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June 29, 2020


BY Nicholas Watson, Mario Marconini

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( 4 mins)

This week, the United States-Mexico-Canada trade agreement (USMCA) finally takes effect, while in parallel, the Covid-19 case count continues to climb in Mexico. In Brazil, President Jair Bolsonaro’s efforts to head off a possible impeachment are paving the way for political agreements, though his family’s affairs remain a source of instability. In Argentina, a gradual easing of Covid-19 restrictions is being reversed. Finally, in Colombia, the government has acknowledged that another fiscal reform will be necessary in 2021.


The United States-Mexico-Canada trade agreement (USMCA, or T-MEC as it is known in Mexico) comes into effect on 1 July. Before then, secondary legislation that is required to make the new agreement operable must be passed; today, 29 June, legislators will meet to arrange an extraordinary congressional session to take place tomorrow. The government sees the USMCA as a catalyst for economic recovery and stimulus, though the International Monetary Fund (IMF) has warned that the agreement will not be a panacea for the Mexican economy, which the Fund is forecasting will contract by 10.5% in 2020, the fourth worst contraction globally.

This week, 18 states will be at “orange” and 14 at “red” in the public health traffic light system, which is based on indicators including hospital occupancy. Notably, Mexico City, which has had more Covid-19 cases than anywhere else in the country – shifts to “orange” from today, 29 June, even though it is surrounded by areas still at “red.” Hugo Lopez-Gatell, who is leading the government’s Covid-19 strategy, insists that the rate of infection is slowing. However, a warning from the Nayarit state governor, Antonio Echevarria, that his state’s health infrastructure is at risk of collapse, is at odds with the central government’s insistence that the system retains capacity. Meanwhile, testing levels remain extremely low.


Now that Bolsonaro has been negotiating all the pork and patronage he can to avoid the launching of an impeachment process in Congress, there is a greater chance of an agreement on a number of outstanding issues – such as the emergency assistance to the unemployed and self-employed during the Covid-19 crisis. Following the announcement by the Central Bank last week of credit facilitation measures for micro, small and medium enterprises that could amount to more than BRL 270bn (USD 50bn), an executive order should be approved this week in the Senate extending special-condition financing to SMEs for payroll and labor-related debts in exchange for job security for the duration of the credit.

Despite Bolsonaro’s more amenable attitude towards other branches of government, Supreme Court (STF)-mandated investigations will push forward this week and the Prosecutor’s Office (PGR) could at any point present charges against the president. This week should also see new developments in the case of appropriation of employee salaries by Senator Flavio Bolsonaro – the president’s oldest son. The Rio de Janeiro state-level Prosecutor’s Office may choose to move fast and bring charges against Flavio on the basis of the evidence already available – in the hope of making it more difficult for his defense to succeed in its annulment efforts. The wife of a Bolsonaro family friend and financial operator could also enter a collaboration agreement with prosecutors that could produce damning results for the presidential family as a whole.


A re-tightening of lockdown restrictions in the Buenos Aires Metropolitan Area (AMBA) starts from 1 July. The AMBA, which straddles the capital city and its surrounding urban sprawl stretching into Buenos Aires province, accounts for 90% of new Covid-19 cases in Argentina. The government hopes that new limits on public transport and outdoor exercise, together with the shuttering of up to 370,000 businesses considered non-essential, will reduce circulation and help flatten the infection curve by 17 July. Whether the extension of a stricter lockdown beyond mid-July – should it be necessary – is feasible remains to be seen. What is clear is that the return to a stricter lockdown risks deepening the recession and slowing an eventual recovery.


The government’s fiscal horizon has become clearer after Deputy Finance Minister Juan Pablo Zarate on 26 June outlined more detailed projections; this follows the Fiscal Rule Committee’s earlier suspension of the fiscal rule for 2020-21. The government is expecting a fiscal deficit of 8.2% of GDP this year and 5.1% of GDP in 2021. This is in line with the extraordinary outlays triggered by the Covid-19 crisis. However, official growth projections appear very rosy: -5.5% in 2020, followed by a robust return to growth of 6.6% in 2021. The International Monetary Fund (IMF) forecasts a contraction of 7.8% this year, followed by growth of 4% in 2021. Zarate confirmed that a fiscal reform aiming to raise as much as 2% of GDP (around USD 5.3bn) will be necessary in 2021.

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