Regional Pulse: 31 January 2023

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

We help our clients operate successfully throughout the region with enhanced due diligence services, risk assessments, threat monitoring, strategic advisory and executive support. Get in touch here to learn how we can help you.

KEY DEVELOPMENTS

ARGENTINA

• Brazil and Saudi Arabia promise big tick-ticket investments
• CAF provides credit amid gas shortage concerns
• State-owned nuclear company raises funds amid nuclear energy push

BRAZIL

• Leak links military to illegal mining in indigenous lands
• Mercosur to engage in FTA negotiations with EU and China
• Politicization fears after former PT senator becomes Petrobras president

CHILE

• More than one in three prosecutors threatened
• Miners switching to ocean water amid growing environmental scrutiny
• Healthcare companies open dispute with government

COLOMBIA

• Ban on O&G exploration could lead to 30% loss in investment
• Ecopetrol president to stand down in March
• Energy Minister under investigation after pledging O&G exploration halt
• Cocaine seizures reach three year high

ECUADOR

• Pipeline allegedly sabotaged by indigenous community
• Police arrest 21 in organized crime raid, including one policeman
• Anti-corruption chief resigns in the midst of corruption scandal
• Violence plagues local elections

MEXICO

• Government scrutinizes water use in mining
• Military can make arrests without informing the police
• Limited progress on commitments with Canadian firms
• Opposition pursues legal action to stop electoral bill

PERU

• Curfew extended in Puno; army to enter city
• Fifth ambassador recalled
• Production minister resigns
• Opposition tables no-confidence vote against president

KEY DEVELOPMENTS IN FULL

ARGENTINA

Brazil and Saudi Arabia promise big tick-ticket investments

On 26 January 2023, Economy Minister Sergio Massa and Foreign Relations Minister Santiago Cafiero announced a USD500 million investment by the Saudi Development Fund in energy and food projects. The news came shortly after Brazilian President Luiz Inácio Lula da Silva said Brazil’s state-run development bank BNDES would finance part of a pipeline that connects Argentina’s giant Vaca Muerta shale gas fields to central Argentina. However, Lula did not provide details on how much it would invest and which parts of the pipeline would be built with Brazilian credit.

CAF provides credit amid gas shortage concerns

On 25 January 2023, the government announced a USD540 million loan from the Latin American Development Bank (CAF) to finance gas supply to several northwestern provinces, in an attempt to curb fuel dependence from neighboring Bolivia amid supply concerns. The provinces of Catamarca and Santiago del Estero rely entirely on gas from Bolivia, which cut its sales to Argentina’s northwest by 60% last year. Media outlet Rio Negro said the loan was an emergency measure ahead of winter when usage is usually higher. No new infrastructure will be built. Instead, the intervention in the existing pipeline network will allow gas to flow from Argentina’s southern Vaca Muerta shale gas basin to the north. The alternative for the government would have been to import gas from overseas, but its Central Bank’s USD shortage makes that costly.

State-owned nuclear company raises funds amid nuclear energy push

On 24 January 2023, state-run nuclear company Nucleoelétrica Argentina raised USD30 million via a bond issuance to extend the service life of the Atucha I nuclear plant in Buenos Aires province for an additional 20 years. Nucleoelétrica hopes to raise USD600 million through six more bond tenders. The funds will be used to build a new dry storage facility and to update the plant to meet sustainability goals. The issuance comes amid plans by Nucleoelétrica to build its third nuclear plant, Atucha III, with Chinese capital, under the Asian country’s Belt and Road initiative. China had agreed to finance 85% of the project, but the construction did not begin due to lack of funding from the Argentine side.

BRAZIL

Leak links military to illegal mining in indigenous lands

On 27 January 2023, the newspaper Folha de São Paulo unveiled internal government documents that suggest illegal miners were aided by corrupt military forces who were meant to protect gold-rich indigenous lands in the Amazon. Local media also reported that gold illegally extracted from indigenous lands was sold to Europe and to the US. Brazil’s government recently imposed a state of emergency in indigenous Yanomami land due to widespread famine among its residents. The Federal Police are now investigating if the Bolsonaro administration encouraged the famine after it reportedly ignored multiple warnings about the situation. Indigenous organizations have filled a genocide complaint against the former president at the International Criminal Court.

Mercosur to engage in FTA negotiations with EU and China

On 27 January 2023, President Luiz Inácio Lula da Silva declared in a joint statement with Uruguayan counterpart Luis Lacalle Pou that the Mercosur customs union will join Uruguay’s free trade agreement negotiations with China. However, Lula called for Mercosur to first conclude its FTA with the European Union, which stalled due to EU concerns over Brazil’s noncompliance with environmental protections in the Amazon. China is the largest trade partner for all Mercosur members, while the EU is one of the top importers of South American commodities.

Politicization fears after former PT senator becomes Petrobras president

On 26 January 2023, the board of state-run oil giant Petrobras approved Jean Paul Prates, a former senator from the Workers Party (PT), as the company’s new president. News channel CNN Brasil reported that investors fear the new administration will appoint directors involved with party politics. In past PT governments, this overlap was a source of mismanagement and graft at the company. Petrobras’ new president will oversee its four year strategic plan which calls for investments totalling USD78 billion.

CHILE

More than one in three prosecutors threatened

On 27 January 2023, radio station Bio Bio reported that 35% of public prosecutors nationwide have been threatened due to the criminal investigations they are carrying out. The news comes as local media coverage points to crime becoming more violent. Earlier in the week, the PDI investigative police identified the body of a 38-year old US tourist who was shot to death after a robbery in the Yungay neighborhood, a popular zone in downtown Santiago where President Gabriel Boric lives. In 2022, the PDI registered a 32% uptick in homicides compared to the previous year.

Miners switching to ocean water amid growing environmental scrutiny

On 25 January 2023, the Mining Ministry projected that by the end of the year, 71% of the water used in Chilean mines will come from desalinated ocean water, rather than freshwater sources that also supply households. Mining companies are doubling down on extracting water from the ocean to meet both the market’s increasing environmental demands and to address the country’s lasting drought. Last year, the Santiago metropolitan region had water rationing.

Healthcare companies open dispute with government

On 24 January 2023, the US-holding UnitedHealth Group (UHG) started dispute resolution proceedings with the government over the financial crunch that many healthcare companies face in Chile. Earlier in the week, the Supreme Court ruled that companies must refund clients for what it deems to be the excessive charges that were made since the beginning of the COVID-19 pandemic. UHG claims that recent judicial decisions stopping healthcare companies from raising their fees and the government’s failure to reimburse private providers for alleviating demand on the public sector means the sector is facing a crisis. If the dispute resolution talks fail, the case may end up before a World Bank ICSID arbitration tribunal.

COLOMBIA

Ban on O&G exploration could lead to 30% loss in investment

On 26 January 2023, the Autonomous Committee of Fiscal Policy (CARF) published a report estimating a 30% drop in investment in the oil and gas sector as a result of the announced policy to halt all new exploration. According to CARF, this reduction in investment could slash the number of oil barrels exported by 55% in 2030, compared to a scenario where no ban is implemented. Hydrocarbons make up 3.3% of Colombia’s GDP, and 40% of its exports.

Ecopetrol president to stand down in March

On 26 January 2023, the president of state-owned oil company Ecopetrol, Felipe Bayón, announced that he would be resigning on 30 March 2023. Bayón took over the position in 2017, but newspaper El Tiempo reports his replacement had been planned since Gustavo Petro became president in August 2022. A government source told financial newspaper Portafolio that Bayón was pressured by the executive to resign from his position. This is the latest reshuffle affecting the energy sector, after the energy vice-minister and the director of hydrocarbons were asked to resign in early January 2023.

Energy Minister under investigation after pledging O&G exploration halt

On 26 January 2023, the Prosecutor’s Office opened an investigation into Energy Minister Irene Vélez after she shared a press release calling for a halt to new oil and gas exploration that allegedly contained forged signatures. The press release was published on 24 January to support Vélez’s remarks at the World Economic Forum in Davos on 19 January when she first called for an end to new hydrocarbon projects. Officers within the ministry say their signatures were forged on the press release. President Gustavo Petro has supported Vélez’s statement, but Finance Minister José Antonio Ocampo has said the question of exploration is still being discussed in the government.

Cocaine seizures reach three year high

On 24 January 2023, the Defence Ministry revealed that in 2022, over 617 tonnes of cocaine were seized by law enforcement, the highest amount since 2019. On the other hand, there was a decrease in the amount of marijuana seized — down slightly from around 490 tonnes in 2021 to 485 tonnes in 2022. Experts have warned that increased seizures do not necessarily correspond with a reduction in production. President Gustavo Petro is being encouraged by some academics to change the methodology used to measure the fight against drug-trafficking.

ECUADOR

Pipeline allegedly sabotaged by indigenous community

On 27 January 2023, state oil company Petroecuador reported that one of its pipelines in the province of Orellana had been sabotaged by the Dicaro indigenous community. According to Petroecuador’s estimate, the company is losing 1,000 barrels of oil daily due to the incident. Petroecuador claims it received a letter from the Dicaro community requesting compensation for the flow of oil through their land. The letter stated that until that happens, “not a single drop of oil should flow through our territories.”

Police arrest 21 in organized crime raid, including one policeman

On 26 January 2023, Interior Minister Juan Zapata announced a successful raid against organized crime with 21 arrests, among them a policeman. According to the investigation, the latter was providing criminal organizations with information regarding police inquiries. Violence has been escalating in the run-up to the 5 February municipal elections.

Anti-corruption chief resigns in the midst of corruption scandal

On 23 January 2023, Anti-Corruption Prosecutor Luis Verdesoto tendered his resignation after handing a report to President Guillermo Lasso on a recent cash-for-contracts corruption scandal affecting public sector administration company EMCO. Verdesoto said he was resigning because he had fulfilled his task and it was now up to President Lasso to act on the information he had provided. The office of the Anti-Corruption Prosecutor was created in May 2022 and Verdesoto was its first director. According to an investigation by news outlet La Posta, Lasso’s brother-in-law Danilo Carrera was at the helm of the EMCO corruption scheme.

Violence plagues local elections

On 21 January 2023, a mayoral candidate for the city of Salinas, Julio César Farachio Drouet, was assassinated by two gunmen for unknown reasons. He is the third candidate to be murdered in the run-up to provincial and municipal elections on 5 February. Newspaper El Universo reports there have been at least 15 attacks on candidates or their entourages since the election campaign began in August 2022. Some 5,567 municipal and provincial posts are open for election on 5 February.

MEXICO

Government scrutinizes water use in mining

On 24 January 2023, the Environment Secretary María Luisa Albores launched the Geographic Information System to better monitor the relationship between mining activities and water reservoirs. The information platform was developed by the Institute of Water Technology (IMTA) and retrieves information from the public registry of water rights (REPDA) on water concessions granted to mining companies.

Military can make arrests without informing the police

On 24 January 2023, the Supreme Court ruled that the armed forces do not need to advise civilian police when they make arrests as long as they register them in a shared computer system. The ruling caused significant public criticism due to the armed forces’ record of human rights violations, its comparative lack of training for civilian arrest procedures, and limited knowledge of standardized crime reporting. Last year, the Supreme Court upheld a constitutional reform that permits the military to continue in law enforcement duties until 2028, ruling against appeals that argued law enforcement should be left to the police.

Limited progress on commitments with Canadian firms

On 23 January 2023, Economy Secretary Raquel Buenrostro reported that two out of the five Canadian energy firms she had met no longer had pending electricity problems, but made no comments on security concerns. Her remarks come after President Andrés Manuel López Obrador promised to address issues raised by Canadian Prime Minister Justin Trudeau on behalf of Canadian companies earlier in the month. These issues include reports of extortion, power supply problems and unease over “discriminatory” Mexican energy policies.

Opposition pursues legal action to stop electoral bill

On 23 January 2023, the three largest opposition parties (PAN-PRI-PRD) filed a lawsuit before the Supreme Court against President Andrés Manuel López Obrador’s electoral reforms. The president’s reforms seek, among other things, to loosen regulations related to electoral campaign financing and would permit government officials to campaign while in office. The Supreme Court will have to resolve all lawsuits by June this year for any changes to take place before the 2024 presidential election.

PERU

Curfew extended in Puno; army to enter city

On 26 January 2023, newspaper El Comercio revealed that the army was moving to the southern city of Puno to quell recent protests. The move came a day after the city’s curfew was extended for an additional 10 days. Since December 2023, protests have concentrated in Peru’s south, with over 55 protestors reported dead.

Fifth ambassador recalled

On 26 January 2023, the government indefinitely recalled its ambassador to Honduras after Honduran President Xiomara Castro described former Peruvian president Pedro Castillo as the country’s “legitimate” president. This is the fifth ambassador recalled amid ongoing criticism of the government’s handling of the recent protests. Ambassadors in Argentina, Bolivia, Colombia and Mexico have already been recalled after the countries’ governments expressed support for Castillo. Mexico’s ambassador to Peru was expelled on 20 December 2023 after he allegedly offered asylum to the former president.

Production minister resigns

On 25 January 2023, Production Minister Sandra Belaúnde tendered her resignation, becoming the third cabinet member to step down since President Dina Boluarte took office in December 2022. According to sources from newspaper La República, Belaúnde disagreed with the government’s handling of the recent protests that have affected the country since December 2022. Belaúnde had been in her post for a month.

Opposition tables no-confidence vote against president

On 25 January 2023, legislators from left-wing parties Perú Democrático, Cambio Democrático, Perú Libre and Perú Bicentenario tabled a no-confidence motion against President Dina Boluarte. They argue that the high protestor death toll in recent weeks has rendered the president “morally incapable”, a charge recognized in the Peruvian constitution as grounds for removal. This is the first motion of no-confidence announced against President Boluarte, and will need the backing of at least 52 legislators to pass. Her predecessor, Pedro Castillo, was removed by a motion of no-confidence in December 2022.

Wherever you do business in Latin America, Southern Pulse has the expertise, the network, and the relationships to help solve your toughest operational challenges. Want to learn more? Let’s chat.

CC BY-ND