What lies on the other side of the commodity boom for Latin America? Retrenchment, lower interest rates and a backlash against those who filched money during the halcyon days. Brazil showed all these in spades over the past week – but so did all the region.
In Brazil, prosecutors arrested Eduardo Cunha on corruption charges. Brazilians cheered the move: the powerful former speaker of the lower house, who led the impeachment of Dilma Rousseff, has been called the “Frank Underwood” of Brasilia. The Brazilian central bank cut interest rates for the first time in four years to help the country emerge from its deepest recession in history; Colombia, Chile and Mexico (especially if Trump’s election run continues to falter) are expected to follow with their own rate cuts soon. And Michel Temer, the president, pressed on with reforms that aim to cut spending and shrink the bloated Brazilian state.
In Colombia, the government submitted a tax reform to patch up the country’s public accounts following the collapse in oil prices. The reform, although technically well-thought out, faces a tough ride in Congress where President Juan Manuel Santos’ political capital has been weakened by the county’s rejection on Oct 2 of a peace accord with Marxist rebels. You can almost hear the ratings agencies drumming their fingers: without a deal, South America’s third biggest economy will lose its investment grade credit rating.
Among other villains: Quito, which needs international support for its low oil price-battered economy, cut off the internet access of Julian Assange due to concerns that the Wikileaks’ founder, who is still holed up in the Ecuadorean embassy in London, is seeking to influence the US election by publishing Russian hacked emails from the US Democratic National Committee; Venezuela made it harder still for the political opposition to mount a referendum that could unseat President Nicolas Maduro next year even as a bond swap that state-oil company PdVSA is trying to engineer to stave off default floundered; and Javier Duarte, the outgoing governor of Mexico’s Veracruz state, went on the lamb as he tried to skip the country to escape corruption charges. Throughout the region, one cannot help but have a sense of accounts being settled.
Quote of the week
"The government of Ecuador respects the principles of non-intervention in the affairs of other nations, does not meddle in electoral campaigns nor support any candidate in particular ... Ecuadorean foreign policy is exclusively sovereign and does not respond to pressure from other states" - Ecuador’s foreign ministry.
Chart of the week
Brazilian interest rates
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