Friday, April 29, 2016

FT Of London Weekly Report On Latin America

FINANCIAL TIMES - Latam Viva: Your weekly briefing from the region
The Clash moment
By Andres Schipani 
April 28, 2016
Many Latin Americans who like myself stepped into nightclubs for the first time as the generals in dark glasses were retreating from the political scene, used to listen to Mick Jones pounding "should I stay or should I go?" That is a question several leftwing leaders in the region maybe asking themselves these days.
In Brazil Dilma Rousseff wrestles with a "telenovela" impeachment - although questions are arising over the legality of the move. In Venezuela, Nicolás Maduro may soon face a recall vote. In Ecuador a court this week paved the way for a referendum on repealing a constitutional ruling that bars Rafael Correa from running again for president next year. 
The end of the commodity price boom has been double-edged in Latin America. There is an erosion of constitutional checks and balances ("should I stay?") and a cry for more checks and balances ("should I go?"). The risk for leaders and their parties of trying to cling to power  is increasingly eroding. They are struggling both with low prices for oil and mineral exports - like their African counterparts - and badly managed economies.
In Venezuela, a prolonged drought prompted Maduro to declare two-day working week. The pilsner-loving citizens of the cash-strapped oil-rich country are facing the prospect of beer shortages. As discontent mounts, this could accelerate the opposition's push to remove Maduro through a recall referendum, now the electoral court has allowed signatures to be collected. 
In earthquake-ravaged Ecuador, Correa, a US-trained economist, may have to swallow his pride and ask the IMF for a bailout to pay for reconstruction. In Brazil, the central bank is bracing for a shakeup as it struggles to contain one of the deepest recessions on record while containing soaring inflation. (The IMF’s western hemisphere director did not sound too worried when he told the FT that whether Rousseff stays or goes, Brazil's ability to bounce back depends on how it can hammer out political consensus on a package of spending cuts, tax rises and anti-protectionist measures.)
We may be far from the optimism that followed the region’s transition to democracy in the 1980s, when The Clash was pumping out of loudspeakers. But the question posed by the British punk band back then is still reverberating. It may be time for Dilma, Nicolás, and Rafael, to dust off their old records.
Quote of the week
"We have never seen abuse and the mechanics of impunity and cover-up exposed so clearly and in such an authoritative, detailed fashion. This report is devastating for Mexico’s international reputation” - Daniel Wilkinson, Americas managing director at Human Rights Watch, told the Financial Times.
Chart of the week
The week in review
MSCI Peru ruling threatens to unbalance Frontier index
Fears the move would drive foreign investment away from $67bn bourse
Judge questions Brazil impeachment process
Some lawmakers announced their votes against Dilma Rousseff before ballot
Brazil’s central bank keeps rates on hold
Benchmark left at near-decade high as the country braces for a government shake-up
IMF says Brazil resilience bodes well for recovery post-crises
Fund points to country’s ability to attract foreign direct investment despite political upheaval
Venezuela civil servants put on two-day week to cut power usage
Electricity shortages worsen in crisis-hit Latin American oil producer
Brazilians turn to retail therapy
Premium beer and lipstick are the only products holding up as economy collapses
Credit Suisse poaches UBS wealth management team in Mexico
Swiss bank boosts its relationship manager division as it targets emerging market entrepreneurs
BTG Pactual founder Esteves freed by Brazil’s Supreme Court
Star banker still being investigated over Petrobras scandal but allowed to return to work
Andrew Bailey was not interviewed for FCA job, confirms chairman
Treasury select committee questions process of choosing financial watchdog chief
US shale gas producers bet Mexico is next bonanza
As Donald Trump delivers hostile rhetoric, US producers say sales to neighbour could unlock glut
Report highlights flawed probe into 43 missing Mexican students
Allegations of torture and evidence planting expected to damage Peña Nieto’s government
Rousseff presses her case in Brazil drama
Impeachment fight said to have the feeling of a ‘telenovela’
Argentina puts an end to long holdouts saga
Judge lifts injunctions on country after it pays creditors $9.3bn
Ecuador despairs after quake and seeks urgent funds to rebuild
President Correa may have to swallow pride and seek IMF help
Macri enlists business as austerity bites
Argentina is undergoing a painful transition from interventionist policies
FT LatAm Viva features commentary by the FT's Latin America team and stories fromacross the FT.

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Thursday, April 28, 2016

Chile An Island Of Stability In South America

Chile: An Island of Stability in South America

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  • Despite the shock from falling copper prices, Chile's responsible management of public finances will ensure a measure of domestic economic stability in years to come.
  • The repeal of Chile's binomial electoral system could lead to more small parties reaching the National Congress in the next election cycle but will not destabilize Chilean politics.
  • It is unlikely that Chile's governments in the near future will look to drastically increase public spending or repeal the legislation that commits the nation to limiting public spending.


Latin America's economies have reacted differently to the drop in global commodity prices over the past several years. With Chinese demand growth slowing and economic growth relatively slow in Europe and the United States, Latin America's commodity boom is essentially over. In Brazil, the decline in prices for key exports such as soybeans and iron ore exposed severe structural economic problems. In Venezuela, the drop in oil prices since 2014 plunged the country into a social crisisthreatening the government's hold over the nation. But Chile is a different story.
The Chilean economy is particularly vulnerable to shocks caused by drops in copper prices abroad. After all, 49 percent of the country's exports are related to the copper industry, and mining activities account for about 14 percent of Chile's gross domestic product. But Chile has weathered the drop in copper prices — which have plunged by 35 percent since their peak in 2011 — thanks to government policies enacted in the recent past. 
Chile's geography makes it inherently vulnerable to the boom-and-bust cycle that has characterized so many Latin American economies. On a continent where dense forests, rivers and mountains isolate many countries from one another like islands, Chile has historically been a peripheral nation. It has no choice but to rely on markets outside the continent for much of its export revenue. Some of the highest peaks in the Andes separate Chile from the consumer markets of Argentina. Even Peru and Bolivia, nations relatively more accessible to Chilean exporters, are hundreds of kilometers from Chile's population centers and economic core in its central region.
And none of those nations represent significant consumer markets for Chilean manufactured goods, nor do they possess the manufacturing activity to use Chile's copper. Consequently, the Chilean strategy for development has been to rely on export markets in Europe, the United States and, most recently, East Asia. Exports to East Asia and the United States in 2015 accounted for about 55 percent of Chilean export revenue, whereas neighboring Peru accounted for only about 2.5 percent of exports.

Economic Stability and Political Reform

Despite Chile's vulnerability to boom-and-bust cycles, a key factor in its recent stability is its commitment to fiscal responsibility. The Chilean government's resistance to potentially destabilizing moves — particularly those prioritizing major increases in public spending — is enforced by Chilean law. This has not always been the case. As in other Latin American countries, Chile's governments in the 1960s encouraged fiscal deficits, and the efforts to finance those deficits led to high inflation. Chile's economic stability was secured by a fiscal rule instituted in 2000, and later enshrined in law, mandating that the government must attempt each year to secure a structural surplus equal to 1 percent of the gross domestic product.
That requirement significantly curtails the government's capacity to boost populist spending because it must save money in an effort to reach the target. The surplus can then be used to bolster the country's public finances during lean times. It is unlikely that future governments will undo the fiscal rule to, for example, boost public spending. Without a majority in Chile's National Congress, any political party would find changing the law a challenge.
Yet Chile's domestic politics could be somewhat different in the next election cycle. Electoral reform in 2015 eliminated Chile's binomial electoral system, which ensured representation for the country's right and left blocs in each electoral district except in cases in which either bloc's representatives won with twice the number of votes received by the opposing candidate. The system effectively ensured more equal representation for the country's right- and left-wing parties and made it difficult for any party to gain a distinct advantage in either congressional house.
The 2015 reform shifted the electoral format toward proportional representation, meaning smaller parties could win seats in the National Congress without having to join one of the two major political blocs. This opens the way for a proliferation of smaller parties, potentially upsetting the balance between the left- and right-wing coalitions that have governed since the end of the Augusto Pinochet government in 1990.

A Run of Good Fortune

Chile is an outlier in Latin America precisely because it is so politically and economically stable. Overall, Chile's experience is a notable example of moderate politicians successfully managing an economic windfall. Not all countries in the region managed the commodity boom successfully, and some are now experiencing the side effects of high spending during the boom times.
There are no visible disruptors in the near term to Chile's three-decade run of good economic fortune. Rising global copper demand could soon boost prices, providing the government some relief. And while the removal of the binomial system may bring more parties into the government, there is no sign that they will create major instability in the political system or attempt to push through reforms that would undo the country's fiscal stability and reduce its attractiveness to foreign investors. Still, the next few years will inevitably be a time of slower economic growth for Chile unless copper demand and prices rise. With copper prices well below the highs of the late 2000s, Chile's economy is projected to grow by only about 3.1 percent in 2016, compared with nearly 6 percent in 2011.

The Risks At Play At The Summer Olympics

The Risks at Play at the Summer Olympics

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As athletes and spectators gear up for the Summer Olympics in Rio de Janeiro, security experts and professionals are also preparing. On April 13, the Brazilian Intelligence Agency (ABIN) issued a report assessing the threat to the upcoming Olympic Torch Relay, which will travel through several European countries and 329 Brazilian cities before arriving in Rio de Janeiro for the Aug. 5 opening ceremony. Among other items, ABIN's report confirmed that a French Islamic State member named Maxime Hauchard was responsible for a November 2015 tweet threatening attacks in Brazil. Issued in the wake of the extremist attacks in Paris, the message warned, "Brazil, you are our next target." Of the many risks discussed in ABIN's report, the Hauchard revelation garnered the most buzz and made international headlines about the Islamic State's threat to the Summer Games.
Yet despite the heavy media coverage that this threat has attracted, several unrelated and more likely dangers to athletes and spectators lurk in the upcoming Olympics.

The Terrorism Threat

Considering the hubbub surrounding possible terrorism at the Olympics, I'll get it out of the way at the start: Despite the hype, terrorism poses a relatively low risk to competitors or visitors in Rio de Janeiro for several reasons. First, assuming that the Islamic State's core group has the capability to attack in the Western Hemisphere — something it has yet to demonstrate — it has much bigger fish to fry than Brazil. Namely, these are the United States and Canada, part of the international coalition actively fighting the Islamic State in Iraq and Syria and two countries that, moreover, the group has repeatedly threatened to attack. Unlike the Islamic State's regular promises to strike the United States, Canada and various European countries, the Brazil threat is, so far, an isolated incident.
Second, if the Islamic State could and were indeed planning to dispatch operatives to attack the Olympics in Rio de Janeiro, alerting authorities to its intentions would be the last thing the group would want to do. After all, the Islamic State would not want to risk having its plot foiled, and attacking is much easier in a complacent environment than in an alert one.
The recent attacks in Paris and Brussels, as well as attacks in the United States and Canada, exemplify the Islamic State's (and for that matter, al Qaeda's) modus operandi. The group has struggled to send professional terrorist cadres from abroad to carry out attacks. Instead, it relies primarily on homegrown, grassroots jihadists who are citizens of targeted countries. And as the Islamic State loses territory, men and resources, radicalized jihadists and grassroots militants returning from places such as Syria and Iraq will remain the group's greatest weapon outside its core areas. This is important in the context of possible terrorism in Brazil because Brazil simply has not been a significant source of jihadist fighters. Only three jihadists have traveled from Brazil to fight in Syria and Iraq, according to a December 2015 study published by The Soufan Group. By contrast, thousands of foreign fighters have come from Western Europe and hundreds from the United States and Canada. Although 1,700 fighters from France, or even 470 from Belgium, may be enough to overwhelm law enforcement and intelligence agencies, three is a far more manageable caseload to track and monitor.
Undoubtedly, radicalized jihadists live in Brazil, and some might not have come to the attention of Brazilian law enforcement and intelligence. Nonetheless, they are few in number, and they do not enjoy the same sort of operational environment that jihadists in France and Belgium do. Indeed, Brazil's grassroots terrorist threat more closely resembles that in the United States and Canada. Consequently, the most likely attack in Brazil would be a small-scale strike against a very soft target, conducted by a poorly trained militant acting alone or as part of a small group — something akin to Atlanta's 1996 Olympic Park bombing or the April 2013 Boston Marathon bombing.

Street Crime

Statistically, far more people will be affected by street crime during the Olympics than by terrorism. The murder rate in Brazil is four times higher than it is in the United States, according to the U.S. Department of State, and the incidence of other crimes in the country is commensurately elevated. For instance, kidnapping is a serious problem in Brazil. Frequently, gangs that specialize in express or lightning kidnappings target foreigners who have had too much to drink. Some victims of these "quicknappings" have been beaten or raped.
Events such as the Olympics tend to draw pickpockets, con artists, muggers, prostitutes and other criminals from all over the country and region. During the games, Brazilian criminals will target citizens and foreign visitors, especially near attractions such as beaches, bars, nightclubs and hotels. And criminals come in all shapes and sizes. Not too long ago, a band of children mugged a friend of mine in Rio de Janeiro. Until one of the kids pulled a knife on her, she had not considered them a legitimate danger. Fortunately, they did not hurt her but stole her purse, cellphone and jewelry.


Street protests, too, are a potential hazard. In Brazil, protests can be large and violent: It is not unusual for protesters to engage in battles with police, launching bricks, bottles and Molotov cocktails at officers, who respond with tear gas and batons. During the 2013 FIFA Confederations Cup, anarchists in cities across the country blocked streets and burned buses, severely disrupting transportation. Now, large and generally peaceful demonstrations are underway in Brazil to show support for or opposition to Brazilian President Dilma Rousseff. In May, Brazil's Senate will vote on Rousseff's impeachment. If she does not accept the final decision, then further unrest could erupt in the country. Should protests continue through the Olympic Games, they could reach the scale and pitch of the 2013 protests. In any event, visitors to Rio de Janeiro should resist the urge to gawk at the spectacle and instead avoid protests.
Beyond political demonstrations, the normal array of protests focused at various Olympic sponsors and participating countries can be expected at the 2016 games. Though most of these are likely to be more dramatic than violent, protests staged by environmental and animal rights activists or anarchists could escalate.
At the same time, controversy in Brazil over ride-hailing companies such as Uber could provide further fodder for potential protests and disturbances. Last year, Rio de Janeiro passed a law banning the services from operating in the city. Subsequently, a court injunction declared the law unconstitutional, allowing ride-hailing companies to return. As a result, taxi drivers have taken to the city's streets, staging mass protests, the latest of which was held April 1. Furthermore, drivers for and passengers of ride-hailing services have been subject to threats and violence in the wake of the decision. This issue is unlikely to be resolved before the Olympics, and a disruptive taxi strike or protest could occur during the games. For this reason, passengers who choose to use ride-hailing services in Brazil should practice increased situational awareness during pickups and drop-offs.

Health and Safety Concerns

In addition to well-publicized concerns over holding water events in Rio de Janeiro's polluted Guanabara Bay, mosquito-borne diseases such as Zika, chikungunya and dengue will also pose a significant environmental threat during the Summer Olympics. For information on these and other health risks, travelers should review the Centers for Disease Control and Prevention's alert for the 2016 Olympics.
One final threat bears mention. As noted a few weeks back, traffic accidents are the top killer of Americans abroad. More foreign travelers are likely to be killed and injured in traffic accidents during the Olympics and Paralympics than by terrorism and crime combined. Therefore, when planning a safe trip to the Summer Games, transportation arrangements should be considered just as thoughtfully as other aspects.