LATIN AMERICA ADVISOR
www.thedialogue.org
BOARD OF ADVISORS
Diego Arria
Director, Columbus Group
Devry Boughner Vorwerk
Corporate VP, Global Corporate Affairs
Cargill
Joyce Chang
Global Head of Research,
JPMorgan Chase & Co.
W. Bowman Cutter
Former Partner,
E.M. Warburg Pincus
A DAILY PUBLICATION OF THE DIALOGUE
FEATURED Q&A
TODAY’S NEWS
What Does a Strong
U.S. Dollar Mean
for Latin America?
Dozens of prison guards protesting the new retirement rules
stormed the committee room after
the vote and were detained by
police using pepper spray.
Peter Hakim
President Emeritus,
Inter-American Dialogue
Craig A. Kelly
Director, Americas International
Gov’t Relations, Exxon Mobil
John Maisto
Director, U.S. Education
Finance Group
Nicolás Mariscal
Chairman,
Grupo Marhnos
Thomas F. McLarty III
Chairman,
McLarty Associates
Carlos Paz-Soldan
Partner,
DTB Associates, LLP
Beatrice Rangel
Director,
AMLA Consulting LLC
Gustavo Roosen
Chairman of the Board,
Envases Venezolanos
Andrés Rozental
President, Rozental &
Asociados and Senior
Policy Advisor, Chatham House
Shelly Shetty
Head, Latin America
Sovereign Ratings, Fitch Inc.
Roberto Sifon-Arevalo
Managing Director, Americas
Sovereign & Public Finance Ratings,
Standard & Poor’s
Higher oil prices and an increased
value of the Mexican peso compared to the dollar have helped
boost the company’s profit.
Brazil Committee
Approves Pension
Reform Law
Marlene Fernández
Corporate Vice President for
Government Relations,
Arcos Dorados
James R. Jones
Chairman, ManattJones
Global Strategies
Pemex Posts First
Profit Since 2012
ECONOMIC
Barry Featherman
Senior Director,
International Government Affairs,
Gilead Sciences
Jon Huenemann
Vice President, U.S. & Int’l Affairs,
Philip Morris International
BUSINESS
Page 2
Dirk Donath
Senior Partner,
Catterton Aimara
Donna Hrinak
President, Boeing Latin America
Thursday, May 4, 2017
Page 3
President-elect Lenín Moreno of Ecuador, with its dollarized economy, faces perhaps the most
negative consequences among Latin American countries resulting from the strong value of the
U.S. dollar. // File Photo: ANDES.
Q
In January, U.S. President Donald Trump said the U.S. dollar
was “too strong,” a departure from the past practice of U.S.
presidents, who tried to avoid making such statements
and influencing currency markets. How is the U.S. dollar’s
relative strength affecting Latin American and Caribbean economies,
and what would a weaker dollar mean for the region? Which countries
are benefiting the most from the dollar’s strength? How are dollarized
economies, such as Ecuador, faring with a strong dollar? What are the
biggest trends for the region this year with regard to foreign exchange?
A
Uri Dadush, senior fellow at OCP Policy Center and non-resident scholar at Bruegel: “Viewed in isolation, a strong dollar
is good for Latin American and Caribbean exporters and families that receive remittances, but bad for most consumers,
as well as for governments and for companies with large unhedged dollar
debt. The net effect varies across countries. I suspect that it is positive
for Mexico, for example, because it exports much more than it imports
from the United States and receives substantial remittances. However, the
effect of the high dollar should not be looked at in isolation. Currently, the
dollar is strong because the U.S. economy is recovering solidly, so this
adds to the high dollar’s positives for Mexico and for Latin America and
the Caribbean more broadly. However, the dollar has appreciated against
nearly all currencies, so for most Latin American and Caribbean countries,
the positive competitive effects of a high dollar are much less than what
meets the eye. Ecuador, which is dollarized, is the worst-hit by the high
POLITICAL
Venezuela Protests
Leave One Dead,
Hundreds Injured
More than 230 people were injured in anti-government protests
in Caracas Wednesday, with at
least one fatality. Late in the
day, rumors circulated that jailed
opposition leader Leopoldo López,
who was sentenced to prison
over violent protests that erupted
in 2014, was seriously ill or even
dead, speculation that later turned
out to be wrong.
Page 2
López // Photo: Government of
Venezuela
Continued on page 4
COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE
PAGE 1
Thursday, May 4, 2017
LATIN AMERICA ADVISOR
POLITICAL NEWS
Hundreds Injured in
Venezuela Protests
More than 230 people were injured in anti-government protests in Caracas Wednesday, El
Universal reported. A young man was wounded
by a tank of the Bolivarian National Guard
during a confrontation in Altamira, and in Las
Mercedes an juvenile died from injuries from
a tear gas canister. In one hospital alone,
8 people were treated for gunshot wounds,
according to the report. Late in the day,
rumors circulated that jailed opposition leader
Leopoldo López, who was sentenced to prison
This is a proof-of-life
message for my
family. Today is
May 3. It’s 9 p.m.”
— Leopoldo López
over violent protests that erupted in 2014, was
seriously ill or even dead, speculation that
later turned out to be wrong. On Wednesday
evening, López appeared on video to dispel the
health rumors after a local journalist tweeted
Wednesday that he had been transported from
a prison outside Caracas to the hospital, CNN
reported. U.S. Sen. Marco Rubio (R-Fla.), who
has called for López’s release, had tweeted
he had confirmed López was hospitalized in
“very serious condition,” CNN reported. Shortly
after that, López appeared on state television,
apparently at the request of authorities in order
to dispel the rumors. “This is a proof-of-life
message for my family. Today is May 3. It’s 9
p.m.,” he said in the video. Earlier in the day,
Rubio and a bipartisan group of U.S. Senators
introduced a wide-ranging bill aimed at the
crisis in Venezuela, CBS News reported. The
measure calls for new sanctions and demands
U.S. President Donald Trump step in to prevent
a deal struck by Venezuela’s state oil company
that could eventually lead to Russian own-
ership of energy infrastructure in the United
States. The bill also calls for the State Department to coordinate an international response
to the crisis in Venezuela and requires the U.S.
intelligence community to prepare an unclassified report on the involvement of Venezuelan
government officials in corruption and the drug
trade. The measure also allocates $10 million
in humanitarian aid for the country. Meanwhile,
Maduro offered more details on Wednesday
for the makeup of a new “constituent assembly” he will create to rewrite the constitution.
“I see congress shaking in its boots before a
constitutional convention,” he said, referring to
the opposition-controlled legislature, the Associated Press reported. Maduro said that the
constituent assembly will promote a “new postoil economic model” and improve the justice
system. “There is a lot of impunity, we need to
raise the penalty against homicides and crimes
such as kidnapping and rape,” Maduro said,
according to El Universal. ”End the insecurity
and open the doors to the youth to abandon
the path of violence, “ he said. Maduro also
ordered that “search operations” be activated
“for the armed groups that have risen in arms
against the republic and the people.“
BUSINESS NEWS
Pemex Posts First
Profit Since 2012
Mexican state oil company Pemex on Wednesday reported a quarterly profit for the first time
since 2012, posting a first quarter net profit
of 87.9 billion pesos, or $4.7 billion, Reuters
reported. Pemex posted a 62 billion peso
loss during the same period last year. Higher
oil prices and an increased value of the peso
both helped boost the company’s profit, the
Financial Times reported. The company said
that in light of the first quarter growth, it plans
to redouble efforts to search for partners to
help increase output. Crude output in the first
quarter was 2.018 million barrels per day, down
9.5 percent form 2.23 million bpd during the
same period last year, though in line with the
company’s expectations. “We are analyzing
COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE
NEWS BRIEFS
Brazil Industrial Output
Falls at Steepest Rate
in Seven Months
Brazil’s industrial output in March shrank at
the steepest rate in seven months, government
statistics agency IBGE said Wednesday. Industrial production fell 1.8 percent from February,
a sharper decline than economists expected,
Reuters reported. Analysts at Goldman Sachs
expect the industrial sector will start to slowly
but incrementally benefit from the stabilization
of the economy, declining interest rates, and
the turnaround of the inventory cycle, moving
ahead.
Puerto Rico Declares
Bankruptcy on Debt
Puerto Rico on Wednesday became the first
U.S. state or territory to declare bankruptcy, the
New York Times reported. The island is petitioning for relief from more than $100 billion in
debt and pension obligations under a federal
law for insolvent territories, called Promesa,
which contains some bankruptcy provisions.
However, the law recognizes that Puerto Rico, a
commonwealth of the United States, is not part
of any state and must be treated like a sovereign nation. [Editor’s note: See related Q&A in
the March 9 edition of the Advisor.]
Arcos Dorados Revenue
Climbs 18 Percent
Arcos Dorados, the world’s largest McDonald’s
restaurant franchise, on Wednesday reported
first-quarter profit of $40.6 million on revenue
of $781.5 million in the period. Compared to
the same quarter last year, revenues increased
18.7 percent, largely driven by constant currency revenue growth of 17.0 percent, coupled
with a positive impact of currency translation.
Arcos Dorados shares have climbed 59 percent
since the beginning of the year, and its stock
has climbed 96 percent in the last 12 months,
according to the Associated Press.
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Thursday, May 4, 2017
LATIN AMERICA ADVISOR
more fields … we are preparing a set of 52
entitlements [fields which Pemex was allowed
to keep under the 2013 energy reform] to go
into farm-outs,” said Luis Ramos, Pemex’s
deputy director of exploration and production
portfolio management, during a conference call
with analysts. The average price for Mexican
crude during the first quarter, however, was up
70 percent year-over-year to $44.11 per barrel
as compared to $25.87 per barrel, which led to
a quarterly profit, despite a drop in production,
Reuters reported. [Editor’s note: See related
Q&A in yesterday’s Advisor.]
ECONOMIC NEWS
Brazil Committee
Approves Draft
Pension Reform Law
A special committee in Brazil’s lower chamber
of Congress on Wednesday night passed a
measure to reform the country’s politically
sensitive pension system, Folha de S.Paulo
reported. The vote was 23 in favor and 14
against. Dozens of prison guards protesting
the new retirement rules stormed the committee room after the vote and were detained by
police using pepper spray, Reuters reported.
Dozens of prison guards
protesting the new
retirement rules stormed
the committee room.
Lawmakers had to adjourn the session as
a result. Although more than 70 percent of
Brazilians oppose the bill, which would cut benefits and extend the number of years people
need to work, economists warn that the social
security system is one of the main threats to
Brazil’s finances. Without the overhaul, Brazil’s
population is expected to raise social security
spending to 17 percent of GDP by 2060. A
full vote on the pension reform plan has been
delayed until later this month or even June.
COMINGS & GOINGS
Former UPS Latam President Named U.S. Treasurer
U.S. President Donald J. Trump last week nominated Jovita Carranza, the former president of
Latin America and the Caribbean at shipping company UPS, to be the treasurer of the United
States. Carranza currently is the founder of JCR Group, which provides services to companies and non-governmental organizations. She previously served as deputy administrator of
the U.S. Small Business Administration under President George W. Bush. Carranza had been
considered for the Cabinet position of U.S. trade representative, but that nomination went to
Robert Lighthizer, NBC News reported.
Commerzbank Names Müller Head of Latin America
Germany’s Commerzbank has named Jochen Müller its new head of financial institutions for
Asia and Latin America, Global Capital reported last week. Based in Frankfurt, he moves from
a role as country manager for UK corporates in the bank’s London branch. Before joining Commerzbank in 2009, he worked for UBS and Lehman Brothers. Müller reports to Bernd Laber,
divisional board member for trade finance and cash management at Commerzbank. Last year,
Commerzbank opened its first office in Brazil, focusing on financial services for small and medium-sized German and European companies, The Wall Street Journal reported. Harald Lipkau,
who worked for Commerzbank in Asia, was named head of the new São Paulo office, which
was aiming to hire a total of 50 employees.
Camilleri, Yanovich Join the Inter-American Dialogue
The Inter-American Dialogue on Tuesday named Michael Camilleri as its director of the Peter
D. Bell Rule of Law Program and Denisse Yanovich as the director of Development and External
Relations. A Harvard Law School graduate, Camilleri served as a member of the U.S. Secretary
of State’s Policy Planning staff and director for Andean affairs at the National Security Council.
Prior to joining government, he was a human rights specialist at the Organization of American
States and worked as an attorney at the Center for Justice and International Law. Yanovich
was most recently a consultant with the Fratelli Group, working primarily with embassies, and
at the Wilson Center, creating a fundraising campaign around its gala awards dinner. Previously Yanovich served as director of communications and investor relations for Efromovich
Silva Capital Partners, and as a counselor at the Embassy of Colombia in Washington. Kevin
Casas-Zamora, the first director of the Rule of Law Program and former vice president of Costa
Rica, remains at the Dialogue as non-resident senior fellow.
Heidrick & Struggles Expands in Latin America
Chicago-based executive search firm Heidrick & Struggles on Tuesday named Rose Gailey
as a partner and its practice lead for Latin America. Gailey is responsible for expanding the
company’s Senn Delaney unit, the firm’s “culture shaping” business, across the region. Gailey
brings 25 years of experience to the company. Prior to rejoining California-based Senn Delaney
in 2016, Gailey worked for a strategy execution firm, serving as the company’s practice lead for
building organizational capabilities.
COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE
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Thursday, May 4, 2017
LATIN AMERICA ADVISOR
LATIN AMERICA ADVISOR
F E A T U R E D Q & A / Continued from page 1
dollar, as it can only adjust to the collapse of
the price of its oil exports by cutting spending, not by devaluing. Countries that allow
their exchange rate to float and that have
modest amounts of unhedged dollar debt
are the least affected by the high dollar.”
A
Jose M. Barrionuevo, managing
member and CEO at Sailbridge
Capital: “President Trump’s
comments that the U.S. dollar is
‘too strong’ are unusual, as U.S. policy has
consistently focused on attracting capital
to strengthen investment and growth. If
the Trump administration is successful in
improving growth, it would be because it
was able to jump-start investment amid a
stable or stronger dollar. The strong U.S.
dollar would thus be based on strengthening
investment and growth, which would eventually strengthen Latin American currencies, as
U.S. demand for commodities and imports
of goods and services would rise. The countries that benefit most are the ones that can
attract the most capital inflows, especially
if the inflows strengthen private investment.
Mexico is, in our view, the country that
stands to benefit the most from stronger
U.S. growth and improved investment prospects. As the U.S. dollar strengthens, however, the countries that risk falling into a sharp
recession are the ones that have the least
currency adjustment, notably Ecuador, as the
adjustment takes place through much weaker growth and unemployment. As always, the
United States remains the biggest driver of
opportunities for the world and, of course,
for Latin America. The biggest trends for the
region are the prospects of, first, lower commodity prices, weaker investment and some
capital outflows that follow the strengthening investment opportunities in the United
States. Second, the prospect of higher U.S.
interest rates would reinforce currency pressures and, in fact, could exacerbate them if
U.S. growth begins to pick up more rapidly
in the second half of the year and in 2018.
These two are associated with depreciating
Latin American currencies. Once U.S. growth
strengthens toward the 3 percent mark, commodity prices and opportunities in the region
would recover markedly, especially once the
Fed is done with its tightening cycle in 2018,
leading to capital flows to Latin America and
appreciating currencies.”
A
Claudio M. Loser, president of
Centennial Group Latin America
and former head of the Western
Hemisphere Department of
the International Monetary Fund: “In order
to review the so-called excessive strength
of the U.S. dollar, we should look at the
movements of the real effective exchange
rate (REER). This is the standard measurement of the strength of a currency, and takes
into account exchange rates and inflation
relative to other countries. On that basis, the
U.S. dollar has only strengthened in value
by 4 percent in the last six months, and 5
percent in the last year. The Chinese Yuan
also strengthened, while little happened
to the Euro. Among Latin American major
countries, most REERs have moved very little
in recent months, except for a ridiculous
gain in the case of Venezuela, due to
hyperinflation and a fixed exchange rate,
and Argentina, to a lesser but important
degree. Mexico’s currency experienced a
real devaluation of around 12 percent in the
last half year, following Trump’s accession
to the presidency, but followed a trend
that started long ago. In general, currencies had lost value for their own reasons.
Brazil suffered from its own crisis and was
affected by lower commodity prices. The
latter also affected the currencies of other
South American countries. As to possible
efforts to ‘weaken’ the U.S. dollar, two final
considerations: 1) the authorities may try,
but experience shows that they can do little
in terms of its real value; and 2) the majority
of Latin American countries will follow the
U.S. dollar, becoming more competitive if the
U.S. succeeds.”
COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE
is published every business day by the
Inter-American Dialogue, Copyright © 2017
Erik Brand
Publisher
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Gene Kuleta
Editor
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Reporter, Assistant Editor
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Michael Shifter, President
Genaro Arriagada, Nonresident Senior Fellow
Sergio Bitar, Nonresident Senior Fellow
Joan Caivano, Director, Special Projects
Michael Camilleri, Director, Peter D. Bell Rule of Law
Program
Kevin Casas-Zamora, Nonresident Senior Fellow
Ariel Fiszbein, Director, Education Program
Alejandro Ganimian, Nonresident Fellow
Peter Hakim, President Emeritus
Claudio Loser, Senior Fellow
Nora Lustig, Nonresident Senior Fellow
Margaret Myers, Director, China and
Latin America Program
Manuel Orozco, Director, Migration,
Remittances & Development
Jeffrey Puryear, Senior Fellow
Tamar Solnik, Director, Finance & Administration
Lisa Viscidi, Director, Energy Program
Denisse Yanovich, Director of Development and
External Relations
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