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November 9, 2020


Latam Pulse

BY Mario Marconini, Nicholas Watson

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( 5 mins)

The week kicks off with Peru’s President Martin Vizcarra facing an impeachment vote. Meanwhile, Brazil’s municipal elections are looming as tax wrangles continue in Congress. Argentina prepares for an International Monetary Fund (IMF) visit and aims to pass the 2021 budget. In Venezuela, both the regime and opposition will be adapting to the new political reality in the US. Finally, in Mexico, the Central Bank (Banxico)’s operating surplus will continue to represent a glimmer of hope amid the government’s straitened horizons.


Congress votes today, 9 November, on whether to impeach President Martin Vizcarra. The impeachment bid centers on allegations that Vizcarra received kickbacks when he was regional governor of Moquegua, which the president strenuously denies. Impeachment requires a two-thirds majority, or 87 votes. The number of declared votes in favor of impeaching Vizcarra currently stands at under 50, though there are many undecided or undeclared votes. Party divisions and some groups’ decision to allow a free vote make it difficult to determine with certainty which way the vote could go. However, the more likely scenario is that Vizcarra will survive today’s vote.


Contrary to his original intention not to get involved in municipal elections, President Jair Bolsonaro has been supporting several mayoral candidates and will intensify his efforts by doing daily live streams in this last week of campaigning before the 15 November vote. On top of his list is Celso Russomano from the Republicanos Party in Sao Paulo, who is trying to reach City Hall for the third time, and Marcelo Crivella from the same party in Rio de Janeiro, who is running for re-election. Bolsonaro said his renewed effort aims to stem what he perceives as a leftist revival in many countries in the region, including the US. Candidates supported by the president are not doing especially well, which is consistent with new polls that reveal a fall in the government’s approval ratings in relevant cities.

The Senate approved the autonomy of the Central Bank last week. However, House Speaker Rodrigo Maia is unlikely to put the bill to a vote before the government moves on higher priority items such as tax reform or public debt management. Maia is in favor of advancing with a so-called Emergency Constitutional Amendment that would allow governments to cut mandatory expenditures when certain levels of spending are reached. On tax reform, Maia favors basing discussion in the lower chamber on the existing draft, which does not foresee the creation of any new taxes. The government continues to favor creating a new “digital tax” on financial transactions as a means to pay for the extension of the payroll tax cut, which had been vetoed by the president but was overturned in Congress last week.


A team from the International Monetary Fund (IMF) is due in Buenos Aires on 10 November for what are expected to be much more extensive discussions than the initial talks that took place in October. As a sign that the government remains in control despite the complex economic situation, Finance Minister Martin Guzman wants the 2021 budget to be passed in the Senate this week (the budget has already passed in the lower house). The budget sets a primary fiscal deficit target of 4.5% of GDP. This year, Guzman wants to avoid the deficit exceeding 7% of GDP. The inflation projection of 29% for 2021 looks the most doubtful given the level of monetary emission seen this year.


President Nicolas Maduro over the weekend expressed hopes that a dialogue could be possible with a Biden administration. Chavismo has tended to use dialogue processes to buy time without offering genuine political concessions – this time, if talks of some kind materialize, is unlikely to be any different. Before Biden becomes president, Maduro aims to have a newly pliant National Assembly (AN) in place following the 6 December legislative elections. The manner of that vote is likely to go some way to shaping how the next administration will approach Venezuela. In parallel, opposition leader Juan Guaido, whose leadership of the AN is the basis for his claim to the presidency, will hope to convince the new US administration that he remains the most credible opposition interlocutor and that he speaks for the opposition as a whole.


According to Victoria Ceja, a subsecretary at the Finance Ministry (SHCP), who was questioned by the lower house budget commission on 6 November, the Central Bank (Banxico)’s operating surplus this year could reach MXN 500bn (USD 24.7bn); previous estimates put the surplus at around MXN 300bn. The operating surplus is generated when the peso depreciates. The fiscal responsibility law means that the finance ministry must use 70% of the funds that Banxico delivers to reduce debt or the fiscal deficit. However, in practice, there is some leeway over how the funds can be used. Whatever the final amount that Banxico delivers – the figure will not be finalized until the end of this year and would not become available until April 2021 – the government will need to fill holes in the 2021 budget.

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