February 8, 2021

Latam

LATAM PULSE

BY Mario Marconini, Nicholas Watson

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( 6 mins)

This week, a tense vote count in Ecuador will determine who should go into an April presidential run-off vote against the leftist Andres Arauz. Politically delicate wage talks get underway in Argentina amid concern over inflationary pressures and renewed anti-business rhetoric from the government. Brazil’s Congress has a busy agenda, with the re-instatement of the Covid-related emergency assistance program top of the agenda. Mexico’s electricity sector reform proposals will advance through the legislative process. Venezuela’s Juan Guaido has won endorsement from the Joe Biden administration. Finally, in Cuba, the list of permitted private sector activities is to be expanded.

Ecuador

The battle for second place in yesterday’s presidential election is likely to stretch into this week amid probable demands for a manual vote recount. According to the latest count from the early hours of 8 February, Andres Arauz of the leftist Union for Hope (UNES) coalition was on 32.21%, which puts him through to the April run-off vote. Yaku Perez of Pachakutik, the political arm of the Confederation of Indigenous Nationalities of Ecuador (Conaie), was on 19.8%, while Guillermo Lasso of the center-right Creating Opportunities (CREO) party, was on 19.61% – a difference of around 6,000 votes. If Perez’s lead over Lasso is confirmed, it would be a political coup for the indigenous leader. The key question would be whether Perez would be able to form a viable coalition to block Arauz from winning; even if Lasso overtakes Perez in the count, the same question will apply.

Argentina

Collective wage talks between the government, unions, and employers should get going this week. The government wants to limit wage increases as close to its 29% 2021 inflation target as possible, though wage increases are seen in some quarters as a way to reactivate the economy. Unions will fight for substantial rises given that most economists’ see inflation for the year nearer 50%. Mindful of the October mid-term legislative elections, inflation ranks close to the top of President Alberto Fernandez’s list of concerns; January’s monthly inflation data will be released on 11 February. Another option Fernandez has framed as a tool against food price inflation would be to raise agricultural export taxes or introduce export quotas, which would raise the risk of strikes and a political confrontation with the agricultural sector.

Brazil

Both new pro-government House Speaker Arthur Lira from the Progressives (PP) and Senate Chairman Rodrigo Pacheco from the Democrats (DEM) should refine the legislative agenda in each of the chambers this week. The government presented a 35-item priority list last week, ranging from the resumption of investment, to fiscal reforms and family values, which gave little guidance as to the sequencing or the urgency of the agenda. Pacheco is confident that Congress and the government will find a solution this week to the top item on Congress’ list: the re-instatement of the Covid-related emergency assistance. Economy Minister Paulo Guedes has conditioned the social grant on the return to the state of calamity that also expired at the end of 2020 – which remains a tall order. Guedes has also said the program should reach only half of the 68mn people who benefitted last year.

This week – possibly tomorrow, 9 February – the House could vote on a draft bill establishing the independence of the Central Bank. In the Senate, a first test of the chamber’s alignment with the government will be the analysis of a request for the creation of a Parliamentary Committee (CPI) to investigate the government’s role in fighting Covid-19. A request to invite Health Minister Eduardo Pazuello to explain his ministry’s immunization plan and other controversial measures has already been approved by the Senate. This week will also signal whether the government will indeed send a draft bill to Congress “suggesting” that states should change the way they charge their state-level value-added tax (ICMS) on fuel from a percentage rate to a fixed value as a means to lower the tax burden on truckers and avoid strikes.

Mexico

The initiative to reform the 2013 Electricity Industry Law (LIE), which would alter grid dispatch rules to benefit the state-run CFE electricity utility, will continue its course through lower house commissions this week. Government officials are increasingly justifying the bill on grounds of regulatory transparency, no doubt in a bid to frame it to their advantage among the wider public. The bill in fact faces an uncertain future in the light of last week’s separate Supreme Court (SCJN) ruling that most of the changes to power grid rules introduced last May are unconstitutional. That could explain why Ricardo Monreal, the lead senator in the governing National Regeneration Movement (Morena), has suggested the bill could be modified and that he is open to “dialogue.”

Venezuela

Opposition leader Juan Guaido is calling for a mobilization of students and young people on 12 February. The call follows last week’s confirmation by the Biden administration that it will continue to recognize Guaido as legitimate interim president and not the “dictator” Nicolas Maduro. The European Union (EU) has downgraded Guaido’s position to “privileged interlocutor” despite intense lobbying by Guaido’s exiled ally Leopoldo Lopez. Guaido has faced renewed threats of arrest by senior regime officials over recent days even as a Norwegian diplomatic delegation undertook a visit to Venezuela last week, which included a meeting with Maduro, details of which have not been released.

Cuba

An expansion of permitted activities that self-employed Cubans can undertake was confirmed on 6 February. According to the Labor Ministry, the list of permitted activities will rise from 127 to over 2,000 (with some exceptions still applying, details of which have yet to be confirmed). The move is likely to reflect both urgent need arising from economic difficulties, as well as political opportunity. The economy contracted 11% in 2020, while the exchange rate unification that took effect on 1 January creates new inflationary pressures. There is also an expectation that the Biden administration could lift remittance limits once its review of Cuba policy is complete. Encouraging self-employment is a political gesture for the Miguel Diaz-Canel regime as much as it is an economic prop.

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