Regional Pulse: 4 April 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

• Fernández goes to Washington with eyes on the IMF and lithium
• Far-right activists aim firearm at a left-wing party headquarters
• Former president Macri drops out of the presidential race

BRAZIL

• Gradual fiscal adjustment plan received with mixed feelings
• Brazilian exporters to use Chinese currency in bilateral trade
• Spain’s Aena to sign concession of Congonhas Airport

CHILE

• Opposition pushes bill easing self-defense for police
• Canada’s Lundin Mining to double its copper production in the country
• China’s Tianqi wants larger control over mining giant SQM

COLOMBIA

• ELN ambush kills nine soldiers
• Oil production predicted to fall in 2023
• Bogota prototypes green hydrogen-powered public transport

ECUADOR

• President Lasso authorizes possession of firearms for civilians during state of emergency
• Suspect in high-level embezzlement case found murdered
• Constitutional court approves Lasso’s political trial
• Oil production reaches 20-year low

MEXICO

• MORENA party ally appointed as new electoral body president
• Central bank continues raising interest rates to control inflation
• US to send ultimatum to Mexico on energy policies
• Fire in migrant station sparks political controversy among presidential favorites

PERU

• Ambassador to Colombia withdrawn
• Over 200,000 possible daily oil barrels discovered off the coast of Trujillo
• Two new mining projects could increase copper production by 50%

KEY DEVELOPMENTS IN FULL

ARGENTINA

Fernández goes to Washington with eyes on the IMF and lithium

On 30 March 2023, President Alberto Fernández met his counterpart Joe Biden at the White House. Media outlet Cenital reported that Fernández was pursuing two strategic objectives with the meeting: First, to seek support from the US government, the International Monetary Fund’s (IMF) largest shareholder, to relax payment terms of the agreement Argentina has with the IMF. Second, the United States is the largest buyer of Argentine lithium, but this position could be threatened by the Inflation Reduction Act, which provides advantages for mineral imports for countries that have free trade agreements with the United States, such as Chile and Australia.

Far-right activists aim firearm at a left-wing party headquarters

On 28 March 2023, Libertarian sympathizers uploaded a video on the internet in which they aim a firearm at a leftist-party headquarters. In the video, the hooded activists describe themselves as far-right and give the Nazi salute. The episode took place in La Plata, the capital city of Buenos Aires province. After the assassination attempt on Vice President Cristina Kirchner in September 2022, local media reported on far-right cells operating in La Plata. Libertarian party presidential candidate Javier Milei, who is third in polls, uses violent rhetoric against the left and has endorsed denialist theories about human rights violations during the last military dictatorship in the country, which lasted from 1976 to 1983.

Former president Macri drops out of the presidential race

On 26 March 2023, conservative former president Mauricio Macri announced that he will not seek the presidency in November’s elections. Macri is the main figure of the largest opposition bloc Juntos por el Cambio (JxC), however, he has faced contenders within his party, such as Buenos Aires mayor Horacio Rodríguez Larreta and his PRO party’s president Patricia Bullrich. Local analysts noted that Macri is giving up on his presidential aspirations because he is roundly rejected by voters according to a wide array of opinion polls. Commentators from both sides of the political spectrum, such as Iván Schargrodsky, identified with Peronism, and Carlos Pagni, closer to the opposition, agreed that Macri’s announcement is bad news for the ruling Peronist party and the left-wing Vice President Cristina Kirchner, given that Macri’s public rejection was the strongest talking point the government had to offer in the electoral campaign.

BRAZIL

Gradual fiscal adjustment plan received with mixed feelings

On 30 March 2023, Finance Minister Fernando Haddad and Planning Minister Simone Tebet presented the government’s proposal to adjust the fiscal situation. The plan foresees a gradual adjustment of public accounts, reaching zero deficit in 2024 and a surplus in 2025. As of today, public debt is roughly 78% of GDP, a level considered high for an emerging market, and by 2023 the government projects a deficit of 1% of GDP. The gradualist plan has been received with mixed feelings by local analysts: on the one hand, many observers celebrate that the government says that it will pursue a fiscal adjustment, with spending growing less than expenditures, but on the other hand, Minister Haddad has yet to detail how he will raise revenues to meet the fiscal rules.

Brazilian exporters to use Chinese currency in bilateral trade

On 29 March 2023, UOL website reported that the Central Banks of Brazil and China signed an agreement in which Brazilian exporters can sell their products to the Chinese market using the yuan instead of the dollar. The Finance Ministry’s secretary of international affairs, Tatiana Rosito, said that the measure will lower transaction costs in bilateral trade. The measure is not mandatory, but a Chinese bank will be chosen by Beijing to operate in Brazil and provide liquidity for operations in reais and yuan. China has the same system with Chile and Argentina. On the same day, another agreement was announced that will allow Brazilian banks to participate in the payment system in the Chinese financial market.

Spain’s Aena to sign concession of Congonhas Airport

On 29 March 2023, the state-run airport company Infraero signed a concession contract with Spanish group Aena for 11 airports, including Congonhas in São Paulo, one of the busiest in the country. Despite the signing, Aena must pay USD480 million within two weeks. After that, there will be a transition period and Aena will start managing Congonhas airport in 3Q 2023. The bidding was done last year, during Jair Bolsonaro’s government, which was more favorable to foreign investments. There were rumors in the local press that the new leftist administration of President Luiz Inácio Lula da Silva would cancel the deal, which did not occur.

CHILE

Opposition pushes bill easing self-defense for police

On 29 March 2023, the Lower Chamber approved a bill that makes it easier for police to use their weapons under the legal presumption of having acted in legitimate self-defense. The Nain-Retamal bill is named after two police officers who were recently killed, and it was passed amid public outrage over rising crime and public scrutiny of the government of President Gabriel Boric. The conservative opposition sponsored the initiative and says that Boric fails to defend the police due to his record of criticism of the police’s human rights abuses and his electoral platform of police reform. While part of the ruling coalition voted in favor of the opposition’s legislative initiative, the bill met with strong resistance among parliamentarians on the left of the coalition. The initiative will likely be approved in the Senate, where the opposition holds most of the seats.

Canada’s Lundin Mining to double its copper production in the country

On 29 March 2023, Canada’s Lundin Mining acquired 51% of the Caserones mine, from Japan’s JX Nippon Mining & Metals Corporation, for USD950 million. Lundin will pay an upfront USD800 million and the remaining USD150 million will be deferred in installments over six years. The acquisition will double Lundin’s copper production in Chile. The Caserones mine is located in the Andean mountains near the border with Argentina, in the northern Atacama region.

China’s Tianqi wants larger control over mining giant SQM

On 28 March 2023, newspaper La Tercera reported that China’s Tianqi, owner of 23% of mining giant SQM, will request to lift the restrictions agreed with the state antitrust body (FNE) on its participation in the management of the company. In 2018, Tianqi bought its share in SQM, which was China’s largest investment in South America that year. The agreement between Tianqi and the FNE prevented the Chinese firm from fully exercising its position as a shareholder, such as not being able to elect directors, executives, or employees of its company to SQM’s board of directors, nor to request access to commercially sensitive information of SQM, such as investments, costs, and future projects. SQM is Chile’s largest company measured by market capitalization.

COLOMBIA

ELN ambush kills nine soldiers

On 29 March 2023, ELN guerrillas ambushed and killed nine soldiers in the western region of Catatumbo, near the border with Venezuela. Another nine soldiers were injured. Following the attack, President Gustavo Petro recalled the negotiation team that is currently in Mexico seeking a ceasefire agreement with the ELN back to Colombia for “consultations”. While the government has denied that this attack will result in an end in negotiations, it is a severe blow to the peace process, according to analysis from newspaper El Espectador. Since coming to power in August 2022, Gustavo Petro’s government has set out “total peace” with all armed groups as one of its priorities.

Oil production predicted to fall in 2023

On 27 March 2023, the Chamber of Oil Services CAMPETROL projected a decrease in oil production for the year 2023. According to CAMPETROL, the slowdown of the world economy, combined with political uncertainty and security issues in oil-extracting regions, will see production reduced by around 2.5% compared to 2022, down to a monthly average of 735,000 barrels per day. Furthermore, CAMPETROL estimated that the value of oil exports in 2023 might fall by USD4 billion compared to the previous year, and oil’s overall contribution to GDP could decrease by around 3.9%. Hydrocarbons represent around 3% of Colombia’s GDP.

Bogota prototypes green hydrogen-powered public transport

On 27 March 2023, the minister of energy, along with the CEO of state oil company Ecopetrol and the mayor of Bogota, unveiled the prototype of a new public-transport bus powered by green hydrogen. The bus has an electric engine powered by a hydrogen cell, with its only residue being water. The vehicle has a range of 450 km, and according to Energy Minister Irene Vélez it will be the first of its kind as part of a fleet that in time will be deployed to all cities in the country. The prototype is the result of an ongoing project by the Energy Ministry, Ecopetrol, and manufacturer FANALCA, valued at around USD4.3 billion.

ECUADOR

President Lasso authorizes possession of firearms for civilians during state of emergency

On 1 April 2023, President Guillermo Lasso announced in a speech that civilians will be allowed to carry weapons for personal defense, following a particularly violent weekend in the area known as Zone 8 (comprising the city of Guayaquil and surrounding municipalities). Along with this measure, President Lasso decreed a state of emergency and curfew for a period of 60 days in the same region.

Suspect in high-level embezzlement case found murdered

On the night of 31 March 2023, the body of Rubén Cherres, along with three others, was found in the coastal resort of Punta Blanca in Santa Elena (around 134 km west of Guayaquil). Cherres had been a fugitive since January 2023, prosecuted for having a leading role in the “Encuentro” embezzlement case, in which he allegedly distributed state jobs to clients with Lasso’s approval. President Lasso is facing a political trial for these accusations. Following a particularly violent weekend in the broader Guayaquil region, Lasso decreed a state of emergency in the region and allowed civilians to carry firearms for self-defense.

Constitutional court approves Lasso’s political trial

On 29 March 2023, the Constitutional Court approved the political trial initiated by Congress against President Guillermo Lasso for embezzlement of public funds. The motion against President Lasso needed approval by a majority of the Constitutional Court in order to move on to its voting in Congress. The president will now be allowed to make his defense in Congress, before the chamber decides on whether to present a motion of no confidence — these steps are to be scheduled in the coming weeks. The motion would have to be approved by 92 legislators to pass. Lasso is accused of involvement in a corruption scandal involving widespread graft in state companies.

Oil production reaches 20-year low

On 28 March 2023, news outlet Primicias reported that oil production had dropped to a 20-year low. Current production rates stand at an average of around 459,757 barrels per day, a level last seen in 2003. The drop in production is due to two main factors: natural phenomena affecting infrastructure and a rise in social unrest in the oil-producing regions of the Amazon. According to José Luis Fuentes, from the Americas University (UDLA), the underlying reason for the unrest is state oil company Petroecuador’s lack of funding, which causes it to renege on agreements reached with Amazonian communities, severely straining relations.

MEXICO

MORENA party ally appointed as new electoral body president

On 31 March 2023, Guadalupe Taddei Zavala, who is a relative of at least three public servants in the ruling administration, was appointed by lot in the lower house as the new president councilor of the National Electoral Institute (INE) for the next nine years. Among her relatives working in the ruling administration are her cousin, Jorge Taddei, superdelegate of the federal government in Sonora, and her nephew, Pablo Taddei, the director of the state-owned enterprise Litio MX. Taddei Zavala was one of the six candidates whose closeness to the ruling MORENA party was questioned by members of the technical committee that evaluated the candidates. Likewise, Rita Bell, Arturo Castillo, and Jorge Montaño (Tabasco’s Electoral Crimes Prosecutor and close to Interior Secretary Adán Augusto López) will be part of the General Council of the electoral body. The president of the opposition PAN party, Marko Cortés, announced that he will challenge Taddei and Montaño’s appointments given their links with MORENA.

Central bank continues raising interest rates to control inflation

On 30 March 2023, the country’s central bank, Bank of Mexico (Banxico), raised interest rates by 25 points, bringing them to 11.25%. This is the smallest increase to Banxico’s interest rate since November 2021, and is as part of the upward cycle that seeks to combat inflation. This new interest rate offered some relief to inflation in the first two weeks of March. However, inflation is at an average of 7.6%, which is still far from the central bank’s 3% target. Banxico’s upward cycle (which has already seen 15 hikes) is expected to continue in 2023. The decision puts Banxico back “in tune” with the US Federal Reserve, which also raised its interest rate by 25 basis points just last week.

US to send ultimatum to Mexico on energy policies

On 28 March 2023, the news agency Reuters reported that the US government is ready to send an ultimatum to the government of Andrés Manuel López Obrador to make progress in the dispute regarding Mexico’s energy policy; if it does not succeed, Washington would initiate an independent dispute settlement procedure against its southern neighbor before a panel of the United States–Mexico–Canada Treaty (USMCA). The White House is already determined to act against Mexico, as it is under increasing pressure from both major parties to resolve the energy dispute and allow US oil companies, such as Chevron, to operate in the country. This comes in an intense pre-election context, in which right-wing militants of the Republican Party accuse Biden of being weak on Mexico’s fight against fentanyl trafficking and migration. When asked, Karine Jean-Pierre, spokeswoman for US President Joe Biden, declined to comment.

Fire in migrant station sparks political controversy among presidential favorites

On 27 March 2023, 39 migrants died and 28 were injured in the facilities of the National Migration Institute (INM) in the northern border city of Juárez, Chihuahua, after they set mattresses on fire as a way to protest against their deportation. Most of the group were Central American. Two of the most likely presidential candidates of the ruling MORENA party — Foreign Secretary Marcelo Ebrard Casaubón and Interior Secretary Adán Augusto López Hernández — have largely avoided commenting on the situation, reflecting a non-confrontational attitude. Interior Secretary López claimed that although INM is legally under his ministerial portfolio, there is a political agreement within the government dictating that migration policy falls under the portfolio of Foreign Secretary Ebrard. Meanwhile, President Andrés Manuel López Obrador said that his cabinet is working to reduce the tensions between both secretaries and asked General Attorney Alejandro Gertz Manero and Public Security Secretary Rosa Icela Rodríguez to conduct a thorough investigation.

PERU

Ambassador to Colombia withdrawn

On 30 March 2023, the Peruvian foreign affairs minister announced the “definitive” withdrawal of its ambassador to Colombia following the “repeated meddling and offensive expressions” by Colombian president Gustavo Petro, according to a statement by the ministry. Since December 2022, when former president Pedro Castillo was impeached by Congress following an attempted self-coup, Colombian president Petro has expressed his support for Castillo and questioned the legitimacy of current president Dina Boluarte. Bilateral relations will now be handled by chargés d’affaires. Colombia is the second country with which Peru has downgraded relations, since expelling the Mexican ambassador for similar reasons in February 2023.

Over 200,000 possible daily oil barrels discovered off the coast of Trujillo

On 29 March 2023, the Ministry of Energy and Mines (MINEM) announced that recent explorations by Anadarko had revealed oil deposits off the coast of Trujillo (in northern Peru) estimated at around 200,000 barrels per day. MINEM expects production in this region to begin by 2027. The deposits would be exploited by US company Occidental Petroleum, which owns Anadarko. The latter company has been exploring offshore deposits since 2017. As of 2021, Peru’s average oil production was 123,000 barrels per day.

Two new mining projects could increase copper production by 50%

On 29 March 2023, Raúl Jacob, CFO of Southern Peru, announced that new mining projects in Michiquillay and Tantahuatay (both in Cajamarca) could increase national copper production by as much as 50%, producing around 1.2 million tonnes of copper combined. The Minchiquillay mine, owned by Southern Peru, initiated operations in November 2022 after an investment of USD2.5 billion. On the other hand, the Tantahuatay mine is managed by Buenaventura and is the product of around USD621 million in investment, with construction expected to last three more years. Peru’s copper output has largely stagnated in the past few years, increasing slightly from 2.3 million tonnes in 2016 to 2.4 million tonnes in 2022.

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