Regional Pulse: 9 May 2023

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

We help businesses operate successfully in Latin America. Looking for something more tailored to your needs? Let’s chat.

You can also follow us on LinkedIn.

KEY DEVELOPMENTS

ARGENTINA

• Climate activists protest YPF offshore exploration
• Brazil’s President Lula pledges to support cash-strapped Argentina
• Ruling coalition proposes bill to nationalize lithium production

BRAZIL

• Agricultural sector in dispute with Lula administration and allies
• Bolsonaro’s phone seized and former top aide arrested
• Brazilian congress postpones vote on fake news bill

CHILE

• Chilean mining sector hit hardest by shrinking economy
• World’s largest lithium producer not opposed to contract renegotiation
• Another defeat for Boric in Constitutional Council vote

COLOMBIA

• Senate president and key Petro ally steps down after revoked election
• Fuel prices rise, sparking inflation fears
• Petro’s 2022 presidential campaign may have broken financial rules

ECUADOR

• Generators to power oil fields
• Army begins policing duties
• Gas liquefaction plant to close due to structural weakness

MEXICO

• Increase in cargo truck theft worries business community
• Shorter gas distribution permits leave energy sector uncertain
• Farmers block the capital’s southern main access road

PERU

• Peru rises in mining competitiveness ranking
• Poverty increased in 2022
• International court report accuses Peruvian government of human rights violations

KEY DEVELOPMENTS IN FULL

ARGENTINA

Climate activists protest YPF offshore exploration

On 4 May 2023, climate activists protested an offshore oil project in Mar del Plata. The march, organized by the Assembly for a Sea Free of Oil Companies, opposed plans to begin surveying an area 310 kilometers off the Mar del Plata coast. On 26 April 2023, Argentina’s climate change secretariat approved the joint project between Argentine state-owned energy company YPF and Norwegian energy company Equinor. The project will begin in March 2024 and involves a 3D seismic search for hydrocarbons in the Cuenca Argentina Norte block (CAN 102).

Brazil’s President Lula pledges to support cash-strapped Argentina

On 2 May 2023, Brazil’s President Luiz Inácio Lula da Silva offered to help cash-strapped Argentina during a summit with Argentina’s President Alberto Fernández in Brasilia. Lula promised to lobby the IMF on Argentina’s behalf. He also suggested scheduling a meeting between BRICS (Brazil, Russia, India, China and South Africa) finance ministers to discuss setting up a loan scheme for non-member countries like Argentina and a credit line for Brazilian companies exporting to Argentina to keep trade running. Argentina is Brazil’s third-largest trading partner.

Ruling coalition proposes bill to nationalize lithium production

On 3 May 2023, deputies aligned with Vice President Cristina Fernández de Kirchner proposed a bill to nationalize lithium production. Those on the left of the ruling coalition, Frente de Todos, want to develop Argentina’s capacity to manufacture lithium batteries. The bill’s proponents hope state control over the industry will relieve Argentina’s economic situation, and also position it as a key player in Latin America as the US and China compete for the region’s resources. The Argentine Chamber of Mining Companies (CAEM) criticized the proposal because experts signal Argentina could benefit from Chile’s decision to nationalize their own lithium sector.

BRAZIL

Agricultural sector in dispute with Lula administration and allies

The prominent Ribeirão Preto agricultural show between 29 April and 3 May chose not to invite Agriculture Minister Carlos Fávaro. Instead, São Paulo State Governor Tarcísio de Freitas appeared alongside former president and ally Jair Bolsonaro. Relations between the agricultural sector and President Luiz Inácio Lula da Silva’s administration are tense, as the current government is closely aligned with environmental activists and peasant movements opposing agricultural interests.

Bolsonaro’s phone seized and former top aide arrested

On 5 May 2023, police found voice notes on the phone of former President Jair Bolsonaro’s top aide that contained discussions about a coup. As of 7 May 2023, Bolsonaro is the subject of 25 active investigations and has ten more pending. The most recent investigation to be made public is a probe into fake vaccination records allegedly produced for Bolsonaro and his friends and family.

Brazilian congress postpones vote on fake news bill

On 2 May 2023, the Chamber of Deputies postponed a vote on Brazil’s “fake news” bill after tech companies campaigned against the law. Bill 2.630, better known as the “fake news” law, would slap fines on search engines and social media platforms that failed to regulate, identify, and address fake news. However, a lobbying campaign that won support of conservative lawmakers successfully thwarted the government’s proposal. A new date for the vote has not yet been set.

CHILE

Chilean mining sector hit hardest by shrinking economy

On 3 May 2023, market research think tank Corporation of Capital Goods (CBC) announced that overall investment in the Chilean economy fell 6.3% year-over-year. The mining sector saw an even greater drop of 8.6%. The decline in investment comes as Chile performed worse than expected in the Fraser Institute’s annual mining survey. Financial publication Diario Financiero reported analysts warning that falling investment in mining would adversely affect the economy. A day later, their predictions were confirmed as the Monthly Economic Activity Index (IMACEC) released figures showed the economy shrinking by 2.1% in March 2023.

World’s largest lithium producer not opposed to contract renegotiation

On 4 May 2023, Diario Financiero reported that Albemarle CEO Kent Masters does not oppose renegotiating its lithium contract with Chile under President Gabriel Boric’s new national lithium strategy. The US company is willing to renegotiate its contract with the Chilean government before its expiration in 2043, and will continue to invest in new technologies even as the Chilean government prepares to take over majority shares in the country’s lithium mines. Albemarle’s investments will focus primarily on developing methods for direct lithium extraction (DLE), in line with the government’s intention to pursue DLE over traditional open-pit mines or evaporation ponds in the future.

Another defeat for Boric in Constitutional Council vote

On 7 May 2023, Chileans elected 50 constitutional advisors tasked with drafting a new constitution after citizens voted down a rewrite last year. The election, which saw an 82% turnout, was a defeat for President Gabriel Boric’s left-leaning coalition Unidad para Chile (17 seats). Meanwhile, the vote favored the far-right Republican Party (22 seats) and Boric’s 2021 general election rival José Antonio Kast. Conservatives now make up the majority of the Council, which has seven months to redraft the constitution. Chileans will vote once again on 17 December, 2023.

COLOMBIA

Senate president and key Petro ally steps down after revoked election

On 4 May 2023, the supreme tribunal Council of State revoked the 2022 election of Senate President Roy Barreras for “double militancy.” He now has to step down from his role, and the decision is irrevocable. The council argued the legislator was elected as a candidate from Gustavo Petro’s Pacto Histórico party before resigning from his position as a senator elected under Partido de la U. Barreras resigned from the Partido de la U in 2020, but kept his legislative position.

Fuel prices rise, sparking inflation fears

On 3 May 2023, the Energy and Gas Regulation Commission (CREG) announced that the price of fuel would rise by COP600 (USD0.13). The government seeks to reduce its expenditures on fuel subsidies, which created a deficit of USD2.9 billion in its accounts as of 2022. President Gustavo Petro’s government seeks to achieve two targets by increasing fuel prices: to rein in expenditures, and discourage the use of fossil fuels. However, Central Bank experts have noted that the rise in fuel price likely will increase inflation, which stands at 13.34%.

Petro´s 2022 presidential campaign may have broken financial rules

On 2 May 2023, news outlet La Silla Vacía published an investigation alleging that President Gustavo Petro’s 2022 presidential campaign may have infringed on financial rules. Petro’s party, Pacto Histórico, allegedly paid thousands of electoral observers in secret on election day. These payments were not disclosed to the National Electoral Council (CNE). According to La Silla Vacía, the amount spent on paying these observers would have driven the cost of Petro’s campaign beyond the limits allowed by electoral authorities. The CNE has been investigating Pacto Histórico since February 2023 for alleged campaign irregularities.

ECUADOR

Generators to power oil fields

On 5 May 2023, state oil company Petroecuador and state-owned electricity company CELEC announced that they had installed a gas-powered electricity generator to power oil fields in the Amazonian province of Sucumbíos. The move is part of the government’s larger attempt to free up electric capacity amid fears the country could face a sharp drop in hydroelectric power during the dry season starting in October. The government fears this dry season will be the toughest in seven years. Power supply has been a recurrent problem for Petroecuador, as it was unable to produce an estimated 1,101 daily oil barrels in 2022 due to power cuts. The government has moved to import liquid natural gas to power its thermoelectric plants in recent weeks, but questions remain about whether existing infrastructure is equipped to process the gas.

Army begins policing duties

On 3 May 2023, President Guillermo Lasso signed an executive decree allowing the military to undertake policing duties alongside police across the country. For their first deployment, 1,500 soldiers have been dispatched to guard school entrances in eight provinces. The move comes after the Public and State Security Council (COSEPE) recommended enacting the change in late April 2023. This is the latest measure from Lasso’s government to tackle rising criminal violence in the country. He has also signed decrees allowing civilians to carry firearms for self-defense, and has enacted ongoing states of emergency in the province of Esmeraldas and the so-called Zone 8 comprising the port city of Guayaquil.

Gas liquefaction plant to close due to structural weakness

On 3 May 2023, Energy Minister Fernando Santos announced that the Bajo Alto natural gas liquefaction plant will shut down in coming months. The cause is an imminent risk of structural collapse to the plant, which is located in El Oro province. According to Santos, the plant’s lack of adequate structural foundations puts it at risk for balance issues and gas leakages. The plant was built in November 2011 and cost an estimated USD76.5 million — USD36.4 million over budget. It currently processes 6 million daily cubic feet of natural gas to power Cuenca’s ceramics industry. This production will be taken over by the Machala thermoelectric station and Grupo Eljuri’s Gasvesubio liquefaction plant.

MEXICO

Increase in cargo truck theft worries business community

On 6 May 2023, the Mexican Business Confederation (COPARMEX) revealed that up to 99% of all cargo thefts go unreported due to a lack of trust in security agencies. The president of COPARMEX’s security commission, Gerardo Macías, said only 5% of these crime victims file a report with the public prosecutor’s office so their insurance company can cover the losses. However, they do not all follow up. Separately, the National Association of Vehicle Tracking and Protection Companies (ANERPV) reported that the top state for cargo transport theft is Estado de México with 31% of the cases, followed by Jalisco (16%), Puebla (14%) and Michoacán (5%). Truck theft in Mexico is more commonly an activity for small armed gangs than a secondary activity for larger drug trafficking organizations. But due to recent interest in relocating US and Chinese companies to Mexico (e.g. Tesla in Nuevo León), business representatives see an opportunity for groups to illegally profit from the eventual increase in cargo transportation.

Shorter gas distribution permits leave energy sector uncertain

On 2 May 2023, business representatives expressed their concern that the Energy Regulatory Commission (CRE) is increasingly choosing to reduce the validity of gas station operation permits from 30 to 20 years. This is mostly driven by President Andrés Manuel López Obrador’s energy nationalism agenda. Marciel Díaz, president of the Association of Energy Sector Regulators (ARSE), said CRE has increasingly been issuing permits with shorter validity time frames since November 2022. This is causing operational and legal uncertainty in the oil and gas sector. By law, permits can be valid from one day to 30 years depending on the CRE’s discretion.

Farmers block the capital’s southern main access road

On 7 May 2023, a group of 300 farmers blocked the Mexico City-Cuernavaca federal highway (CF95D) just south of the capital’s main entrance point. They were demanding a meeting with President Andrés Manuel López Obrador to discuss allegations that the previous presidential administration did not pay them as promised to use their lands to build a new, cross-country highway. Protesters took over all lanes, closing the entire highway between Mexico City and Cuernavaca and causing considerable traffic congestion. The government deployed National Guard officers to remove the protesters, but they threatened to continue marching toward Mexico City until they could meet with President López Obrador.

PERU

Peru rises in mining competitiveness ranking

On 4 May 2023, an annual mining survey from the Canada-based Fraser Institute revealed that Peru has overtaken Chile, Mexico and Colombia in its competitiveness ranking for foreign investors. The poll of 180 different mining companies ranked Peru in the 34th position, compared with 42nd in 2021. Peru is the third most attractive Latin American country for mining investments after Brazil and Ecuador. However, investors continued to voice concerns over Peru’s political stability, availability of qualified workforce and fiscal policy.

Poverty increased in 2022

On 3 May 2023, the government announced that poverty levels in 2022 had increased by 2% year-over-year. Poverty fell from 30% in 2020 to 25% in 2021, but the latest data show a new increase. About 8.9 million people live in poverty in Peru, a country of 33 million. In April 2023, the government revised its GDP growth projections, reducing estimates from 3.5% to 2.5% in 2023.

International court report accuses Peruvian government of human rights violations

On 2 May 2023, the Inter-American Court of Human Rights (IACHR) issued a report that found the Peruvian government used disproportionate force against protestors between December 2022 and January 2023 after the impeachment of former president Pedro Castillo. In its findings, the IACHR labeled certain deaths as “massacres” perpetrated by state forces. Protestors took to the streets across the country after Castillo’s impeachment, predominantly in the southern provinces of Cuzco, Tacna and Puno. They were protesting a combination of issues ranging from Castillo’s removal to broader frustrations with the political system. An estimated 56 people were killed, and 912 were injured.

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