may be importing oil from both Venezuela and Iran and using ship to ship transfers to hide the location of origin.
Reliance is considering restarting oil imports from Venezuela. The company has avoided Venezuelan oil due to the US sanctions on the sector.
Both of those stories have some uncertainty, but if either turn out to be the case, it would be a sign that sanctions efforts are weakening.
Corruption Corner
Mexico - Supreme Court Justice Eduardo Medina Mora resigned due to an ongoing probe by Mexico’s financial intelligence unit. Journalists have published evidence of suspect financial transfers to bank accounts and businesses. At the same time, there are questions over how AMLO is handling this corruption case, potentially pressuring a judge appointed by a previous president to resign, versus other cases of corruption against officials friendlier to the current president that have been generally ignored.
Venezuela - The heads of Sinovensa and PDVSA Gas have been detained by the government over undisclosed corruption allegations. Both arrests were made by military counter-intelligence (DGCIM).
Reading List
Bloomberg - Stay Radical or Get Pragmatic? AMLO’s Party Has to Decide
LA Times - Mexicans are killing each other at record rates. The U.S. provides the guns.
Washington Post - Arsonists are torching the Amazon. This elite team of firefighters stands in their way.
NYT - Mysterious Oil Spill Becomes New Environmental Crisis for Brazil
NYT - How John Bolton Botched Venezuela
InSight Crime - Killings Reveal Longtime Cocaine Production in Guatemala
Bloomberg - Peru’s President Tries to Solve a Latin American Riddle
Washington Post - Dengue cases are surging around the world. Some blame a changing climate.
Bloomberg - A Wild Plan to Pull Gold Out of London Intrigues Maduro Officials
AP - Drug traffickers take advantage of Uruguay’s lax controls
Thanks for reading and sharing!
Good morning from Bogota. My reports on Peru and Ecuador in the past two weeks received a large amount of readers. Thanks to everyone who shared those reports with their colleagues and posted the links on social media.