Latin America/Caribbean

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Venezuela’s Circuitous Sanctions Cycle

2019 October 13 by

Following Venezuela’s removal from benchmark bond indices after US sanctions as rival international coalitions line up to remove and support the Maduro government, investors stuck with exposure have joined Latin American researchers in questioning the endgame of commercial pariah status. The Lima Group and EU also imposed curbs, as Cuba, China and Russia continue to support Caracas as well as opposition talks with National Assembly head Guiado forty countries recognize as the accepted President. Washington’s crackdown began in the Obama Administration with top official asset and visa confiscation, and President Trump added hundreds of individuals and companies and entire sectors before a recent blanket ban. The specific order against state oil monopoly PDVSA went into effect in June as creditors scramble to lay claim to Citgo and other holdings to collect overdue payment. The central bank is on the list as well as Russian banks involved in the petroleum industry, and all US dollar and crypto-currency transactions are taboo. Sanctions are not to blame for the economic, social and humanitarian catastrophe, as hyperinflation, hunger and mass exodus preceded the ramp-up, according to a September Center for Strategic and International Studies note. Oil production accounting for almost all export revenue fell millions of barrels, and a two-decade record of socialist mismanagement and corruption provoked widespread output and institutional collapse. Even when cash was available to import food and medicine, the regime and military tightly controlled distribution, and they never allowed free and fair elections in independent observers’ view. An oil-for-food program as the UN coordinated during the Saddam era in Iraq would require unlikely external access and oversight, amid evidence staple subsidies routinely exclude political enemies. Direct aid through churches and community centers outside government interference is unrealistic and unwieldy, even as citizens demand help though additional channels.

CSIS cites a financial and diplomatic vise on Maduro’s inner circle, but calls for a greater chokehold on criminal enterprise including drug dealing and money laundering. It recommends repurposing of internationally-garnered assets for humanitarian needs, as an estimated 4 million refugees are spread throughout the Andean region. It remarks that Chevron still operates in the country lacking a clear framework, and US banks should identify sound untainted counterparts for future transition. Sanctions have not succeeded in restoring democracy or hastening incumbent exit, and both objectives await a separate design from the expanded global community. Russia’s behavior in Ukraine has not changed from the version there, as the civil war in the east leaves tens of thousands displaced and killed. Washington may soon outlaw bond-buying, as the foreign investor share of ruble issuance stands at one-fifth the total. The fiscal and current account outlooks have worsened for 2020, as regular Moscow demonstrations mobilize anti-Putin sentiment. Overtures toward the new President in Kiev may bring a thaw such as prisoner exchange, but his focus is on restoring the IMF program to bolster the currency and reserves. With legislative curbs on Russian paper US fixed income investors could diversify into domestic 15% yields with the Fund’s sanctioned approval of budget and energy sector reforms.

Argentina’s Repeat Restructuring Recipes

2019 October 4 by

Argentine securities were in free fall after the August opposition coalition primary election wipeout of incumbent President Macri and his party previewing a clean first round triumph, with credit default swaps predicting 85% of default as new Finance Minister Lacunza acknowledged immediate local and external debt maturity extension urgency. Stocks dragged the MSCI Frontier Index into jeopardy after outperformance through July, while the peso plunged 20% toward 70/dollar and ratings agencies assigned CCC blowup status. Treasury bills held by banks and official agencies will be re-profiled before the October contest, with outstanding dollar obligations across all categories over $300 billion, around 90% of GDP, close to the 2005 peak which set off a decade of crisis and creditor confrontation. The initial stage was an imposed 25% external bondholder haircut, but officials vow not to repeat such unilateral action as they face $25 billion in annual maturities over the next three years. The almost $60 billion IMF program was designed to facilitate commercial rollover, but the Fernandez-Fernandez ticket has indicated renegotiation or rejection if they win and previous assumptions must again be recalibrated in any case. International reserves are down to $55 billion and dollarization and deposit withdrawal domestically could inflict further interest and exchange rate pain, threatening to tip the benchmark rate toward triple digits. Planned Fund disbursements this year were over $20 billion and were to tail off to 5 billion in 2020 before repayment starting in 2021. A delegation visited after the poll result and pledged continued support, but Washington decision making will be delayed by the interregnum awaiting proposed Managing Director Georgieva, who must secure an age waiver since she’ll be 65 in the post.

The government debt is just over half market-based, with almost a quarter of the stock owed to development lenders including the Chinese. It is 80% of the aggregate with 20% corporate, and international bonds with collective action clauses are just one-fifth of instruments. Consensus economic estimates project a small current account surplus averaging $5 billion over the medium term, but cash flow relief was a consideration before the election shock and the T-bill restructuring will reduce net present value to 98 cents/dollar. Extrapolating for other forms at this juncture results in a wide possible exit spread range from 500-1500 basis points. Foreign law global bonds trade in the 40 range and a 75% majority is needed for future modification. Since their EMBI return dedicated investors are overweight and control around $25 billion, and distressed specialists resorting to litigation are in that pack. The “pari passu” covenant loophole which Elliott Associates used in the past to press its claims with an eventual $2 billion payout has been eliminated, but peers reportedly are devising other strategies. Quasi-sovereign corporate issuers may be in their sights for recovery value at a multiple of the 30 in the early 2000s episode, with the intent of raising CDS trigger pressure on the $25 billion gross notional sum tallied in DTCC data. Venezuela went through the determination process and verification recently and was then removed from the EMBI benchmark lifting the spread over US Treasuries to 350 basis points. Another “non-investable” blow to Argentina could be a bitter legacy with higher-profile concern for the election winner.

Central America’s Interrupted Integration Intent

2019 September 13 by

The arrival of hundreds of thousands monthly into the US and Mexico from the Northern  Triangle of El Salvador, Guatemala, Honduras and the rest of Central America over the past year is an economic, diplomatic and humanitarian tragedy and specific investor disappointment. Latin America sovereign bond investors entered originally with a dedicated index. Equities joined corporate bonds on stock exchanges, with Panama recently added to the Morgan Stanley Capital International frontier list. Performance suffered amid fiscal and balance of payments woes, crime and insecurity, and lack of competiveness and policy reform after initial enthusiasm following passage of the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA).

 Regional banking and capital market integration blueprints were considered but never fully realized, amid notable strides in private pension creation and financial sector regulation. International development institutions and private fund managers offered encouragement and technical support, but focus disappeared long before the refugee and rule of law crises. In the US, the Obama Administration led a broad initiative to improve governance, and before cutting aid President Trump repeated that approach. The new Development Finance Corporation may revisit financial market building with venture capital deals, but the bigger agenda is missing to channel portfolio and remittance inflows.

El Salvador after its civil war had reconstruction and modernization as priorities in line with international standards. The central bank, working with the donors, invited bankers and fund managers to share best practices and recommendations for active credit and securities markets Officials committed to Basel Committee capital adequacy guidelines and diversifying beyond private debt placement. The exchange rate regime provided stability as a dollar peg and then the dollar outright was adopted. The ex-rebel FMLN and conservative ARENA parties alternated in power and promoted manufacturing exports to boost the balance of payments.

They introduced private pension funds as a main institutional investor and regular domestic and external bond buyer, However public debt now over 70% of gross domestic product is a drag on the economy projected to grow 2% this year, and it jeopardized the core social security system as benefits were delayed. The new President, former San Salvador mayor Nayib Bukele, took office in June after a landslide victory and promised to clean up the mess through “market-friendly” methods. He campaigned on increased social spending within a 3% fiscal deficit, and fresh funding alternatives to lift domestic demand, which could include a second generation private retirement contribution scheme.

Guatemala and Honduras are smaller in frontier bond markets, with lower debt levels and more commodities dependence. Honduras’ debut issue several years ago coincided with a fight over presidential removal for corruption, as dueling chief executives laid claim before snap elections. It previously received debt relief from bilateral and multilateral lenders under the low-income Heavily Indebted Poor Country program, mirroring a commercial access path more common in Africa.

While the Northern Triangle has pronounced “junk” credit ratings, the Dominican Republic, a small component in JP Morgan’s bond benchmarks, is BB and Panama is investment-grade BBB. Both register faster 5% growth, and have enacted tax and spending changes for greater budget balance. Before its recent tourism scare with unexplained visitor deaths the DR was a rare buy recommendation. Remittances combined with foreign residential and hotel investment for a minimal 1.5% of GDP current account gap, and President Danilo Medina in his second term backs public-private partnerships to remedy chronic electricity shortage. Panama received ratings upgrades the past year, with the incoming Cortizo government intent on combatting corruption and expanding mining and financial services to offset Canal revenue decline.  It was a top MSCI performer in the first half, with a near 25% gain.

Central America’s positive economic and financial sector elements that once comprised the DR-CAFTA spirit have been forgotten with the current migration and security pressures and cross-border business and political recriminations. Bank and broker associations and chambers of commerce can reprise credit and capital market strengthening advocacy, as dedicated multilateral lenders like the Inter-American Development Bank and Andean Development Corporation (CAF) emphasize these themes within good governance and sustainable investment priorities. The CAF held an annual conference in Washington last week, and speakers cited hemispheric displacement and social and physical infrastructure crises new bond issues and indices and investor outreach policies could help overcome.

Mexico’s Misplaced Missionary Zeal

2019 August 23 by

Mexican stocks lagged peers with a MSCI Index outcome through July, one year after President AMLO was inaugurated, after the Finance Minister resigned in protest over lack of “evidence-based” policies, possibly referring to $20 billion in tax and investment relief for state oil behemoth Pemex relentlessly downgraded by credit rating agencies. His successor and deputy Herrera is another nominally orthodox pick with World Bank background, but the President’s “fourth transformation” anti-economic liberalism stance routinely overrules his team with arbitrary moves. A new $15 billion Mexico City airport was cancelled leaving bondholders in the lurch and government planes and perks have been offloaded, at the same time Pemex already saddled with $100 billion in debt gets an $8 billion refinery. Next year’s budget plan foresees a slight surplus analysts challenge since government contingent liabilities are masked, and the latest GDP figures narrowly skirt recession. Bureaucracy has been slashed in favor of direct cash payments for social spending, with civil servants demoralized the absence of longer-term education and health reform strategy. The peso has dipped toward 20/dollar with investor backlash, but as a general emerging market proxy these effects are offset in industrial world low interest-generated risk-on sentiment.  Members of the President’s party, which has no Senate majority, urge a compromise legislative agenda and warn against individualized power. They united with the opposition on beefing up Central American immigration control, after US President Trump threatened special tariffs despite renewed free trade agreement. Mexican lawmakers are expected to back the accord, which faces tougher sailing in Washington heading into an election year. Democratic presidential candidates advocate stricter environment and labor provisions and to reopen negotiations even with ratification this year. Auto supply chain relocation from China has been notable with that bilateral tiff, and executives note that neighbors like Brazil, which recently signed a pact with the EU as Mercosur’s powerhouse, could be a fallback as treaty and refugee frictions resurface.

Brazil stocks rose 15% despite growth forecast cuts toward 1% and continued corruption allegations surrounding President Bolsonaro’s family and close allies, including famous Car Wash prosecutor Moro who may have interfered in investigations. Nepotism is another complaint with his son reportedly tapped as US ambassador despite lack of credentials, and a 30% favorability rating reflects the anemic economy as well as discontent over ultra-conservative military and social positions. Courts have defied anti-minority rhetoric to enshrine ethnic and sexual preferences in law, but conference tourism has suffered with boycott incidents. Banks have 3% bad loan ratios but credit is expanding just above that pace as the policy agenda focuses on social security reform passage to rein public debt, with initial lower house approval. Argentina (+25%) was the surprise stock market winner before primary election results come in mid-August handicapping President Macri’s second term chances. He picked a Peronist running mate in an attempt to neutralize the “Fernandez 2” ticket which could bring Christina back as Vice President. In early voter surveys the two camps are roughly even as the peso has rebounded on lower inflation since May’s near 60%. The IMF’s $55 billion rescue is largely on course, and the European successor to managing Director Lagarde will likely embrace its largest program coming on board right before the October poll.

Argentina’s Stretched Intervention Band

2019 June 2 by

Argentina’s peso as the worst emerging market performer, down 12% through April, continued to drag stocks and bonds with it as runaway political fears about the return of former President Christina Fernandez joined 50% inflation to force the central bank to abandon the IMF-agreed no-intervention zone. The peso veered toward the low 50s/dollar, as tighter fiscal and monetary policies could not dampen consumer price increase expectations or instill business confidence, amid relentless capital flight and banking system shift to short-term deposits for immediate access. Current President Macri, has fallen behind Christina in opinion polls before the October elections, even though she has not declared and faces corruption charges from her tenure. Her memoir was published at the same time as the popularity surveys and contained anti-IMF diatribe investors cite as the basis for repeated debt default after last year’s $55 billion rescue. In June, the major party contenders will be chosen in primaries to clarify the race, with former Economy Minister Lavagna in the mix from the center-right as a preferred financial community alternative. To tame inflation, the benchmark interest rate was hoisted above 60% and controls were imposed on staple items and quickly provoked shortages. The government has leeway to raise budget social spending, but poverty hits one-third the population and only minimal economic growth is projected this year. The much-promised foreign investment boom never materialized as offshore energy was whipsawed by US fracking competition, and multinational companies faced huge valuation losses in currency translation under standard accounting rules. With cumulative inflation above 100% the past three years, the dollar must now be used in balance sheet statements as the “functional” unit.

Brazil in contrast is positive across financial assets despite recent pullback, as the Bolsonaro Administration’s twisted economic and social strands create conflict and confusion. The President glorifies the pre-democracy military junta but has been at loggerhead with his vice president, a noted former general, over foreign and security policies. As a mainstay in the campaign platform, he denounced immigration, but Venezuelan refugees from socialist Venezuela are now a notable exception. In schools his early emphasis is on purging curricula with untraditional family values, while the business community urges skills and technology training. The manufacturing PMI is above 50, and FDI is on track to recover to $70 billion annually, but industrial output remains slack on 12% unemployment. Corporate profits are up from previous recession to bolster stocks, and bellwether state firms like oil giant Petrobras and development bank BNDES are under dynamic new management. They are under the influence of the University of Chicago free-market approach championed by Economy Minister Guides, who founded a private equity house and a think tank reflecting the philosophy. He is leading the charge for overdue reform of public pensions swallowing the budget, and has battled with lawmakers for a majority to fix the “doomed” system. The effort has been bogged down in internal government fighting over content and strategy, and complications from the relentless Car Wash investigations with parliamentarians and their allies in their sights. With estimated GDP growth under 2%, the 6.5% benchmark rate should not budge, and with $300 billion in reserves and a stronger real intervention is unlikely unless central bankers are accused of unconventional social behavior.

Central America’s Border Bid Blast

2019 April 28 by

As US President Trump threatened to shut the southern border through Mexico to Central American asylum seekers, small bond issuers in the region braced for investor fallout amid otherwise buoyant market conditions with Federal Reserve tightening suspended. After promising immediate shutdown, the President retreated and gave the Mexican government one year to better manage the inflow, as the current policy allows indefinite local humanitarian stay. He brandished tariff re-imposition on car imports with no action, in conflict with the revised USMCA free trade treaty under consideration in Congress. The budget team pared infrastructure and social spending elsewhere to preserve fiscal discipline and a primary surplus, as the ratings outlook is already negative and state oil giant Pemex has been downgraded. El Salvador has been a main “Northern Triangle” exodus source, after former capital city mayor Bukele won a landslide first-round presidential election victory in alliance with a small conservative party. GDP growth is in the 2% range, with a manufacturing slump offset by strong remittances and public debt above 70% of output with the interest bill increasing. A medium term issuance calendar will cover external obligations, but the budget shortfall is stuck at 3% of GDP and despite his market-friendly platform the new President’s specific economic policy and reform agenda is unclear. Looking to neighbors for comparison, after Costa Rica was downgraded to “B” last year, the national assembly debated overdue fiscal changes challenged in the supreme court. They were recently approved, and introduce a value added tax and extend the capital gains charge beyond property. The deficit is still projected above 5% this year, and will be partly bridged by $1.5 billion in global bonds in the pipeline. Unlike El Salvador which uses the dollar, the local currency continues to slip as the central bank keeps a 5% policy rate on inflation half that level.

The Dominican Republic should again be a leader with estimated 6% growth on solid construction and tourism, despite the chronic energy squeeze and a softer peso. The current account is in slight deficit due mainly to oil and equipment imports, and fuel subsidies remain a budget drag after President Medina also hiked public sector wages 10%. He may again attempt re-election in 2020 after an open primary system was agreed, and electricity sector overhaul will be a prominent campaign theme as major areas are still unconnected to the national grid. Panama has congressional and presidential polls in May, with the incumbent party running behind the leftist PRD candidate Cortizo after numerous corruption scandals. Moody’s upgraded the sovereign a notch after fiscal responsibility law refinement, but the stock exchange was a big loser on the MSCI frontier index with a 40% first quarter loss. No party is predicted to secure a legislative majority as the overall business-oriented strategy will continue with likely bribery and tax evasion crackdowns. Growth should be around 5% in 2019 after falling below 4% last year, as the Canal benefits from trade pickup and a new mine begins operation. The debt/GDP ratio has settled at 40%, but the Trump negative Central America effect could further reverberate after his name was stripped from local property over a management dispute.

China’s Latin America Litter Litany

2019 March 17 by

China’s MSCI Index comeback, with double-digit gains through February, continues on strong foreign investor inflows. Morgan Stanley and Citigroup predict over $100 billion in allocation this year, even if “A” share weightings only increase incrementally. According to data trackers, around $10 billion went into equities in January, and the Shanghai exchange this week notched the biggest daily rise since 2015 and is up almost 20% for the first two months. Lunar New Year retail sales climbed only 8.5% on an annual basis, the worst performance since coverage began in 2005, and with US trade tensions the current account surplus was barely positive in 2018. However gross domestic product growth is expected to continue in the 6.5% range as the government again opened the fiscal and monetary spigots short of “flood-like” stimulus. It will likely widen last year’s 4% of GDP declared budget deficit, and total social financing hit a record RMB 4.5 trillion in January with a raft of new state bank facilities directed at small business in particular.

The enthusiasm sloughs off research such as respective Morgan Stanley and China Beige Book criticism that the economy is in “long-term decline “ and published national account numbers are “garbage.” It ignores the first offshore state company bond default in 20 years when Qinghai  Provincial Investment Group failed to pay $10 million due in Hong Kong, and stock exchange price-earnings ratios tipping again into double-digits toward recent averages. Retail investor margin loans have resurfaced as a catalyst, and any Beijing- Washington trade truce may prove short lived as President Trump extended the March negotiating deadline. With Venezuela’s eruption spilling over into neighbors, emerging market investors increasingly are wary about China’s large Latin American footprint as a new risk. Bilateral policy bank loans to Caracas totaled almost $70 billion the past fifteen years, according to a database compiled by the Washington-based Inter-American Dialogue. Internationally-recognized President and opposition head Juan Guaido pledged to honor outstanding obligations estimated at $20 billion for principal alone, and Ecuador as another major recipient just agreed on an International Monetary Fund program to be able to settle its own oil for credit ledger, but both contingencies could further erode Chinese financial system and fiscal discipline commitments.

In 2018, the China Development and Export-Import Banks lent over $7.5 billion to Latin American and Caribbean governments and state-owned firms, outstripping activity through the World Bank and Inter-American Development Bank. Venezuela took $5 billion, around two-thirds the sum, and Ecuador and Argentina, which received a record $50 billion IMF rescue last year, each got $1 billion. The Dominican Republic’s electric utility borrowed $600 million, with the regional sector focus as in the past on energy and infrastructure. The arrangements do not attach policy conditions but require Chinese contractors and equipment, as in Argentina’s railway and Ecuador’s earthquake reconstruction. In Venezuela its stake increased in oil output, as the Maduro administration announced the drilling of several hundred wells and a joint venture between the state monopolies CNPC and PDVSA.

Chinese facilities are on commercial terms, but in Ecuador’s case the interest rate was half the 11% through standard global bond issuance. With Venezuela’s additional funding last year, Beijing stipulated an end to a previous principal payment grace period, implying a country exposure limit even before the confrontation between National Assembly leader Guaido and incumbent Nicholas Maduro over presidential legitimacy. Elsewhere dams in Argentina were caught in corruption allegations, and a Bolivian one was halted after lack of local community consultation, the Inter-American Dialogue finds. These projects are under pressure to improve risk assessment and preparation, especially since they were rejected on environmental and social grounds by other development lenders. Latin America’s relationship to the multi-trillion dollar Belt and Road Initiative is also an open question, as Beijing emphasizes closer strategic areas geographically. Argentina and Ecuador reportedly wish to renegotiate loan terms, and Brazil’s new President Jair Bolsonaro campaigned on a platform of reducing oil company Petrobras’ Chinese bank ties. The big four state commercial banks at the same time have been more active in co-financing transactions and specialist funds, as the Asian International Infrastructure Bank also considers regional participation. The review suggests Chinese finance will turn more cautious, and investor sentiment as well, under near-term mounting losses.

Brazil’s Gentle Jair Jeers

2019 February 11 by

Brazilian financial assets extended their late year tear as President Jair Bolsonaro was sworn in January 1 with harsh condemnation of previous “socialism” and a series of executive orders eliminating alleged vestiges in the Agriculture, Education and Labor Ministries. Economic policy chief Guedes, trained at the free-market monetarist University of Chicago and a successful banker and think tank founder, has presented a wide ranging public finance cleanup agenda including fiscal and pension reform, tax simplification and statutory central bank independence. State enterprise privatization will return to the mix, with Electrobras and other utilities likely up first for partial sale. The social security package, covering 40% of government non-discretionary spending, has not yet been finalized and may still incorporate elements of former President Temer’s doomed proposals. Congress with 30 parties is back in session in February, and the new team estimates support from 300 deputies, short of the two-thirds required constitutional amendment majority. The budget deficit and debt/GDP ratios were 7% and almost 80%, respectively in 2018, with sluggish 1.5-2% growth due to continue on below target 4% inflation. The benchmark 6.5% rate will stay on hold as a new central bank chief enters in March. Currency strength around 3.6/dollar should further constrain prices, but may cramp exports as a slight 1.5% of GDP current account gap is projected for the year. FDI inflows continue healthy at 4% of output, with $375 billion in reserves offering ample short-term debt repayment. China takes one-quarter of mainly agricultural overseas sales, and President Bolsonaro campaigned on a tougher trade and investment line against Beijing involving “all-front pressure” in admiration of the US Trump administration stance. He pointedly did not invite Cuba and Venezuela to the inauguration, but also vowed to stay out of Western-backed climate and migration pacts.

Mexico under AMLO’s fresh direction also enjoyed an initial honeymoon on anti-corruption and drug prospects, and renegotiation of the North American free trade zone within tentative border immigration understanding with Washington over Central American asylum-seekers. However manufacturing and non-manufacturing PMIs dipped below 50 in November and December, as investment was off 3% in the third quarter. Inflation was stubborn above 4.5% with the policy rate at 8.25%, and investor confusion mounted on mixed energy overhaul and public consultation signals. AMLO scrapped the modernized Mexico City airport following an informal referendum, and at first refused to honor infrastructure bonds issued before proposing partial reimbursement. The government once again hedged the international oil price, and increased Pemex’s budget almost 20% within an overall 2.5% of GDP deficit and primary surplus. Sporadic shortages resulted from truck instead of pipeline fuel delivery at home to avoid gangs, and the extent of Pemex-private sector joint ventures is still unclear. The President imposed wage restraint, taking a 60% cut on his own, but civil servant unions protest and filed lawsuits against the move. Colombia’s President Duque likewise basked in the immediate afterglow after assuming the post with the same 2.5% of GDP fiscal deficit aim, before tax reform legislation was watered down to yield half of original revenue. Business and Treasury bond levies will ease, but the Venezuelan refugee influx with President Maduro’s disputed re-election is a worsening charge on regional coffers and diplomacy.

The Americas’ Migration Caravan Careening

2018 December 10 by

The Americas’ Migration Caravan Careening

With the recent US and Brazil elections in part fought on immigration policy the Washington-based Inter-American Dialogue and partners issued separate reports on Venezuela and Central America flight with original economic and financial recommendations alongside traditional diplomatic and humanitarian ones. Caracas’ rarely updated official statistics acknowledge inflation will exceed the IMF’s 1,000,000% prediction, as 2.5 million or more than 5% of the population have already left for neighboring or overseas destinations, especially Colombia and Peru. Decades ago the roles were reversed when more democratic and wealthy Venezuela was host to refugees from armed conflict and human rights abuses. The Colombian influx along the border is now 5000/day and they have been granted temporary protection and education and work access. An earlier wave was mainly trained professional, but the latest are poor and middle class citizens escaping widespread hunger, violence and economic collapse. With these conditions, an estimated $1 billion in remittances is literally a lifeline, an amount just above the $900 million bond repayment from the state oil company in October to avoid formal default and Citgo operations seizure following creditor US court judgments. Around 350,000 Venezuelans have sought asylum worldwide as persecution victims but the rest should not be deported under the Cartagena Declaration which allows broader circumstances, according to the analysis. Brazil Chile, Ecuador and Peru also authorize temporary visas and public services use, but asylum claims are badly backlogged and another system has yet to emerge to “regularize” status.

 Arrivals often have urgent food and medical needs which the UN and other donors are unable to fund, and sleeping on the streets without shelter aggravates their plight. Columbia has started to implement infrastructure and social support for its own internally displaced under the rebel peace accord, but cost and political resistance currently prevent extension to refugees. Caribbean islands in contrast never signed treaties or operate under foreign law, so Trinidad and Tobago and Curacao do not offer safe haven. The paper urges common processing standards and burden-sharing, and an immediate aid conference led by the Inter-American Development Bank which can mobilize novel private sector funding. It foresees pilot bonds in these host established emerging markets where local and foreign investors could receive refugee community utility income streams and tax incentives in possible structures. Venezuela regime asset seizure for corruption and mistreatment could also feature in the mix, and tap expertise from a dedicated World Bank program for targeting proceeds.

In Central America, and the Northern Triangle El Salvador, Guatemala and Honduras in particular migration overwhelmingly to the US has doubled to 4.5 million the past two decades. Insecurity due to crime and extortion is a chief driver as well as lack of formal private sector work given the commodity and unskilled labor-based economic model, a separate document argues. Nicaragua is again a source with battles between the Ortega government and protesters, but the regional flow may be in secular decline as increased deportations under stricter Trump Administration policy join with improved domestic business outlooks in Costa Rica, the Dominican Republic, Panama and elsewhere. The research advocates increased financial sector focus on this population from conventional banks to specialized credit providers and investment funds, so that an intermediary and product caravan matches the human one.

Latin America’s Smaller Election Turf Battles

2018 November 5 by

Election attention this year and next in major regional markets Colombia, Mexico, Brazil and Argentina has also prompted an investor scan of under the radar contests throughout less followed locations from Central America to the Southern Cone. Previously assumed outcomes are often in doubt as voters express desire for serious change against an anemic economic growth backdrop even with partial commodity export rebound. In Bolivia President Morales may run for a fourth term after the constitutional court cleared the way, with the opposition perennially divided. Growth may meet the 4.5% target at the cost of runaway credit expansion and dual fiscal and current account deficits. Loose liquidity has combined with an overvalued currency in the IMF’s view, but the 5%-plus budget and balance of payments gaps respectively eliminated public employee bonuses and international reserves. Government debt is 40% of GDP and the Morales administration continues to siphon state bank deposits for infrastructure and social spending. The Dominican Republic is gearing up for 2020 polls with President Medina in contrast facing legal hurdles to another run. Ratings agencies maintain sovereign “BB” grades with a stable outlook despite lack of fiscal reform momentum, since tourism and remittance-backed growth is in the 5% range. The island was added as a fractional component in JP Morgan’s local bond index and it recently switched Chinese diplomatic ties from Taiwan to the mainland to open a big foreign aid and investment channel. Energy-stoked inflation remains a threat with the central bank policy rate over 5%, and oil imports also contribute to a small 1-2% current account deficit offset by solid remittance flows from the US which should support the peso around 50/dollar.

Uruguay’s presidential election is this year, and second quarter growth was just half a percent on export and tourism fallout from Argentina’s crash, exacerbated by exchange rate overvaluation. Earlier drought hit agricultural output, and a railway connecting Montevideo with other key stops may not be completed as planned. Inflation will stay close to 8% through 2019, and despite a primary surplus the budget shortfall is 3% of GDP. Paraguay in comparison is on track to near 5% consumption and fixed-investment driven growth, at half its neighbor’s inflation rate at 4%. Costa Rica’s fiscal plan to lower the 70% of GDP public debt is under debate after an early year Moody’s downgrade. It would introduce value added and adapt capital gains taxes, and add individual and corporate income levies. Civil service wages may be capped on 3% growth, as the government resorts to stopgap borrowing to address strike grievances. Inflation is also 3% with currency depreciation as the central bank tries to prevent a fall to 600/dollar. Panama uses the greenback, and its MSCI frontier stock market component was down almost 40% through the third quarter. Canal volume was solid despite the global trade standoff, and the budget is relatively balanced as opposed to sizable deficits in previous years. Growth should come in at 4% with slowing construction, but the Cobre Panama project should go ahead after negative Supreme Court decisions complicating it amid the private banking reputation hangover from the “Papers” revelations which damaged regional political leaders.