Central American bonds sold off as Guatemala’s president Morales, formerly a well-known comedian, ousted the UN’s anti-corruption monitor as it investigated his family and political party, and El Salvador grappled with a pension reform standoff accumulated over two decades with total liabilities now at $25 billion or 90 percent of GDP. Costa Rica also tripped up on new external debt authorization and fiscal outlays for court spending which may not get parliamentary backing ahead of February 2018 elections, as Panama’s President Varela, with record low 35 percent approval ratings, was embroiled in the Brazil construction company Odebrecht bribery scandal, with alleged payments to his campaign and for a metro project bid. Guatemala’s business community is at odds with popular support of the UN integrity body, which dates back decades to the “dirty war” period of army control, and street rallies have condemned the President’s “clown circus” in expelling the mission to possibly salvage his own immunity. Economic growth is around 3 percent, as criminal gangs and violence have spurred emigration once targeting the US, but with increased border enforcement often staying instead in Mexico. El Salvador’s government, with both the FMLN and ARENA parties holding a similar number of assembly seats, initially missed obligations in the mixed public-private system in April, as they argued about overdue contribution charge and retirement age changes. Ratings agency downgrades of at least one notch followed, with S&P assigning “selective default” until the amount was cleared in July on budget appropriation. The next big chunk due is in October and in the wake of court rulings urging compromise the ruling FMLN declared it would consider opposition proposals, which could include caps on monthly draws and private manager fees alongside higher taxes. Performance has lagged the EMBI sub-index as spreads jumped 50 basis points in recent months, with the pension clash and IMF program likelihood scuttled indefinitely especially in light of previous results.
Private pension pioneer Chile has also been debating overhaul to ensure basic floors but debate remains stuck with President Bachelet’s unpopularity and the race on to succeed her in early 2018, with previous incumbent and conservative party stalwart Pinera in the lead. Shares are ahead at roughly the MSCI index 25 percent average on copper price recovery, although this year’s growth is forecast at 1-1.5 percent on 2 percent inflation, which may allow a 25 basis point rate reduction at the next central bank meeting. However Finance Minister Valdes and other officials resigned with confidence ebbing toward the end of Bachelet’s second term amid a cabinet fight over a mining venture’s environmental fallout. Colombia in contrast has share gains only half that range, with growth around the same level and an interest rate cut already on higher than target 4.5 percent inflation. The gross debt burden is near 50 percent of GDP, 10 percent above the “BBB” median, and the latest fiscal package with a 3 percent deficit may not stave off a downgrade in advance of next March polls. The outlook is negative and the current account hole remains structural with oil exports off a bottom but still lackluster. Ex-guerilla FARC members entered congress after signing a peace pact and receiving demobilization funds, and the ELN may follow suit as lengthy civil war costs shift to their aftermath.