Economics

Taking a Look at Colombia's Peace Deal Post Plebiscite

boz (James Bosworth, Southern Pulse CEO): Hi everyone

boz: On 2 October, a plebiscite on the Colombian government's peace process with the FARC failed by a very narrow margin. The government and FARC had already signed the agreement and the FARC were moving towards demobilization. The past three weeks since the referendum have been a flurry of activity as the government has worked to rescue the peace agreement and the “no” side lead by former President Uribe has tried to figure out how to manage their stunning upset victory.

We’re going to chat for the next half hour or so about the peace process after the no vote and what it means for Colombia’s future. Let me start with the first obvious question: Will Santos be able to save the peace process?

Networked Notes - 19 October 2016

Eduardo's Cunha's preventive arrest represents a potential problem for the Temer Government and the Brazilian political system as a whole. In the past week, plea deals involving Temer's close confidants and cabinet members --Eliseu Padilha, Moreira Franco and Romero Jucá-- for receiving bribes from Odebretch were leaked. Cunha's arrest puts additional pressure on these key government members, who Cunha now views as political enemies responsible for his downfall. 

Boom or Bust: The Panama Canal Expansion

Despite the myriad of budget overruns and problems encountered during the construction of the US$5.4 billion Panama Canal Expansion, many hope the expanded canal will increase annual Canal revenue from US$2.6 billion to as much as US$16 billion (Fortune). This is especially true since Cosco Shipping Panama paid US$575,545 for its inaugural trip and Hong Kong-flagged MOL Benefactor (10,000 tea) paid US$829,468 — a US$1 million fee seems likely given the canal can handle higher capacity vessels. However, not only did the Expansion open two years late, it was inaugurated (26 June 2016) during a time when global commodities and shipping have taken a hit. Crawling global trade combined with potential safety and construction issues with the canal put the Canal’s revenue rates at risk.

PPK's Peru: Financial Sector

  • After Peru’s economic growth dropped in 2015, PPK and his team have emphasized improving the economy and returning it to a target growth rate of at least 5 percent through creating policies that formalize the economy and promote sustainable growth, investment.
     
  • PPK wants to implement several tax reform policies that aim to lower taxes, simplify the laws, and improve collection rates, including gradually reducing the IGV from 18 percent to 15 percent by 2019 and providing tax incentive to small and medium businesses.
     
  • PPK will likely have to water down his economic policy proposals, especially tax reforms, to garner approval from an opposition controlled Congress.

PPK's Peru: Extractives

  • PPK seeks to reignite the Peruvian economy’s growth by increasing the value of mining exports by 25 percent, through simplifying bureaucratic processes to open mining projects and reviving stalled mining projects.

  • There are several challenges PPK will have to overcome to achieve his mining sector goals, including garnering congressional support, low commodity prices, social conflicts in areas where mines are concentrated, and illegal mining, which has a production value of US$1.3 billion.

  • The new government seeks to diversify Peru’s energy sector, with a focus on developing natural gas and expanding energy infrastructure, such as widening of the Transportadora de Gas del Perú (TGP) pipeline network and finish the Gasoducto Sur Peruano (GSP).

Venezuela: A State of Volatility

A renewal of the State of Economic Emergency Decree for another 60 days was published in Venezuela’s Gaceta Oficial on 16 May 2016. The new decree, characterized by the opposition as violating the Constitution, allows the government to take foreign policy measures to impede foreign intervention, conduct international and domestic negotiations to satisfy goods shortages (which will in turn be distributed by the national guard and the police), intervene when companies stop production, and solicit international aid for restoring the ecosystems affected by climate change (which have impacted Venezuela's energy resources), among other actions.

Networked Notes - 12 April 2016

Keiko Fujimori’s campaign was prepared and eager to take on Veronica Mendoza in a second round battle. Mendoza’s candidacy would have allowed Fujimori to use the same playbook that helped Garcia to defeat Humala in 2006, with a network of activists both in Peru and abroad already starting to link her to Venezuela’s PSUV and Hugo Chavez. Whether true or not, Mendoza’s candidacy in the second round would have shifted the narrative of the election.

Networked Notes - 15 March 2016

By Southern Pulse Staff and Network

Over the past week Southern Pulse’s correspondents have talked to the team of Brazil’s former President Lula da Silva concerning the possibility of him taking over a ministry in President Rousseff’s government. On Monday, 14 March 2016, the Brazilian media piled on, stating Lula would accept and take over the Institutional Relations Secretariat (which has no budget) or the Chief of Staff (Casa Civil--the most important position). No matter what, as soon as Lula takes his office, it will diminish the standing of President Rousseff as she competes for attention with the well-known former president. It also signals Lula will control the administration’s coalition building in Congress, to shore up Rousseff’s presidency. The news changed Brazil’s news cycle away from a historic protest on the previous day calling for Rousseff’s impeachment.

At the moment, other news drowned out the Wagner’s statement, leading to no reaction from markets. Brazil’s domestic debt--debt issued inside Brazil in Brazilian currency--represents approximately 95 percent of the total national debt, and the local tradition is to deal with this debt via inflation, avoiding internal defaults. However, that is no longer a political option, and the effects of a possible decision to use international reserves remain to be seen. 

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Two months into his term, Guatemalan President Morales remains such an unknown that there was uncertainty as to whether his new government would continue to support Taiwan or flip its support to Beijing. In the 2000s, the checkbook diplomacy between mainland China and Taiwan led to scandals in several countries. Costa Rica President Arias was questioned about projects that led to his decision to switch recognition to Beijing. El Salvador’s former President Flores faced investigations over money stolen from a Taiwan development agreement. The maneuvering between the two Chinas has toned down in recent years in Central America and the Caribbean. China has instead taken a different approach, showing a willingness to invest in countries that recognize Taiwan, most notably Nicaragua. 

Still, given the minimal information about which way Morales would lean, the new Guatemalan administration must have been a tempting target for Beijing’s consideration. There are often rumors in Central America that a government may flip sides when a new president comes to power, but the rumors have been growing stronger regarding Morales in recent weeks. With the visit of Taiwan President Ma Ying-jeou this week, President Morales’s government finally made a formal announcement that it is sticking with Taiwan for the coming four years, maintaining the current balance (or imbalance) of power in the region between the two sides.

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As the security situation in El Salvador worsens, ARENA and the FMLN are launching accusations against each other regarding negotiations with gangs. El Faro’s publication of video showing three ARENA politicians negotiating with gang members to organize votes prior to the 2014 election has blown open a key criticism the opposition party was making of the government. ARENA has spent the past few years criticizing the FMLN for the failed gang truce and has been calling for government officials involved in gang negotiations to resign. Meanwhile, President Sanchez Ceren and his administration are planning new mano dura measures to crack down further on the gangs. 

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The coming days will be a key test for Argentina’s politics. President Macri will put his financial proposals up for a vote to determine whether he can reach a formal agreement with the holdout bond holders (who the Peronists refer to as the vulture funds). Several weeks ago, a group of 17 Peronist members of Congress linked to Sergio Massa split from the Kirchner-dominated party. Nobody is certain which way that group of lawmakers will vote. Their votes will signal whether Macri has a working governing coalition in the legislature or if his policies will be blocked by the other branches of government.

February 2016 in Argentina

President Mauricio Macri is pushing forward with his agenda to change several government policies, especially with respect to economy. The Macri administration has been working closely with Mediator Daniel Pollack to resolve the holdout hedge funds problem and regain access to global financial markets. In February 2016, Argentina presented, for the first time, a formal offer to the “vulture funds” of US$6.5 billion -- the original amount claimed in 2010 when the dispute began, but 25 percent less than the US$9 billion ordered by New York Judge Thomas Griesa. 

Networked Notes - 24 February 2016

The arrest of João Santana in Brazil has brought the Lava Jato scandal much closer to President Dilma Rousseff and her campaign team. While investigators have yet to pin corruption specifically to Rousseff, the news that third party payments passed to Santana during recent campaigns could be reason to invalidate her election. This specific scandal also hits former President Lula da Silva, highlight corruption of a key ally and knocking down an important element of his potential 2018 campaign machine. More important this year, Santana’s arrest could hurt the PT’s chances in key mayoral races, particularly São Paulo.