Latin America Risk Report - 14 November 2019

Bolivia is still protesting and other protesters view Bolivia's "success" as a model.

Nov 14, 2019

Welcome to the Latin America Risk Report

Next week, the Latin America Risk Report will hit one year. Thanks to everyone who has subscribed and helped support this newsletter.

In this edition:

Bolivia - Protests continue and long term outlook is pessimistic
Regional protests - Success creates an expectation of success
Mexico - Ransomware attack hits Pemex

Bolivia - Protests continue and long term outlook is pessimistic

My report on Monday said the post-Morales transition would be difficult. Continued protests and violence are likely, the opposition will face internal division, and Morales’s MAS party will attempt to delegitimize the transition government and the next administration.

Incidents of violence continue from both the pro- and anti-Morales sides. Of particular concern are reports that anti-Morales protesters and some security forces have targeted indigenous protesters and their symbols.

While Jeanine Añez has been recognized as president by the anti-Morales coalition and a number of foreign governments, the pro-Morales crowd continues to view her ascension to the presidency as a coup. On the positive side, Añez has replaced the head of the military and is working towards calling new elections.

I have an article in Foreign Policy about the challenges facing the next administration in Bolivia. History plus a series of factors regarding the current transition create a pessimistic outlook for whomever is elected president. “Morales’s successor will need to put aside personal ambition, make sure the military and police remain under civilian control, be willing to build a broad ideological coalition, and find a way to turn political opponents into responsible opposition parties.”

Also worth reading are the report from International Crisis Group, an interview with Evo in El Pais, and this article from Jim Schultz, an expert who lived for 20 years in Bolivia. For those who can’t get enough debate about whether or not this was a coup, read this article from Leiv Marsteintredet and Andrés Malamud and this balanced piece from the NYT which reflects my views in many ways.

Regional protests - Success creates an expectation of success

Back in 2011, I helped with a research project on understanding protest movements, government repression, and how information about protests and repressions spreads across borders and impacts other protest movements. Among the conclusions was “success creates an expectation of success.” Protesters are more likely to take to the streets - and remain on the streets for longer - if they see another protest movement succeed. While there are some global effects, the effect is particularly pronounced if the successful protest occurs in a neighboring or nearby country.

Going forward, that conclusion matters for Latin America given the success that protesters have seen:

Protests in Ecuador forced a rollback of the fuel subsidy cuts.
Protests in Chile have led to a promised rewriting of the constitution (though not via a constituent assembly as many wanted, so protests continue).
Protests in Bolivia, in combination with an OAS report about electoral fraud, police defections, and a “suggestion” from the military, led to the resignation of President Evo Morales and a transition government.

There were plenty of protests in Latin America and the Caribbean this year prior to October. In particular, Venezuela, Honduras and Haiti all experienced rather large and highly visible protests, but none of those regimes fell nor did they give much ground in terms of policy. There were smaller scale protests in many countries around the region to mixed effect.

Then, the regional narrative changed with Ecuador. The significant successes in the protests in October and November is one reason protests are likely to continue and expand in other countries. Protesters see success and they want to replicate it.

Protests scheduled for Friday in Ecuador want to double down on forcing Moreno to change his economic policies.
Much of the propaganda for the national strike in Colombia scheduled for 21 November includes lines about joining the success in Ecuador and Chile.
In Venezuela, the various online discussions organizing the protests this Saturday are definitely referencing the events in Bolivia.

There are still plenty of differences among the countries. As FranciscoToro and I wrote in our op-ed in the Washington Post last week, there isn’t a unifying ideological thread or narrative that unites all the anti-incumbent anger around the hemisphere. Citizens have different specific demands. Governments will react differently on the acquecense to negotiation to repression scale, with some responding by giving carrots to the protesting groups while others will attempt to violently repress them. As presidents involve their militaries and police forces in responses to these protests, the decisions those security forces make will shape whether other governments fall. The expectation of success created by neighboring movements may help encourage protests, but local conditions and individual government responses will define whether each protest succeeds or fails.

I’m speaking at DC Analysts’ Roundtable on Monday about the protest wave in Latin America. I hope to see some of you there.

Mexico - Ransomware attack hits Pemex

Pemex was hit with a ransomware attack that left a significant number of its financial related computer systems offline. Several media reports suggested that the attack was a variation of DoppelPaymer. The group that attacked Pemex appears to specialize in ransomware against large corporations and government offices, though Pemex is almost certainly the largest company that they’ve ever hit.

Pemex says they are refusing to pay the bitcoin ransom that amounts to about US$5 million. While the company claims the attack only impacted a small number of their systems, many employees are locked out of their computers and some wifi networks while the company attempts to restore the software and data.

For Pemex, there is a real threat that they will not fully clear out the malware or patch the flaw in their system that allowed the attacker in. This ransomware attack is likely to draw additional attempts in the near future.

Regionally, the attack highlights the growing threat of ransomware attacks to Latin American companies and governments. Many government systems run on older software that has not been patched. Most municipal governments and many national ministries around the region do not have backup systems prepared in case a ransomware attack takes place.

Venezuela Update: Ships going dark to evade sanctions

Both AP and Bloomberg report on how ships of Venezuelan oil are turning off their transponders in order to evade sanctions. Last week’s report for paying subscribers described sanctions evasion as key to Maduro’s remaining in office since the beginning of this year. However, while sanctions evasion efforts and support from Russia have bought Maduro some additional time, his hold on power continues to weaken.

Corruption Corner

Mexico - Pemex may be accused of accounting fraud under US law due to their failure to report payment obligations to service providers.

Mexico - The Washington Post highlighted the disappearance of Eduardo Leon Trauwitz, a military general assigned to pipeline security at Pemex during the Peña Nieto administration. Accused of fraud and having failed to secure pipelines, his case is among the highest profile corruption cases that the AMLO government has attempted to move forward.

Honduras - A report from ConfidencianHN claims President Juan Orlando Hernandez and the National Party rigged over four billion lempiras (well over US$150 million) worth of government contracts to help fund their 2017 campaign. (hat tip to Jordana Timmerman’s newsletter for highlighting this article). It’s not clear if all of that money went to the campaign, nor does that figure include any money from drug trafficking. The report documents several large government contracts that were directed to money laundering fronts that appear to be linked to the National Party. Meanwhile, the OAS has announced a new oversight audit on the MACCIH that will be rushed through as the anti-corruption organization faces questions about its renewal.