Regional Pulse: 14 February 2023
Southern Pulse’s weekly review of need-to-know events curated for people who work in Latin America.
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KEY DEVELOPMENTS
ARGENTINA
BRAZIL
CHILE
COLOMBIA
ECUADOR
MEXICO
PERU
KEY DEVELOPMENTS IN FULL
ARGENTINA
Government wants to use lithium for industrialization
On 8 February 2023, newspaper ámbito reported that the national government, in alliance with the northern provinces of Jujuy, Salta, and Catamarca, plans to send Congress an initiative to foster the industrialization of lithium. According to the plan, a quota of the lithium that is produced would be reserved for the use of manufacturing higher-value goods; taxes on production and export would increase in pace with the international price of lithium; and car manufacturers would receive tax breaks for adopting electrification technology that uses lithium. The initiative will depend on the cooperation of small parties to avoid being thwarted in Congress by the largest opposition bloc, Juntos por el Cambio (JxC).
Gridlock in Congress over tax incentive for the tech sector
On 7 February 2023, the congressional committee on budget and economy approved the government’s proposal of tax breaks and a special exchange rate system for small and medium-sized companies in the tech sector. However, due to gridlock within Congress, the main opposition bloc, Juntos por el Cambio (JxC), did not give a single vote for the legislation, which now goes to a discussion on the Congress floor. JxC says that the proposal to create an inflated exchange rate for the tech sector would just mean a subsidy for the sector without addressing the fundamental problems of the Argentinian macroeconomy. The opposition is engaged in blocking all government initiatives in reprisal for President Alberto Fernandez’s bid to impeach four of the five Supreme Court justices.
State-run YPF to build its fourth solar park
On 7 February 2023, the stock market regulator (CNV) announced that state-run energy company YPF will raise USD100-150 million to finance its fourth solar plant in the country. The new photovoltaic park will be built in the countryside of Córdoba province and it will generate enough power for 190,000 households. YPF says that the construction will last 20 months. YPF has been an oil company for most of its history, but it has been pushing for renewable projects in recent years. Overall, renewables account for 13% of Argentinean energy production, but they are still highly focused on wind power. Solar power is only 2% of nationwide energy production.
BRAZIL
Lula and Biden agree on the Amazon and disagree on Russia
On 10 February 2023, presidents Luiz Inácio Lula da Silva and Joe Biden met at the White House. They agreed on protecting the Amazon to fight climate change and disagreed, partly, on the war in Ukraine. Lula wants the US to become a donor to the Amazon Fund, an initiative created in 2008 by the governments of Germany and Norway to finance sustainable development and conservation of the Brazilian Amazon forest. Biden agreed to Lula’s appeal, but the financial support must pass the US Congress. On the Russian-Ukrainian war, although the two leaders published a joint statement condemning Russia’s aggression against a sovereign nation, Lula has pushed back against US and European calls to send ammunition to support Ukraine. Brazil is part of the BRICS bloc, in which Russia is another founding member.
Government to crack down on illegal mining in Yanomami reserve
On 10 February 2023, the Federal Police and the Armed Forces started a joint operation to expel 20,000 illegal miners from the gold-rich Yanomami indigenous land in the Amazon forest. The operation seized energy generators, an airplane, and thousands of liters of fuel; the sophistication of the equipment suggests that the illegal gold mining is linked to organized crime. As Brazilian legislation does not require gold traders to verify the mineral’s origin, illegally extracted Brazilian gold has been exported to Europe and the US with forged documents. The former administration of Jair Bolsonaro favored miners, defunding and destaffing government entities for environmental conservation and indigenous people’s protection. The Yanomami reserve is a 27,300-acre area, home to 38,000 indigenous people.
President Lula fights central bank’s interest rates hikes?
On 6 February 2023, President Luiz Inácio Lula da Silva criticized the high interest rates of the central bank in a public speech, following a week in which the left wing of the government coalition targeted central banker Roberto Campos Neto in the press and on social media. Lula claims the central bank is too hawkish on interest rate hikes at the expense of economic activity and job creation. Campos Neto was appointed by former president Jair Bolsonaro, and Lula’s party, PT, accuses him of political bias. Campos Neto is part of a WhatsApp group of former cabinet members in the Bolsonaro administration. Lula cannot sack Campos Neto because of central bank independence. House speaker Arthur Lira and Senate president Rodrigo Pacheco expressed support for Campos Neto and the autonomy of the central bank, suggesting that the majority-conservative congress will probably veto changes to monetary policy.?
CHILE
Lithium exports soar while copper hits three-year low
On 9 February 2023, the International Economic Relations Subsecretariat (SUBREI) published data on Chilean exports in January 2023, showing continuity in the trends of the lithium boom and copper decline. Lithium exports were up 106% in January 2023 compared to January 2022. On the other hand, copper exports decreased by 22% in that same period. SUBREI data shows that, in 2022, lithium sales to foreign markets soared by 777%, while copper exports fell 17%. Copper is Chile’s number one export, at a total of USD43.8 billion, which accounted for 45% of total exports in 2022. Lithium has become Chile’s second-most important commodity, with USD7.7 billion exported, or 8% of the total exports last year. Newspaper Diario Financiero said that the Chilean mining sector reached its lowest revenue point since the pandemic due to a lack of water in mines amid a years-long drought, delays in projects, and the low grade of the minerals.
Government to give financial relief to those affected by fires
On 9 February 2023, the government announced a USD43 million package to alleviate economic pain in the areas hit by one of the worst wildfire seasons in Chilean history. The measures include cash transfers to residents in affected areas, as well as tax exemptions, subsidies, and fee waivers for small and medium-sized companies. Local associations in fruit production - an important export - said that entire crops were lost and that infrastructure must be rebuilt. The southern regions of Bío Bío, La Araucania, and ?uble, as well as the central region of Maule, had 45,500 acres burnt during the fires this week, making it the second-most severe spate of wildfires ever. Fires are seasonal, but local reports suggest that La Ni?a and climate change might have worsened their damage.
领英推荐
Boric’s coalition splits ahead of election for new constitutional assembly
On 6 February 2023, a deadline passed for parties to present their list of candidates to run in the election scheduled for 7 May for the new constitutional assembly. In a political defeat for President Gabriel Boric’s administration, Boric failed to unify the left and centrists in a single coalition. Boric’s Frente Amplio will run on a left-leaning list alongside the socialists and the communists. The center-left, members of which hold cabinet positions, will run separately. In the opposition, the former far-right presidential candidate José Antonio Kast did not join the center-right bloc Chile Vamos, suggesting that Kast’s party, Republicanos, wants to fight for the leadership of the conservative camp. Finally, the anti-establishment Partido de la Gente will also run on its own.
COLOMBIA
Foreign oil companies might divert their investments
On 9 February 2023, the president of the Colombian Association of Oil and Gas (ACP), Francisco José Lloreda, warned that foreign companies may prefer to invest in neighboring countries, such as Ecuador. The ACP estimates that, in 2023, companies will cut production funding by USD200 million, and exploration by USD170 million. Lloreda argued that recent reforms in the sector are scaring off investors, namely the recent decision to halt new oil and gas exploration, and a higher tax burden than regional competitors.
Inflation rate highest in Latin American OECD group
On 7 February 2023, the OECD reported that Colombia’s inflation rate for 2022 (13.1%) was higher than the group average (9.4%), and the highest among the group’s Latin American countries. The latter includes Chile (12.8%), Costa Rica (7.9%), and Mexico (7.8%). The Colombian National Bank has failed to reach its inflation targets since 2021 and is open to further interest rate increases.
Executive to regulate utilities
On 6 February 2023, the government made public a decree through which President Gustavo Petro is to assume control over the regulation of utilities. The decree is not yet in effect but was made public to “consult” the population. While it remains to be seen how he will use this power, business leaders in the sector communicated their concern to financial newspaper Portafolio, fearing that Petro will assume state ownership of electrical infrastructure.
ECUADOR
Petroecuador to be investigated for corruption
On 9 February 2023, state oil company Petroecuador requested the Prosecutor’s Office to launch an investigation into alleged corruption within the company. The move comes after media outlet La Posta published a number of leaked audio recordings revealing bribes between company officials and suppliers. This is the latest of several corruption scandals affecting a state company, after a large cash-for-contracts scheme was revealed last month involving EMCO, the public company coordinator.
Organized crime leader ‘Gato Farfán’ arrested in Colombia
On 9 February 2023, President Guillermo Lasso announced that organized crime leader Emilio ‘Gato’ Farfán had been arrested in the city of Pasto, Colombia. Farfán is the head of the criminal organization Nueva Generación Ecuador, considered one of the largest drug-traffickers in the region by the Ecuadorian police. He will be extradited from Colombia to the US, where he is also sought on drug-trafficking charges. Ecuador and Colombia recently signed a number of agreements to increase cross-border cooperation against organized crime.
Government loses referendum
On 6 February 2023, President Guillermo Lasso publicly acknowledged the rejection by the public of the eight-question referendum that took place on 5 February. The questions covered a range of constitutional reforms, from permitting the extradition of criminals to increasing the number of seats in Congress. Following this defeat, Ecuador’s risk rating according to JP Morgan increased, forecasting increased political instability. The executive has reacted by undertaking a cabinet reshuffle.
MEXICO
Central bank increases interest rates at record high
On 9 February 2023, the Bank of Mexico (Banxico) raised the interest rate by 50 points to leave it at 11% effective 10 February - the highest since January 2008. The announcement surprised financial analysts, who pointed at the country’s disparity with the United States Federal Reserve (Fed), which had set its rates at only 4.50-4.75%. After the National Institute of Statistics and Geography (INEGI) published that inflation reached 7.9% in January, Banxico sought to decrease inflation by encouraging higher borrowing rates, which would cause the demand for goods and services to go down.
Foreign direct investment highest since 2015
On 8 February 2023, the Economy Secretariat published the preliminary figures for foreign direct investment (FDI) in 2022, showing inflows of USD35.2 billion - the highest figure recorded since 2015. According to the report, the figure also represents a year-on-year increase of 12%. Of the registered FDI, 48% corresponds to new investment and 45% to profits that did not return to their country of origin, while the remaining 2% was from loans and payments between companies of the same corporate group. The principal countries that are sources of FDI include the US (39%) and Canada (9.5%), followed by Spain (7.1%) Argentina (4.9%), Japan (3.8%), and the UK (3.8%), among others. Almost all FDI is distributed in 10 sectors, of which manufacturing (36.3%) and transportation (15%) receive the most.
MORENA deputies want Armed Forces to monitor airspace
On 8 February 2023, lower house deputies from the ruling MORENA party approved a bill that allows the Armed Forces to monitor the country’s airspace. The bill seeks to create the Surveillance and Protection System of Mexican Air Space, which would be headed by the Defense Secretariat (SEDENA) to counteract illegal air operations and those that threaten national security. Opposition deputies argue that this is another government effort to further militarize the country, while ruling party deputies claim that SEDENA’s help could curtail drug-trafficking operations in the country. The bill is yet to be discussed at the Senate before approval.
Government raises toll prices nationwide
On 7 February 2023, the Infrastructure, Communications, and Transportation Secretariat (SICT) informed in a press release that there will be a year-on-year 7.82% increase in the price of tolls nationwide. The price increase responds to an annual inflationary adjustment that, according to the Secretariat, usually takes place in the first months of every year. While roads under SICT’s jurisdiction have already increased their prices, roads built under the National Infrastructure Fund (FONADIN) and Federal Roads and Bridges (CAPUFE) will continue to operate with current prices until 1 March, when prices will then increase.
PERU
IMF reduces its forecast for the economy
On 9 February 2023, the IMF revised its forecast for the Peruvian economy, changing the previously estimated GDP growth figure of 2.7% to 2.4%. The institution highlighted the recent political instability as the main reason for its reduced forecast. On 8 February, the National Reserve Bank (BNR) published a poll of companies, financial institutions, and economic agents, revealing that the majority of them predicted a worsening of economic conditions for 2023.
Protests threaten copper supply
On 9 February 2023, the Financial Times warned that social unrest in Peru could affect the global supply of copper, raising its price in global markets. Bank of America estimated that the price per tonne of copper might reach USD12,000 in the coming months - a record high in the past twenty years. Last week, Las Bambas mine, which accounts for 2% of the world’s copper supply, had to suspend operations following disruptions in its supply chain caused by the unrest.
Exports grew 4% in 2022
On 7 February 2023, the Exporters Association (ADEX) reported that exports in 2022 grew by 4%, valued at a total nearing USD63.2 billion. This increase, however, was registered despite drastic falls in the final term of the year. Between October and December, the value of exports fell by 6%, 19%, and 8% respectively. Over 71% of total exports are primary commodities, mainly mining products. ADEX president Julio Pérez Alván expressed his concern over the figures for 2023, highlighting the detrimental impact of political instability on exports.
Mine halts activity due to protests
On 6 February 2023, mining company Buenaventura announced that its mine in Julcani, in the department of Huancavelica, was suspending operations after a group of protestors allegedly vandalized the premises. According to the bank BBVA, political and social unrest could have an impact of USD760 million on the mining industry. A number of mines have been targeted by protestors in recent weeks. BBVA estimates that the country’s GDP might shrink by 0.3% due to these disruptions to the mining sector.
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