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September 28, 2020


Latam Pulse

BY Nicholas Watson, Mario Marconini

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( 5 mins)

This week, in Argentina, economic uncertainty and political tensions are likely to persist ahead of an International Monetary Fund (IMF) visit. In Brazil, expect more wrangling in Congress over how to pay for a payroll tax cut and new cash transfer program. Mexico’s Supreme Court could deliver a judgement on President Andres Manuel Lopez Obrador (AMLO)’s controversial initiative to hold a referendum on whether to prosecute his predecessors. Chile is easing Covid-19 restrictions with less than a month to go before its constitutional referendum. Finally, Peru’s putative presidential candidates for 2021 must register with a political party this week.


The government will this week try to induce agricultural exporters to liquidate the remainder of the 2019 soybean harvest in a bid to boost depleted Central Bank (BCRA) reserves. Exporters tend to stockpile inventory when there are expectations of further currency weakening. This follows the recent tightening of capital controls, which BCRA governor Miguel Pesce pushed through against Finance Minister Martin Guzman’s wishes. President Alberto Fernandez appears to have contained tensions within his economic team for now since a shake-up at this juncture – as the International Monetary Fund (IMF) prepares an imminent staff visit (possibly a virtual one given the Covid-19 situation) – would be highly disruptive. Poverty figures due out on 30 September will confirm just how serious the situation is, with 40% of the population now likely to fall under the poverty line.

In parallel, expect no let-up in political tensions this week. The Supreme Court is scheduled to meet tomorrow, 29 September, to discuss the government’s controversial initiative to transfer three judges from a federal court hearing corruption cases involving VP Cristina Fernandez (CFK). Meanwhile, a wealth tax initiative sponsored by CFK’s son, the lower house deputy Maximo Kirchner, could finally go to a vote in the second half of this week. The government claims that the one-time levy could raise as much as 1.1% of GDP, though the initiative is probably as much political as fiscal – Kirchnerismo would like to portray the opposition Together for Change (JxC) coalition, which opposes the bill, as defenders of the ultra-wealthy.


This week will be crucial for the negotiations between the government and Congress to find sources to pay for the renewal of a payroll tax cut for 17 economic sectors and the creation of a new cash transfer program for the most vulnerable segments of the population. In the case of the payroll tax cut, Congress has committed to vote by 30 September on a presidential veto that would end it for good. The government, in a last-ditch attempt to prevent the overturn of the veto, will propose this week the inclusion of the cut in a broader tax reform that would create a controversial financial tax to pay for it. The move is fraught with risk since the contours of the reform are far from agreed and will become all the more complicated with the proposal for the creation of a new tax.

As to financing a new cash transfer program, government is putting all its weight on supporting a constitutional amendment on a new “federative pact” that would lower mandatory earmarks and allow cuts before spending reached official ceilings. The rapporteur of the amendment means to reach an agreement with congressional leaders as soon as possible.


The Supreme Court (SCJN) will on 1 October consider President Andres Manuel Lopez Obrador (AMLO)’s proposal for a referendum on prosecuting the five presidents who held office between 1988 and 2018. AMLO’s original idea was for a referendum to be carried out in tandem with next year’s mid-term elections. A referendum would allow AMLO to keep up his anti-corruption narrative, distract from other pressing issues (including the state of the economy and the Covid-19 crisis), and polarize the electorate. If – as seems possible – the SCJN rejects the referendum on constitutional grounds, it could still benefit AMLO by underlining his credentials as an “outsider” defending the interests of the “people” against the establishment.


The next few weeks will represent an important test of public behavior as Covid-19 restrictions are eased in the Santiago Metropolitan Region (RM), which has been the epicenter of Chile’s Covid-19 outbreak. From today, 28 September, 97% of the RM population – some 8mn people – will see a lifting of restrictions, and in some cases, an exit from the strictest level of quarantine. The easing comes as new Covid-19 cases plateau out at between 1,000-2,000 cases per day nationally. However, the government has been ramping up testing to record levels, while the number of active Covid-19 cases is relatively low at around 13,000 country-wide. Leaving lockdown has extra political resonance given that a referendum over a new constitution is scheduled for 25 October, with in-person voting the only option for participation.


Those planning to compete in the 2021 presidential elections must register with an officially recognized political party by 30 September. Early poll leader George Forsyth has recently registered with the National Restoration (RN) party, though there are rumors that the party could change its name to Victoria Nacional (National Victory) in allusion to La Victoria, the Lima district where Forsyth is mayor. The impending deadline is likely to see the leftist Veronika Mendoza, who finished in a strong third place in 2016, seal her tie-up with the Together for Peru (JPP) party. Daniel Urresti, who has been polling second behind Forsyth, should also register with Podemos Peru, which he represents in Congress but is still not actually registered to. Loose party affiliations underline how weak the party system is in Peru.

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