Regional Pulse: 6 February 2024
Southern Pulse’s weekly review of need-to-know events curated for people who work in Latin America.
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KEY DEVELOPMENTS
ARGENTINA
Provincial government funding takes center stage in Omnibus Bill debate
Omnibus Bill passes first hurdle
IMF cuts Argentina’s 2024 growth forecast
BRAZIL
Supreme Court Justice suspends Odebrecht fines
Lula and Bolsonaro ally Freitas agree to finance $1.21 billion São Paulo tunnel
Brazil’s political polarization causes rifts within Federal Police
CHILE
Government takes action after wildfires kill at least 131
Former housing secretary says government was ‘aware’ of Democracia Viva funds
Senators start court case against bill to reduce private health insurers’ debts
COLOMBIA
Central bank reduces interest rate for second consecutive month
ELN and government agree on six-month cease-fire extension
At least 322 Colombian municipalities at risk of water shortages due to El Niño
ECUADOR
Petroecuador reports clandestine oil drilling in 2023 caused losses of USD89.7 million
Government begins repatriation process for foreign prisoners
President Noboa announces targeted reduction of fuel subsidies in Q2 2024
MEXICO
President denies 2006 illegal campaign financing allegations
Government announces new legislative attempt to reform the energy sector
Mexico City residents protest amid unprecedented water shortages
Mexico signs memorandum with Venezuela’s PDVSA for crude exchange
PERU
MMG begins work on new pit in Las Bambas copper mine
Strike lifted in Machu Picchu after ticket-sale agreement
Prison agency fails to transfer organized crime leaders at La Libertad prison
KEY DEVELOPMENTS IN FULL
ARGENTINA
Provincial government funding takes center stage in Omnibus Bill debate
On 5 February 2024, Página/12 reported that President Javier Milei would veto any additional funding for provincial governments. The issue has been contentious in the past week. La Política Online previously reported it appeared that Milei’s administration would pay more to provincial governments to secure votes to pass his “Omnibus Bill,” despite the preliminary agreement with the International Monetary Fund (IMF) indicating he would not. Milei had told the IMF he would reduce the amount of money the central government paid out to provincial governments when the agency authorized a USD4.7 billion disbursement on 29 January. However, governors from the Peronist opposition and center-right Radical Civic Union threatened to vote against the comprehensive Omnibus Bill if Milei did not transfer 21% of the revenue from the “Inclusive and Supportive Argentina” (PAIS) tax to provincial governments, including an additional USD48 million to the Buenos Aires provincial government led by Peronist governor Axel Kicillof. The former administration created the PAIS tax from foreign currency transactions in 2019 as an emergency tax to cover the central bank’s dollar shortage.
Omnibus Bill passes first hurdle
On 2 February 2024, President Javier Milei’s Omnibus Bill passed through the first phase of voting in Congress’ lower chamber. The Peronist opposition voted unanimously against the bill, which passed with 144 votes to 109. But with support from Republican Proposal (PRO) – former president Mauricio Macri’s party — and several smaller parties from the center and center-right, the government was able to move the law past the first hurdle. A second round of debate and voting is scheduled to start on 6 February, when lawmakers will discuss all of the bill’s 365 remaining articles (the bill originally had more than 600). However, Milei’s minority government will need support from other parties, which is not guaranteed.
UPDATE: Late Tuesday evening, the lower house sent the Omnibus Bill back to a congressional committee due to a breakdown in negotiations. Now lawmakers must begin to debate the bill again before voting in the lower house.
IMF cuts Argentina’s 2024 growth forecast
On 30 January 2024, the International Monetary Fund (IMF) reduced its 2024 forecast by 5.6% and now predicts Argentina’s economy will contract 2.8% this year. The IMF cited the impact of President Javier Milei’s austerity measures as one of two principal reasons for the revision. Milei cut subsidies, which caused the price of public transport, fuel, and basic products to increase and real wages to drop. As households’ disposable incomes fall, the industrial and service sectors will likely shrink. Inflation is also a major driver of recession. Although the IMF expects inflation to reduce in the second half of the year, it predicts inflation to remain at about 150% by the end of 2024 — barely lower than the 160% rate in 2023. Argentina is one of the world’s most recession-prone countries. It has suffered 16 recessions between 1982 and 2022, surpassing Venezuela (six recessions) and Russia (15 recessions).
BRAZIL
Supreme Court Justice suspends Odebrecht fines
On 31 January 2024, Supreme Court Justice Dias Toffoli suspended fines handed down to Brazilian conglomerate Novonor (formerly Odebrecht) after the Operation Car Wash corruption investigation that ran from 2014 to 2019. While the suspension does not exonerate the company, it does allow it to seek renegotiation of the leniency agreement it reached with authorities in 2016. Another company, J&F, is now in negotiations to greatly reduce or even cancel its own fine after Toffoli suspended it under the same circumstances in December. Novonor was ordered to pay USD2.5 billion in fines under that 2016 agreement after it was found to have paid out kickbacks in exchange for government contracts. But in 2019, a Federal Police operation revealed that Operation Car Wash investigating judge Sergio Moro had colluded with prosecutors to interfere in Novonor’s investigation. Toffoli’s decision is the latest blow to the legacy of the Operation Car Wash investigation, which exposed corruption at the highest levels of Brazilian politics. Politicians targeted by corruption investigations have tried to discredit the operation, including left-wing President Luiz Inácio Lula da Silva and former right-wing president Jair Bolsonaro.
Lula and Bolsonaro ally Freitas agree to finance $1.21 billion São Paulo tunnel
On 30 January 2024, President Luiz Inácio Lula da Silva and São Paulo governor Tarcísio de Freitas signed an agreement to jointly finance a tunnel connecting two coastal cities in São Paulo state. The São Paulo state government and central government will now split the expected USD1.21 billion cost to construct the tunnel after originally planning to finance it with a federal financial package approved in December 2023. Freitas is an ally of former far-right president Jair Bolsonaro. His cooperation with the left-wing federal administration did not go unnoticed, considering Brazil’s deeply polarized political environment. The Santos-Guarujá tunnel will eventually connect the tourism hub of Guarujá with Santos, one of Brazil’s most important port cities.
Brazil’s political polarization causes rifts within Federal Police
On 2 February 2024, digital magazine Crusoé published an article highlighting rifts within the Federal Police (PF) due to increasing political polarization in Brazil. President Luiz Inácio Lula da Silva appointed his former campaign security chief to the top job there, while former far-right president Jair Bolsonaro fired three PF directors. Crusoé reported that Lula had blocked the career progression of agents who worked on the Operation Car Wash corruption investigation, in which Lula and several members of his former administrations were indicted. The force’s legitimacy was also damaged during investigations into abuses of power during Bolsonaro’s term.
CHILE
Government takes action after wildfires kill at least 131
On 5 February 2024, the government activated economic measures and tax breaks to begin rebuilding areas of the Valparaíso region after wildfires broke out. As of 6 February, these fires killed at least 131 and have left thousands homeless. The worst fires are concentrated in the city of Viña del Mar, which have been hard to control due to the city’s urban layout and coastal winds. Authorities called for evacuations in areas including Valparaíso and Viña del Mar, Chile’s second-biggest metropolitan area. The fires have been particularly destructive due to a combination of drought and soaring temperatures caused by El Niño. President Gabriel Boric has called the fires the “worst disaster” in Chile since the 2010 earthquake, which killed 550.
Former housing secretary says government was ‘aware’ of Democracia Viva funds
On 2 February 2024, local news outlets published a declaration that former Antofagasta housing ministry chief Carlos Contreras gave during the first phase of the judicial process in a high-profile corruption case. The case alleges that politicians from the Democratic Revolution party, a member of President Gabriel Boric’s ruling coalition, diverted nearly USD500,000 in public funds through the Democracia Viva foundation. Contreras told the prosecutor that the central government received reports and audits throughout 2022-2023 detailing the regional government’s relationship with Democracia Viva, the non-profit at the center of the corruption case. The scandal has damaged Boric’s approval rating, which fell four points to 31% between 2022 and 2023 when the scandal became public.
Senators start court case against bill to reduce private health insurers’ debts
On 2 February 2024, four pro-government senators requested that the Constitutional Court declare a new private health bill unconstitutional. The bill seeks to reduce the debts of private health insurers. But in November 2022, the Supreme Court ruled these private health insurers (known as “isapres” in Chile) had overcharged customers and ordered them to repay almost USD1 billion. On 29 January 2024, the Senate sent a bill to the Lower House that proposed reducing the amount isapres are required to pay to USD451 million. Left-wing lawmakers believe the isapres should repay the debts they owe to customers, while these insurers say the payment would put them out of business. The closure of these private companies would strain the public health sector, but the lawmakers who support the court case worry the reduced debt would be a symbol of forgiveness for the companies that overcharged sick patients.
COLOMBIA
Central bank reduces interest rate for second consecutive month
On January 31, Colombia’s central bank (Banrep) reduced the interest rate by 25 basis points (bps) to 12.75%. The new reduction comes one month after Banrep’s December 2023 decision to reduce the rate for the first time since September 2020. The new reduction aligns with calls by the private and public sectors to lower interest rates so that the cost of borrowing would be cheaper for businesses and households to reactivate the economy. In December 2023, the inflation rate was 9.28%, a 3.84 percentage point reduction compared to the previous year. However, this is still far from the central bank’s target of setting inflation at 3%.
ELN and government agree on six-month cease-fire extension
On February 5, The ELN and the government agreed to extend the bilateral cease-fire for another six months during the latest round of peace negotiations in Havana, Cuba. The agreement also included the suspension of kidnapping for ransom by ELN. Kidnapping is one of ELN’s main income sources, and criminal activity was reportedly on the rise last year. On January 29, the ELN and the government had already extended the cease-fire for a week after it was set to expire that same day. This allowed talks to continue as the parties discussed the prolonged six-month cease-fire. The six-month truce has been the longest any government has maintained with the guerilla in the last 30 years.
At least 322 Colombian municipalities at risk of water shortages due to El Niño
On February 2, Housing Minister Catalina Velasco announced at least 322 out of 1,101 municipalities were at risk of water shortages due to the El Niño weather phenomenon, marked by drought, wildfires, and heightened temperatures. Housing Minister Velasco said the water shortage is not impacting capital cities for now. At the same time, Agriculture Minister Jhenifer Mojica said livestock, cattle, and aquaculture activities have been negatively affected, with farmers reporting a loss of corn crops on the Caribbean coast. However, Minister Mojica assured there have been no reports of food shortages or food price increases. Farmers in Boyaca will receive support from the national government, including agricultural and livestock kits. Although the El Niño weather phenomenon is expected to end in March, its impact could last longer.
ECUADOR
Petroecuador reports clandestine oil drilling in 2023 caused losses of USD89.7 million
On January 31, state-owned Petroecuador announced it lost USD89.7 million in 2023, which is equivalent to more than 643,000 barrels of oil and pipe repair costs due to clandestine oil drilling. The theft of gasoline and diesel has affected several pipelines, including the Esmeraldas-Santo Domingo pipeline in the north and the Pascuales-Cuenca pipeline in the southern part of the country. Petroecuador said that the activity not only causes heavy monetary losses but also endangers the environment and puts the nearby population at risk for oil spills, La República reported.
Government begins repatriation process for foreign prisoners
On January 29, President Noboa signed a decree authorizing the national prison agency (SNAI) to begin proceedings to repatriate foreign national prisoners sentenced in the country. According to a 2022 prison census, about 10% of the total prison population was made up of foreign nationals, including 1,500 Colombians. Colombian Justice Minister Nestor Osuna said Ecuador’s initiative should be handled through diplomatic channels and should be decided on a case-by-case basis. Ecuador’s decision comes after declaring an “internal armed conflict” against 33 armed criminal groups after a wave of criminal attacks and prison riots.
President Noboa announces targeted reduction of fuel subsidies in Q2 2024
On January 30, President Noboa announced the targeted and progressive reduction of state subsidies for fuel to begin in the second quarter of 2024. President Noboa ruled out the removal of subsidies for domestic gas or diesel but said it would target subsidies for large companies and gasoline consumed by the public. Ecuador’s fuel subsidies are estimated to cost USD4 billion per year amid a fiscal deficit of USD5.5 billion. In a recent article, Southern Pulse noted that possible fuel subsidy changes could be one issue leading to increased tensions with The Confederation of Indigenous Nationalities of Ecuador (CONAIE), depending on how Noboa chooses to implement them.
MEXICO
President denies 2006 illegal campaign financing allegations
On 31 January 2024, President Andrés Manuel López Obrador threatened to curtail Mexican-US cooperation on drug trafficking and immigration issues after ProPublica published a report claiming that criminals funneled millions of dollars into his first presidential campaign in 2006 based on interviews with government officials and documents. “The investigation did not establish whether López Obrador sanctioned or even knew of the traffickers’ reported donations,” the news article stated. However, officials said the inquiry “did produce evidence that one of López Obrador’s closest aides had agreed to the proposed arrangement.” President López Obrador denounced the accusations as “slander” during his morning press conference and demanded a public apology from the US State Department. According to the investigation, the Sinaloa Cartel contributed USD2 million in exchange for López Obrador’s eventual facilitation of their operations. The report indicates that the US government investigated the issue with protected witnesses and various inquiries on both sides of the border, including an undercover operation to contact people close to López Obrador.
Government announces new legislative attempt to reform the energy sector
On 31 January 2024, the Supreme Court (SCJN) declared the Electricity Industry Law as unconstitutional. President Andrés Manuel López Obrador announced that his office would challenge the decision in court. In addition, he will include a new energy reform initiative in the legislative package he sent to Congress on February 5. With a simple majority in Congress, the ruling MORENA party and allies are likely to pass the law, while opponents would likely challenge it in court. The Electricity Industry Law was an initiative designed to exclude private investors in the electricity sector. However, ministers ruled the law unconstitutional based on how it affected the environment, declaring that it would allow state-owned company Petróleos Mexicanos (PEMEX) to use fuels that pollute more than the ones private companies are permitted to use. In 2021, the law’s approval triggered the US and Canadian governments to initiate ongoing proceedings against Mexico in the trilateral United States-Mexico-Canada free trade agreement (USMCA). On the other hand, the affected companies filed several legal challenges. This suspended the law's effects temporarily until a final ruling was made, so the law was never enforced.
Mexico City residents protest amid unprecedented water shortages
On 30 January 2024, media outlets reported protests over water shortages in eight municipalities of Mexico City, some of which have been going on for weeks. One of the neighborhoods affected is upscale Polanco. Though the lack of water is a common issue for poorer neighborhoods, the shortage has gained media attention given its impact on more affluent residents. Mexico City and the State of Mexico — where over 25 million residents currently live — are facing the worst water crisis in history, due to a lack of rainfall and issues with the “Cutzamala” water distribution system. According to expert estimates cited by Infobae, this situation could lead the Valley of Mexico to a "Day Zero" scenario in about five months. In that situation, water reserves would drop so low that the drinking water supply for the population would need to be restricted and would be limited to essential services.
Mexico signs memorandum with Venezuela’s PDVSA for crude exchange
On 24 January 2024, Mexico and Venezuela signed a memorandum of cooperation and knowledge exchange between state-owned oil and gas companies Petroleos Mexicanos (PEMEX) and Petróleos de Venezuela (PDVSA). According to the Venezuelan state-owned news outlet VTV, the memorandum seeks to “evaluate energy relations between the two companies, which is part of the government's strategy to establish new alliances and forms of cooperation in the oil sector.” In the first stage of the project, Venezuela would exchange its crude oil for Mexican fuels. But in the project’s second phase, the countries plan to jointly implement infrastructure and exploratory projects. However, neither of the governments has specified what those projects would look like. PEMEX and PDVSA executives met in Caracas on 5 January 2024 to explore business opportunities, two weeks after an initial meeting in Mexico City. PEMEX reported USD105 billion in debt at the end of the third quarter of 2023, but broke a nine-year streak in the red by finishing 2022 with a net profit of USD1.1 billion.
PERU
MMG begins work on new pit in Las Bambas copper mine
On January 30, MMG Interim CEO Liangang Li announced that the Chinese state-owned company had begun working in the new Chalcobamba pit within the Las Bambas copper mine. The announcement comes after a year of negotiations with community members in the Apurimac region. The company was impacted by roadblocks in the early months of 2023, following social unrest that erupted after former president Pedro Castillo was ousted. No roadblocks have affected the mine since the government issued a state of emergency in March 2023, the company said. MMG estimates the Chalcobamba pit will produce between 280,000 and 320,000 tons of copper in 2024, but the forecast could increase. Las Bambas produces 2% of the world’s copper.
Strike lifted in Machu Picchu after ticket-sale agreement
On January 30, a weeklong strike at Machu Picchu ended when Culture Minister Leslie Urteaga reached an agreement with local authorities to cancel a ticket-sale contract with Joinnus, a subsidiary of Peruvian publicly traded company Credicorp. Protesters rejected a process to privatize ticket sales, which a government agency has handled for the last 15 years. The new agreement allocates ticket sales using a government-run platform. The public ministry raided the government agency previously in charge of Macchu Picchu ticket sales for allegedly selling tickets on the black market, increasing prices for foreign tourists. The recent strike left multiple tourists stranded, which is expected to cost Cusco’s tourism industry about USD4.7 million according to tourism union numbers cited by the Associated Press. Machu Picchu is Peru’s top tourist destination, generating 200,000 direct jobs in Cusco. It attracted about 950,000 visitors in 2023 — still down 30% from pre-pandemic levels.
Prison agency fails to transfer organized crime leaders at La Libertad prison
On January 29, El Comercio reported that the National Penitentiary Institute (INPE) did not transfer criminal organization leaders operating from the maximum security prison El Milagro in Trujillo, despite police intelligence reports requesting their transfer since 2022. The reports indicated that the prisoners had been directing criminal acts from the prison including kidnapping, extortion, murder-for-hire and fraud. The police report also identified up to 17 suspects who were leaders and members of the Los Pulpos and La Jauria criminal groups based in Trujillo, Peru’s third-largest city in the northern department of La Libertad. The Los Pulpos criminal group also operates in Chile, Bolivia, and Argentina. In 2023, murders in La Libertad increased 35% to 325 compared to the previous year. Extortion complaints rose 50% over 2022.
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