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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.

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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.

 

 

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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.

 

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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.

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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.

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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.

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Mexico’s Triple Threat Triangulation

2016 June 12 by

Mexican shares were flat through May as President Pena Nieto’s popular approval rating dipped to 30 percent halfway through his term, with both growth and inflation stuck in the 2-3 percent range. The “three for three” reform on public official wealth disclosure and conflict of interest has yet to be adopted in Congress with lukewarm support despite civic group activism, after the President’s family was involved in questionable real estate deals. The ruling PRI is set for a thrashing in state elections reflecting political and economic unease and continued law and order breakdown, with student killings still unresolved and a top soccer player reportedly kidnapped by dug gangs. Retail sales decline follows the lowest consumer sentiment reading in two years, and the central bank is again poised to raise interest rates with the US Federal Reserve with the peso drifting at 18/dollar. The current account deficit persist around 3 percent of GDP, and foreign portfolio continues to outrun direct investment to cover the gap. The IMF estimated FDI inflows at just 1.5 percent of output, one-third Brazil’s fraction, with a negligible impetus from Pemex’s private opening on slack oil prices. A new leftist party founded by previous presidential contender Lopez Obrador is expected to make headway in provincial pools and demands resumed state control in industry and finance. The exchange rate intervention formula could again come under review amid a strong showing as the recent hands-off stance hikes the cost of imported consumer goods and manufacturing inputs. Global investors starting to focus on the US presidential race also express worry on about the vituperative rhetoric and border wall building promise of Republican standard-bearer Donald Trump, and question the Democratic candidates’ immigration and foreign policy positions as well particularly the absence of free-trade agreement backing. The TPP would update the two-decade old NAFTA and subsequent amendments, but is unlikely to see a congressional vote before the Obama term ends, according to experts.

Argentina was up over 10 percent on the MSCI frontier index, as the sponsor began to study the possibility of core universe return as part of the Macri government’s medium-term reintegration path. However after a giant external debt market the central bank reacted to peso appreciation by suspending overseas purchase of local instruments as it also cut the local benchmark rate toward 35 percent. Following a high court ruling around $5 billion in public pension fund arrears must be met, with the immediate catalyst of a tax amnesty due to mobilize a multiple of that amount, according to projections under more flexible rules than previous attempts. President Macri absorbed a setback in Congress after his early momentum when he resorted to vetoing a no-layoff civil servant bill promoted by the opposition Peronist party. His predecessor Christina Fernandez is under investigation for suspicious hotel deals and central bank currency transactions under the former control regime. Recession will linger this year with the fiscal deficit at 7 percent of GDP, the trade surplus eroding, and both inflation and poverty rates expected to stabilize at 30 percent. Another round of elections is scheduled in 2017, and President Macri and his technocrat team must shed their elite image if his political grouping has any hope of winning legislative majority and sealing the “change” slogan.

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Ecuador’s IMF Post-Earthquake Rumblings

2016 May 18 by

Ecuador bonds slumped after an almost 8 scale temblor and aftershock killed hundreds and the government put the rebuilding tab at $ 3 billion or 3 percent of GDP, spurring rumors that it may turn to the IMF for long-term support after other official sources came up short. President Correa had hinted at another external debt issue before the disaster, but investors were demanding near double-digit yields with oil export-related recession predicted this year and the fiscal deficit goal already raised to 3.5 percent of GDP on an assumed $25/barrel price. A $1 billion compensation payment to Occidental Petroleum increased the burden and was offset by initial spending cuts and new taxes, but other contractor arrears are estimated at $2 billion. China extended a $900 million loan and was on track to offer several billion more before the earthquake according to officials. The Inter-American Development Bank and other providers immediately chipped in $650 million to repair damage, and corporate income tax and VAT rates were hiked alongside temporary earnings and wealth levies, the latter applying to assets over $1 million. The President indicated possible sale of state holdings and bond market return for additional funding, but with elections a year away as he prepares to position a successor a full IMF program would seem politically remote although limited emergency facilities could be tapped. He is also touting friendlier joint venture arrangements to secure immediate cash as with a Schlumberger project in 2015, and downplaying the virtual currency alternative to the dollar enshrined in recent law. However the once united sub-regional socialist bloc has splintered with crises and fresh free market leadership in Argentina and Venezuela, and Bolivia’s resounding rejection of another term for President Morales despite opinion approval above 50 percent. His party has been embroiled in scandals, and economic growth may slip to 3 percent this year on hydrocarbons and mining industry decline. The trade surplus disappeared and reserves dropped to $12.5 billion in March as the central bank defended the overvalued currency. A $6 billion public investment campaign will absorb the slack, but the fiscal gap could further widen after it approached 7 percent of GDP in 2015. The IMF’s latest Article IV report recommended exchange rate flexibility to cushion internal and external imbalances, and now that the election referendum is over Finance and Planning Ministry technocrats may consider changes.

Paraguay’s sovereign rating is at the same “BB” with a former business executive as president committed to diversification from agricultural reliance and bureaucratic reduction. Financial services grew over 12 percent last year with such encouragement as the trade surplus hit 1.5 percent of GDP in January-February. Soybean sales continue soft after a 30 percent plunge in 2015, but energy import savings are steady. Infrastructure building is expected to spur capital goods demand and weakness in Brazil, a main commercial partner, will erode exports. Inflation may outstrip output growth this year at 5 percent due to higher food and education costs as industries like hospitality take off to supplement the longstanding beef diet.

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Brazil’s Timorous Temer Transfer

2016 May 11 by

Brazilian stocks extended their 30 percent MSCI topping climb as the House handily reached the two-thirds majority to recommend President Rousseff’s impeachment on budget manipulation grounds, setting the stage for her defense and Senate consideration up to a six-month period while Vice President Temer occupies the post. She labeled the action a coup and called Workers party members into the streets for support, and visited New York in an attempt to mobilize UN outrage against the “undemocratic” push. Temer’s PMDB party had already left the ruling coalition and he reportedly sent feelers to well-known past economic policymakers about serving in the interim administration under a business-friendly platform. The opposition PSDB associated with a free-market approach initially spurned the advances, but the presumed President-to-be, himself still facing criminal investigation, has vowed a “national unity regime. Commodities and the currency likewise strengthened in March, with the real above 4/dollar as the central bank intervened to curb further pressure and inflation moderated to projected high single digits with the depreciation trend pause. The fiscal deficit at 10 percent and public debt toward 70 percent of GDP remain stubborn in contrast with states, including Rio soon to host the Summer Olympics, getting debt relief in the form of 20-year longer maturity and 40 percent reduced monthly installments. Governors have appealed to the Supreme Court for additional savings by arguing they should pay simple rather than compound interest which could entail another $90 billion in lost revenue. Banks have thus far been spared major crisis fallout but the courts have also ruled they must compensate depositors for miscalculations during the hyperinflation era decades ago. However creditors may soon be stung by a spate of high-profile corporate bankruptcies in a wide industry range, including the $15 billion default by airline Oi, which has far-flung operations and foreign bondholders trying to organize as a single committee. They will test new Brazilian insolvency procedures as the offshore market has yet to reopen with the continuing travails of bellwether quasi-sovereign borrower Petrobras. Finance Minister Barbosa made the rounds of the Inter-American Development banks and IMF-World bank meetings with an air of reassurance pension and social security spending would finally be pared, but investors were skeptical of any near-term dramatic shift amid deepening recession with output due to drop 4 percent.

Mexico was dragged into the pension mess as the government agreed to assume Pemex liabilities under the private participation transition plan, which factored into a Moody’s negative outlook downgrade on fiscal consolidation delay. First quarter GDP growth was 2.5 percent, with slack industrial production countering good car and retail sales. Inflation is around the same level, and the central bank is expected to stay on hold with the US Federal Reserve. Pemex’s chief executive toured the US to drum up interest after an estimated $30 billion loss last year, but joint venture partners are wary until the global oil price stabilizes and bond investors await asset sales to burnish the balance sheet. Finance Minister Videgary was on the road show after his reputation was tarnished by a suspect property deal as President Pena Nieto’s team struggles to solidify anti-corruption and drug credentials, with missing university students allegedly impeached at the sad source.

 

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Peru’s Mountainous Fujimori Expedition

2016 April 25 by

Peru stocks and bonds spurted further after double-digit Q1 jumps as investor favorite and former Finance Minister and private equity manager Pedro Pablo Kucyzynski squeaked past leftist candidate Mendoza for second place with 25 percent in first round presidential elections behind front-runner Fujimori with 40 percent. The early June runoff could be a cliffhanger with opinion polls showing a clear generational divide with PPK 35 years older, and split over the legacy of Fujimori’s father who defeated guerilla insurgency but remains in prison over corruption convictions. Should his daughter win she may try to get release on old age grounds while steering clear of an outright pardon. Her party is set to get the largest representation in Congress, but both contenders share a centrist business-friendly platform. PPK has deliberately downplayed his elite background with a rural voter appeal on both commercial mining and community impact grounds, and the perceived credibility of the balance could be decisive for the outcome. The central bank predicts 4 percent GDP growth despite commodity and construction weakness, while inflation should come down from 2015’s 4.5 percent with fading El Nino and currency depreciation shocks. Foreign investors have cut local debt exposure 20 percent as a fraction of the total with the sol at a decade low against the dollar. The benchmark rate was steady at 4.25 percent in March after a bank reserve requirement hike, and tightening may be off the table during the election period with populist spending scenarios averted.

Venezuelan President Maduro in contrast has only a 30 percent approval rating with half of respondents ready to oust him in a recall process before his term ends in 2019. He declared Fridays off to save scarce power with violent crime resulting in record kidnapping and murder. The procedural and practical obstacles to a formal removal bid have prevented a united opposition front even as parties control a majority in the legislature. The vice president who would assume power is a relative moderate, but the judiciary still allied with the regime could overturn action or the military could intervene to preempt it. The top economy official Abad introduced changes in the multi-tier currency system which increased flows to the mid-range DICOM platform at almost 300 bolivar/dollar, although the allocation was less than one-tenth the total with state oil company proceeds still sheltered. PDVSA continues to insist debt restructuring will be avoided while a voluntary liability exercise is an option approaching lumpy year-end repayments.

Offshore haven Panama got a black eye as GDP growth slipped to 4.5 percent with lower free zone activity and law firm foreign head of state and celebrity account data was leaked to a global investigative journalism network. Canal toll receipts rose slightly under a new structure and expansion should be complete by mid-year after contract complications and building delays. Tourism was expected to rise almost 10 percent this year according to industry projections but the notoriety associated with the tax avoidance revelations may spur a boycott, President Varela and top ministers rushed to defend the hub’s reputation in international media despite the uphill near-term public opinion slope.

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