Regional Pulse: 21 March 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 plans higher taxes on miners
On 16 March 2023, newspaper ámbito reported that the national public revenues agency (AFIP) plans to set up a new fiscal registry of mining activities in an effort to boost government revenues. Once the new registry is established, mining companies will be subject to higher value-added tax and income tax. Service providers of mining companies will also have higher tax rates. The exact rates to be paid are yet to be announced, but they will vary according to each company’s registry category. An old fiscal registry of mining activities was ended during the Mauricio Macri presidency.?
Ambassador to China seeks currency swap and investments in energy infrastructure
On 13 March 2023, Argentina’s ambassador to China, Sabino Vaca Narvaja, told newspaper ámbito Financeiro that the government is seeking Chinese investments in railroads, hydroelectricity, solar plants, lithium, and copper for this year. Argentina faces a foreign currency shortage as its key agriculture exports are declining due to a severe drought, so Finance Minister Sergio Massa will travel to Beijing in May hoping to get an extension on a bilateral currency swap agreement. Ambassador Vaca Narvaja also said that Massa’s trip will serve to officially initiate Argentina’s participation in the China-led Belt and Road Initiative. Argentina is also negotiating to become a member of the BRICS Development Bank, headquartered in Shanghai.
IMF makes fiscal goals more flexible due to ongoing drought?
On 13 March 2023, the International Monetary Fund (IMF) granted the government’s request to make the previously agreed fiscal target more flexible due to the severe drought that is affecting the country’s most-exported harvests. Within the new goals, the country will need to save USD2 billion less than previously required. The agreement also includes a waiver that allows the government-backed legislation to increase spending on pensions. On the other hand, the IMF signaled that it will pressure the government to cut spending elsewhere to meet the goal of a fiscal deficit of 1.9% of GDP. The left wing within the ruling Peronist coalition, led by Vice President Cristina Kirchner, openly opposes any IMF plan for fiscal adjustment.
BRAZIL
Financial market lacks trust in President Lula
On 15 March 2023, pollster Genial/Quaest released a report showing local financial executives’ almost unanimous lack of trust in President Luiz Inácio Lula da Silva and his economic policies. Genial/Quaest surveyed 88 fund managers and found that only 1% of respondents said that they trust President Lula and his Economy Minister Fernando Haddad. Local media noted a stark difference in perceptions between executives and the broader public: while 76% of finance executives are pessimistic about the economy over the next 12 months, 62% of the general public feels optimistic. Fund managers’ pessimism comes from the government’s announcements of policies that will increase government spending seemingly without a plan for addressing the fiscal deficit and the national debt.
Federal law enforcement to be deployed in Rio Grande do Norte
On 15 March 2023, Minister Justice Flavio Dino announced the deployment of the National Security Force to northeastern Rio Grande do Norte state. In the days before his announcement, local gang Sindicato do Crime (SDC) targeted public transportation, bank branches, government offices, police stations, and private properties in 20 cities, including the state capital Natal, where the public transportation system had to be shut down. Estad?o newspaper reported that SDC bosses command the attacks from within state prisons, issuing orders using cell phones and via visits of lawyers affiliated with the gang. The federal body that oversees human rights warned in late 2022 that the state prison system was plagued by torture, which could lead to retaliation against public security agents from local gangs organized in jails.?
Lula will be accompanied by a prominent entourage on his visit to Beijing
On 12 March 2023, news outlet Poder 360 reported that President Luiz Inácio Lula da Silva’s entourage for his visit to China later this month would include some of the most influential politicians in Congress. Among them are president of the senate Rodrigo Pacheco; head of the senate foreign relations committee Renan Calheiros; chairman of the recently created Brazil–China caucus, representative Fausto Pinato, and; the government whip in the lower chamber, representative Zeca Dirceu. Lula also wants to take the opportunity of this visit to announce former president Dilma Rousseff as the new head of the China-based BRICS Development Bank. Besides the bilateral meeting between Lula and Xi Jinping, the Brazilian government wants to discuss investments in climate change-related areas with the Chinese government.
CHILE
Antimonopoly agency investigates Google and Apple
On 15 March 2023, La Tercera newspaper reported that the antimonopoly agency (FNE) is investigating Google and Apple for allegedly abusing their dominant position in the mobile app market. FNE started an investigation last year about suspected "excessive charges" and "lack of contractual transparency" in Google’s Android and Apple’s iOS operational systems. FNE asked both companies to list ten competitors to their app stores and to explain how developers can have their services displayed on those platforms. Also, FNE asked the companies for their policies on data collection by third-party apps. The case is under legal secrecy and is still in a preliminary phase, in which FNE is analyzing whether the complaint will become a formal investigation.
领英推荐
Private healthcare companies losing customers at a fast pace
On 13 March 2023, La Tercera newspaper reported that the fast pace of customers canceling their health insurance had broken a 20-year record. In December 2022 and January 2023, approximately 111,000 people canceled their private healthcare plans (Isapres) and migrated to the state-run system (Fonasa). The association of private healthcare companies said that the stubbornly slow economy with high unemployment and falling real wages led people to seek the cheaper state-run system, which serves 15 million Chileans. Isapres plans have been under financial pressure after the supreme court ruled that the companies should refund consumers on fee increases dating back to the beginning of the pandemic.
Public support for Boric and the new Constitutional Assembly is low
On 12 March 2023, pollster Cadem announced that President Gabriel Boric had an approval rate of 35% one year into his presidency. Boric has the worst approval rate of? presidents at this point in their tenure since Chile’s re-democratization in the early 1990s. Cadem also found that the main reasons people disapproved of Boric were his lack of leadership experience; the rising cost of living; and worsening public security. In a worrisome sign for Boric, public enthusiasm is low for his main proposal, the new constitution. Sixty percent of people polled said that they do not trust the assembly to deliver a text that will be approved by citizens in December’s referendum.
COLOMBIA
Oil and gas exploration to resume
On 15 March 2023, the ministries of finance, energy, and industry released a joint statement announcing that the “exploration of liquid and gas fuels” would resume to achieve a self-sufficient supply of electricity. In January 2023, Energy Minister Irene Vélez had announced a suspension of all further exploration for oil and gas, a decision that attracted much criticism from opposition parties. The statement explained that the government will provide further information on new exploration contracts in May 2023, after the National Hydrocarbons Agency (ANH) submits its report on the status of oil and gas reserves in the country.
Unrest slows oil production
On 15 March 2023, CAMPETROL, a business association of companies that service the energy sector, reported a decline in oil production due to social unrest in the Arauca, Caquetá, and Putumayo departments. Oil production in February 2023 was around 760,000 barrels per day, which represents a 1.8% drop compared to January 2023. The number of active drilling rigs has also decreased, from 155 in November 2022 to 142 in February 2023, due to incidents and blockades – the latter have increased by 40% between 2021 and 2022. Colombia exports an estimated USD1 billion in crude oil and derivatives.
Mining contributes more tax revenue than oil and gas
On 14 March 2023, a report from the Colombian Mining Association (ACM) showed that, proportionally, mining contributed more to tax revenue than the oil and gas industry in 2021. For every percentage point of participation in GDP, oil contributed USD377 million in income tax, with mining contributing USD383 million. Mining has grown to 3% of GDP, up from 2.1% in 2021. It is estimated to contribute a total of USD4.2 billion in taxes and royalties, generating twice as much tax revenue as the manufacturing sector, three times as much as the telecommunications or financial sectors, and nearly eight times as much as the agricultural sector.
ECUADOR
Impeachment proceedings pass second hurdle
On 16 March 2023, Congress gathered enough signatures (59, meeting the 46 needed) to proceed with the impeachment process of President Guillermo Lasso on the grounds of corruption. President Lasso has been at the center of? an investigation concerning embezzlement in public sector companies. Impeachment proceedings began on 4 March 2023 after a Congress committee investigating these corruption allegations recommended initiating the process. The proposal will now need to be approved by the Constitutional Court, before being submitted to Congress, where it will need at least 92 votes.
Crude oil price falls below budget forecast, increasing country risk
On 16 March 2023, newspaper El Universo reported that the price of West Texas Intermediate (WTI, the type of crude oil produced in Ecuador) had fallen to USD65.5 per barrel, which when accounting for the USD5–13 penalty to Ecuadorian crude (due its lower quality, and price agreements with Chinese and Thai state oil companies) would place the overall price well below the USD64.8 budgeted by the government. Added to the recent political unrest stemming from impeachment proceedings against President Guillermo Lasso, several embezzlement scandals affecting state companies, and social unrest in oil and mining areas, Ecuador’s risk premium rose to 1,868 points. The rating is the highest of the year so far: in early February 2023 it hovered at around 1,120 points. Ecuador now has the third highest risk rating in Latin America, only behind Venezuela and Argentina, and having overtaken El Salvador.
More than 200 large-scale concessions are awaiting to become mines
On 14 March 2023, digital outlet Primicias reported that 249 large-scale concessions await permission to start mining operations, with 43 local and international companies seeking to exploit mainly gold (around 70% of concessions), as well as copper and silver across 11 of the country's provinces. However, according to former mining vice minister Rebeca Illescas, illegal mining, social conflict, and a lack of environmental licenses are delaying the exploration of mining concessions: only around 10% of concessions complete the process of becoming mining operations. Another former mining vice minister, Henry Troya, warned that foreign mining companies might choose to leave the country due to legal and political uncertainty. In January 2023, the indigenous confederation CONAIE warned foreign investors that “they will not be able to develop mining in Ecuador”.
MEXICO
Hundreds of thousands gather to support President
On 18 March 2023, over 500,000 people gathered in Mexico City’s main square for the rally called by President Andrés Manuel López Obrador to commemorate the 85th anniversary of oil expropriation. Authorities did not immediately issue information about any hospital admissions or medical attention required by those attending. Among the executive’s most applauded messages during the rally there was the announcement that whoever the next presidential candidate might be, the strengthening of state-oil enterprise PEMEX will continue; that Mexico will not purchase any oil from foreign companies in 2024; and that the country will defend itself against “any attacks from the US”.?
New oil reserves found in Gulf of Mexico?
On 17 March 2023, the Italian company Eni announced the discovery of a new oil field in the Gulf of Mexico that could contain up to 200 million barrels. The find took place in the exploration area called Yatzil in block 7, within block 10 in the mid-water depths of Cuenca Salina Sureste, approximately 65 km offshore and 30 km away from other previous discoveries. Private participation in the oil sector boomed following president Enrique Pe?a Nieto's energy reform of 2013, when "oil rounds" were established to allocate exploration areas to private companies. Nevertheless, the current government of President Andés Manuel López Obrador has canceled the bidding mechanism for oil fields and has had to "rescue" state oil enterprise PEMEX by allocating more resources and reducing its tax burden.
President seeks to ban fentanyl for medical purposes
On 15 March 2023, President Andrés Manuel López Obrador announced that his administration would be seeking ways to replace fentanyl for medical purposes with another chemical in order to ban its use in Mexico, though he has not suggested any alternative thus far. The proposal would seek to encourage its prohibition in the US, which could eventually decrease fentanyl drug trafficking and overdoses in the North American country. The proposal takes place amid rising concerns from US politicians of Mexico’s “limited” efforts to mitigate the trafficking of this drug, the cause of a public health crisis killing tens of thousands in the US every year. López Obrador recalled that fentanyl is used in Mexico for medical purposes, as it is applied to treat intense pain in surgery or illnesses, such as in advanced stages of cancer. However, specialists claim that the proposal could cause more problems than it would solve in the health field.
PERU
Government to invest over USD2 billion in reactivating economy
On 16 March 2023, the executive submitted a bill to Congress requesting supplementary loans that would total around USD2.1 billion (around 3.6% of total budget), in an effort to reactivate the economy following recent social unrest. Around a quarter of the funds would be destined toward reinforcing current social programs, and another quarter would be employed toward regional projects of infrastructure construction and maintenance. Further, USD94.5 million will be invested in expanding the country’s gas distribution network by 505 km. Peru has been rocked by social unrest since December 2022 when then-president Pedro Castillo was impeached by Congress following an attempted self-coup. This unrest has translated into estimated losses of USD2.16 billion in exports since December 2022, according to the Exporters’ Association (ADEX).
Protests return to southern region of Puno
On 15 March 2023, protests returned to the southern region of Puno, near the border with Bolivia, according to newspaper La República. Following a three-day truce that allowed the entrance of freight trucks to supply the region, local organizations called for renewed protests and blockades, concentrating mainly around the cities of Juliaca and Puno. Roads connected to Bolivia, as well as to the cities of Arequipa and Cusco, were blockaded. The region of Puno has been the epicenter of protests against the government since former president Pedro Castillo was removed by Congress in December 2022 after breaching the constitution. As of April 2022, the Puno region is home to over USD1.5 billion in mining projects.
Exports to slow down in 2023
On 14 March 2023, the Exporters’ Association (ADEX) announced that it estimated the volume of exports to slow down in 2023, growing by 2.8%, compared to a growth of 3.7% in 2022. However, ADEX predicts record revenues of almost USD65 billion due to rises in demand from the US and China and in the prices of primary commodities. Mining will be the most important sector, representing 55.8% of total exports. Despite this, ADEX reports that mining’s contribution to total exports has slowed down partly due to recent unrest in the country, growing only 0.6% when compared to 2022. By contrast, manufacturing sectors are estimated to grow an average of 7.3% this year, representing around 30% of total exports.
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