Regional Pulse: 4 July 2023

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

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KEY DEVELOPMENTS

ARGENTINA

• Peronists defeated in San Juan province
• Government postpones oil and gas tax increase for second time
• Argentina pays IMF in Chinese Yuan

BRAZIL

• Bolsonaro barred from elections until 2030
• 2022 Census shows slowest population growth in 150 years
• Brazilian and Abu Dhabi firms make bids for Odebrecht family’s Braskem shares

CHILE

• Government officially rejects proposed Dominga mining project
• Corruption allegations hit Boric’s ruling coalition
• Spain’s Sonnedix begins operations at Valparaiso solar farm

COLOMBIA

• Non-oil, non-mining exports grew 14% in Q1 2023
• Chinese delegation visits Colombia
• Government moves to underdeveloped La Guajira for a week and announces investments

ECUADOR

• Peru and Ecuador militaries crack down on illegal gold mining
• IDB and EU to finance electric connection between Ecuador and Peru
• Government has yet to renew mobile phone network contracts with providers

MEXICO

• Labor market remains strong
• Car bomb shows sophistication of organized crime in Guanajuato
• Government formally militarizes national airports

PERU

• Peru to build fertilizer factory as it reduces reliance on Russia
• Construction sector GDP falls
• Army will remain in mining corridor to protect exports

KEY DEVELOPMENTS IN FULL

ARGENTINA

Peronists defeated in San Juan province

On 3 July 2023, Marcelo Orrego was elected to become the next governor of the mining-rich San Juan province. Orrego belongs to a local branch of the center-right Juntos por el Cambio, the largest opposition coalition in Argentina. The Supreme Court postponed the elections, originally planned for May, after barring incumbent Peronist governor Sergio Uñac from running. He had already reached the province’s two-term limit. The Fraser Institute considers San Juan as one of the best places in Latin America for mining investments.

Government postpones oil and gas tax increase for second time

On 30 June 2023, the government postponed a planned tax increase for oil and gas products amid fears that companies could pass on rising costs to customers. The government previously postponed the increase in March. Oil companies threatened to raise gas prices by 6–7% two weeks ago, which would have been higher than the 4% limit they had agreed to with the government in November 2022. While the companies eventually agreed to limit the price increase to 4.5%, the government worries a tax hike will cause companies to raise prices for consumers again. The tax increase is now scheduled for November 2023, after the 22 October presidential elections.

Argentina pays IMF in Chinese Yuan

On 29 June 2023, the Argentine government made the unprecedented decision to repay part of its debt to the International Monetary Fund (IMF) in Chinese Yuan. It made the USD1 billion payment in Yuan to avoid drawing on the Central Bank’s very low US dollar reserves. A further USD1.7 billion was paid in Special Drawing Rights, which is often considered the IMF’s de facto currency. Despite the repayment, debt restructuring negotiations continue under difficult circumstances. Government representatives will travel to the US next week to resume talks with the international finance institution.

BRAZIL

Bolsonaro barred from elections until 2030

On 30 June 2023, the Superior Electoral Court barred former president Jair Bolsonaro from running for public office until 2030. In a 5–2 vote, justices decided that Bolsonaro had abused his political power and spread misinformation. The former president made baseless claims over the reliability of electronic voting machines in front of an audience of international diplomats during a state television broadcast, which violated campaign laws. Bolsonaro also has 16 other pending investigations against him. Bolsonaro has said he will appeal the decision in the Supreme Federal Court.

2022 Census shows slowest population growth in 150 years

On 28 June 2023, census results from the Brazilian Institute of Geography and Statistics (IBGE) showed that Brazil’s population growth is at its lowest point in 150 years. The 2022 census, which was delayed from 2020 due to the pandemic and budgeting constraints, showed that Brazil’s population is 203 million. This is 5 million fewer people than expected. Experts worry that the smaller-than-expected increase in population growth may put additional pressures on social welfare as the country prepares to care for an aging population. Demographer Suzana Cavenaghi said on the O Assunto podcast that an older population may keep Brazil from becoming a high-income economy.

Brazilian and Abu Dhabi firms make bids for Odebrecht family’s Braskem shares

On 3 July 2023, Brazilian conglomerate Novonor will have a week to accept a favorable offer for its shares in the petrochemical company Braskem. The Odebrecht family, which owns 50.1% of Braskem through their company Novonor, has been trying to sell its majority shares in the petrochemical giant for years. Now, Novonor is fielding two offers. One is from the Abu Dhabi National Oil Company (ADNOC), and another is from Brazilian chemical firm Unipar. The Odebrecht family favors Unipar’s USD2 billion offer, as it will allow them to retain a 4% interest in Braskem. Meanwhile, ADNOC is seeking a total buyout. However, Novonor owes USD3.13 billion to five banks that favor ADNOC’s offer. These banks will have the final say on which offer Novonor will choose. Unipar will pull out of the deal if Novonor does not accept its offer before 10 July.

CHILE

Government officially rejects proposed Dominga mining project

On 30 June 2023, a government committee officially notified Andes Iron that they cannot proceed with their USD2.5 billion Dominga iron and copper mining project due to environmental concerns. The group made the decision in January, but took five months to notify the company. Andes Iron can now appeal the decision. The committee rejected the project, located in the northern Coquimbo region, due to its proximity to key nature reserves vital to the well-being of whales, dolphins and penguins. The project has also garnered controversy after the 2021 Pandora papers revealed that then-president Sebastián Piñera’s family and associates owned 56% of the company’s shares.

Corruption allegations hit Boric’s ruling coalition

On 27 June 2023, the Democratic Revolution Party (RD) — a key member of the ruling Apruebo Dignidad coalition — suspended the membership of lawmaker Catalina Pérez over corruption allegations. Members of the party close to Pérez allegedly made payments of USD500,000 through the party’s charitable foundation to a consultancy firm set up by Pérez’s ex-partner. President Gabriel Boric ran on an anti-corruption ticket, so the scandal has seriously affected his credibility. Boric’s approval ratings improved in early June but have since plummeted back down to 28%.

Spain’s Sonnedix begins operations at Valparaiso solar farm

On 29 June 2023, Spanish renewable energy producer Sonnedix began operations at the Meseta de los Andes solar plant in the coastal city of Valparaiso. The Sumitomo Mitsui Banking Corporation invested USD120 million in Meseta de los Andes. The enormous site will provide power to 180,000 homes and help cut 160,000 tons of CO2.

COLOMBIA

Non-oil, non-mining exports grew 14% in Q1 2023

On 29 June 2023, financial newspaper Portafolio reported that the value of non-oil and non-mining exports grew by 13.9% in Q1 2023 compared with the same period of 2022. Volume in this category grew by 16%. Most of the estimated USD985 million in total exports during this period went to other Latin American countries. These include Mexico and Venezuela (whose Colombian exports grew 18% and 15% year-over-year, respectively), the Dominican Republic, Panama, Costa Rica and Guatemala. Transport vehicles and buses fueled this growth due to a large surge in exports. Colombia exported USD116.2 million in goods to Venezuela, with overall trade there increasing after the countries agreed to resume commercial relations in September 2022.

Chinese delegation visits Colombia

On 27 June 2023, a Chinese delegation completed its three-day visit to Colombia as both countries seek to strengthen ties. President Xi Jinping’s Latin America advisor, Qiu Xiaoqi, discussed several topics with the government. These included Colombia’s potential involvement in China’s Belt & Road initiative, and the possibility of President Gustavo Petro visiting Beijing soon. Chinese companies invested USD265 million in Colombia between 2021 and 2022. These investments mainly focus on infrastructure and renewable energy projects.

Government moves to underdeveloped La Guajira for a week and announces investments

On 26 June 2023, President Gustavo Petro and his cabinet landed in northwestern La Guajira for a weeklong stay in this historically underdeveloped region with an important indigenous community. Petro’s government has promised to prioritize La Guajira in its national development plans, and has promised a number of investments in the region. A standout is the “Colectora” project, which would provide an electric connection to link seven wind farms in the region to the rest of the country. This would supply about 1,050 megawatts to the national grid. After securing the approval of local communities — which required direct negotiations with the government — the project will now move on to the environmental impact assessment stage.

ECUADOR

Peru and Ecuador militaries crack down on illegal gold mining

On 28 June 2023, digital outlet Primicias reported that the Peruvian and Ecuadorian militaries had launched several joint operations in June to crack down on organized crime groups illegally mining gold. The mining was taking place in the southern Ecuadorian province of Zamora Chinchipe, which borders Peru. Over the past few weeks, authorities have arrested members of organized crime groups Los Lobos and Los Choneros, which are thought to have a hand in illegal mining in addition to drug trafficking. Ecuador’s army said these groups extract gold illegally in neighboring Peru and transport it across the border to sell it in Ecuador. Since 16 June 2023, the Ecuadorian and Peruvian militaries have carried out “mirror” operations on the border to tackle illegal mining.

IDB and EU to finance electric connection between Ecuador and Peru

On 27 June 2023, Ecuador’s national electric corporation (CELEC) announced that the Inter-American Development Bank (IDB) and the European Investment Bank (EIB) will finance the construction of a USD289 million electric connection between Ecuador and Peru, enabling the countries to share electricity. Each bank will contribute USD125 million, and CELEC will cover the remainder. Numerous electricity shortages in recent years have forced the countries to increasingly use expensive diesel fuel to generate electricity.

Government has yet to renew mobile phone network contracts with providers

On 26 June 2023, digital outlet GK reported that negotiations between the government and mobile phone network operators have stalled just months before the companies’ contracts expire. Claro (which accounts for 52% of Ecuadorian mobile lines) and Movistar (30.5% of the market) signed 15-year contracts with the state that expire in August and November, respectively. However, the government agency regulating telecommunications (ARCOTEL) suspended negotiations in late May for 120 days. They decided to wait for the results of an independent appraisal that will determine the value of the radio spectrum the operators use. Claro’s contract will expire within the 120 days outlined by ARCOTEL. In 2008, Claro paid USD480 million for the right to use the radio spectrum, while Movistar paid USD220 million.

MEXICO

Labor market remains strong

On 30 July, the latest monthly labor statistics from the National Institute of Statistics and Geography (INEGI) showed that unemployment in May increased 0.1% over April to 2.9% — the highest level this year. While this marks the second consecutive increase in unemployment levels, economic analysts believe the situation may improve in the coming months due to “nearshoring” by primarily U.S. and Canadian companies. This practice refers to installing business operations in Mexico instead of countries further away. Informal employment increased from 54.9% in April to 55.1% in May (32.1 million people), and underemployment declined from 8.4% in April to 8.1% in May (4.7 million people). Analysts assure the state of the labor market remains strong due to these and other indicators being close to their best levels on record, such as the USD-Mexican Peso exchange rate.

Car bomb shows sophistication of organized crime in Guanajuato

On 28 June, an abandoned vehicle at the Celaya-Salvatierra federal highway in central Guanajuato state exploded, killing at least one national guardsman and severely injuring 10 others as they responded to a report about the vehicle. Authorities said that when officials approached the car, drug traffickers detonated explosives to ambush them and spread terror — a common technique in the area. Guanajuato Governor Diego Sinhué said while the attack could be an act of revenge after recent arrests of organized crime members, he does not rule out other hypotheses. President Andrés Manuel López Obrador said these events show that criminal groups are becoming more violent and better armed. However, authorities say they have already investigated those responsible and are planning to arrest them. Guanajuato is one of the most violent states in the country due to criminal groups’ disputes over drug trafficking routes.

Government formally militarizes national airports

On 28 June, the Secretary of Infrastructure, Communications, and Transports (SICT) published a draft decree in the Official Journal of the Federation (DOF) giving full control of several airports to the Navy Secretariat (SEMAR) and the National Defence Secretariat (SEDENA). The decree establishes that authorities have 60 days after the decree becomes effective to hand over all administrative controls. President Andrés Manuel López Obrador said that SEMAR will take control of Mexico City International Airport (AICM), plus airports in Ciudad del Carmen, Campeche and the Sonoran cities of Ciudad Obregón and Guaymas. SEDENA will administer Mexico City Felipe Ángeles (AIFA) airport, plus airports in Tulum, Campeche, Puebla, Chetumal and Nuevo Laredo. Aviation experts worry that the military’s presence at civil airports could lead to strict changes in regulations and policies, limit private competition for concessions, and create uncertainty about the future of private operations.

PERU

Peru to build fertilizer factory as it reduces reliance on Russia

On 29 June 2023, the government officially published a law to build a fertilizer factory in the northeast city of Piura, which has important phosphate deposits. The agriculture ministry said the project is justified by “national interest and public need.” Backers hope the plant will allow Peru to be self-sufficient in fertilizer production, and even allow it to export some. As of May 2022, Peru imported about 40% of its fertilizer from Russia. Newspaper La República described Peru’s decision to secure a domestic supply as a move towards national “food security.” Peru has been reducing its reliance on Russia. In June 2023, its army replaced Russian companies with national ones to maintain their Russian-built helicopter fleet.

Construction sector GDP falls

On 28 June 2023, the national construction chamber (CAPECO) reported that GDP in the construction sector had fallen by 9.1% since January 2023. This is mainly driven by a drop in demand for infrastructure works and buildings. The indicator seems to corroborate the Central Bank’s forecast of lower private investment rates for 2023. CAPECO Executive Director Guido Valdivia pointed out that this lack of investment is happening before El Niño’s effect on Peru is fully realized, which is precisely when the country should be repairing its current infrastructure and readying itself for weather disruptions such as floods and landslides. Furthermore, the construction slowdown also seems to mirror a drop in the building of social housing. Up to 40% fewer families received access to a house in Q1 2023 compared with 2022.

Army will remain in mining corridor to protect exports

On 27 June 2023, Energy and Mining Minister Óscar Vera announced that the government was working on a plan to maintain army forces in the country’s southern mining regions (mainly Arequipa, Apurímac, Cuzco and Moquegua). The government is looking to secure the so-called “mining corridor” used to transport minerals from the region to Arequipa’s Matarani port. Protestors targeted the corridor between December 2022 and March 2023. They blocked roads to suspend operations at one of the country’s largest copper mines, Las Bambas. The mine was able to restart operations after the army cleared the roads. The national labor confederation and several civil society organizations have announced a 19 July protest march to Lima, which they hope will reignite widespread protests against President Dina Boluarte’s government.

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