Regional Pulse: 28 February 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

• Canadian mining company to sue La Rioja province over lithium regulation
• Center-right Buenos Aires mayor will run for president
• Government to curb bird flu spread

BRAZIL

• Lula wants to mediate peace talks between Russia and Ukraine
• São Paulo state experiences land invasions
• Historic rainfall hits the coastal area of São Paulo state

CHILE

• USD30 billion in capital exited in the last three years
• Chile and New Zealand sign agreement on legal framework for investment
• Nicaraguan dissidents offered residence and citizenship

COLOMBIA

• Ecopetrol proven oil reserves reach 8-year peak
• Political reforms raise risk rating
• Senators request no-confidence vote against Energy Minister

ECUADOR

• Oil exports suspended for two weeks due to landslide
• Former president Lenín Moreno indicted in corruption case
• Violent deaths increased 66% in January 2023

MEXICO

• Thousands march to support National Electoral Institute
• Energy regulator’s draft bill jeopardizes project permits
• President promises tax incentives for investments in the Isthmus of Tehuantepec

PERU

• Former president Alejandro Toledo’s extradition order temporarily suspended
• Oil and gas royalties grew 49% in 2022
• Temporary corridor opened to supply Las Bambas copper mine

KEY DEVELOPMENTS IN FULL

ARGENTINA

Canadian mining company to sue La Rioja province over lithium regulation

On 23 February 2023, Fenix radio station reported that Canadian mining company Origen Resources will file a lawsuit against the government of La Rioja province over its decree that suspended lithium exploitation for 120 days. Origen Resources says that the decree is unconstitutional. The company discovered lithium in the Los Sapitos salt flat last autumn and the provincial government granted it authorization to mine on the 58,900-acre area. In the last legislative session of 2022, however, the legislature — where governor Ricardo Quintela has a majority — passed a bill declaring lithium a “strategic resource”, allowing the local government to halt all projects. According to Argentina’s 1994 constitution, minerals belong to the provinces.

Center-right Buenos Aires mayor will run for president

On 23 February 2023, Buenos Aires Mayor Horacio Rodriguez Larreta launched his presidential candidacy amid a crowded contest within the opposition Juntos por el Cambio (JxC) coalition. Larreta presents himself as a market-friendly technocrat with a record of public works projects. Larreta’s PRO party has two other prominent figures as pre-candidates: conservative congresswoman Patrícia Bullrich, who has a message of law and order, anti-corruption, and cutting government spending, and former president Mauricio Macri, who has yet to announce whether he will compete. The second largest party in the opposition is UCR, which has two pre-candidates: governor of the Jujuy province Gerardo Morales, who is targeting support from countryside voters, and congressman Facundo Manes, a neurosurgeon with a platform of education and empathy to overcome polarization. Polls suggest that most voters plan to vote for the JxC coalition. The primary elections are scheduled for 13 August.

Government to curb bird flu spread

On 21 February 2023, Finance Minister Sergio Massa announced a USD5 million effort to control bird flu after eight cases were confirmed on Argentine territory. The Agriculture Ministry will enforce inspections in the provinces of Santa Fe, Jujuy, Salta, Córdoba, and Entre Ríos, as well as on the border with Uruguay, where there are also confirmed cases. Argentina exports USD350 annually in poultry products. A spread of bird flu could damage government revenues and increase inflation.

BRAZIL

Lula wants to mediate peace talks between Russia and Ukraine

On 23 February 2023, newspaper O Globo reported that President Luiz Inácio Lula da Silva seeks to be the mediator of a peace deal between Russia and Ukraine. Moscow looked positively on Lula’s refusal to sell tank ammunition to Ukraine, despite diplomatic pressure on him from the US and Germany. In addition, Brazil did not join the US-led sanctions against Russia. Lula has said in recent weeks that developing countries and China must take a role to end the war. Lula will meet China’s President Xi Jinping in Beijing at the end of March. Brazil, Russia, and China are members of the BRICS bloc.

São Paulo state experiences land occupations

On 20 February 2023, the far-left peasant movement Frente Nacional de Luta (FNL) occupied farms in 12 cities in São Paulo state to draw attention to their demands for land redistribution. The police removed the FNL protesters from most of the farms and prevented them from blocking roads in the region. At one farm, in the neighboring Mato Grosso do Sul state, land owner’s security personnel shot at FNL members, although no one was hurt. Agribusiness lobby groups call the FNL’s campaign “criminal actions’’ that hurt property rights. Veja magazine noted that land conflicts pose a challenge for left-wing President Luiz Inácio Lula da Silva, who historically supported such peasant movements, as he attempts to have a closer relationship with conservative São Paulo Governor Tarcisio Freitas, who was part of former President Jair Bolsonaro’s cabinet.

Historic rainfall hits the coastal area of São Paulo state

On 19 February 2023, the coastal cities of São Sebastião and Bertioga in the state of São Paulo were hit by the most severe rainfall in Brazil on record. The floods and landslides left 64 dead and thousands of houses destroyed. The coastal area affected is a popular tourist destination for residents of the São Paulo metropolitan area during this time of year due to the carnival holiday. The 683 millimeters of rain that was recorded in only 15 hours is the equivalent of three months of rain for the region on average. Newspaper Valor reported that climate change is making rainfalls more extreme, and Brazilian cities are not prepared for extreme climate events.

CHILE

USD30 billion in capital exited in the last three years

On 21 February 2023, newspaper La Tercera reported that the Chilean economy has lost roughly USD30 billion in capital flight since 2020. The outflow stems from investors’ uncertainty over regulation in recent years as well as events such as a constitutional redraft in 2021 that proposed a sharp departure from the current market-friendly constitution. Separately, the government has proposed tax reforms that would charge higher levies on corporate profits and individual incomes. In addition, investors took funds out of the country as the government repeatedly authorized withdrawals from private pension funds during the pandemic. Chile last had a net capital inflow in 2017.

Chile and New Zealand sign agreement on legal framework for investment

On 21 February 2023, Chile’s participation in the free trade agreement TPP-11 (CPTPP) entered into force. On that same date, the Economic International Relations Subsecretariat (Subrei) reported that Chile signed a bilateral side letter with New Zealand to allow private companies to sidestep the trade deal’s dispute settlement mechanism in favor of using national courts from each country in the case of lawsuits. The move aims to facilitate trade. Chile will also sign similar agreements with Mexico and Malaysia.

Nicaraguan dissidents offered residence and citizenship

On 21 February 2023, President Gabriel Boric was the first leader in the region to offer the right of residence and citizenship to a group of Nicaraguan dissidents whom the government of President Daniel Ortega stripped of citizenship. The Boric administration once more departed from other left-wing administrations of large Latin American countries in the strength of its criticisms of the Ortega government’s actions. At his presidential inauguration last year, Boric vetoed the participation of Nicaraguan government members and instead invited a dissident to attend the ceremony. Contrary to Chile’s stance, the presidents of Brazil, Mexico, Argentina, and Colombia have rarely condemned human rights abuses in Nicaragua, although Argentina, Mexico, and Colombia also offered dissidents citizenship.

COLOMBIA

Ecopetrol proven oil reserves reach 8-year peak

On 24 February 2023, state oil company Ecopetrol announced that its proven oil reserves had reached 2,011 million barrels in 2022, the highest figure in eight years. By comparison, proven oil reserves in 2020 amounted to 1,770 million barrels. According to Ecopetrol, these proven reserves would be exhausted in 8.4 years if extraction rates remain at current levels. Earlier this year the Energy Ministry announced a suspension of further oil and gas exploration in the country, creating uncertainty in the sector. Some weeks later, Ecopetrol’s CEO Felipe Bayón declared that he would leave the company on 31 March 2023. Both announcements were followed by a drop in the price of Ecopetrol bonds.

Political reforms raise risk rating

On 23 February 2023, National Bank Co-Director Jaime Jaramillo Vallejo warned that Colombia’s credit risk rating had increased. Although Jaramillo did not provide specific data, he highlighted an increase in credit default swaps, which he interpreted as a sign of waning confidence in the Colombian economy. According to a report published by Bloomberg on the same day, the country’s assets fell in value — causing the currency, bonds, and stocks to decline sharply — due to the government’s recently announced health, energy, and pension reforms.

Senators request no-confidence vote against Energy Minister

On 22 February 2023, 24 senators from the opposition parties Cambio Radical and Centro Democrático presented a motion of no confidence against Energy Minister Irene Vélez. The group argued that Vélez’s recent statements and policies threatened the country’s “fiscal sustainability and energy independence”. In recent months, Vélez has announced the suspension of further oil and gas exploration. She backed the decision with a report whose authenticity was challenged by ministry officials. This is the second motion of no confidence launched against Vélez since taking office in 2022. The first was defeated in a vote in December 2022. Vélez is currently under investigation by the General Prosecutor’s Office for allegedly forging the signature of officials in the report that justified the halting of further exploration.

ECUADOR

Oil exports suspended for two weeks due to landslide

On 23 February 2023, Energy Minister Fernando Santos announced that oil exports would be suspended for an estimated two weeks after a landslide in the Amazonian province of Napo disrupted the main pipelines in the country. Santos expects repairs to take between seven and 10 days. Ecuador currently exports around 300,000 barrels of oil daily. This is the third time since 2020 that the government has had to halt oil exports due to landslides in the region.

Former president Lenín Moreno indicted in corruption case

On 22 February 2023, the Supreme Court indicted former president Lenín Moreno and 36 others, among them close relatives of Moreno, for alleged involvement in a corruption case surrounding the construction of Coca Codo Sinclair hydroelectric plant, built between 2010 and 2016. The Prosecutor alleges that Moreno received bribes to support the project. The plant was built by Chinese company Sinohydro, whom the Prosecutor accused of supplying USD76 million in bribes to those indicted. Among the latter is a former Chinese ambassador to the country, as well as several Sinohydro officials. Moreno, who has lived in Paraguay since 2021, has not responded to the charges. Since Ecuador and Paraguay have an extradition treaty, Moreno could be brought back to Ecuador if the Prosecutor decides to arrest him.

Violent deaths increased 66% in January 2023

On 22 February 2023, the National Police published its crime statistics for January 2023, revealing a 66% increase in the number of murders compared to January 2022, from 307 deaths to 511. Of this latter figure, 91% of the victims were killed with a firearm. Most violent deaths (83%) occurred in Guayaquil, which, on the same day the National Police statistics were released, was included for a second consecutive year in a list of the 50 most dangerous cities in the world published by the Mexican NGO Citizen Council for Public Security and Criminal Justice. It moved from 50th position in 2021 to 24th in 2022 and is the only Ecuadorian city on the ranking. According to investigative outlet InSight Crime, Guayaquil has been at the center of a violent dispute between drug trafficking organizations.

MEXICO

Thousands march to support National Electoral Institute

On 26 February 2023, thousands of protesters marched peacefully across various state capitals to protest against the political-electoral law reforms proposed by President Andrés Manuel López Obrador that aim to restructure the National Electoral Institute (INE) by cutting its budget and reducing its staff ahead of the presidential elections in 2024. Governors allied to President López Obrador claimed that the number of protestors was relatively small, for example Mexico City Head of Government Claudia Sheinbaum claimed there were only 90,000 in the capital’s main square, while organizers maintained that participation reached at least 500,000 protesters. The president’s bills were approved in Congress but were almost immediately challenged by the Supreme Court, which will have to deliberate before 2 June on whether the laws jeopardize the country’s democracy.

Energy regulator’s draft bill jeopardizes project permits

On 23 February 2023, the Energy Regulatory Commission (CRE) published a draft bill that seeks to limit the amount of project applications processed to only one application monthly per company, with limitations for specific industries. According to the bill, CRE will only receive 50 applications per month in hydrocarbons, 15 in electricity, and 120 for electronic pre-registration. The bill would severely restrict the number of applications that CRE receives monthly and limit the ability of existing and new entrants to update applications, since they would be required to file and submit a new application later. If approved by the National Commission of Regulatory Improvement (CONAMER) and published in the Official Journal of the Federation (DOF), the bill could come into force on 1 March 2023.

President promises tax incentives for investments in the Isthmus of Tehuantepec

On 23 February 2023, President Andrés Manuel López Obrador announced that the federal government will offer tax incentives such as exemption from income (ISR) and value added (IVA) tax reductions for winning companies of the bidding process for 10 industrial parks in the Isthmus of Tehuantepec corridor — an investment of over USD1 billion. President López Obrador announced this because he seeks to incentivize economic growth in the region, where his administration is building three ports and a railway track to connect the Pacific with the Atlantic ocean under a federal agency called “Interoceanic Corridor of the Isthmus of Tehuantepec” (CIIT), though the administration of some ports has recently been transferred to the Navy (SEMAR). For construction supervision, he announced a tour of the region with US legislators on 19 March 2023 and one with US Climate Envoy John Kerry on 21 March.

PERU

Former president Alejandro Toledo’s extradition order temporarily suspended

On 23 February 2023, California Judge Laurel D. Beeler suspended the extradition order of former president Alejandro Toledo for a week, following a “request for a temporary stay”. Toledo is accused by the Peruvian Prosecutor’s Office of receiving an estimated USD35 million in bribes from construction company Odebrecht during his tenure. While Toledo’s extradition was initially approved on 22 February 2023, Toledo argued that his safety could not be guaranteed in Peru due to the recent political unrest. Following Beeler’s ruling, Toledo can appeal his extradition, in which case he will remain in the US until his appeal is resolved. Toledo is the latest in a long list of former presidents arrested or indicted: current president Dina Boluarte is under investigation for genocide, while her predecessor Pedro Castillo is awaiting trial for allegedly subverting the constitutional order in December 2022.

Oil and gas royalties grew 49% in 2022

On 23 February 2023, the employer’s association in the mining and energy sector (SNMPE) announced that the value of royalties paid by oil and gas companies to the state in 2022 had increased by 49% from the previous year. According to the SNMPE, companies paid an estimated USD1.84 billion in royalties, compared to USD1.24 billion in 2021. Royalty payments slumped during 2020, when the yearly value was USD432 million, due to the effect of the pandemic.

Temporary corridor opened to supply Las Bambas copper mine

On 22 February 2023, Reuters reported that a temporary corridor had been agreed between protestors and the management of Las Bambas copper mine in the southern department of Apurímac. Both sides are expected to engage in a series of meetings over the following weeks to formalize the arrangement. Las Bambas was forced to suspend operations between 1 and 10 February 2023 due to blockades that interrupted the supply flow to the mine. It has since been operating at a reduced capacity. Around 2% of the world’s supply of copper is extracted from Las Bambas, which is managed by Chinese company MMG.

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