Latin America/Caribbean

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Cuba’s Thwarted Thaw Thickening

2017 June 24 by

Cuban asset prices sank as the Trump administration announced partial reversal of bilateral travel and commercial openings and harshly criticized authoritarian human rights practices overlooked in other regions. The tougher line fulfills a presidential campaign pledge to Miami’s exile community cheering the changes, while business lobbies like the US Chamber of Commerce were upset that global competitors would have easier access, as their countries long ago approved individual tourism and joint ventures under military control that will now be banned after the Treasury Department issues guidelines. Airlines had reduced or severed routes before the decision, as visitor infrastructure from internet availability to hotel occupancy frustrated demand with renewed diplomatic relations two years ago. However big cruise lines with expansion plans through end-decade may preserve their strategy as they cater to groups with accommodations in place, but disappointments also mounted with the lack of credit card acceptance, dual exchange rate, and poor organized visit experience for foreigners. Starwood was the only US operator to offer a resort as an alternative to state-run hotels, as the Brookings Institute projection of $10 billion in hospitality earnings by 2030, twice current imports, appeared remote without underlying tax and administrative shifts as well promoting more private sector investment. Nearby Haiti, with the hemisphere’s lowest per capita income, has been considered a more promising destination, and new President Moise will encourage agricultural and industry hubs with reliable electricity supply around northern beach locations in his economic strategy under an IMF staff-monitored program.

In the Dominican Republic in contrast tourism revenue was up 10 percent last year to over $6.5 billion, almost one-tenth of output, with 2017 set to deliver another record. European visitors now account for one-quarter of the total, with North Americans still dominant at two-thirds. Remittances in turn, mainly from the US, swelled near 15 percent as Q1 economic growth continued at a 5 percent clip as the regional leader. A primary budget surplus has helped halve the deficit to 2 percent of GDP, and the current account gap is the same with higher gold exports and slashed oil imports, with the difference covered by mining and hotel FDI. Costa Rica is close with 4 percent growth heading into the 2018 election season, with inflation within the 3 percent target range. Fiscal reform has stumbled on political opposition with public debt hitting 60 percent of GDP, with the external portion rising faster on international bond issuance. The 10 percent trade deficit likewise persists, and the central bank has warned capital goods demand may not translate quickly into productive capacity. El Salvador is caught in a low growth twin deficit trap with a $600 million global bond in February used to repay local Treasury bills, as pension fund obligations have not been met amid government infighting. Panama alone has maintained its investment grade as Chinese diplomatic recognition was shifted from Taiwan to Beijing in advance of its president’s White House trip. With expansion Canal toll earnings jumped 20 percent in the first quarter, and re-exports through the Colon Free zone have also picked up to support 5 percent growth. A fiscal responsibility law has enabled sovereign wealth fund transfer, and the Panama papers tax evasion saga has faded although reputation isolation lingers.

 

 

Venezuela’s Crass Credit Craving

2017 June 18 by

Venezuelan bonds as top EMBI performers came under pressure for boycott or index removal, after leading houses were reported to have scooped up issues held by the central bank and other captive buyers at a steep discount through small specialist brokers. Goldman Sachs bought a $3 billion chunk at one-third the price through a London intermediary, and Nomura and Morgan Stanley were also involved in deals. Opposition parties in Caracas condemned the move and expatriate demonstrations were organized in Miami and Washington as a former Planning Minister, head of Harvard’s International Development Institute, referring to widespread staple food shortages, dubbed the instruments “hunger bonds.” He called for benchmark index removal as MSCI applied long ago for equities given pervasive exchange controls. Although international reserves are not formally divulged they are estimated in gross terms at $10 billion, roughly equivalent to import needs with scant cushion for debt-servicing. PDVSA has already executed a maturity swap which won bare acceptance with local investor control, and its future was further thrown into question with its chief executive due to depart. A President Maduro loyalist is set to fill the slot, who was previously in charge at US unit Citgo, which has pledged collateral both to bondholders and Russian partner Rosneft in case of default. The Treasury Department increased scrutiny of the relationship as the Trump administration debates sanctions against the regime after the President tweeted about a meeting with the spouse of jailed opposition head Lopez. Military support at home may be wavering as security forces demur at cracking down on street protesters, as Maduro’s bid for a hand-picked national assembly to rewrite the constitution and mollify popular outcry has met with sweeping criticism following the Organization for American States’ anti-democracy condemnation. The Chinese meanwhile are bracing for further losses on their $50 billion bilateral loans with unknown asset claims that could place them in direct conflict with other creditors.

Previous high-flyer Brazil has also lost favor, as MSCI equity gains fell to 3 percent through May, with the Electoral Court to determine whether President Temer received illegal campaign contributions after release of a payoff tape he claimed was “doctored.” Core PMDB party backing may no longer be assured as the stage is set for another potential impeachment. He promises to continue pressing labor and fiscal reform agendas, but major public pension overhaul in particular could be in danger with the budget deficit heading toward 10 percent of GDP despite renewed growth. The Temer recording allegedly came from one of the founding brothers of global meat supplier JBS, which faces bond and stock holder lawsuits after admitting to bribery and accepting a $3 billion penalty. Prosecutors got wind of wider misconduct after investigating inspector kickbacks for tainted products. Beef rival Argentina in contrast paced frontier markets with a 45 percent jump on possible track toward an MSCI upgrade in advance of primary elections before the October parliamentary poll. President Macri and his party intend to underscore economic success with the recession over and fiscal targets mostly honored with a one-time amnesty as $30 billion in capital has poured into one-month central bank bonds with yields over 20 percent. A new internationally-compliant consumer inflation gauge will be operational in July with likely IMF endorsement as the current administration craves its approval after a decade of resistance.

Venezuela’s Chafing Charter Wrongs

2017 April 15 by

Ahead of a $2 billion state oil company amortization in April, Venezuelan bond prices fell to the 40s as the Supreme Court moved to disband the opposition party-led National Assembly in another violation of the Organization for American States (OAS) charter drawing member condemnation. Fifteen countries headed by Mexico had called for political prisoner release and elections before the judicial “coup,” which was reversed when the Attorney General broke ranks with Chavista allies to outlaw the maneuver as unconstitutional. The challenge was the latest senior official blow after February’s US arrest of Vice President El Aissami on drug trafficking charges, and prompted another round of violent street protests against security forces amid worsening food and medicine shortages. Import needs are estimated at $20 billion, twice reported reserves, but oil earnings should rise to $30 billion with higher prices and Chinese loan repayment relief could also provide breathing space. The government is trying to sell PDVSA joint venture stakes to raise revenue but has been blocked in parliament, and the impasse may have animated the mooted closure effort. A miner got a Washington court order to attach oil monopoly assets, as Conoco awaits another likely big arbitration award from nationalization.

Ecuador bonds sagged likewise as President Correa’s chosen successor Moreno defied projections with a 2 percent win over rival former investment banker Lasso, who demanded a recount. The victor, confined to a wheelchair, gained support with his personal courage and common touch, in contrast to the opposition candidate considered aloof and closely tied to the business elite. The legislative majority for Moreno’s party shrank 20 percent to 55 percent, and he inherits a recession and 5 percent of GDP budget deficit after last year’s earthquake which may force resort to the IMF, which offered natural disaster aid.

Elsewhere in the Andeans Colombia’s sovereign ratings outlook was upgraded to stable by two agencies as the current account gap tightened to 4.5 percent of GDP and fiscal reform was passed in 2016, although peace plan spending may erase immediate tax gains. Economic growth has languished at 2 percent, but inflation has halved to 5 percent on food cost reduction allowing the central bank to cut benchmark rates. In the wake of the guerilla accord and mushrooming Odebrecht scandal, jockeying has begun for 2018 elections, with one of President Santos’ ex Vice presidents set to run, although an anti-establishment outsider could enter in the current charged climate, experts believe. Peru stocks increased the same 5 percent on the MSCI index in the first quarter as the government lowered its growth forecast 1 percent to 4 percent, which would still top the South American charts. Inflation is put in the 2 percent target range this year after consecutive misses, and recent flooding could again damage crops. The budget deficit will remain steady at almost 3 percent of GDP despite President PPK’s consolidation pledge as he ramps up early reconstruction and infrastructure spending. The terms of trade switched with commodity recovery to enable surplus return, but copper value remains heavily dependent on Chinese appetite and despite a flurry of commercial overtures to Beijing another bottoming is factored into metals scenarios.

Brazil’s Reconstructed Temptation Temerity

2017 March 25 by

Brazilian stocks continued at the front of the core universe and a $1 billon sovereign bond return was acclaimed at a lower than expected 5 percent yield, despite a poor last 2016 quarter bringing GDP contraction to almost 4 percent, and interim President Temer’s popular disapproval rating rivaling his ousted predecessor. Headline scandals also proliferated, with construction giant Odebecht now facing bribery charges and penalties across Latin America, with Peru seeking extradition of former President Toledo for questionable transactions in office. Local prosecutors are investigating hundreds of mayors suspected of corruption, including for deals around the Rio Olympics as the original Car Wash campaign probe drags on, with courts to determine whether the Rousseff-Temer election ticket should be retrospectively invalidated. The current government head waved off this risk and his unpopularity and went on a media blitz to affirm commitment to structural spending reforms, as reflected in legislation to tie discretionary appropriations to inflation increases over the next decade, and limit state pension and social security outlays out of kilter with global norms. The primary fiscal deficit was a record 2.5 percent last year and public debt could soar to 90 percent of GDP by end-decade without program rollback. The currency has rebounded along with currencies from the previous trough and facilitated inflation reduction to 5 percent, and the central bank cut the benchmark 75 basis points at its latest meeting and is on track to slash it to single-digits over the coming months. The easing is share-positive and could spur flat corporate and consumer lending on both demand and supply constraints. The new director of development bank BNDES has concentrated on portfolio restructuring and clarified future direction as providing targeted support to justify its subsidy instead of an all-purpose backstop as in the past. FDI assistance is a priority as $80 billion continues to pour in annually to offset capital outflows and cap the current account gap at 1.5 percent of GDP.

Argentina has been on its own 20 percent roll on the MSCI frontier index and President Macri and his Brazilian counterpart have met and set up commercial and diplomatic teams to revive the moribund trade pact Mercosur, after ejecting Venezuela from the group. The two countries have clashed on auto sector tariffs and the bloc maintains steep barriers against outside goods. The overall trade balance was in surplus in 2016 after a 2015 deficit, with agricultural harvests ample on commodity price recovery and peso collapse subduing imports. Growth has turned positive after last year’s recession and the new Finance Minister, after an early 2017 external bond encore, promises to redress the 4 percent of GDP fiscal gap with measure still protecting the poor. The central bank has kept interest rates around 25 percent with stubborn inflation in the aftermath of floating the peso. The President’s minority party hold in parliament could worsen in upcoming elections, but the opposition Peronists remain too divided for a blowout. One wild card is the possible candidacy of his predecessor Christina Fernandez, now under both criminal and civil proceedings for suspect currency and Iran dealings. The latter claimed the life of the former lead investigator in a shooting incident looking like suicide, amid scrutiny of the government’s self-inflicted policy wounds.

Haiti’s Searing Swearing In Swoon

2017 February 13 by

After a yearlong stretch of election delays and reruns, Haiti President Moise, an agricultural entrepreneur touted by his predecessor, took the oath of office in February to an audience of dignitaries from main donor countries. The IMF at the same time released a report on its $40 million rapid credit facility activated in the wake of Hurricane Matthew which showed flat growth and an inflation spike to 15 percent at the end of 2016 with continued double-digit currency depreciation. A joint World Bank-IDB task force estimated damage at $2 billion or one-quarter of GDP. Before that disaster drought and reduced external assistance through Venezuela’s Petrocaribe program had combined with extended political turmoil to deter foreign investment and increase dollarization. Reconstruction will widen the budget gap to 5 percent of GDP, and the central bank is to refrain from direct financing assuming bilateral and multilateral aid pledges are delivered. Garment sector exports, 90 percent of the total, remained intact and the diaspora raised remittances after the storm, but the current account deficit will exceed 10 percent of GDP. Growth may recover to 2 percent by fiscal year close with rebuilding activity, and foreign reserves may dip slightly but would still cover over four months imports. However the setback will elevate public debt to the high distress risk category, and the new government should aim to reprise economic management targets missed under the last full Fund arrangement, including on arrears accumulation and state electricity company overhaul. The central bank and finance ministry seem committed to tighter fiscal and monetary policies and have hiked bank reserve requirements to slash credit expansion to 5 percent, but internal capacity and safeguards remain weak, and future engagement will depend on stronger teams in place, the paper suggested.

Venezuela’s self-generated economic meltdown worsened last year with estimates of 20 percent output shrinkage and 800 percent inflation, as Vatican-mediated talks between the Maduro regime and political opposition reached an impasse over prisoner release and parliamentary power revival. Free trade bloc Mercosur, where Argentina-Brazil ties have warmed under new leadership, ousted the country for anti-democratic behavior and the Washington-based Organization of American States may also suspend membership. Families of jailed leaders have come to the US in a bid to influence the Trump Administration to harden the bilateral stance and decry the overall rule of law absence. The President declared 2017 as “new economic history” by naming a ruling party socialist deputy to head the central bank who has advocated exchange rate unification and other changes. However he will face continued control preferences among the President’s close advisors, so that adjustments are likely to be minor especially with the recent doubling of oil prices. Available reserves are around half annual $20 billion import needs and external debt service remains important after state fuel company PDVSA’s short-term maturities were extended and it lost foreign partners and may no longer have available cash for public social spending. Both direct and portfolio investment have dried up with even China cutting its losses after a reported $50 billion in credit for hydrocarbon deals the past decade may have been washed away in a default storm.

 

Argentina’s Unforgiving Reputation Remake

2017 January 16 by

After solid EMBI and MSCI frontier index gains in 2016, Argentina securities paused on President Macri’s one-year anniversary, with a cabinet reshuffle sidelining  Finance minister Prat-Gay and preparation for another heavy external bond issuance round estimated at an initial $10 billion. The fired minister’s portfolio was split in two with his deputy assuming fundraising responsibility and another appointment macroeconomic policy. He oversaw a successful tax amnesty which brought in $100 billion and $7 billion in penalty payments, but was unable to otherwise constrain the 6 percent of GDP fiscal deficit or restore GDP growth, as continuing recession dents the President’s popularity rating heading into local elections. Almost all the inflows, 85 percent from offshore, went to cover public pension increases, as the separate nominal revenue rise lagged 20 percent inflation keeping the budget hole. To trim it subsidy rollbacks were announced upon taking office but further pain has been spared by court decisions and political opposition. With the relatively loose fiscal stance monetary policy has remained tight with the central bank benchmark at 25 percent for 5 percent real rates. With these juicy yields foreign money has poured into local currency bonds and the country will soon be added to the GBI-EM gauge with a small weighting. According to new Finance Minister Caputo 2017 total official and private financing needs are in the $30-$40 billion range, and after over $20 billion in sovereign debt return last year, another big wave may not be as enthusiastically received despite the manageable 35 percent of GDP burden. In Q2 alone $10 billion must be repaid in dollar instrument amortization and to the Paris Club, and global interest rates are expected to rise with the new US administration’s spending plans, with a best case scenario for meager economic recovery at home. Minister Prat-Gay with his Wall Street background was said to lack the common touch and the elite perception played into the hands of the Peronists who still control Congress, as they also fight corruption charges against their former leader and President Christina Fernandez. She has been accused of money laundering through deals with a hotel magnate and of profiting from central bank speculation during her era of foreign exchange controls, and investigations into the regime’s role in the Iranian bombing of a Jewish center are ongoing which suggest a back channel payoff from Tehran.

Brazil after a banner 2016 remains stuck in its own scandal proliferation, as construction giant Odebrecht agreed to billions of dollars in criminal restitution to prosecutors and shareholders. Industrial output continued to drop at a double-digit monthly clip, as state debt problems lingered with a court ruling against federal help. Congress post-recess is to debate the proposed long-term discretionary spending cap tied to inflation and pension reform, as the central bank may relieve fiscal pressure with larger 50 basis point rate cuts. Infrastructure is in the spotlight as interim President Temer vows to introduce a new transport concession program after the bungled attempts surrounding the Rio Olympics. China may put $20 billion into a joint fund as the rules are rolled out, but previous road and railway schemes threw potholes into such ambitions and state development bank BNDES is no longer in financial position for repairs.

Haiti’s Battered Runoff Replay

2016 December 27 by

As Hurricane Matthew devastation lingered in a large swathe of the island outside Port au Prince, Haiti’s chronically delayed presidential election was finally held with just 20 percent turnout, but a winning 55 percent voting share by the former incumbent’s designated successor, banana farmer J. Moise. The second place candidate Celestin was 35 points behind and again alleged widespread fraud that will be investigated in a partial result audit. His victory was slimmer in the original 2015 contest that was annulled after violent protests and rigging suspicions, and the opposition Lavalas party has indicated a willingness to cooperate after such a prolonged  confrontation in part to rebuild after the latest natural disaster, which has overwhelmed UN relief pledges. The IMF offered a no-interest $40 million emergency facility and estimated damage at one-fifth of GDP. The 2010 earthquake which leveled the capital wreaked far greater destruction calculated at $8 billion but also a commensurate aid response, although the government and partners jointly admit to ineffective coordination that has left thousands still living in makeshift tent cities and a 60 percent poverty rate in the hemisphere’s poorest country. One-fifth the budget still comes from international assistance and the $2 billion remittance lifeline is double exports and FDI together. Officials set up a new centralized reconstruction agency to guide efforts into the next administration, and President-elect Moise intends to prioritize agriculture, corruption and climate change. He was previously head of the local chamber of commerce, and was favored by influential families with large industrial and financial holdings in the race while campaigning as a political novice outsider. His farming enterprise had close ties to former President Martelly, but unlike other allies he avoided scandal taint and criminal gang rivalry. His experience with foreign investors was limited but over the past year and a half speeches seemed to extend promotional efforts which may be smaller-scale than showpieces like the US and Inter-American Development Bank-backed Caracol free trade park, which failed to generate promised employment and infrastructure.

Cuba and Venezuela have been allies, but their influence has waned with their own economic setbacks and leadership transitions. Fidel Castro’s death at 90 highlighted the grim competitive and growth outlook after years of incremental reforms pushing hundreds of thousands to private sector small ventures, while keeping the main commodities and tourism mainstays under comprehensive state control. Exchange rate unification does not feature on the near-term agenda despite urgent foreign business pleas, and the US embargo may now remain in place under President Trump, who assigned a staunch advocate to his Treasury Department planning team. Cuban secondary debt and the closed-end Herzfeld fund prices jumped after the leader’s passing was announced but soon settled at previous ranges with marginal GDP growth forecast this year and likely economic and diplomatic impasses ahead, aggravated by the withdrawal of Caracas’ support as President Maduro’s regime clings to survival. He removed 100 bolivar notes from circulation in an effort to curb smuggling and hyperinflation estimated at 500 percent, on 10 percent output contraction and a 25 percent of GDP fiscal deficit. The state oil company completed a short-term bond swap to avoid default and had to sweeten initial terms as the government also relaxed bank reserve requirements for allocation to strengthen shelter.

Brazil’s Deconstructed Scandal Sketch

2016 December 14 by

Brazilian shares held on to MSCI-beating 70 percent and EMBI-leading 20 percent gains through November, as the arrested former chief executive of construction giant Odebrecht admitted to kickbacks in a plea deal set to implicate dozens of other members of the business and political elite. The bombshell verdict came as preparations mount for former President Lula’s corruption trial, and the interim Temer government handles new cabinet minister accusations of misconduct in a property transaction. The ceaseless scandal barrage has diverted attention from fiscal reform proposals on state finances, pensions, and long-term spending, as lawmakers in their shadow introduce legislation to place the judiciary on investigative notice and strip its immunity. GDP contracted 3.5 percent in Q3 and next year minimal growth forecasts have been further pared to the 1 percent and under range with industrial output down double-digits. Inflation with the output slack and stronger real toward 3.3/dollar has retreated to a likely 5 percent next year, which will enable several hundred basis points of central bank easing in principle. The primary fiscal deficit will remain constant around 2.5 percent of GDP as public debt creeps up toward 80 percent with residual commitments for provincial rescues. In the balance of payments, the current account hole should stay 1 percent of GDP on good commodity export and foreign direct and portfolio investment numbers, with the latter aided by reconsideration of Mexico’s prospects with President Trump in office. State banks are rationalizing operations and credit books with the headline NPL ratio at 4 percent, but the sector is grappling with a wave of major corporate bankruptcies including the Oi $20 billion telecoms default. Local and foreign creditors have appointed different advisers, and talks have been acrimonious with reference to a possible two-thirds haircut. According to S&P Ratings almost 30 borrowers have been unable to pay in 2016, and restructurings are lengthy and complicated despite recent liquidation procedure overhaul. The biggest debtor Petrobras has been promised domestic and international funds for working capital as it tries to sell assets, including select field rights. On the sovereign front the country as a net creditor became the first developing economy to join the Paris Club, as it may face Portuguese-speaking African exposure in Angola and Mozambique.

Argentina share and bond index advances are in high single-digits a year after President Macri’s election win, and ahead of mid-term legislative polls in 2017, which should keep the House and Senate party configurations intact, but act as a government early economic policy referendum. Growth should be 3 percent next year after 2016’s equal shrinkage on solid agricultural exports and consumption revival, with lower inflation estimated at 15 percent. Real interest rates remain at 5 percent, and bank stocks could take off with personal lending after a long absence during the Kirchner administrations. Social and infrastructure spending will sustain a 5 percent of GDP fiscal gap despite a tax amnesty that may collect $10 billion and staple subsidy rollbacks that dented the President’s popular approval. External debt appetite has surpassed original expectations with $40 billion raised this year in dollar issuance at home and abroad, with a heavy amortization and servicing schedule in the coming months. FDI in contrast has been paltry at $2 billion despite high energy sector interest with tariff adjustments, and critics note that reputation reconstruction still awaits long-term allocation.

Central America’s Migration Wave Slap

2016 November 30 by

Central American credits joined Mexico in absorbing the brunt of post-Trump election repositioning with their own close trade and remittance ties through the CAFTA agreement, coupled with fiscal and political doubts as investors prepare for tougher commodity and tourism terms. The Dominican Republic remains in favor as El Salvador is shunned, with Costa Rica and Panama under increased skepticism. In the sub-region only Honduras is under a formal IMF program, but that protection is unable to stoke confidence in the face of harsher US import and immigration restrictions in the next administration. The President-elect has vowed immediate deportations of millions of illegal workers starting with convicted criminals, and wholesale renegotiation of hemispheric commercial accords since original ratification decades ago. El Salvador’s 2 percent growth is the area’s slowest as mining hopes were dashed, and the 3.5 percent of GDP fiscal deficit is to be funded by $550 million in external bond issuance following delayed congressional approval. Half the 65 percent of GDP public debt is domestic, and $1 billion in short-term Treasury bill flotation the latest cycle was a record. The trade shortfall has been roughly offset by remittances above 15 percent of output, but annual 5 percent growth could halve under new Washington curbs, also expected to slash anti-poverty and economic reform foreign aid which fell under a special program during the Obama years. The Dominican Republic’s 6 percent expansion pace is triple its neighbor’s, with gold exports and domestic financial service and retail demand notable fresh drivers. Inflation is half the 4 percent target, but could creep up in 2017 with higher energy costs. The current account gap is modest at 1.5 percent of GDP, as visitor earnings jumped 10 percent to $5 billion through September, with 15 percent from South American vacationers. Remittance flows are the number three foreign exchange earner, and finance local small business as well as basic household needs according to studies, so a northern crackdown could quickly translate into depressed consumer and corporate sentiment.

Costa Rica’s economy has advanced 4 percent with telecoms and transport sector strength, on negligible 1 percent inflation. The 6.5 percent of GDP budget hole continues to defy consolidation efforts pledged by the government in its core platform, but politically untenable with its weak parliamentary influence. Currently 95 percent of spending comes from legal and constitutional mandates that remain sacrosanct and require annual double-digit borrowing increases. The large trade deficit is also structural and despite high-tech hub ambitions, tourism and related industries are still the competitive mainstays, with potential employers criticizing the local skills base. Panama is growing a healthy 6 percent and budget retrenchment has progressed under a responsibility law, with the investment-grade sovereign rating intact. However inflation is approaching the 4 percent target and infrastructure development may have peaked with completion of the Canal widening project. Revenue was projected to rebound 15 percent next year before the prospect of trade conflict, on the heels of the Panama papers anti-corruption and money laundering setbacks. The Trump team backs a push to repatriating offshore funds parked for tax and regulatory advantages to spur a cash migration wave for its own public works schemes, according to bankers bewildered by the successive sagas.

Venezuela’s Stubborn Self-Service Station

2016 October 20 by

Venezuela’s state oil company PDVSA came up empty in initial efforts to attain minimal 50 percent debt swap acceptance, despite higher yields in exchange for maturity extension, as creditors questioned the reliability of US Citgo gas station collateral again pledged to close the deal after issuance last year. Arbitration claims have also been filed against the assets serving to block agreement, as equity holders are likewise disturbed they would rank behind creditors in the new arrangement. Prices had lurched to 80 cents to the dollar before the failure, which may prompt further term enhancement for the $5 billion operation. At a ceremony marking Colombia’s peace accord with FARC rebels later rejected by referendum, President Maduro met with US Secretary of State Kerry but continued to foreclose the possibility of turning to the IMF or other “imperialist” institutions for help. He is in office until 2019, and the captive courts have not authorized signatures for a recall vote and stripped the opposition party-dominated parliament of budget powers. The private sector formal foreign exchange rate was devalued, but dollars are still scarce, as 800 percent inflation is reported and staple goods are only available on the black market aided by reopening of neighbor borders. The President’s approval rating is just 20 percent, and the cabinet is replete with military officers without appetite for takeover or large scale arrests so far while keeping their distance from leading civilians. Groups continue to return from advising and staffing the security forces in Cuba, where normalization with Washington took another step with easing of personal and business travel and banking and export rules within the confines of the decades-old embargo. President Obama before leaving the post released a broad policy directive designed to establish a bilateral relations foundation into the next administration. It cited increased private sector ties in agriculture, health and technology as a theme, and regulatory progress eliminating Havana’s penalties on dollar conversion. The dual exchange rate system and state monopolies persist, and the government remains in default on pre-revolution debt despite relief granted by other bilateral creditors. It has not applied for readmission to the Bretton Woods institutions, although Cuban economists have participated in research and events incorporated in the work agenda.

The island hosted Colombia’s guerilla negotiations, as the demobilization pact was defeated by a whisker in October’s plebiscite. Stakeholders went back to the table to forge compromise provisions that could win endorsement, but the political jolt was another setback for the sovereign rating already on negative outlook. A truckers strike could gap GDP growth at 2 percent, and inflation is far from the 3 percent target with the benchmark interest rate near 8 percent. President Santos, who got the Nobel peace prize for his effort, had planned to pivot to fiscal reform passage post-referendum with the deficit at 4 percent of GDP. Personal income and consumption tax increases are in the mix, along with simplification and loophole closure, but the working coalition in Congress has turned shakier. Andean observers betting on changes are now looking to Peru, where equities are outperforming as the MSCI Latin America winner and main tax goal is to collect informal money escaping the system to date but also denying citizens their social service fill.