The Andeans’ Papal Visit Penance
As the first modern pope from Latin America returned to the continent landing first in Ecuador, Andean stock markets down almost 10 percent in the combined MSCI category in the first half continued to swoon in step with religious fervor. Ecuador’s $750 million additional bond tap in May traded near double-digit yields as oil prices remain below the $80/barrel budget assumption, and President Correa struggles with subsidy cuts and Chinese loan and project negotiations to cover gaps. He has imposed new trade taxes and offered an amnesty for past obligations, but is wary of denting his popularity ahead of another likely 2017 run. Chile stocks have turned negative since President Bachelet retook the post as the official GDP growth forecast slipped to 2.5 percent on 4 percent inflation. Her approval has dipped to 30 percent after a series of bruising electoral, education and corporate tax reforms against the backdrop of falling copper exports with slack Chinese demand. Family members were implicated in a government loan scandal, and a cabinet reshuffle just named IMF veteran Valdes as Finance Minister in a bid to repair business ties in advance of proposed labor law and constitutional changes. For their part copper producers have complained of opposition from environmental activists at home, with London-listed Antofagasta halting operations at the Caimanes mine after protesters blocked a nearby dam. In external accounts the peso has stabilized and the current account deficit will be minimal, but capital outflows remain worrisome as the continent’s original investment-grade sovereign rating comes under pressure.
Colombia’s almost 20 percent MSCI drop with record currency volatility has been mainly due to the whopping 6 percent of GDP current account deficit and the fiscal shortfall at half that ratio with oil price correction. The state oil company’s Cartegena refinery has not been working and domestic consumption will support less than 3 percent growth this year. Auto sales followed construction into a dive but the central bank has kept the policy rate at 4.5 percent. President Santos insists that the budget rule on “structural” balance will be observed over the medium term, but foreign investors with light local debt positions await bolder adjustments. The multi-billion dollar public-private infrastructure program has been slow to succeed and negotiations with the FARC guerillas remain stalemated after resumed rural attacks against the military. Security is also in question along the Venezuela border with widespread smuggling and human trafficking, and observers have warned of a mass exodus with economic collapse or a possible military takeover in Caracas.
Peru’s 5 percent equity loss joined a slight EMBI setback as congressional censure claimed another prime minister with President Humala in the waning months of his term before April 2016 elections. He dispatched troops to quell mining violence as $25 billion in ventures remain stalled in community disputes. GDP growth should recover to 4 percent with stimulus tipping the budget clearly into deficit, although the prime sovereign rating is intact with “policy credibility” according to Fitch. International reserves are equal to one-third of output but the central bank has intervened regularly to stem sol depreciation in often shadowy maneuvers, critics charge.
