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August 10, 2020

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LATAM PULSE

BY Nicholas Watson, Mario Marconini

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( 5 mins)

This week, in Mexico, the Covid-19 situation will remain critical, while separately, investor anxiety is likely to remain high after a major investment project looks set to be subject to another contentious public referendum. In Brazil, Congress has a busy schedule this week, with an extension of payroll tax cuts to 2021 just one of several agenda items. Argentina’s inflation rate is likely to show the beginning of a gradual upwards trend, while Congress must approve the new cabinet in Peru. Finally, Cuba is tightening its Covid-19 restrictions though its case count remains relatively low, while Venezuela is loosening restrictions despite anecdotal evidence to suggest the outbreak is more serious than reported.

Mexico

With confirmed daily Covid-19 cases averaging 5,800 over the last seven days, the official Covid-19 case count is likely to surpass 500,000 in the week ahead. Amid severely deficient testing, the real number of infections is likely to be substantially higher. The Covid-19 death toll stood at 52,298 as of yesterday, 9 August, which is the third highest level globally, and close to what the government’s Covid-19 czar Hugo Lopez Gatell described at the beginning of June as the “catastrophic” scenario. This week, the government’s Covid-19 traffic light remains unchanged, with 16 states at “red” and 16 at “orange.” However, the traffic light system is set to undergo alterations following criticism from state governors.

Separately, the future of a USD 1.25bn fertilizer plant currently under construction in Topolobampo (Sinaloa state) faces renewed uncertainty following comments last week by President Andres Manuel Lopez Obrador (AMLO). Given environmental and community concerns, AMLO said that the project could only go ahead with a public consultation. Past consultations on other major investment projects including the Texcoco airport have been manipulated to legitimize top-down decisions, and a similar exercise would reinforce investor concerns that contractual uncertainty is now becoming the norm.

Brazil

Congress plans to start addressing more than 40 pending presidential vetoes tomorrow, 11 August. Neither the Covid-19-related extension of payroll tax cuts to 2021 nor the sanitation framework will be addressed in this first meeting due to older vetoes that take precedence; it is expected that the former be voted on in two weeks and the latter in the week after. The government will continue to insist on negotiating these two vetoes, but Congress seems intent on overriding them. The week should also shed light over the possibility of an extension of the emergency assistance to unemployed and self-employed workers until March 2021, which would require approval by Congress to change values and extend the state of calamity beyond 2020.

On tax reform, Economy Minister Paulo Guedes should take part for the first time in the joint committee meeting this week following a spate of mutual attacks between the government and Congress last week. There will also be much attention devoted to revelations over the weekend that cash transfers to the First Lady were four times larger than previously reported. Neither the president nor the First Lady are being investigated in this context but the news should feed into the investigations against Senator Flavio Bolsonaro since they involve the same financial operator. The week should also see further developments in the open conflict involving the Supreme Court, the Prosecutor’s Office, and task force prosecutors over the Carwash operation.

Argentina

The monthly inflation rate for July will be released on 13 August. The expectation is for a monthly rate in excess of 2% as lockdown conditions were eased for part of the month in the Buenos Aires Metropolitan Area (AMBA) and the government adjusted price controls. The Central Bank (BCRA)’s monthly expectations survey points to a gradual rise in inflation during the rest of the year, ending 2020 within touching distance of 40% for the year as a whole. Normalizing conditions (assuming the Covid-19 situation does not deteriorate), probable fuel price increases (which are already under discussion), and the BCRA’s highly expansionary monetary policy of recent months all back up the notion that inflation is likely to pick up.

Peru

A congressional vote of confidence in the new cabinet led by Walter Martos is scheduled for 11 August. The session follows Congress’s vote last week against the Pedro Cateriano-led cabinet, which forced Cateriano to step down after just 20 days as cabinet chief (PCM). Martos is likely to place greater emphasis on tackling the Covid-19 crisis than Cateriano did. The case count currently stands at 479,024. In this context, new restrictions are reportedly under consideration, including a return to stricter night-time curfews and an all-day Sunday curfew – enforcing such measures would likely prove very difficult. However, violent unrest at an oil camp run by Canadian company PetroTal in the Loreto region over the weekend could present Martos with an even more immediate challenge.

Venezuela/Cuba

Authorities re-tightened Covid-19 restrictions in Havana on 8 August after an increase in cases in the capital. The island’s government has kept the virus largely under control, reporting only 2,953 cases in total. However, official data reveals a source of infection: Venezuela, where thousands of Cuban medical personnel are based. Of the 59 new cases reported on 8 August in Cuba, 41 were logged as recently returned from Venezuela. This also points to the extent of the Covid-19 situation in Venezuela, which with only 25,805 officially confirmed cases, is likely to be significantly under-counting cases. President Nicolas Maduro on 9 August announced a loosening of restrictions for this week, including in Caracas, which remains the epicenter of Venezuela’s outbreak.

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