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December 14, 2020

Latam

LATAM PULSE

BY Mario Marconini, Nicholas Watson

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( 5 mins)

This week, there is increasing concern across much of Latin America over the evolution of Covid-19 cases ahead of the upcoming holiday season. In Mexico, an important test of market confidence in President Andres Manuel Lopez Obrador (AMLO)’s repeated promises to respect central bank autonomy was pending this week but could now be kicked into 2021. Venezuela’s opposition is looking for vindication as it heads towards a new phase of political struggle, while Brazil’s congressional bargaining continues. Argentina could be facing a looming inflation problem (again). Finally, in Peru, the presidential race remains wide open less than four months from its first-round vote.

Region

Signs of a resurgence in Covid-19 cases are becoming more evident in several countries across the region amid fears that positive vaccine news may be generating a false sense of public confidence. This has combined with concern over the potential for increased transmission in the upcoming holiday season. Mexico’s “second wave” is most pronounced, but the country is not an exception. Authorities in Chile have tightened restrictions in Santiago in recent days, while there is increasing alarm in Buenos Aires over recent case numbers. In contrast, new cases in Peru appear to be concentrated in rural areas. However, getting local populations to comply with stricter restrictions remains a challenge even as, in many areas, cases never subsided significantly; Mexico City authorities have all but admitted that rules established under the government’s “traffic light” system do not work.

Mexico

The controversial bill that would oblige the Central Bank (Banxico) to become buyer of last resort for excess USD that commercial banks are sometimes unable to return abroad looks as if it will not now feature on the lower house agenda this week. The bill was passed in the Senate last week, triggering strenuous objections from Banxico governor Alejandro Diaz de Leon and others who say the initiative would undermine the bank’s autonomy and could leave Banxico exposed to dirty money – and new money laundering safeguards. With the congressional session ending tomorrow, 15 December, the issue will likely come back under discussion from February, though the bill’s sponsor, Senator Ricardo Monreal, intimated over the weekend that he is open to revisions.

Venezuela

According to opposition leader Juan Guaido, 6.4mn people voted in a mixed – online and in-person – unofficial referendum to repudiate the Nicolas Maduro regime; voting concluded on 12 December. The numbers are impossible to verify. However, this will not stop Guaido from using the vote to extend his claim to the interim presidency beyond 5 January, when the current legislature concludes. However, another prominent opposition figure, Henrique Capriles Radonski, has become increasingly critical of Guaido’s leadership. Internal opposition rivalries are set to intensify from January, providing Maduro with exactly the boost he wants. Maduro’s coalition will have 253 out of 277 seats in the incoming legislature.

Brazil

House Speaker Rodrigo Maia may push this week to include a triggering mechanism and other fiscally-responsible measures in the report presented by rapporteur of the Emergency Constitutional Amendment (PEC Emergencial) Marcio Bittar. The report was expected to be much more ambitious and possibly include a new cash transfer program – but fell short on both counts. The week will also see further discussions on the candidacies for house speaker and Senate chairperson. The government candidate in the house, Arthur Lira, has launched his candidacy and seems to be ahead of other potential candidates. The choice in the Senate should be easier than in the House where the government’s main motivation refers to President Jair Bolsonaro’s personal vendetta against Maia.

In parallel, the Senate has approved a new draft gas law with changes but is not yet clear when voting in the house will take place. The week will also see further discussions on the possibility of extending the Covid-19-related state of calamity beyond 31 December 2020. Both the government and Maia, who is the person that could put the matter to a vote, seem to be against the idea on the understanding that there is no second wave that warrants it.

Argentina

November’s official inflation figure will be published tomorrow, 15 December. Finance Minister Martin Guzman is adamant that monthly inflation will have come down from October, when it stood at 3.8%, which brought the accumulated rate for the first ten months of 2020 to 26.9%. That marks an improvement on 2019’s 53.9% rate, though only because of the Covid-19 lockdown and a severe economic contraction. The Central Bank (BCRA)’s monthly expectations survey points to 50% inflation for 2021 – a result of economic reactivation, a money overhang resulting from this year’s record monetary emission, price and tariff de-freezing, and possible currency volatility.

Peru

With presidential and legislative elections now under four months away, the race remains far from settled. Two separate polls carried out earlier in December show presidential frontrunner George Forsyth’s poll lead slipping, though he remains in front of a crowded field totalling 23 candidates. An IEP poll puts the leftist Veronika Mendoza, the centrist Julio Guzman, Keiko Fujimori, and the populist law-and-order candidate Daniel Urresti behind Forsyth in a technical tie – and all of them polling under 10%. A Datum poll only differs with the addition of the economist Hernando de Soto in this pack. Both polls point to a high percentage of undecided voters. A separate poll by Ipsos measuring voting intentions by party suggests that Guzman’s Purple Party (PM) is strongest, albeit on only 12%. The Datum and Ipsos polls both show even higher numbers of voters saying they intend to cast blank votes or spoil their ballots.

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