March 9, 2020

LATAM PULSE

BY Nicholas Watson, Mario Marconini

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( 4 mins)

This week, COVID-19-related market volatility comes at the worst possible moment for Argentina, which is on the brink of a crucial phase of its debt restructuring. Separately, protests against gender violence will mark the beginning of the week, with political effects most strongly seen in Mexico and ChileVenezuela’s electoral credibility is likely to sink lower at the same time as opposition leader Juan Guaido seeks to reactivate protests against the regime. In Brazil, legislative bills could be put on pause, while in Ecuador, political fragmentation continues to generate uncertainty over the viability of International Monetary Fund (IMF)-mandated reforms.

Argentina

According to an official timetable, the government is supposed to unveil its debt restructuring offer this week. There were already rumors that the offer could be pushed back to next week even before the latest market volatility resulting from the COVID-19 outbreak and oil market moves, which inject new uncertainty into the restructuring that lies ahead. Certainly, the government’s highly-ambitious aim of wrapping up debt negotiations by the end of March looks even more unrealistic now.

Separately, the government faces a four-day strike by the powerful agricultural sector starting today, 9 March. Agri-unions are protesting the 10% hike in export taxes on soybeans and related soy products announced last week. Not all unions are behind the action, thanks in part to government differentiation of small-scale producers, which will be eligible for rebates. However, the strike coincides with the 12-year anniversary of the start of a particularly fractious and disruptive dispute between the agri-sector and the then-government, led by Cristina Fernandez (CFK) – now VP – which lasted four months. Disruption in agriculture, combined with the effects of a sustained oil price drop on the development of the Vaca Muerta shale play, would represent a twin-hit to two of the most competitive areas of the economy.

Region

Further strikes and protests to denounce gender violence will take place today, 9 March, following demonstrations in cities across Latin America yesterday to mark International Women’s Day. As well as gender violence and impunity, protestors are also calling for expanded abortion rights and an end to gender inequalities. Women’s marches in Chile have fused with wider protests against the government. In Argentina, the government is due to send a bill to legalize abortion to Congress this week, thereby generating new frictions with the Church. The political impact has also been significant in Mexico, where President Andres Manuel Lopez Obrador (AMLO)’s response to the protest movement has been clumsy and insensitive; gender violence is an important aspect of the multi-faceted security problems AMLO’s administration faces.

Venezuela

Opposition leader Juan Guaido has called for fresh rallies and protests against the regime led by Nicolas Maduro for tomorrow, 10 March. Guaido wants to “reactivate domestic pressure” on the streets. Whether new developments related to the National Electoral Council (CNE) help mobilize people remains to be seen; a fire on 7 March at the main warehouse used by the CNE destroyed almost 50,000 voting machines and other equipment and material used in elections. CNE head Tibisay Lucena, who is a government loyalist under international sanctions, has said there is no reason why legislative elections due before the end of this year cannot go ahead. However, there will be suspicions about the unexplained fire and its implications for any vote. Whether the regime looks to tender a new electronic voting system or re-introduce manual voting, any future vote will be acutely vulnerable to manipulation and fraud.

Brazil

The Jair Bolsonaro government has not given an indication on how it will react to the heightened fears of a global recession and the oil price drop. For instance, it is no longer clear whether the government will this week send three draft bills to Congress that would end the crisis over the distribution of budget funds or whether the president will opt for continuing “hostilities” with other branches of government as a means to divert attention from the worse-than-expected state of the economy. The future of the reform agenda should become more evident after this week.

Ecuador

Legislators return from their scheduled recess on 11 March. The main items on the National Assembly’s agenda are the reforms to the public financial management and fiscal framework, and of the Monetary Code. However, the government’s lack of a majority following the break-up of a short-lived alliance with opposition parties, divisions within the governing Alianza Pais (AP) party, and the onset of electioneering ahead of the 2021 presidential and legislative votes will all continue to hamper broad agreements. Political uncertainty has been exacerbated by COVID-19 (Ecuador was among the first Latin American countries to report the disease). Initially, the International Monetary Fund (IMF) was scheduled to disburse USD 350mn on 15 March, but the Fund is currently redesigning its funding timetable.

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( 3 mins) Prime Minister Guido Bellido’s threat to nationalize the consortium that operates the Camisea natural gas field unless it agrees to pay higher taxes is unsettling – though not for what might seem the most obvious

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