Regional Pulse: 24 January 2023

Southern Pulse’s weekly review of need-to-know events curated for people who do business in Latin America.

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KEY DEVELOPMENTS

ARGENTINA

• Central Bank commits to bond buyback amid FX woes and rising inflation
• Polls suggest opposition well-positioned for presidential election
• Government ends tax incentive for lithium exporters

BRAZIL

• Government sacks alleged Bolsonaro sympathizers
• São Paulo industry association ousts its pro-Lula president
• Retail giant Americanas granted bankruptcy protection

CHILE

• Jobs market slowing
• Las Condes home to 55 of the 100 largest companies
• Government vetoes USD2.5 bln mining project over environmental concerns

COLOMBIA

• IDB backs green transition plans with USD73.5 million loan
• Industrial production up by 8.4% in 2022, but mining output down
• Guatemala to investigate Colombian defense minister for Odebrecht links

ECUADOR

• Eighteen arrested in transnational arms smuggling ring
• Gold exports grew 51% in 2022
• Public sector corruption scandal affects President’s family

MEXICO

• Crime data shows four year high in extortion rates
• AMLO claims only two Canadian mining companies affected by extortion
• Public insecurity perceptions improve slightly, but remain high
• Presidential decree ends cargo operations at Mexico City’s main airport

PERU

• IACHR to investigate firearm deaths during protests
• Over 100 roads blocked due to unrest
• Telefónica to pay historic USD854 mln fine
• President Boluarte rejects calls for constitutional assembly

KEY DEVELOPMENTS IN FULL

ARGENTINA

Central Bank commits to bond buyback amid FX woes and rising inflation

On 18 January 2023, Finance Minister Sergio Massa announced that the Central Bank (BCRA) will buy up to USD1 billion worth of Argentine sovereign bonds that are available on the international market. The funds for the buyback will come from an IDB loan and reserves kept with the IMF, so-called special drawing rights. The measure aims to curb both Peso devaluation and rising inflation, while improving the country’s credit ratings. However, newspaper Clarín reported that local brokers were skeptical about any long-term benefit, noting that the BCRA has low USD reserves and the country’s debt is high.

Polls suggest opposition well-positioned for presidential election

On 17 January 2023, pollster Zubán Cordoba reported that the opposition would win in eight out of nine run-off scenarios in the October presidential election. The leading figures from the main opposition coalition Juntos por el Cambio (JxC) are Buenos Aires Mayor Horacio Rodrigues Larreta and the president of PRO party Patricia Bullrich. In the government Peronista camp, Finance Minister Sergio Massa is the most popular figure. The anti-establishment libertarian Javier Milei appears to have consolidated his position as a third force nationwide.

Government ends tax incentive for lithium exporters

On 16 January 2023, Finance Minister Sergio Massa canceled a reimbursement scheme available to lithium exporters, nothing that it cost the government the USD170 million over the last seven years. Newspaper Ámbito reported that the government plans to use the additional revenue to finance infrastructure projects in mining provinces. The government coalition’s left-leaning wing, led by Vice President Cristina Kirchner, has been a longtime advocate for higher taxes and the development of a made-in-Argentina industrial policy in the lithium sector.

BRAZIL

Government sacks alleged Bolsonaro sympathizers

On 21 January 2023, after sacking all 54 state directors of the Federal Highway Patrol and Federal Police, President Luiz Inácio Lula da Silva replaced the Commander of the Army, amid a purge of individuals and institutions thought to have been sympathetic toward violent pro-Bolsonaro protests in recent months. Meanwhile, the electoral court, the TSE, formally opened investigations into Bolsonaro and his Vice President, retired army general Walter Braga Neto for abuse of power. If they are found guilty, they will be banned from public office for eight years. A trial date is not scheduled yet. Bolsonaro is also being investigated in other cases related to insurrection and spreading disinformation about the election.

São Paulo industry association ousts its pro-Lula president

On 20 January 2023, São Paulo state industry associate FIESP nominated its new president Elias Miguel Haddad after dismissing its former president Josué Gomes with a 47 to 1 vote earlier in the week. Website Poder360 reported that industrial associations dislike Gomes’ alleged closeness to President Luiz Inácio Lula da Silva. A majority of FIESP members claimed that Gomes did not act in their best interest when he signed a pro-democracy manifesto last year. Then-president Jair Bolsonaro saw the manifesto as a move against his government. FIESP is one of the most influential lobby groups in the country.

Retail giant Americanas granted bankruptcy protection

On 19 January 2023, a court approved a bankruptcy protection request from retailer Americanas shortly after its new CEO, Sergio Rial resigned and revealed that USD3.8 billion was missing from the company’s books. Some of Latin America’s largest banks as well as Goldman Sachs have filed lawsuits against the three founders of 3G Capital, who are major shareholders in Americanas and are some of Brazil’s richest people. The case is one of the largest bankruptcy protections in the country’s history. Amid claims of fraud, lawmaker André Fufuca, a close ally of lower chamber speaker Arthur Lira, has begun collecting signatures to start a congressional probe into possible oversight failures by regulator CVM and accounting firm PwC as well as possible financial crimes committed by 3G Capital’s owners. Americanas, a household name, has more than 100,000 employees and some 150,000 shareholders.

CHILE

Jobs market to slowing

On 20 January 2023, newspaper La Tercera reported that the job market is showing signs of a slow down, with the 7.9% unemployment rate in 4Q 2022 4Q at the same level it was during 1Q 2022. A Central Bank index that tracks online job postings was down 44% in December 2022 year-on-year. Job placement service Sence calculated there were 7% fewer job offers in December than the previous month. The most affected sector is retail, where job offers have dropped 41% since 2021.

Las Condes municipality home to 55 of the 100 largest companies

On 20 January 2023, newspaper La Tercera published its annual ranking of the 100 largest companies nationwide, revealing that more than half of them are headquartered in Las Condes municipality, which is part of the Santiago metropolitan region. The high concentration of business activity can also be seen in the country’s IPSA stock exchange, where 19 of the 27 companies on the index are registered in Las Condes. Only five companies are based outside of metropolitan Santiago. Two of those companies are in the Los Lagos southern region and produce salmon; two are in the Valparaíso region and operate a state-run refinery and a port, and one is located in the Rancagua region and makes animal protein products.

Government vetoes USD2.5 bln mining project over environmental concerns

On 18 January 2023, President Gabriel Boric’s cabinet unanimously ruled that the USD2.5 billion Dominga iron and copper mining project in the northern Coquimbo region could not proceed due to environmental risks. The project’s owner, Andes Iron, said it will appeal in court. Newspaper La Tercera noted that the lawsuits could drag on for two to four years and that an alternative for Andes Iron would be to modify the project. Business associations criticized the decision as politically and ideologically motivated because the project had previously obtained a technical environmental license. President Boric had promised in his 2021 campaign to veto the project because of risks to local biodiversity. It is the second time the Dominga project has been vetoed by a ministerial cabinet — the first was in 2017 during Michele Bachelet’s tenure.

COLOMBIA

IDB backs green transition plans with USD73.5 million loan

On 18 January 2023, the IDB announced that it will provide USD73.5 million to support government plans towards a green energy transition. At the World Economic Forum in Davos, President Gustavo Petro met with his counterpart from the IDB and agreed that USD70 million would be allocated to investments in climate-friendly infrastructure and technology, with the remaining USD3.5 million used to fight deforestation in the Amazon. The administration’s energy plans have previously received support from the international community: in November 2022, the European Development Bank agreed to support clean energy projects in the country, and in December 2022, the World Bank approved a USD1 billion loan to fight climate change.

Industrial production up by 8.4% in 2022, but mining output down

On 17 January 2023, the Department of National Statistics (DANE) reported an 8.4% increase in industrial production between November 2021 and November 2022, led by a 4.5% rise in manufacturing. However, mining output fell by 4.5%. The bad news for the sector came shortly before Energy Minister Irene Vélez announced on 19 January 2023 that no new open pit coal mines would be opened in the country. It also came as President Gustavo Petro announced that new mining projects in Antioquía would be suspended over environmental concerns.

Guatemala to investigate Colombian defense minister for Odebrecht links

On 16 January 2023, the Guatemalan Prosecutor’s Office announced it was opening an investigation into Iván Velásquez, Colombia’s defense minister, for alleged ties to scandal-ridden construction company Oderbrecht while he was leading the International Commission Against Impunity (CICIG) in Guatemala between 2013 and 2017. Velásquez has denied the charges, and President Gustavo Petro has said he will never recognize an arrest warrant against Velásquez. The Guatemalan prosecutor leading the case, José Rafael Curruchiche, is suspected of corruption by the US State Department. With relations between both countries tense, El Tiempo reports that Colombia exports non-oil, non-mining goods to Guatemala valued at USD262 million.

ECUADOR

Eighteen arrested in transnational arms smuggling ring

On 18 January 2023, 18 people were arrested in six different provinces for allegedly belonging to an organized group that smuggled weapons across the Colombian border. According to newspaper El Universo, this group was supplying weapons to Colombian guerrillas. The arrests were carried out in cooperation with the Colombian government, after both countries’ defense ministers had a phone call on 17 January. They agreed to further cross-border collaboration to stem the spread of organized crime.

Gold exports grew 51% in 2022

On 17 January 2023, the Production Ministry reported that gold exports increased by 51.5% in value through 2022, the greatest increase among all the country’s exports. The mining sector in general witnessed growth compared to 2021, with lead and copper registering a 39% increase in export value. By comparison, oil exports increased by 30%. Production Minister Julio José Prado noted that mining is becoming the third or fourth largest export sector, behind oil and shrimp.

Public sector corruption scandal affects President’s family

On 16 January 2023, the government announced it was opening an investigation into a cash-for-contracts corruption scheme which website La Posta claims was led by President Guillermo Lasso’s brother-in-law and owner of Banco de Guayaquil, Danilo Carrera. Carrera is accused of being the unofficial adjudicator of public contracts which were traded for bribes and offices, but denies all charges. Lasso announced the inquiry stating that he had “nothing to hide.” While the media spotlight is on Carrera, Hernán Luque, former president of EMCO, a public sector conglomerate tasked with coordinating state companies, is the main subject of the probe.

MEXICO

Crime data shows four year high in extortion rates

On 22 January 2023, the National Public Security System Executive Secretariat (SESNSP) published its latest crime figures, highlighting an all-time high in extortion since 2018. SESNSP defines extortion as an illegal demand for money through the use of force or threat. The SESNSP counted 10,340 extortion cases in 2022, which represents a 53.8% increase since 2018. Estado de México state reported the most extortion incidents, followed by the states of Veracruz, Nuevo León, and Jalisco.

AMLO claims only two Canadian mining companies affected by extortion

On 19 January 2023, President Andrés Manuel López Obrador reported that out of the 125 Canadian mining companies with operations in the country, only two — both located in the southern state of Guerrero — have problems due to extortion by criminal groups and that these cases were already being dealt with. President López Obrador’s comments were made as part of his public report on the results of the meetings with firms in the electricity sector — a commitment he made to Canadian Prime Minister Justin Trudeau earlier this month amid Canadian and US concerns over protectionist policies in Mexico.

Public insecurity perceptions improve slightly, but remain high

On 19 January 2023, the National Institute of Statistics and Geography (INEGI) published the latest National Urban Public Safety Survey (ENSU), which showed public perceptions of insecurity improved slightly nationwide. Some 64.2% of respondents perceived the security situation negatively compared to last year’s 65.8%. The report found Fresnillo city in northern Zacatecas state topped the list of states with the highest perception of insecurity in the country for the second consecutive year at 97.7%. In contrast, San Pedro Garza García city in Nuevo León had the lowest insecurity perception at 8.1%.

Presidential decree ends cargo operations at Mexico City’s main airport

On 18 January 2023, President Andrés Manuel López Obrador said airline cargo operations at Mexico City International Airport (AICM) would end and gave concessionaires 90 days to relocate their facilities to Mexico City’s Felipe Ángeles Airport (AIFA). López Obrador argued the capital’s airspace was saturated and terminal buildings at AICM, which is the country’s largest airport, were overwhelmed. His decree is currently under review by the National Commission for Regulatory Improvement (CONAMER), but will likely be published next week.

PERU

IACHR to investigate firearm deaths during protests

On 18 January 2023, the Inter-American Commission on Human Rights (IACHR) announced it was investigating the deaths of several protestors during the recent unrest. In a presentation to the OAS, IACHR Vice President Stuardo Ralón asked the government to carry out ballistic analysis to identify the weapons’ origin. Ralón added that the government had been collaborating with the inquiry. On 18 January a woman was shot dead during protests in the southern state of Puno, increasing the death toll to over 45 dead since demonstration began in December 2022.

Over 100 roads blocked due to unrest

On 18 January 2023, the Superintendent of Land Transport (SUTRAN) reported 106 roads were blocked by protestors. These roadblocks affect 12 provinces and include 21 national highways, with the largest number concentrated in the southeast of the country. Protestors organized a national march to Lima, which took place on 19 January.

Telefónica to pay historic USD854 mln fine

On 18 January 2023, the Supreme Court fined Spanish telecommunications company Telefónica USD854 million over alleged irregularities with its taxes in the year 2000–2001. The company budgeted the expense in 2022, but expressed its discontent with the 20-year delay in the process. Telefónica argued that over 80% of the fine was composed of interest payments, and will appeal to an international arbitration court.

President Boluarte rejects calls for constitutional assembly

On 17 January 2023, President Dina Boluarte rejected calls for a constitutional assembly to draft a new charter, claiming that the request was a pretext to justify protests and the current unrest. Boluarte argued that it wasn’t the responsibility of the executive to initiate a constitutional process. As protests continue unabated since December 2022, Boluarte’s approval rating has fallen to 19%.

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