The Andes’ Dizzying Descent Demons

Peru was the worst Latin American core universe performer through May with a 20 percent decline with Colombia almost at the same level as the two struggled with economic reversals at home and the diplomatic and trade fallout from the disputed presidential election and tentative transition to the Maduro administration in Venezuela amid potential hyperinflation. Lima reeled on below 5 percent GDP growth as commodity exports sank 10 percent and the sol hit a 2-year low against the dollar, jeopardizing foreign investors’ 60 percent ownership of local debt. Banks which have stoked consumer lending were battered in particular with the 40 percent dollarization in the system and central bank reluctance to intervene although reserve requirements were recently loosened. The current account deficit is near 5 percent of GDP as inventories and government and private investment continue to shrink. With the traditional growth engine stalling President Humala has hardened his rhetoric toward energy and mining multinationals and hinted at nationalization of Spanish firm Repsol’s domestic assets. His opinion favorability has dwindled to 45 percent on dented business confidence as in another pattern resembling Argentina’s a powerful spouse positions to succeed him for a second term. Colombia peso is down this year almost equal to 2012’s 10 percent appreciation as the monetary authority ended previous daily dollar purchases and the private pension supervisor delays rules to encourage additional overseas holdings. Oil and coal exports have slumped on strikes and lower world prices as Q1 output growth faded to 4 percent on poor industrial production and retail sales. President Santos’ negotiators have launched further peace talks with the rebel FARC as the state tries to extend it presence to isolated rural provinces with the support of external aid organizations. The family Grupo Aval conglomerate listed its banking arm through New York ADRs as the Finance Ministry pledged to weed out brokerage misconduct after a failure last year uncovered massive money laundering.

Venezuelan bonds, after a huge rally as ex-President Chavez exited the scene, have fallen on the benchmark EMBI as his successor’s economic policies are unclear and the OAS and judicial bodies will consider ballot integrity and recounts in the less than one percent margin win over opposition challenger Capriles. US Secretary of State Kerry met with the Foreign Minister in a rare meeting and finance officials have signaled an imminent road show to improve relations with global investors still awaiting details of sovereign borrowing and currency trading arrangements. Although the current account surplus is back on petroleum proceeds capital flight still reduces reserves and recession has set in after the election-related spending binge. Widespread staple shortages including of electricity and toilet paper have contributed to 35 percent inflation and oil monopoly PDVSA remains in difficult discussions with minority partners in joint ventures to secure additional funding. The exchange rate in turn could move to crawling peg under an update to the SICAD platform which has matched President Maduro’s thus far splintered perception.