Latin America Risk Report - 20 February 2020
Protests in the DR; Argentina economic negotiations get rough
I’m back from four nights in the Amazon jungle. There are a lot of dolphins in that river.
In this edition:
Argentina - Fernandez government takes harder line
Dominican Republic - Protests after municipal election problems signal potential challenges for later this year
Venezuela - Sanctions on Rosneft; oil industry shakeup; irregular security force activity
Argentina - Fernandez government takes harder line
The IMF statement published on Argentina suggests that private bondholders will take a significant haircut in order to help the country regain its economic stability. The key line is “IMF staff now assesses Argentina’s debt to be unsustainable.” Both FT and Bloomberg provide more context for the current discussions.
The Fernandez government has taken an increasingly hard line against private bondholders since the province of Buenos Aires folded on its negotiations and agreed to make its payments. The IMF statement was almost exactly what the government was hoping for and comes after some anti-IMF rhetoric from Vice President Fernandez de Kirchner that appeared to be endorsed by President Fernandez and Economy Minister Guzman. The government hopes to play the IMF against the private bondholders, forcing both sides to make concessions.
However, private bondholders are unlikely to bend easily. Enough bondholders appear to be prepared for a lengthy battle against the Fernandez government that an agreement by the government’s self-imposed March deadline is very unlikely.
Dominican Republic - Protests after municipal election problems signal potential challenges for later this year
The Dominican Republic municipal election was halted after a problem with the electronic voting system. Protesters demanded the resignation of the country’s electoral board while President Medina called for calm. The country will hold new municipal elections on 15 March with all paper ballots.
In the presidential election, scheduled for 17 May, the opposition has a narrow lead thanks to a divide in the governing coalition. While polling is scarce, the election appears on track for a very tight result (more on this in a future report).
The protests this week demonstrate doubts about the veracity of the voting system. This raises the potential for additional protests after the May vote or June runoff. Additionally, the next president may enter office with doubts about his legitimacy, casting a shadow over the coming term.
Venezuela - Sanctions on Rosneft; oil industry shakeup; irregular security force activity
The United States announced sanctions against Rosneft Trading SA, the Swiss subsidiary of Russian oil firm that moves a significant portion of the oil exports for the Maduro regime. The action was finally implemented after over a year of Rosneft being the main method by which the Maduro regime was evading US sanction against PDVSA.
Maduro announced Tareck El Aissami will lead a new commission to restructure PDVSA. Given El Aissami’s reputation for corruption and drug trafficking as well as the sanctions against him, Maduro’s choice to have him lead the commission is an attempt to demonstrate he is not giving in to sanctions. At the same time, sources noted the lack of Diosdado allies on the commission as they discussed the internal power struggle that is occurring over PDVSA resources.
In a widely circulated video on social media, CICPC and FAES fought each other. One credible report suggests that CICPC detained a FAES commander accused of abuses and FAES worked to rescue him.
A new Reuters investigation shows that FAES personnel include convicted criminals who served time in prison for homicide.
Separately, reports last week suggested Venezuelan Army units were patrolling border areas in coordination with the ELN. Part of the justification was to take on Rastrojos elements that were contesting the area for control. The reports of ELN activity in Venezuela occurred as the terrorist group announced a “paro armado” in Colombia over the weekend.
Corruption Corner
Mexico - The WSJ reported that former President Peña Nieto is under investigation for his role in the corruption scandal that is targeting former Pemex head Lozoya. The former president is unlikely to be prosecuted until Lozoya is extradited from Spain, a process that will be tied up in the courts for months. The news comes after a difficult week for Lopez Obrador, who faced tough questions from reporters at his morning press conferences about corruption within the current ranks of the federal government and at the state and municipal levels within the Morena party.
Panama, Cayman Islands - The EU placed Panama and the Cayman Islands on its list of tax havens. In the case of Panama, the EU cited the lack of information sharing. For the Cayman Islands, the EU alleged that most companies are set up there to evade taxes in other jurisdictions, without having any legitimate local economic activity.
Reading List
Inter-American Dialogue - The Long Road: Supporting Venezuelans through an Uncertain Future
FT - Venezuela: refugee crisis tests Colombia’s stability
Reuters - Haiti political morass fuels growing crisis of hunger, malnutrition
NYT - President Bukele, Brute Force Is Not the Way Forward for El Salvador
Al Jazeera - Brazil's gangs: Militias expanding control in Rio de Janeiro
AP - Brazilian Senator shot amid tumult of striking police force
Reuters - Argentina's energy bust spawns 'ghost town' in prized Vaca Muerta
Americas Quarterly - How Coronavirus Poses New Risks to Latin America's Sputtering Economies
Thanks for reading
Here is a giant snail just outside our cabin in the Amazon. We saw lots of mosquitos, spiders, giant freshwater fish, and so many dolphins. I fished for piranhas and ate them. While I avoided discussing politics, I also listened as many locals discussed the impact climate change is having on the local environment and their lives. It was a great time. I appreciate readers’ patience while I was totally off the grid for a few nights. I’ll be catching up with additional reports and analysis over the coming week.