Latin America Risk Report - 12 July 2019
AMLO's finance minister resigns and his National Guard faces controversy
In this edition
Mexico Finance Minister resigns
Brazil moves on pension reform
Subscribers received an analysis of the recent police protests in Mexico and the other controversies regarding the recent launch of AMLO’s National Guard.
Mexico Finance Minister resigns
Minister of Finance Carlos Urzua resigned with a surprisingly strong letter in which he accused President Lopez Obrador of demanding too much centralized control over decision making and said the president pushed hiring people for their political loyalty and ideology rather than their technocratic merits. Urzua was considered a moderate and technocrat. He was also a close ally of AMLO’s who had worked with him in the Mexico City mayor's office for three years.
Arturo Herrera, another economist with a reputation as a moderate technocrat who has worked with AMLO previously, was selected to replace Urzua. Herrera must now convince markets that he retains some independence from AMLO and has the ability to constrain and provide oversight over some of the president’s big and politicized spending.
AMLO is still popular with the public, with every major approval poll showing him above 60% (a recent controversial poll from Mexico Elige has AMLO under 50%, but that poll is a single outlier).
Mexico’s economy, however, faces low growth or even potential recession as well as ratings downgrades that will impact foreign investment. Urzua’s resignation appears to confirm the worst fears about AMLO’s style of governance and its impact on the country’s economic stability. Lopez Obrador’s supporters downplay the resignation by discussing how cabinet ministers change all the time, but analysts are correct to view this resignation as a leading indicator of economic and political problems to come for Mexico’s president.
Brazil moves on pension reform
Brazil’s Congress took the initial steps to pass pension reform.
Markets reacted positively to the political momentum clearly moving in favor of the long-needed pension reform. Though several steps remain before the bill is passed, an overwhelming vote in favor of reform by the lower house of Congress appeared to clear a path for the rest of the challenges to be worked out.
However, the version that passed is watered down, not including state level budgets. As we wrote two weeks ago, the political challenges with pension reform are likely to have repercussions for Brazil’s security situation in the coming years.
The house did pass perks for federal police officers (which were pushed by Bolsonaro). If also passed by the SenateThis may help with issues at the federal level including highway theft, but will not impact state and local police.
Venezuela Update
New round of negotiations. Juan Guaido and Nicolas Maduro are sending representatives to meet in Barbados for a third round of negotiations under Norway’s mediation efforts. The teams representing Maduro, Guaido and the international community all believe new elections are needed, but vast differences remains regarding the terms of those elections.
The top sticking point is the status of Nicolas Maduro. Guaido’s team demands Maduro leave before elections, though there are some reports that they may be willing to be flexible on that demand if other demands for a new electoral council and new elections are met with international verification of the process. Maduro insists he will remain president and his strongest supporters (not on the negotiating team) say new elections are not even an option. Some of the Chavistas on Maduro’s side are maneuvering and floating options for Maduro to leave power in various ways, but those efforts are not well coordinated among the various civilian and military powerbrokers. A previous attempt last month to gently transition Maduro out of power in favor of another Chavista was shut down by Maduro as soon as he received word of it.
Human rights concerns. Maduro and his allies were caught off guard by the very tough and detailed report out of Michelle Bachelet’s UN human rights office. The report described massive human rights violations including thousands of extrajudicial executions that had been covered up by authorities. The combination of content and authorship ensured this report has more impact than the many other reports written with human rights concerns. This report from the UN will help Latin American and European governments continue to justify tough measures against Maduro.
New military commanders. After a delayed military leadership shuffle, Vladimir Padrino Lopez remains the minister of defense. The fact Maduro did not or could not replace Padrino Lopez highlights the minister’s role as one of the most powerful men in the country.
The other top official to remain in power is Ivan Hernandez Dala, the head of military counterintelligence (DGCIM). There remains significant tension among the Armed Forces branches over the fact Hernandez Dala remains in his position after the controversial torture and death of a naval officer. This past week, the US sanctioned DGCIM for its role in repression.
General Alexis Rodriguez Cabello was named head of the Army. He is Diosdado Cabello’s cousin and the general perception (to the extent people can read the early tea leaves) is that he is there to balance Padrino Lopez and prevent him from conspiring against Diosdado.
Over the past seven months, Padrino Lopez coordinated the heads of the services to unify the military’s response to Guaido and the crisis in general. His key goal was to retain military unity and avoid any scenario in which parts of the security forces were fighting each other. Padrino Lopez’s first job now is to make sure Rodriguez Cabello at the Army and General Fabio Enrique Zavarce Pabon of the National Guard commit to his unwritten unity pact among the military leadership.
Interestingly, General Suarez Chourio, the previous commander of the Army and someone with a strong personal following among the troops, was not forced to retire and was instead shuffled into another top military spot (jefe de Estado Mayor de la Comandancia en Jefe). It’s a sign that there are too many top military officials to manage.
Food crisis. Multiple foreign media highlighted the growing food crisis in Venezuela. A collapse in production and imports as well as the impact of sanctions causing local fuel shortages mean that Venezuela’s lack of food is likely to increase in the coming months.
Corruption Corner
Brazil - Sergio Moro is taking a leave of absence from his job as minister of justice as controversy grows over leaked conversations suggesting he acted improperly during the Lava Jato corruption investigations and prosecutions. The Intercept continues to publish articles, most recently suggesting that Moro considered selectively leaking evidence about Odebrecht corruption in Venezuela as a way of weakening Nicolas Maduro’s hold on power. Additional reporting by more conservative Brazilian media outlets including Folha and Veja have added credibility and greater pressure to the reporting. Adding to Moro’s problems are reports that he ordered an investigation into journalist Glenn Greenwald’s finances, which many believe to be an abuse of power and an attempt at retribution over the reporting. Polling shows that while a majority of Brazilians believe Moro’s conduct to be inappropriate, support remains for Lava Jato and the anti-corruption agenda in general.
Reading List
Wilson Center - Homicides in Central America: Toward a Better Understanding of Territorial Trends, Causes, and Dynamics
Washington Post - Coca, the illicit plant that funded Colombia’s civil war, is flourishing again. Duque’s plan to destroy it is drawing opposition.
The Economist - Latin America’s state-run oil giants are struggling
Reuters - Aggressive U.S. energy policy tests ties with European allies
Shannon O’Neil, Bloomberg - Mexico Can’t Solve Its Three Biggest Crises Alone
Confidencial - The Nicaraguan Army, Ortega and the Paramilitaries
Business Insider - What the US needs to do to counter 'unprecedented' Chinese influence in its neighborhood
Thanks for reading
I spent the past few days on vacation in Michigan. In Chicago now for a week. Then on the road again.
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