Regional Pulse: 14 March 2023

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KEY DEVELOPMENTS

ARGENTINA

• Government to hold debt swap with national creditors
• State oil company YPF announces historic profit, but its situation is not comfortable
• President Fernández to send federal law enforcement to Rosario

BRAZIL

• Country needs USD31 billion in energy investments in the next ten years
• Retail giant’s bankruptcy might drag down rest of the economy
• Government programs to increase government spending

CHILE

• Two dead in a robbery attempt at Santiago International Airport
• Congress rejects president’s tax reform proposal
• Second Constitutional Assembly in two years to start its work

COLOMBIA

• Miners’ strike paralyzes Bajo Cauca region
• Conflicts proliferate in oil and mining areas
• Oil exports fall in January 2023

ECUADOR

• Damage to oil pipelines causes USD105 million in lost revenue
• Electric sector needs USD13 billion in private funding
• State oil company wants to process oil in foreign refineries

MEXICO

• Health authority backtracks on marijuana permits
• Thousands of women march in annual demonstrations
• Kidnap of four US citizens sparks political turmoil

PERU

• Las Bambas copper mine reopens
• Central Bank estimates a 4% drop in GDP due to protests
• Military bombs illegal mining machinery on border with Ecuador

KEY DEVELOPMENTS IN FULL

ARGENTINA

Government to hold debt swap with national creditors

On 9 March 2023, Finance Minister Sergio Massa announced a debt swap agreement that accounts for 64% of a portion of local currency-denominated government debt that was due for payment in June 2023. The creditors — Argentine private banks, provincial governments, and state-run companies — will receive their payments instead in 2024 and 2025 in exchange for one of two options, whichever gives the higher return to creditors: either the central government will adjust its payments for inflation between the original and new payment date or payments will be calculated according to the fluctuating value of the peso against the dollar during that time. The total amount of Argentina’s national government debt in local currency is equivalent to USD44 billion. The renegotiation of the debt’s payment grants a passing relief to macroeconomic conditions amid the electoral cycle. Media outlet La Política Online noted that it would have been impossible for the government to pay the short-term debt.

State oil company YPF announces historic profit, but its situation is not comfortable

On 9 March 2023, state-run oil company YPF announced a record profit of USD5 billion in 2022. However, as EconoJournal noted, the company’s production of 503,300 barrels of oil per day is still 10% lower than its historic peak registered in 2014. Another sign of YPF’s exposure to international economic cycles and local macroeconomic imbalances is that most of the company’s revenue is in local currency, putting the company in a fragile position if the Argentine peso loses value.

President Fernández to send federal law enforcement to Rosario

On 8 March 2023, President Alberto Fernández announced the deployment of 400 officers from the military style federal police force Gendarmería to Rosario in response to the outcry sparked by a shooting at a supermarket owned by soccer star Lionel Messi’s in-laws. Gendarmería currently has 1,000 men patrolling the city. The government also said that it will send 600 cameras to help local police identify criminals and that the army engineering battalion will do public work projects in impoverished suburban neighborhoods most affected by the growing violence in the city.

BRAZIL

Country needs USD31 billion in energy investments in the next ten years

On 9 March 2023, state-run Energy Research Company (EPE) reported that the country will need investments of USD9.5 billion in power transmission lines and USD22.4 billion in gas pipelines and LNG regasification terminals by 2032. EPE says that the expected growing supply of solar and wind power plants in the northeast region must be followed by transmission lines connecting them to the agribusiness belt in the central west region and Brazil’s most populous region, the southwest. As for pipelines, the current infrastructure is highly concentrated along the coastline, and EPE foresees the need to build three additional LNG regasification terminals at ports and to take the gas supply to the countryside of the south, central west, and north. Poder 360 media outlet noted that there are no guarantees that the projects will be built.

Retail giant’s bankruptcy might drag down rest of the economy

On 8 March 2023, former Central Bank director Tony Volpon said that the bankruptcy of retail giant Americanas might lead to a recession in the first half of 2023 if the company fails to pay banks and providers. Volpon said that there are early signs of a credit crunch due to a growing sentiment of risk aversion in the financial market. In Congress, lawmaker André Fufuca, a close ally of Speaker Arthur Lira, gathered enough support to start a congressional committee to investigate the alleged USD8 billion financial fraud that caused the bankruptcy. Fufuca says that Americanas has USD3.4 billion in debt with Brazilian banks and 5,800 small and medium businesses as providers, which could go unpaid if Americanas defaults.

Government programs to increase government spending

On 6 March 2023, news outlet Poder360 reported that the Luiz Inácio Lula da Silva administration has announced a government program that increases spending, on average, every seven days. Lula campaigned in 2022 on a platform of fostering welfare programs and giving the government a more active role in the economy. This year, the administration has maintained subsidies for gas; increased the monthly minimum wage to USD253; raised the income tax threshold; increased stipends for scientists and university students; restarted the housing program Minha Casa Minha Vida; and increased the Bolsa Família monthly basic income cash-transfer to USD115. All of these initiatives will increase government spending by USD38.3 billion this year. Investors fear that more government spending might lead to a worsening sovereign credit rating, while the Lula administration hopes to boost revenues through a tax reform yet to be sent to Congress.

CHILE

Two dead in a robbery attempt at Santiago International Airport

On 8 March 2023, a security officer and one thief died during an attempt to steal USD32 million in cash from a truck on the runway of Santiago’s international airport. Nine criminals managed to escape after the failed robbery attempt. They beat and disarmed a Directorate General of Civil Aviation (DGAC) guard to access the airport’s runway, where they clashed with other DGAC officers, one of whom was killed. They intended to steal the money while it was being unloaded from an armored truck into a Latam Airlines airplane. Bio Bio radio reported that shots hit the back of a Delta Airlines airplane. Interior Subsecretariat Manuel Monsalve said that the criminals were well armed and highly organized, which is consistent with descriptions of train and port robberies in recent months.

Congress rejects president’s tax reform proposal

On 8 March 2023, Congress’s Lower Chamber rejected the government’s tax reform proposal. The proposal was two votes short of what was necessary to start the discussion phase, as the right-wing opposition and even some members of the ruling left-wing coalition rejected it. The government intended to increase its revenues by 3.6% of GDP in order to finance a boost in social policies, including a monthly universal basic income of USD310 and free access to nurseries for young children. La Tercera newspaper called it the greatest political defeat of the Gabriel Boric presidency. The government can still send the proposal to the Senate, but it would need the support of two-thirds of Senators, which seems unlikely given the opposition’s resistance to the initiative.

Second Constitutional Assembly in two years to start its work

On 6 March 2023, the committee of experts of the new constitutional assembly unanimously elected and swore in center-left Verónica Undurraga as president and center-right Sebastián Soto as vice president. The local media noted that the inauguration ceremony was sober, in a contrast with that of the previous constitutional assembly, suggesting that the new attempt to replace the current constitution might include more alliances from wide parts of the political spectrum as opposed to being propelled by the left and independents. The committee includes 24 experts appointed by political parties, half by the government coalition and half by the opposition. The committee will turn in a draft constitution that is the basis for work by a group of popularly elected members of the assembly, who will be chosen in a 7 May vote.

COLOMBIA

Miners’ strike paralyzes Bajo Cauca region

On 11 March 2023, Defence Minister Iván Velásquez Gómez announced that the army had destroyed four dredges allegedly operated by illegal miners linked to the Cártel del Golfo, in the Bajo Cauca region in northeastern Antioquía. Miners have rejected the charges and claimed to be operating small-scale operations that seek legal recognition. They have been on strike since 2 March 2023, blockading roads in the region, which has isolated an estimated 300,000 inhabitants and affected 12 legal mining companies. Government representatives are negotiating with miners to secure a compromise on legal recognition and environmental standards.

Conflicts proliferate in oil and mining areas

On 7 March 2023, the Colombian Oil and Gas Association (ACP) reported that the number of blockades and protests affecting oil and mining areas of the country had increased significantly since 2021. According to the ACP, 67% of blockades in the country take place in the provinces with the highest oil and mining activity (Casanare, Meta, Putumayo, and Santander). Furthermore, the number of blockades increased by 36% between 2021 and 2022. Most recently, Emerald Energy, an oil and gas company controlled by Chinese conglomerate Sinochem, has requested the suspension of operations in the Ombú block in the Caquetá department (southern Colombia) due to the recent protest, which resulted in the kidnapping of 79 police officers and the death of one of them. Oil and mining contribute around 7.4% of GDP, according to the National Statistics Office (DANE).

Oil exports fall in January 2023

On 6 March 2023, the National Statistics Office (DANE) reported that exports had fallen by 2.8% in the month of January 2023. The fall was most significant within the oil sector, with Colombia exporting 11.3 billion oil barrels in January 2023, 17.4% less than in January 2022. Overall, oil exports represent 54.6% of total sales, and the main destinations for exports are the US (22.9%), Panama (9.9%) and China (7.2%). In January 2023, the energy ministry announced that it would cease all new oil and gas exploration activities in the country, as part of their broader policy to transition away from fossil fuels.

ECUADOR

Damage to oil pipelines causes USD105 million in lost revenue

On 10 March 2023, the Regulation and Control Agency for Non-Renewable Energy and Natural Resources (ARCERNNR) reported an estimated USD105 million in lost revenue following the temporary closure of oil pipelines due to landslide damages. The two main pipelines in the country were shut down between 22 February and 1 March, during which no oil was exported, resulting in 1.7 million barrels of lost exports. The pipelines only recovered their usual rate of production on 8 March. The closure in February was the third time since 2020 that the government has had to halt oil exports due to landslides damaging infrastructure.

Electric sector needs USD13 billion in private funding

On 9 March 2023, newspaper Primicias reported that the government is currently developing a number of major electricity-producing projects, which require over USD13 billion in foreign investment. Around 50% of the necessary investment (close to USD6.5 billion) will be destined for new electricity-producing projects. The government is aiming to prioritize hydroelectric and renewable energy, with a view to begin construction of the new facilities between 2023 and 2027. Primicias, however, noted that the bidding process of several of these projects had faced long delays. The Energy Ministry chalked these up to necessary legal changes to create a welcoming environment for private investment.

State oil company wants to process oil in foreign refineries

On 6 March 2023, state oil company Petroecuador announced its intention to process oil in foreign refineries to provide cheaper fuel for the population. According to Petroecuador, fuel imports in 2022 totalled USD7.6 billion, a dramatic increase of 69% in value from 2021. They argue that the move could translate into a 30% reduction of the price of fuel. However, refining oil abroad would require a legal reform. Ecuador currently imports 70% of its fuel.

MEXICO

Health authority backtracks on marijuana permits

On 10 March 2023, the Federal Commission for Protection against Health Risks (COFEPRIS) authorized the Canadian company Xebra Brands to grow, process, produce, and market marijuana for industrial purposes. However, members of COFEPRIS filed a legal injunction against the resolution two days later because “the permits represent a risk to the health of the population”. In a press release, the institution clarified that the permits were given because otherwise the institution would have been liable to fines, as the judiciary had previously instructed COFEPRIS to resolve pending permit applications started in 2021.

Thousands of women march in annual demonstrations

On 8 March 2023, thousands of women participated in the annual nationwide 8M rallies, commemorating International Women’s Day. The largest gathering took place in Mexico City, where the Secretary of the Interior and Secretary of Citizen Security estimated participation at 90,000 protesters. After the march, no deaths or serious injuries were reported, and the police in the capital managed to dissuade groups whose aim was to vandalize various points in the main square of the city. Meanwhile, the Rescue and Medical Emergencies Squadron (ERUM) provided medical attention to 37 people for issues such as sunstroke, bruises, and sprains.

Kidnap of four US citizens sparks political turmoil

On 7 March 2023, northern Tamaulipas state’s Governor Américo Villarreal confirmed that security officers found two US citizens kidnapped in Matamoros alive and two dead. US institutions, including the White House, the FBI, and the State Department, condemned the incidents. As a response, US legislators from the Republican Party have called for the intervention of military forces into Mexico to mitigate drug production and trafficking into the US. The proposal has met a strong backlash from President Andrés Manuel López Obrador, Mexican governors, legislators, and politicians alike, who accused them of interventionism. Foreign Minister Marcelo Ebrard announced a week-long trip to Washington D.C. to instruct members of the diplomatic corps on how to “defend themselves against attacks from the Republican Party”. Meanwhile, President López Obrador warned that he will begin an information campaign to limit the Hispanic vote for the Republican Party in the US.

PERU

Las Bambas copper mine reopens

On 11 March 2023, Energy Minister Óscar Vera announced in an interview with newspaper El Comercio that the Las Bambas copper mine, in the region of Apurímac, had reopened. The mine, operated by MMG, had been forced to close on 1 February after protestors in the region blocked supply routes to the facility. Las Bambas is a major operator in the copper sector, extracting around 15% of Peru’s copper and 2% of the world’s total.

Central Bank estimates a 4% drop in GDP due to protests

On 7 March 2023, the president of the Central Bank (BCR) Julio Velarde, estimated that the impact of recent unrest in the country would translate into a fall in GDP for the month of January 2023 of around 4.4%. Velarde explained that the BCR initially estimated 3% GDP growth for January but is now predicting a reduction of 1.4%. Velarde, however, pointed out that a recovery in the mining sector could improve national performance. The country has been experiencing severe social unrest since December 2022 when former president Pedro Castillo was impeached by Congress for unconstitutional behavior.

Military bombs illegal mining machinery on border with Ecuador

On 6 March 2023, the army announced that on 27 February it had successfully bombed and destroyed mining equipment owned by Ecuadorian illegal miners on the Peruvian side of the border between both countries. The attack took place near the Ecuadorian town of Macará. According to the Peruvian military, they informed their Ecuadorian counterparts and arrested 10 Ecuadorian nationals in the operation. According to investigative outlet InSight Crime, 28% of the gold from Peru — which is the largest producer in Latin America — is extracted illegally.

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