Latin America/Caribbean


Latin America’s Ineluctable Election Elevation

2018 March 22 by

Financial markets in Argentina, Brazil and Mexico strained to continue early year positive direction, with looming presidential election cycles overwhelming business and economic ones themselves presenting a mixed picture. Argentina’s contest is not until next year, but another term favorite President Macri has run into trouble with his “gradualist” adjustment program initially cheered and now displaying lackluster growth, inflation and FDI results. Labor unions long associated with the Peronist political opposition have gone into the streets to press for annual wage gains above the 15% target, after the price gauge was up 25% last year. The union federation head has been accused of embezzlement, but orchestrated a truckers strike also designed to challenge proposed labor reforms. The central bank’s anti-inflation credibility in turn was eroded after a surprise unexplained interest rate cut which may have been designed to curb peso appreciation with strong foreign portfolio inflows. The government issued $10 billion in external debt through February, and provinces and corporations joined the bandwagon. The carry trade case is still compelling on double-digit yields but the one-way bet will be muted with a volatility dose that the monetary authority could intend. The strategy could be compromised by chronic direct investment weakness, at 1.5% of GDP half the regional average, in the capital account. The infusion is also needed to cover the higher current account deficit as drought ravages agricultural exports, and consumers embark on an import spending binge with restrictions lifted from the Kirchner era. Industrial production was flat in December as a recent construction boom could be over, and the 2017 growth tally will not reach the 3% threshold for bonds’ warrant premium. Investors can point to fiscal deficit progress with subsidy rollback, but balance will remain elusive pending implementation of structural tax and pension changes. The President and his team propose more action in a second term, but social transfer cuts were a wedge issue in the parliamentary polls several months ago, and rival party chamber control supported by opinion surveys against future reductions will be difficult to overcome.

Brazil enthusiasm picked up on a court ruling that former President Lula, the front runner with a commanding lead over right winger Bolsonaro, was ineligible to run with his criminal bribery conviction, but left after he appealed the decision. The pension overhaul narrative was dented too as the Temer Administration, seeking supermajority congressional passage of a constitutional amendment, abandoned the effort in the face of its 5% popular approval. Ratings agencies downgraded to “BB” in response, as the embedded cost of mid-50s early retirement is predicted to swell government debt to 75% of GDP by end-decade. S&P also cited unmet “fragilities” in the federal fiscal framework, including previous state and local authority rescues since they cannot place debt. “Subdued” growth estimated at 3% this year will not alter the budget path, and inflation could also increase over the medium term from current under-target lows. In external accounts the agency praised near elimination of the current account hole, but warns the country has reverted to a net debtor position with private sector borrowing, with total net liabilities over 250% of receipts. Petrobras tops the list with close to $150 billion outstanding, after settling a US class action lawsuit for $2.5 billion on clear shareholder candidate victory.




Central American Remittances’ Premium Protection Stakes

2018 February 24 by

With the US planning to lift “temporary protection status” for Northern Triangle El Salvador, Honduras and Nicaragua and Haiti migrants, remittances jumped 8% to $75 billion for the seventeen countries in the Inter-American Dialogue database last year. The pace was a multiple of 1% regional GDP growth and mirrored export increase. For Central America and the Caribbean 3.5% growth was due to a 15% remittance uptick, and the numbers reflected continued North American labor demand as well as dollar depreciation in Mexico, the Dominican Republic and Costa Rica. The violence-prone Triangle area has been in recession for a decade and families continue to head to the US border with apprehensions also declining. In Guatemala as an example 15% of the Western Highlands population left and transfers were up 17% according to the central bank. One-quarter of El Salvador’s citizens want to leave, surveys show, and in the Dominican Republic despite greater stability the number of transactions has jumped. Haitian emigration on the eighth anniversary of the record earthquake is toward Canada and South America as well, particularly to Brazil and Chile, which now hosts 100,000 in contrast with 5000 before the event. Mexican remittance growth was steady at 6%, but the weaker dollar may have prompted slightly lower volume. The individual principal amounts sent  roughly reflect the 2016-17 aggregate changes, but deportation fears may be forcing more savings on hand in case of such action. The flows contribute in the range of 5-35% of GDP, and work abroad is often the main alternative to informal employment at home, with substandard pay and labor protection. In El Salvador and Haiti immediately targeted for status termination, they account for one-third of national income, and Haitian migrants with the TPS designation are 6% of the total, the Dialogue report notes. President Trump allegedly used an epithet to describe the poorest hemisphere country, as a 2017 survey of five US cities revealed mounting Latino anxiety over potential law enforcement crackdown or new taxation.


On average a dozen payments are transmitted annually and only one-tenth are through the internet. With a tax 40% polled would resort to informal services, and one-quarter plan to cut amounts. One-third of immigrants think they will be deported, and 60% do not expect home government support. Over half would be open to a fine to normalize status, and the same portion claimed jobs were harder to get with the Administration’s tougher despite the healthy US economy. 70% of respondents believe that the door will be shut altogether to legitimate refugees as the provisional shelter program also lapses. Honduras’ external bond was shaky as President Hernandez was inaugurated for a second term after a disputed election fostering street protests and a security force response with live ammunition. The opposition candidate, a sports broadcaster, cited computer manipulation of his apparent victory and national strikes were organized against “dictatorship” as the Organization for American States urged a rerun. Chile may harden its line against Haitians after President Pinera’s second term win, which upgraded the growth forecast to 3.5% on boosted private sector confidence and modest rate cuts alongside but he may turn previous social spending promises to rubble.

Chile’s Elevated Election Rerun Fatigue

2017 December 11 by

Chilean stocks on a 35 percent run on the MSCI Index through October were humbled as repeated rightist presidential election favorite Pinera did not won on the first round as expected, with respective  center and far left contenders Guillier and Diaz finishing close behind. He would succeed outgoing President Bachelet for a second time, after her term was marred by meager growth at 1.5% this year and stagnant fixed investment from tax, labor union and private pension changes. She angered the mining community by refusing projects on environmental grounds, while expanding university access to low-income students. With family members caught in scandal, her popularity rating dipped below 25%, and the ruling coalition could not unite around a candidate leaving the field seemingly set for a Pinera romp although his abrasive character and past allegations of illegal campaign funding continued to alienate voters. In contrast with his initial sweeping free-market platform, the latest version has been cautious to court moderate support but includes easier copper industry permitting and labor rules after export rebound on Chinese demand. As the contest plays out inflation is subdued at under 2 percent aided by a firmer currency, and the central bank after an extended hold may cut rates into 2018 should food prices be unaffected by weather conditions. The business-friendly contender’s lackluster result may be an ominous signal for upcoming polls in Colombia as President Santos, another unpopular incumbent, exits on equally meager growth and a controversial peace deal with the guerilla FARC, which has registered as a political party to offer its own standard-bearer for “economic justice.” Oil export earnings are up, but the current account deficit will still come in around 4% of GDP, and the fate of fiscal reforms to curb that gap is uncertain under the next administration, which may be under public spending pressure to meet infrastructure and social commitments.

Mexico’s mid-year equity rally has petered out as the election cycle there looms alongside NAFTA renegotiation impasse after several rounds. Ratings agencies began to present worst-case scenarios under pact dissolution which would trigger the worst recession in a decade, as officials reject devastating outcomes with the remaining global network of trade relationships. Presidential early poll leader Lopez Obrador has toned down his trademark populism but promises to spurn a bad North America deal and revisit private opening of the state petroleum sector. He directs venom toward President Trump as an “irresponsible neo-fascist” while promising to uproot corruption and drug trafficking at home through new approaches. An independent opponent, the spouse of ex-President Calderon, has emerged with 10 percent backing under a “conciliator” vision appealing to centrist voters after she spurned the conservative National Action Party. The ruling PRI has not yet designated a successor to President Pena Nieto, whose reputation suffered from consecutive insider scandals and economic and law enforcement missteps. Central bank head Carstens steps down in November with annual inflation at 6 percent, triple the growth rate, and rate rises on the horizon to match the US Federal Reserve’s likely trajectory. The peso again dipped toward 20/dollar as sunset clauses and other negative constructs gripped upcoming tripartite talks and runoffs.

Jamaica’s Weather Beaten Backstop Boomerang

2017 November 29 by

Jamaican stocks were up almost 75 percent on the MSCI Frontier index and external bonds were reopened at record low 5-6 percent yields, as the IMF praised strong compliance under the second review of the 3-year $1.7 billion program. Fiscal year 2016-17 growth was 1.5 percent on second half mining, weather, and agricultural lag offset by “buoyant” construction and business outsourcing which reduced unemployment to 12 percent. Headline inflation was 4.5% in August, within the target zone, and the central bank dropped the benchmark rate 25 basis points to sustain double-digit credit expansion with bad loans now under 5 percent of the total. The current account gap rose to 2.5% of GDP with car and machinery imports on $2 billion in net international reserves and slight local dollar depreciation in the last quarter. In the financial sector securities dealer oversight tightened and competitive foreign exchange auctions were launched. The budget was roughly in balance with a 7 percent primary surplus amid slow progress on reducing public sector wages and “reshaping” government, according to the Fund’s October report. Pension reform is under preparation with Inter-American Development Bank help, and one-fifth of assets in two big state bodies, the Urban Development and Factories Corporations, could be divested though the stock exchange and direct tenders, with the plan a key trigger for the market rally. While all securities brokers observe a master retail agreement, legislation has not been finalized for a new bank resolution regime and pension fund portfolio guidelines for more domestic and international diversification. The central bank may need recapitalization, and foreign exchange exposure is a “sizable share” of financial institution balance sheets, equal to 10 percent of GDP for non-loan investment. Intermediaries often finance themselves through subsidiaries and are in turn tied to corporate conglomerates threatening wider spillover risks, the analysis cautioned.

A separate IMF piece of work soon to come out as a book examines the broader Caribbean distressed debt legacy over the past decade which peaked at 15-20 percent levels and have only marginally improved with lingering restructuring, sale and write-off obstacles. The highest loads are in the Eastern Caribbean in St. Kitts and Nevis and Dominica, while at the opposite end Trinidad and Tobago, with stocks ahead 7 percent, has less than a 5 percent burden. They contribute to economic drag, and courts take on average three years for insolvency cases. Valuation and registration are inadequate and social customs also weigh against disposal as property foreclosure is shunned. The research asked bank executives and government officials to rank the chief resolution impediments, and the former stressed economic, legal, collateral, and real estate conditions, while the latter cited poor creditor information and underwriting and the absence of formal impaired asset markets. The authors split the difference by urging clearer loss recognition rules and greater credit bureau use as in Jamaica in recent years. Judicial and bankruptcy frameworks should be revamped and beyond the Bahamas a pan-regional NPL market could be set up, building on OECS harmonization efforts in asset management and credit reporting to create “momentum” rather than creative accounting, they suggest.

Argentina’s Churlish Change Election

2017 November 3 by

Argentina financial assets shook off a brief scare about a parliamentary election opposition and Peronist party comeback against President Macri’s new Change movement with a rally after it won 40 percent of the vote and gained seats in both houses although still in minority position. The victory reflected popular acceptance of the government’s “gradualist” reform agenda despite opinion survey dips as well as rivals’ weakness, with no clear candidates emerging to claim the mantle of ex-President Christina Fernandez, who was narrowly defeated in a Buenos Aires Senate race as the target of corruption and abuse investigations during her time in office. Ruling party momentum should translate into promised labor, tax and capital market overhauls as details are proposed. Corporate income rates could come down 10 percent, and worker formalization could include amnesty while the social security system stays intact. Local institutional investor development, particularly mutual funds, is a priority with near-term elevation to core MSCI stock market status in mind. An infrastructure public-private partnership framework is also set to roll out an estimated $10 billion in annual projects through end-decade. The economy is out of recession and the fiscal deficit will improve this year, while inflation is stuck at 20 percent forcing the central bank to keep interest rates high as credit, especially mortgages begin to pick up after a prolonged freeze. The budget gap relies on external financing with another $2.5 billion sought before year-end, and exchange rate adjustment has lured investors after the decade-long capital controls regime while widening the current account deficit. The administration has pushed to realize potential from non-agriculture exports with currency competitiveness, but the scope is limited pending productivity and technological changes for small-scale manufacturing.

Elections are in the spotlight throughout Latin America as a main risk amid commodity recovery and sovereign ratings stabilization. Brazil’s Finance Minister Mereilles is rumored as a presidential candidate in 2018, as opinion polls show former convicted President Lula in the lead amid a pack of ideological entrants who may be too extreme for average voter appeal. Social security overhaul could be enacted before the thick of the political cycle, with modest trims the most likely scenario. Interest rate cuts may have run their course with inflation at the bottom of the target band, despite output slack, as development bank subsidies are also pared with a market-based benchmark. President Temer’s approval number is only single digits and he barely escaped the impeachment track, but is still in prosecutor sights for allegedly pocketing bribes from disgraced meat purveyor JBS, which faced securities holder lawsuits in the US and other jurisdictions.

Mexico’s peso has again flagged under US threats to dissolve NAFTA, after several negotiating rounds ended in acrimony. Trade Representative Lightizer insisted on strict local content revisions and a periodic sunset clause under which the agreement would automatically expire every five years without explicit renewal. Mexican officials tried to portray the talks as normal posturing while pointing out that half of cross-border commerce would survive pact abolition. The economists presenting the Mexican side have tried to make the case that the bilateral trade deficit is due to multiple factors, and pointed to recent breakthroughs in state oil company Pemex’s private auctions as removing barriers, but Trump tweets call for more dramatic change.

Central America’s Clinging Clown Acts

2017 September 18 by

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.

Argentina’s Convoluted Christening Ceremony

2017 September 11 by

Argentine stocks, after sloughing off disappointment at MSCI’s unmentioned first-tier return with the frontier index up 35% through July, was again on edge into mid-August primary elections, with former President Christina Fernandez charting a Senate comeback to rally the opposition Peronist party. She retains popularity especially among working class pockets in the capital as the current political base, given the large social spending during her tenure subsequently slowed under the Macri government’s austerity policies. However corruption and money laundering investigations have put her on the defensive, and she roughly tied with the ruling Change coalition candidate in the preliminary race ahead of the October mid-term polls. Foreign investors took her revived visibility in stride as the central bank intervened to support the peso after relative stability following its free float. Recent inflation figures still at 1.5 percent monthly and delays in agricultural export proceeds have pressured the currency, but the monetary authority has tried to maintain high real interest rates through a 25 percent benchmark and Lebac secondary market transactions. The exchange rate has slipped over 10 percent in nominal terms the past few months to 17/dollar with the current account deficit wider at 3 percent of GDP on goods and services imbalances, the latter from increased tourism abroad. Fiscal policy is mostly on target with the primary gap around 4.5 percent of GDP despite election-related outlays and consolidation backlash as unions organize against consumer subsidy and provincial transfer cuts. Should President Macri’s grouping hold its own in the October contest the process will accelerate as sovereign bond holders have begun to insist on further discipline with growth pickup to sustain high-yield participation.

Brazil is also grappling with overdue reforms as President Temer survived an initial impeachment attempt and his cabinet vowed to press on with labor and social security changes. The employment code overhaul will update World War II era practices and ease administrative burdens for small business in particular, while pension adjustment remains uncertain with plans to extend retirement age and conceivably shift to private fund reliance as the current generous scheme is an outsize budget drag. The pro-business PSDB, which backed Temer’s ouster, is a proponent while his PMDB, the largest party in Congress is divided a year from the next scheduled national elections. The government must tread carefully after bad publicity over price and service switches at passport offices and other essential arms to save money. The overall deficit is stuck at 10 percent of GDP and the once sacrosanct primary surplus will not reappear over the near-term. Loosening has moved to the monetary side as the central bank continues to reduce the benchmark Selic, with inflation at a 20-year low of 3 percent on incipient economic recovery. However recession is still deep in Rio de Janeiro state a year after the Summer Olympics there prompting a media blitz of critical retrospectives. A former governor is in jail and major politicians in charge of the event contacts face criminal prosecution, as law and order has worsened since the closing ceremonies. Federal authorities have dispatched 10000 troops to patrol the streets and beaches as the sporting facilities originally designed for productive municipal use lay idle in another form of retirement abuse.

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.