Latin America Risk Report, 9 January 2019
Guatemala's constitutional crisis and strings attached to Chinese deals
In this week’s report:
Guatemala’s constitutional crisis
Chinese disputes elsewhere in the world are a warning sign for Latin America
For paying subscribers: AMLO's governing style creates a fuel shortage in Mexico
Guatemala’s Constitutional Crisis
The standoff between Guatemala’s president and the UN-backed CICIG exploded over the past week. The government detained a CICIG official at the airport for over 24 hours, then ordered the entire CICIG organization shut down. CICIG personnel have been forced to leave the country out of fear of potential arrest or attack by the Morales government.
Key points:
Guatemalan President Jimmy Morales’s orders to remove the CICIG and threats to its members have created a constitutional crisis pitting the executive against other independent government institutions. The Constitutional Court ruled to override Morales’s decision to kick out the CICIG. Additionally, the Attorney General opposed Morales’s decision to detain the CICIG official and sent police to the airport to defend the law. Morales’s corrupt backroom deals means he likely retains the support of the legislature in this fight. There are rumors the Supreme Court may rule to strip the Constitutional Court of its immunity or authority.
Military’s role: The role of security forces may determine who wins a conflict among branches of government. Elements of the military publicly back Morales while some elements of the police remain neutral and willing to follow the orders of the Attorney General and judicial system as required.
Undermining of Democratic Institutions: Morales is undermining the democratic institutions in an attempt to avoid prosecution and maintain power and influence beyond this year’s election. The CICIG has investigated Morales’s family and political party for corruption and illicit campaign finance schemes. InSight Crime outlines some of the criticisms Morales has used to justify his crackdown on the CICIG.
Electoral and Political Impact: The first round of Guatemala’s election will be held in June while the second round is tentatively scheduled for August. The CICIG mandate runs through September. This means the organization and its potential renewal are nearly guaranteed to be a top item on the political agenda in the coming months. Former Attorney General Thelma Aldana is the current leading candidate in the election because of her reputation as an anti-corruption warrior.
US’s Diminished Impact: The US’s previous support for anti-corruption efforts in Central America has weakened under the Trump administration. While Democrats in US Congress have been standing up for the CICIG, Morales’s smear campaign against the UN anti-corruption organization has successfully convinced Republicans that it should be removed.
Chinese disputes elsewhere in the world are a warning sign for LatAm
Two China articles caught my attention this week
The Globe and Mail reported thirteen Canadians have been detained in China since Huawei executive’s arrest.
The WSJ reported that China offered to use its influence to help cover up the 1MDB scandal in Malaysia in exchange for preferred treatment on infrastructure deals.
Neither of these stories directly relates to Latin America, but every government, business and analyst in Latin America should be watching how the issues play out.
China’s investments and loans are often portrayed as a “no-strings attached” alternative to loans from the US or traditional multilateral development organizations that have human rights and transparency conditions. These articles show that China’s strings and their reasons for pulling them are just different than those of the US or World Bank.
China is willing to arrest foreign citizens both in retaliation to legal actions taken against its companies and as a way to pressure foreign countries in negotiations. That should be an enormous concern for Latin American businesses looking to operate in China and Latin American governments doing deals with China. The idea that China could grab a Brazilian or Mexican business executive during trade negotiations or as retaliation for a legitimate corruption arrest is very problematic.
The Malaysia story shows China is willing to undermine large multilateral anti-corruption efforts in exchange for preferential treatment on investments. It’s possible a similar dynamic may be playing out right now with the Odebrecht investigation or with concerns about corruption in Venezuela, Ecuador or Peru. If China made this part of their negotiations in Malaysia, they have probably done it elsewhere.
Corruption Corner
Venezuela - The US Department of Treasury announced sanctions against Raul Gorrin, Claudia Diaz and others who are suspected of stealing and laundering at least $2.4 billion in corrupt money. These sanctions address corruption from years back and don’t impact the immediate political situation (but are still totally deserved). More sanctions are expected in the coming days that may hit Maduro’s current circle.
Mexico - El Universal reported that nearly one billion dollars worth of funds were diverted from the new airport project in Mexico City that the AMLO administration has since shut down. An investigation last year found Raul Gonzalez Apaolaza, the infrastructure director of the Mexico City Airport Group (GACM), directed the purchase of materials and transportation from companies and unions in which he held interests rather than putting the contracts out for bid, leading to excessive costs. Complicating AMLO’s plans to use the military to fight corruption in PEMEX and elsewhere, the contracts were directed through SEDENA.
Peru - Attorney General Pedro Chavarry resigned following a controversy in which he dismissed two prosecutors working on Odebrecht-related corruption investigations. While Chavarry claims he was a victim of a media smear campaign, anti-corruption activists viewed his resignation as a victory.
Brazil - Reuters reports that a key middleman in the current oil trading scandal was detained in the United States. Brazil is now requesting the extradition of Luiz Eduardo Loureiro Andrade on charges he served as a middleman between Vitol and Petrobras.
Reading List
AQ - Interview with Luisa Palacios on the topic of Maduro vs the National Assembly
Benjamin Gedan and Fernando Cutz, Washington Post - Maduro’s inauguration sets the stage to further isolate Venezuela’s regime
Dan Restrepo, CAP - Venezuela in Crisis: A Way Forward
Ben Raderstorf, Slate - What Trump’s critics can learn from Latin America.
Benjamin Gedan and Michael Camilleri, Miami Herald - Who will save Brazil’s democracy if Jair Bolsonaro tries to destroy it?
Lisa Viscidi and Nate Graham, Foreign Policy - Brazil Was a Global Leader on Climate Change. Now It’s a Threat.
FT - Latin America’s ‘good’ right versus ‘bad’ right
Shannon O’Neil, Bloomberg - Latin America Needs to Fix Its Education Deficit
InSight Crime - Threatened by Inquiries, Central American Elites Strike Back
WPR - Interview with Eric Olson about El Salvador’s Attorney General
Business Insider - The US military is warning that China's fishing boats are bullies and could start a war on the high seas
Bloomberg - China’s Billions Are Powering Latin America’s Tech Boom
Thanks!
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