The Latin America lowdown: Intel with a twist
?Hola! ?
Welcome to October’s edition of news and views from across Latin America. We’re diving into the region’s top stories, so get comfy and let us entertain you.?
Currently, Argentina is flirting with a?dual-currency system, à la Uruguay, hoping pesos and US dollars can work together and tame inflation. But with currency restrictions, runaway inflation and shaky reserves, it could be a long and bumpy road. Will the government lift the “cepo cambiario” soon enough? ?
We head to Bolivia and investigate how their?natural gas reserves?are quickly drying up. Production has plunged, inflation’s spiking and the dollar’s playing hard to get. Over 100,000 Bolivians are already packing for Peru, with fears of a million more following suit. The looming exodus? A potential GDP nosedive and investor jitters.
Also in this edition is Chile’s plan to?subsidise household electricity costs, which might generate more heat than light. Experts warn it’ll blow a fuse on future costs, scare off USD 2.5 billion in renewable investments and put?industry players into bankruptcy. With investor confidence already flickering, Chile’s energy goals might short-circuit.?
Next up,?Oropouche fever?is buzzing through Latin America, with deforestation quite literally fueling the flames of this growing health crisis. As forest fires rage, nearly 10,000 cases of this midge-borne disease surfaced in 2023-2024. It’s time for urgent action before this fever becomes a full-on pandemic.?
Buckle up amigos; Halloween’s come early.
Jess?
Twice as nice: Implementing Argentina’s dual-currency payment system.?
Argentina is exploring a dual-currency system like Uruguay’s, allowing pesos and US?dollar?transactions. This aims to stabilise the economy amid high inflation and multiple exchange rates. Key challenges include currency restrictions and inflation control. Experts believe regulatory adjustments, lifting the “cepo cambiario” and securing central bank reserves are crucial for successful implementation over the next 6-12 months.?
Population control: Bolivia’s energy and exodus crisis.?
Bolivia faces an energy crisis as natural gas reserves dwindle, with production dropping from 60 to 37 million cubic meters per day since 2015. Rising inflation and a severe dollar shortage worsen the situation, leading to fears of mass emigration, with over 100,000 Bolivians already migrating to Peru. This exodus could disrupt the economy, cutting GDP growth and deterring investment.?
Energy vampire: Chile’s electricity subsidy.?
The Chilean government’s USD 1.35 billion electricity subsidy plan, aimed at assisting 4.7 million households, has sparked scepticism within the renewable energy sector. Experts warn it could lead to higher future costs, halt USD 2.5 billion in investments?and cause industry bankruptcies, undermining Chile’s renewable energy goals. Investor confidence has eroded, raising concerns about Chile’s economic and regulatory stability.?
Jungle fever: The environmental crisis spurring Oropouche fever in Latin America?
Oropouche fever, linked to deforestation, is spreading rapidly in Latin America, with nearly 10,000 cases in 2023-2024. Deforestation accelerates the spread of disease-carrying midges, heightening public health risks. Worsening air quality from Amazon fires and rising sea levels exacerbate the crisis, leading to increased respiratory illnesses and displacement, particularly in Brazil, Peru?and Colombia. Urgent action is needed!
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History repeats ?
Historical events and patterns often repeat themselves in similar forms over time. In this section, we present past intelligence dispatches that draw parallels with current news and situations. This retrospective approach not only deepens our understanding of ongoing issues but also offers lessons on how similar challenges were addressed or, more than likely, ignored?in the past. ?
Currently...?
The surge in global coffee prices, mainly due to poor weather conditions in Latin America’s major coffee-producing regions, is hitting the European’s, especially Italy’s, coffee culture hard. Weather patterns have devastated crops in Brazil, the world’s largest coffee producer, pushing global arabica and robusta prices to record highs. These price spikes ripple through the supply chain, impacting both roasters and consumers. Italy is now feeling the effects on its cherished espresso culture, as many struggle to uphold the affordable prices that Italians have come to expect.?
History...?
In 2021, soaring coffee bean prices prompted roasters to increase costs, with Colombia reaching an all-time high of COP 1,562,741 per 125 kg in July. While coffee growers benefit, processors struggle with rising production costs. Extreme weather in Brazil (notice a pattern here, too?) has also affected crop yields, impacting Colombian production, which fell 8% from 2020.
Rich roast: Coffee prices continue to climb creating winners and losers.
Currently...
Latin America has increasingly recognised the importance of Environmental, Social and Governance (“ESG”) practices as essential for sustainable development. Countries across the region are implementing innovative strategies to address pressing social and environmental challenges while promoting economic growth.?
One significant area of focus is the water and sanitation sector. In Brazil, the 2020 Basic Sanitation Legal Framework encourages private investment to enhance service delivery and achieve universal access to clean water. This shift from public to private participation aims to improve infrastructure and efficiency while ensuring that ESG principles are integrated into operational practices.?
History...?
In June 2020, Brazil’s Senate passed a Basic Sanitation bill aiming to universalise water and sewage services by 2033. This law opens the sector to private investment, targeting BRL 700 billion (USD 135 billion) to improve current access levels of 83% for water and 46% for sewage. The National Water Agency (“ANA”) will oversee implementation, but concerns remain about its capacity to manage the increased responsibilities efficiently.?
Water works: Brazilian sanitation seeks investment with robust regulation and municipality partnerships.?
For this month’s Insights, we are bringing back one of our most-read articles - a favourite from last year’s archives!
Dollar deliberation: Dollarisation back on the agenda in Argentina.
The prospect of dollarisation in Argentina gained credibility after Javier Milei, a far-right libertarian, won 30% of the votes in the presidential primary election. His proposal to adopt the US dollar aims to limit the government’s control over currency, particularly by curbing inflation. Despite criticisms, Milei’s supporters point to Ecuador’s successful dollarisation as a precedent. However, Milei’s more radical policies have sparked concerns about societal impacts.
Deheza would like to thank our contributor,?Manuel Hinds, for his expertise. Manuel Hinds is a Fellow at the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at Johns Hopkins University. He shared the Manhattan Institute’s 2010 Hayek Prize and is the author of four books, the last of which is In Defense of Liberal Democracy: What We Need to Do to Heal a Divided America.