In this issue:
Ortega increases repression following Nicaragua sanctions
AMLO’s budget underfunds his promises
Potential no-confidence vote in Guyana
For paying subscribers: Analysis of Colombia-Venezuela border security issues
Ortega’s response to recent US sanctions has been to double down on repression
Citizens who participated in anti-Ortega protests continue to be detained by authorities and harassed by pro-Ortega paramilitary groups.
Ortega’s supporters have moved to shut down multiple NGOs including CENIDH, a well known human rights organization in the country.
The police raided and occupied the offices of Confidencial, an independent media outlet critical of Ortega. They broke or stole the computers in the office as well as assaulted several journalists there.
Businesses operating in Nicaragua should expect increasing sanctions in the coming year.
The Trump administration has launched targeted sanctions against Ortega’s inner circle including his wife and vice president.
Sanctions against Nicaragua have gained widespread bipartisan support in recent months in response to Ortega’s violent repression of opponents.
The recently passed NICA Act in Congress will expand targeted sanctions as well as block loans from multilateral organizations (IMF, IADB, World Bank) to Nicaragua.
There is no easy way out of the cycle of sanctions and repression.
Ortega deserves to be sanctioned, but sanctions are unlikely to pressure him to change course.
The biggest challenge with the sanctions is they provide Ortega with no exit strategy. While proponents of sanctions hope they pressure him to negotiate, without an exit to the sanctions, Ortega has little reason to give up any power or change his behavior.
One lesson from the past eight months has been that repression works. Ortega has largely succeeded at shutting down the protests that threatened his government’s stability.
That “success” has come with an economic cost to the government and a major increase in suffering for the Nicaraguan people.
That means the economic and human rights situations are likely to get worse in the opening months of 2019.
More reading on Nicaragua:
Arturo Cruz, Wilson Center - How To Understand the Nicaraguan Crisis
Moises Rendon, CSIS - Lessons from Venezuela for Nicaragua
USA Today - House OK’s bill to impose sanctions against Nicaraguan officials who violate human rights
Dánae Vílchez, Washington Post - Ortega continues to suffocate protests and the press in Nicaragua
The Guardian - Ortega condemned for 'rule by terror' after raids in Nicaragua
Inter-American Dialogue Event, 20 December - Attacks on Press Freedom and Civil Society in Nicaragua
AMLO’s budget is more economically responsible than expected. That is bad news for his big, bold promises.
All eyes were on the first budget of Andres Manuel Lopez Obrador. How would the president’s promises of improved security, universal education and increased healthcare be balanced against his advisor’s insistence of macroeconomic orthodoxy? The answer is that nearly everything AMLO promised is underfunded, with his energy populism being the big exception.
Good news: A largely responsible budget. AMLO’s budget has a primary surplus around 1% of GDP and assumes a modest 2% growth rate. The IMF expects Mexico’s economy to grow about 2.3% in 2019 and local banks have similar predictions.
For all the criticisms of AMLO, at a macro level his budget is in some ways more responsible than his predecessor’s. EPN’s advisors assumed an over 3% growth rate in his first budget only to fall significantly short in 2013 when growth was only 1.4%. They underperformed again in 2014 when growth was 2.8%, almost a point below their predictions. Peña Nieto ended up adding to the country’s deficit, contributing to rising inflation and a much weaker peso, even as his loyal economists predicted success over and over again.
Bad news: Security underfunded. The overall security budget appears to be 12% less than in 2018, including 9% less for the Navy, 9% less for the Federal Police, 12% less for the Attorney General’s office, and 17% less for the financial intelligence unit. That final stat is shocking given how much attention Lopez Obrador’s advisors have placed on their plans to target criminal finances. For all the talk of demilitarization, the Army will see an 11% increase in their budget. There is no budget for AMLO’s planned National Guard force.
Central Theme: Underfunded promises. As with security, many of AMLO’s signature policies are underfunded including his health and education proposals. Many analysts believe that he will increase spending over the course of the year in order to win over various interest groups who expect the president to fulfill his promises. For now, this budget framework will leave a lot of AMLO’s base of supporters disappointed even as the market has reacted positively.
The exception: Energy populism. As he plans to undo EPN’s energy reforms, AMLO is promising full funding for his multi-billion dollar refinery in Tabasco. The budget also includes a 30% increase for oil exploration by Pemex with the expectation the firm can increase production by 50% in the coming six years. As they say online: “Big, if true.” The reality is that Pemex, even if given a major budget increase, lacks the personnel and equipment to do the sort of drilling that would reach those production goals. That’s why Peña Nieto agreed to allow in the foreign firms. AMLO’s nationalistic energy plan will likely lead to disappointing results and further debt for the state firm.
Guyana President’s health threatens government stability
Guyana President David Granger has undergone two rounds of chemotherapy in Cuba after being diagnosed with non-Hodgkin lymphoma last month. The People’s Progressive Party (PPP) is threatening a vote of no-confidence and may be able to win on a technicality if it is timed correctly. The government’s coalition only has a one-vote margin and the PM cannot vote if he is the acting president while Granger is out of the country. A successful no-confidence vote would trigger elections in early 2019.
Corruption Corner
Lava Jato hits foreign oil traders in Brazil
Vitol SA, Trafigura AG, Mercuria Energy Group, and Glencore Ltd are accused of providing over US$30 million in bribes to Petrobras employees in exchange for contracts. Among the schemes, the companies used middlemen to negotiate oil sales at better than market prices, with Petrobras employees pocketing some of the difference while the company lost money.
Brazilian investigators claim some of the crimes took place in the US and UK, which could expand the prosecution and present a much larger risk to the companies than a prosecution just in Brazil.
The charges also hint that Marcio Pinto Magalhaes continued his bribery of Petrobras officials while at PetroChina, where he now works.
Reading List
Joe Biden, Americas Quarterly: The Western Hemisphere Needs U.S. Leadership
Foreign Policy - Pay to Stay?
The Economist Having wrecked the economy, Venezuela’s rulers see no reason to change
Andrew Selee, Axios - With isolationism on the rise, Colombia bets on welcoming the displaced
WSJ - Why Does Your Coffee Taste Like Tires? A Battle Brews Between Beans
NYT - Mexico’s Strategy for Dealing With Trump: Warn Him About China