Latin America Risk Report - 6 February 2020
Argentina’s debt, El Salvador’s security and Venezuela’s stalemate
In this edition:
Argentina - Kicillof blinks on debt negotiations
El Salvador - The government takes credit for improved security
Venezuela - Guaido ends international trip with high profile DC meetings
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Argentina - Kicillof blinks on debt negotiations
Governor Axel Kicillof announced the province of Buenos Aires will pay US$250 million to bondholders. That announcement comes right at the deadline to pay and after four extensions of the negotiations Kicillof attempted with bondholders. The payment, while seen as positive for Argentina’ economy, undermines Kicillof’s previous position of insisting the province does not have the resources to pay and suggests he was bluffing to get better terms. The province is still attempting to renegotiate as it owes another $3 billion in payments this year.
Intrigue comes from the question of whether Fernandez and Kicillof closely coordinated on this strategy or if there is internal tension within the Peronist party. An announcement by Fernandez that the federal government would not assist the province with the payments sent bond prices falling last month.
Fernandez likely benefited by learning from Kicillof’s failure. The negotiations from the province of Buenos Aires demonstrated that there are plenty of investors that will hold a hard line.
On the other hand, the loss of credibility by the Peronist governor may harm Fernandez’s ability to negotiate at the national level. Fernandez has set his deadline as 31 March, but with the province of Buenos Aires moving the line so many times before conceding, investors now have reason to doubt that the president’s two month timeline will hold firm. The federal government has already begun using its short negotiating timeline to swap bonds for later payment dates and for peso-denominated debt.
Another question bondholders should be asking is who profited from the dip. If Kicillof’s strategy was to pay all along if he did not succeed in the renegotiation, anyone who knew that could have made money in the market movements. It’s not clear if that sort of trading occurred, but if it did, it could create additional complications in the next poker round that is the national debt renegotiation.
El Salvador - The government takes credit for improved security
Bukele announced that January was the safest month since the end of the civil war in 1992. Official statistics show homicides are down. Public support for Bukele has surged on the perception of improved security. In an interview with VOA, El Salvador’s Minister of Security praised the government’s Territorial Control Plan as delivering results.
The last time crime fell so dramatically, it was the result of the 2012 pact between the Salvadoran government and the gangs. Bukele has been very critical of the gang pacts made by previous governments. This past week, the country’s attorney general accused ARENA and the FMLN of making deals with the gangs to win votes in the 2014 election. Still, many analysts Hxagon has spoken with believe Bukele has an implicit agreement with the gangs to reduce violence and that the drop in homicides can be at least partially explained by the gangs’ strategic decisions to lower the violent crime rate. InSight Crime wrote last month that a change in gang strategy likely plays a role in the declining crime rates.
Separately, Human Rights Watch published a report on the over 200 individuals since 2013 who were killed or wounded after being deported by the US. In spite of an agreement signed between El Salvador and the US, El Salvador’s foreign minister said the country will not receive asylum seekers from third countries until it has the security and technical capacity to manage the flow of people.
Venezuela - Guaido ends international trip with high profile DC meetings
Juan Guaido’s trip abroad has solidified his support in the countries that already recognize him as interim president but made few gains in terms of policies that will increase pressure on Maduro domestically or from abroad. In other words, the trip appears to strengthen the stalemate between the two sides in Venezuela.
After significant criticisms over Trump’s failure to meet with Guaido in recent weeks, Venezuela’s interim president was a last minute guest at the State of the Union. Guaido received a bipartisan standing ovation, one of the few unifying moments during the speech that highlighted the support he has from both parties in the US. An Oval Office meeting on Wednesday was overshadowed by Trump’s impeachment proceedings. Guaido has meetings today with the State Department, Speaker of the House and the OAS.
Above: Guaido meets with Mark Green of USAID
Amid Guaido’s meetings in Washington, US officials once again promised to increase pressure on Maduro, hinting at potential sanctions against Rosneft, Reliance and Repsol in the coming 30 days. There were also warnings to Venezuelan officials who may be considering detaining Guaido upon his return to Venezuela.
In Venezuela, the Maduro regime made the militia a formal part of the Armed Forces. The regime blocked the entry of officials from the Inter-American Commission on Human Rights. Maduro also appears to be further embracing dollarization while pushing the use of the Petro cryptocurrency. Reports from outside Caracas continue to indicate an economic situation that is deteriorating for the majority of Venezuelan citizens who do not have access to dollars.
Corruption Corner
Mexico - Shannon O’Neil has an excellent column on Bloomberg about Lopez Obrador’s politicization of the anti-corruption fight. AMLO looks the other way at corruption occurring within his own government while “he is chipping away at the agencies and organizations that have the best chance at bringing greater balance and accountability.” By ignoring or weakening institutions that could fight corruption, AMLO is contributing to a problem voters elected him to solve.
Region - Michael Camilleri and Catharine Christie write in America’s Quarterly that “Trump’s transactional approach to foreign policy has weakened anti-corruption measures in the region.” They point at the end of the MACCIH in Honduras and the CICIG in Guatemala as examples of where the US has backed down on anti-corruption in order to achieve other policies such as migrant accords or shifts on policy towards Israel.
Reading List
Quartz - Latin America’s new leftists are choosing oil despite renewables boom
Americas Quarterly - Can Argentina's Feminists Change Government?
Foreign Affairs - Venezuela’s Problem Isn’t Socialism
HRW - Venezuela: Violent Abuses in Illegal Gold Mines
Confidencial (Nicaragua) - Los guardianes del estado policial
Forbes - Watchdog Calls Massive Exxon Guyana Oil Lease An ‘Exploitative Deal’ As Public Referendum Looms
NYT - Dismantling Mexico’s Narco State
Reuters - Jailbreak in the 'city of blood': Brazil's drug gangs overrun Paraguay
WSJ - SoftBank Is Funding Every Side of a Bruising Startup Battle
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