The Perils of Quédate en Casa: COVID-19 and Gender Violence in Latin America

By Brenda Werth*

Women performing "A Rapist in Your Path" holding up signs

A Rapist in Your Path – Brasília/ Mídia NINJA/ Flickr/ Creative Commons License (not modified)

Stay-at-home orders during the COVID‑19 pandemic have had a devastating impact on women in Latin America and brought mass protests against gender violence to a screeching, and troubling, halt. Since the foundational march of NiUnaMenos in June 2015 in Buenos Aires, Latin American activists have revolutionized protest against gender violence in a spectacularly public way, bringing together hundreds of thousands of women and allies on the streets of major cities to denounce gender violence and demand protection of gender, sexuality, and reproductive rights. Since its debut last November, the flashmob Un violador en tu camino (A Rapist in Your Path), created by the Chilean feminist collective Las Tesis, has been performed in more than 200 cities around the world, decrying the role of the state and police in perpetuating gender violence.

  • Even as the coronavirus began to spread, movements against gender violence continued to expand. In March, millions of women marched to commemorate International Women’s Day to demand an end to femicide and gender inequality. In Madrid, among the posters condemning gender violence were some declaring “The patriarchy kills more than the coronavirus.” By March 15, however, Spain was on lockdown, and by the end of the month most Latin American countries had instituted either partial or total lockdowns. Suddenly, slogans condemning gender violence and demanding gender equality were replaced by the urgent message for people to stay home: “Quédate en casa.”

The stay-at-home orders have had severe consequences for women across the globe. In Latin America, where seven out of 10 femicides take place in the home, the weeks following the institution of quarantines saw surges in the reporting of domestic violence, primarily against women, children, and LGBTQ individuals. Calls to domestic violence hotlines increased 40 percent in Argentina, 60 percent in Mexico, and over 90 percent in Colombia. Financial precarity, unemployment, and lack of access to child and eldercare all exacerbated preexisting gender inequalities, creating a “perfect storm” for domestic violence.

  • Quarantines have proven crucial and effective in countering the health threat posed by coronavirus, but they have left victims of gender violence trapped under the same roof with their abusers. One unintended effect of quarantine is the reinforcement of the perception of domestic abuse as a private, family affair, separate from the public sphere, and excluded from the jurisdiction of the state.

Government responses to the increased domestic violence in Latin America have varied tremendously, ranging from acknowledgment to denial of the crisis.

  • Elizabeth Gómez Alcorta, Argentina’s Minister of Women, Genders and Diversity, has issued a resolution explicitly allowing individuals to leave quarantine in order to seek assistance and protection against domestic violence. The Argentine government has also collaborated in building innovative campaigns blending awareness of both pandemics – gender violence and COVID‑19. The Barbijo Rojo (red mask) campaign refers to a code word women may employ when talking to pharmacists to let them know they are at risk of harm and unable to seek out help.
  • In comparison, denial has guided Mexican President Andrés Manuel López Obrador’s response. His government has failed to implement any major policy changes to address the increase in gender violence during COVID‑19, and he has maintained that 90 percent of calls to domestic violence hotlines are false. According to AMLO, Mexico does not have the same problem as other cultures with domestic violence because “the Mexican family is exceptional.” The government’s campaign to address domestic violence during quarantine, Cuenta hasta 10, asks family members to “count until ten” before expressing anger in the home. According to Lulú Barrera, the campaign lacks “gender perspective” by disregarding the structural causes of gender violence and ultimately puts women at risk by asking them to sacrifice their wellbeing to maintain peace in the home.

While the health pandemic has highlighted the dire need for movements like NiUnaMenos and messages like that of Un violador en tu camino to continue and expand, stay-at-home orders have halted collective public mobilizations and forced women to return to the private sphere of their homes. The movements have radically transformed awareness and perceptions of gender violence over the last five years, but the current crisis, including the alarming increase in domestic violence, shows the gender-violence pandemic remains strong and could get worse. Protecting public health through stay-at-home orders should not neglect the need to protect women. Solutions must be jointly envisioned and enacted by public health experts, activists, and political leaders.

June 29, 2020

* Brenda Werth is Associate Professor and Department Chair, World Languages and Cultures, at American University.

Argentina: Yet Another Generalized Default?

By Arturo C. Porzecanski*

Argentine Vice President Cristina Fernández de Kirchner and Argentine President Alberto Fernández during a working meeting with governors last week/ Casa Rosada/ Creative Commons

The Argentine government’s current attempt to force investors to accept a punishing debt-restructuring plan puts the country at risk of yet another sovereign default on foreign-law, foreign-currency debt. The attempt validates the massive loss of confidence that took place last August, when local and foreign investors ran for the exits in the wake of the unexpectedly strong performance of the Alberto Fernández-Cristina Fernández de Kirchner ticket in the country’s presidential primaries.

  • Confidence had already been set back in early 2018, after a series of disappointments with how then-President Mauricio Macri was running overly loose fiscal and monetary policies that encouraged excess government borrowing and facilitated capital flight. Macri’s decision to turn to the IMF for a huge bail-out loan in exchange for a modest fiscal and monetary belt-tightening shored up confidence, but the prospect of Peronism’s return to high office undermined investor confidence anew, causing a steep plunge in Argentina’s stocks, bonds, and the currency from which it has not recovered.

Fernández had a window of opportunity to provide confidence to local and foreign investors – following the example set by Brazil’s Lula da Silva back in mid-2002, when his pulling ahead in presidential polls sparked the beginning of a market rout in that country. However, all that Fernández has done is blame Macri for all that was going wrong, denying that mistrust of Peronism was also a factor in deepening the financial and economic crisis.

  • Absent any reassurance, investors have been reluctant to show up at auctions of new peso- and dollar-denominated treasury bills, preferring to cash out of positions whenever those obligations matured. Therefore, even before Fernández took charge in December, Macri was forced on one occasion to unilaterally postpone repayments of treasury bills falling due.
  • Fernández has institutionalized the practice of deferring by decree the majority of payments coming due each month, thus defaulting time and again on most peso and dollar obligations subject to Argentine law and jurisdiction. Until very recently, however, he and the Governor of the Province of Buenos Aires, Axel Kicillof, were honoring their obligations contracted under New York law and jurisdiction.

The coronavirus disrupted a less investor-unfriendly alternative devised by Fernández to avoid a repeat of the massive default, financial isolation, and bruising legal defeats (in New York courts) that his predecessors had suffered during 2002-2015. The idea was for federal and provincial governments to develop debt-restructuring proposals and present them to bondholders by mid-March, in order to obtain by mid-April creditor approval of a deferral of payments coming due during 2020-23.

  • To cushion the blow of the pandemic, the debt-restructuring plan, delayed to mid-April, included terms and conditions that were substantially worse for bondholders. Investors holding $66 billion of bonds are being asked to write off some principal and most interest payments throughout the decades-long life of new bonds to be issued in exchange for existing ones, in a proposal that would impose (net present-value) losses on bondholders averaging at least 60 percent. The Province of Buenos Aires has presented a similarly aggressive debt-restructuring plan.

A critical mass of investors has spoken out against the government’s proposal, including outright rejections by three groups of bondholders who could block any deals. To ratchet up the pressure, the federal government skipped a $503 million payment due on April 22, setting the clock running on what could easily turn into Argentina’s ninth sovereign default on foreign-law, foreign-currency debt.

  • One constructive way for Argentina to break the impasse with its private creditors would be to ask fewer concessions from them by deciding to seek new financing from, or else a rescheduling of debt service due to, the IMF. This would be achieved by requesting support under a longer-term Extended Fund Facility. Because Argentina’s program with the Fund was a short-term standby facility, under which $44 billion were disbursed, the whole amount plus interest is to be paid back in full between now and 2024. These scheduled payments to the IMF amount to more than 40 percent of total foreign-currency payments the government of Argentina is supposed to make during 2020-24.
  • If the Fernández administration were willing to work with the IMF on an economic program that would impose fiscal and monetary discipline to kick in once the coronavirus pandemic is over, the government would not need such large concessions from its private investors. In fact, such a partnership with the Fund would pave the way for a gradual return of investor confidence and the reopening of its domestic bond market for renewed financing on a voluntary basis.

April 28, 2020

*Dr. Arturo C. Porzecanski is a Distinguished Economist in Residence at American University and a member of the faculty of the International Economic Relations Program at its School of International Service.

Argentina: End of the “Right Turn”?

By Santiago Anria and Gabriel Vommaro*

From right to left, Cristina Fernandez de Kirchner and Alberto Fernandez, and other ministers

From right to left, Cristina Fernández de Kirchner, Alberto Fernández, and other ministers / Wikipedia / Creative Commons / https://es.wikipedia.org/wiki/Archivo:Ministros_de_Cristina.jpg

The inauguration of Argentine President Alberto Fernández and Vice President Cristina Fernández de Kirchner last week confirms that the pronouncements of the death of Latin America’s “left turn” were premature — and that, rather than turning in any clear direction, political winds in the region appear to be blowing in all sorts of directions, with the only discernible underlying pattern being anti-incumbent votes following periods of economic crisis or economic downturns.

  • Obituaries for the “left turn,” which started in 1998 with the election of Hugo Chávez in Venezuela, have been appearing for years, particularly since the election of former President Mauricio Macri in 2015 and other right-leaning politicians in the region. Macri was widely seen as a bellwether of a broader “right turn” in the region — a turn that spread to Brazil, Chile, and elsewhere. For the very first time since the country’s democratic transition, a right-wing political party, in alliance with other parties, gained national power via democratic elections. To avoid the fate of other non-Peronist presidents, none of whom were able to finish their terms of office, Macri built a national coalition with broad societal bases of support.
  • The victory of left-Peronism in October, however, was formidable. The team of Fernández and Fernández obtained 48.1 percent of the votes, well above the 40.3 percent of the incumbent Macri. With two antagonistic camps capturing almost 90 percent of the vote, the elections were probably the most polarized since Argentina entered its democratic transition in 1983.

Rather than represent systemic shifts to either the right or left, the Fernández-Fernández victory is further evidence that Latin American electoral politics follow a routine alternation-of-power explained by retrospective, anti-incumbency voting driven by broad societal discontent — a sharp repudiation of incumbents that couldn’t deliver growth, adequate social services, and security. The left-right axis in Argentina is marked by high levels of polarization, with two major rival coalitions — Peronists and non-Peronists — structuring the electoral supply and disputing the center.

  • The defeat of Macri and his Cambiemos coalition revealed the center-right’s failure to carry out its desired free-market reforms aimed at dismantling the statist economic model based on the domestic market, wide social protections, and state intervention in the economy. Macri’s coalition lacked the unity to achieve pension reform and other difficult measures. Instead, Macri resorted to a “gradualism” that did not work in policy terms or politically. Similarly, his conciliatory approach to foreign creditors did not result in the expected capital inflows and economic growth. That fiscal gradualism was financed with a high rate of external indebtedness that made the Argentine economy even more fragile and ended in a massive financial crisis, after which the Macri government changed its approach towards greater economic orthodoxy.
  • The legacies of the previous Kirchnerist governments, including constraints on the government’s ability to cut spending, were also severe obstacles. Trade unions and social movements retained a high mobilization capacity and blocked attempts to remove state protections, effectively blocking labor reform and other Macri priorities. Once the government lost access to international credit and asked the IMF for a bailout — the largest in IMF history — it began to lose the support of social sectors that had been important to its rise, including business and large segments of the middle-class.

Center-left Peronism may also be unable to escape the left-right alternation. Widely discredited a few years ago and seen as a retreating force, especially due to corruption allegations and mismanagement, it kept strong connections with its societal core not only through the memory of the good old days of redistributive policies associated with the commodity boom, but also because there was no major shift in the political orientation of its main leader, Cristina Fernández. She broke with the conventional wisdom of Peronism that would have anticipated more leadership pragmatism and ideological eclecticism. As in the past, it has made promises that may eventually undermine its popular support.

  • The Fernández-Fernández formula will look and govern differently than it did during the Kirchnerist governments. It will be a broader center-left coalition formed by the Peronists and backed by a wide array of progressive parties and movements. But in addition to facing a hostile regional and global environment, Fernández will face many domestic challenges in a society that accumulated so many pressing demands during the ongoing Argentine economic crisis. Fernández inherits extraordinarily high levels of debt, soaring inflation, and rapidly rising unemployment and poverty levels. The “honeymoon” period, as some of his allies openly say, will be short, and Macri’s Cambiemos is likely going to provide strong opposition. The new government will unlikely escape the routine alternation-of-power dynamics explained by anti-incumbency voting in contexts of deep economic crises after the end of the “commodity boom,” strong inflationary pressures, and broad societal discontent. Polarization and mood swings are likely to remain persistent features of Argentine politics.

 December 17, 2019

*Santiago Anria is Assistant Professor of Political Science and Latin American Studies at Dickinson College. He is the author of When Movements Become Parties: The Bolivian MAS in Comparative Perspective (Cambridge University Press, 2018). Gabriel Vommaro is Full Professor of Political Sociology at the National University of San Martín and Researcher at CONICET. His most recent book is La Larga Marcha de Cambiemos (Siglo XXI Editores, 2017).

Argentina: Market Meltdown Can Be Halted

By Arturo Porzecanski*

From right to left, then-president Cristina Ferdandez de Kirchner, then-minister Alberto Fernandez, and other then-ministers

Ministers of Cristina de Kirchner / Wikipedia / Creative Commons / https://es.wikipedia.org/wiki/Archivo:Ministros_de_Cristina.jpg

The unexpectedly strong performance of the Alberto Fernández-Cristina Fernández de Kirchner (FF) ticket in Argentina’s August 11 presidential primaries has triggered a stampede out of the country’s currency, stocks, and bonds, but FF hold the key to staving off a full-fledged crisis. If the confidence of local and foreign investors is not recovered soon, the market rout has the potential to induce runaway inflation, plunge the economy into a deep recession, and cut off domestic and international financing for both the outgoing and incoming governments, potentially leading to a default.

  • The FF Peronist ticket’s 15.6 percentage-point margin of victory over President Mauricio Macri and his companion was foreseen by none of the pre-election polls. The wide gap shocked investors because it indicates the Fernández duo could win in the first round in the October 27 general election, avoiding a second-round ballot on November 24 in which the pro-market Macri was thought to have a better chance. The coattail effect of FF helped allies in provincial and local primaries around the country. With likely majorities in one or possibly both houses of congress, FF would have a powerful government that could implement much of its agenda, for better and for worse.

Now the challenge is to stop the vicious cycle of capital flight, currency depreciation, accelerating inflation, and plunging economic activity sparked by the electoral results. Failure to do so sooner rather than later will make it very difficult for the government to refinance its maturing short-term debts, and the Central Bank will likely experience a steady drain of its international reserves. In that scenario, the IMF, which has been sending big checks to Argentina every three months, would probably not send the next one in late September.

  • The Macri administration has announced some palliative measures (e.g., a 90-day freeze in gasoline prices and a tax exemption for food purchases), and the Central Bank has tightened marginally monetary conditions. But the government leadership team is powerless to restore the investor confidence that has evaporated.

Given his clear frontrunner status, Alberto Fernández could play a crucial role in reversing the trend. During eerily reminiscent circumstances in Brazil in mid-2002, local and foreign investors were increasingly worried that Luiz Inácio “Lula” da Silva, who was running strong in the polls in his fourth presidential campaign, would end the market-friendly policies of the outgoing Fernando Henrique Cardoso – including a break with the IMF, from which Brazil had been borrowing.

  • Worried about potentially inheriting an economic and financial mess, Lula made a public statement – he called it a “Letter to the People” – making clear his commitment to sound fiscal and monetary policies and the rule of law. He wrote about a “new social contract capable of assuring economic growth with stability,” one of whose premises was “naturally, a respect for the country’s contracts and obligations.” He followed those words with concrete actions. Two months before the elections, he gave his blessing to a new IMF program committing the next government to maintain, with minor modifications, Cardoso’s austere fiscal and monetary policies.

Lula’s actions after his election, including putting a market-friendly and popular mayor in charge of his transition team and choosing a career private-sector banker to run the Central Bank, provide a path that Alberto Fernández could follow as well. Under Lula, the Brazilian Central Bank felt supported in its all-out effort to extinguish the flames of inflation and to buttress the currency. Interest rates were thus hiked as needed before and after the October 2002 elections. He initiated confidence-building meetings with investors before taking office and reassured lenders and investors, both in Brazil and abroad.

  • So far, Alberto Fernández is denying any responsibility for the developing financial and economic crisis, blaming Macri for all that’s gone wrong. But unless he makes announcements that give confidence to local and foreign investors, he will inherit a mess.

August, 22, 2019

*Dr. Arturo C. Porzecanski is the Distinguished Economist in Residence at American University and a member of the faculty of the International Economic Relations Program at its School of International Service. This article is adapted from an essay he wrote in Americas Quarterly.

South America: Regional Integration or Presidential Posturing?

By Stefano Palestini Céspedes*

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South American Presidents waving to the cameras in Santiago, Chile / Flickr / Creative Commons

Seven South American presidents’ launch of brand-new regional grouping called PROSUR last week was intended to give a boost to their personal agendas rather than take a serious step toward regional integration. The announcement was made on March 22 at a summit organized by Chilean President Piñera and attended by the presidents of Argentina, Brazil, Colombia, Ecuador, Peru, and Paraguay. The declared goal of the summit was to overcome what Piñera called the “paralysis” of the decade-old UNASUR.  Its final declaration emphasized the need “more than ever to work together to update and strengthen the South American countries’ process of integration” in the face of current and future challenges, including “inserting ourselves in an efficient way into the fourth industrial revolution and society based on knowledge and information.”

  • The creation of the Forum for the Progress of South America (PROSUR), however, delivered very little in terms of regional integration. The Santiago Declaration does not tackle the obstacles that hampered UNASUR, such as its decision-making procedure based on consensus. On the contrary, the declaration envisions PROSUR as a forum exclusively based on presidential diplomacy, in which all decisions by definition must be taken by consensus.
  • The Presidents said the new organization will focus on infrastructure, energy, health, defense, and dealing with natural disasters – the same areas where UNASUR had shown some progress. The declaration did not mention any particular ongoing crisis, such as Venezuela, but it made clear that it would work for full respect for democracy, constitutional order, and human rights. Again, this is not a departure from UNASUR, which also had a democracy clause adopted and ratified by the national parliaments.

The summit promised political gains for several participants. For President Piñera, it was an opportunity to project himself as a regional leader able to convene and coordinate South American heads of states, at a time that his domestic popularity is decreasing. Ecuadorean President Moreno – the only central-left president attending the summit – had yet a new opportunity to signal his willingness to coexist with pro-market governments in the region. For Brazilian President Bolsonaro, a well-known skeptic of South American integration, the summit was a platform to show a more palatable image closer to his liberal peers.

President Piñera and his guests blamed UNASUR’s bureaucracy for its lack of effectiveness, opting instead for a lean mechanism based on presidential diplomacy. Most long-time observers believe, however, that UNASUR’s effectiveness was undermined by its very weak organizational capacity, with a powerless Secretary General and personnel made up of low-ranking national diplomats instead of qualified international civil servants. Presidential diplomacy, unburdened by a bureaucracy of specialists who analyze problems and possible solutions, works well when Presidents get along in ideological terms, but precedent shows it is vulnerable to collapse when governments have divergent preferences or when states must agree on complex transnational issues such as migration, drug-trafficking, or deep economic integration.

  • PROSUR will work exclusively as a forum (not as a regional organization) and its decisions and initiatives will have to be executed and monitored by the national bureaucracies of the member states, which by definition look after national interests rather than regional interests. The Santiago Summit has demonstrated that when it comes to regional integration, leftist and right-wing heads of government look and act alike. No matter which ideology they claim, South American presidents fear collective institutions, cherish presidential diplomacy, and prefer to create new initiatives with pompous names from scratch, rather than make necessary reforms to existing ones. As Uruguayan President Vázquez – who did not attend the summit – put it, South America has a long history of integration initiatives that have not brought about integration. The region would be better served by reinforcing and overhauling existing mechanisms such as MERCOSUR, the Andean Community, or the Pacific Alliance, and try to make them convergent in any possible way, rather than adding yet another acronym.

March 29, 2019

* Stefano Palestini Céspedes is an Assistant Professor at the Institute of Political Science, Catholic University of Chile.

Mercosur: Diversifying Partnerships

By Andrés Serbin*

Mercosur Summit

A seminar at the 53rd Mercosur Summit. / Sabrina Pizzinato / UCIM / Creative Commons

Mercosur’s signing of a memorandum to increase economic and commercial cooperation with the Eurasian Economic Commission (EAEU) signals the trading bloc’s interest in diversifying its trade and political relationships beyond the western hemisphere.  The presidents of the Mercosur countries – Brazil, Argentina, Uruguay, and Paraguay –signed the agreement at the 53rd Mercosur Summit, held last month in Montevideo.  At a ceremony at which he accepted the rotating presidency from Uruguay, Argentine President Mauricio Macri emphasized the need for Mercosur to open not just to the Pacific Alliance, but also to Central America, Asia, and Africa.

  • Proposals for closer cooperation with the EAEU have been under study for many years, since Russia first created the Commonwealth of Independent States (CIS) from among the former Soviet republics (except the Baltic countries) after the end of the Soviet Union in 1991. The CIS was intended as a post-Soviet space under Russia’s leadership that would reconnect its members within a “Eurasian” geopolitical region distinct from both Europe and Asia.  The EAEU, formalized in 2015 under the leadership of Russia and Kazakhstan, now also includes Belarus, Kyrgyzstan, and Armenia.  Mercosur ministers agreed to sign the memorandum during meetings immediately before the summit, stating that enhanced cooperation and coordination with the EAEU – with which Mercosur would account for a combined 6.5 percent of world GDP – was consistent with efforts to strike a similar arrangement with the European Union.
  • Mercosur’s decision comes amid international tensions over trade and protectionism, but it cannot be divorced from the ideological, cultural, and geopolitical elements of the vision for “Great Eurasia” of which Russian President Vladimir Putin has spoken (and which Chinese President Xi Jinping has shared). The tensions between Russia and Ukraine, and Western pressures in retaliation, were a key driver of Moscow’s push for formalization of the EAEU as a potential interlocutor with the European Union while at the same time putting a brake on U.S. presence in the region.  Western analysts have debated the power of “neo-Eurasian” identity as a tool of geopolitical projection beyond the creation of a new economic bloc.  China is also a factor in Russia’s calculations.  The “Shanghai Cooperation Organization” (OCS) fostered by both countries and Beijing’s “New Silk Road” project, through Central Asia and to the EU, have also increased the salience of “Great Eurasia.”  Russia and China have increased cooperation in trade, in technology (including military) and against terrorism and extremism.  Through the EAEU and OCS mechanisms, they have extended contacts all the way to India and Pakistan and, potentially in the future, Iran and other countries.

Mercosur’s trade with the EAEU is asymmetrical in favor of the Latin American countries, with the exception of Brazil (with which it is more balanced), according to EAEU officials.  The EAEU has high internal tariffs and limited internal trade – except in bilateral trade between Russia and Belarus – but there are already tariff exemptions for Mercosur members.  Food appears to be the biggest Mercosur export to the region.  Experts believe that trade between the two blocs can be significantly increased, and that a free trade agreement can be signed before the completion of the EU-Mercosur FTA, which has been under negotiation for 20 years.

Although many Western analysts remain doubtful about the success of efforts to form a “Great Eurasia,” Mercosur apparently has determined that engagement with it is low-cost and potentially beneficial.  Beyond the possibility of expanded trade, the memorandum of cooperation signed in Montevideo suggests Mercosur sees a geostrategic interest in signaling openness to such collaboration.  The right-leaning governments of Latin America and the Caribbean are likely to remain generally aligned with the United States, but they have learned the importance of trade diversification over the past two decades.  Setting tradition and ideology aside, most are trying to interact with whomever can bring good deals to their countries in terms of trade, investment, and cooperation.  In the context of Russia and China’s interest in a “Great Eurasia,” Mercosur’s increased outreach to EAEU also reflects an important piece in a strategy to undertake the necessary diversification of its foreign policy in a changing world.

  •  The United States may not appreciate the wisdom of Mercosur’s approach. Eurasia is a blind spot for Washington, which focuses on Russia’s actions in Europe and China’s in Asia – but not in Central Asia itself or as a bridge to India, Pakistan, Iran, Turkey, and the Arab world.

January 7, 2019

* Andrés Serbin is an international analyst and president of the Regional Coordinator of Economic and Social Research (CRIES), a network of more than 70 research centers, think tanks, NGOs, and other organizations focused on Latin America and the Caribbean.  This article is adapted from one published by Perfil.com.

Southern Cone: Rapid Transition to Non-Conventional Renewable Energy

By Thomas Andrew O’Keefe*

Edificio Alexander

Edificio Alexander, a building in Punta del Este, Uruguay, that produces wind energy on its roof. / Jimmy Baikovicius / Flickr / Creative Commons

South America’s Southern Cone is undertaking a transition to non-conventional, renewable energy resources – that is, production not dependent on fossil fuels or large-scale hydropower – that creates the opportunity for a historic regional consensus on energy policy.  Uruguay and Chile are at the forefront.  Both lack significant fossil fuel reserves and have experienced crises when droughts detrimentally impacted hydro-supplied electricity.  For them, the rapid shift to other forms of domestically sourced renewables is as much a means to guarantee energy security as to combat climate change.  Approximately a third of Uruguay’s electricity is currently generated from wind power (up from only one percent as recently as 2013).  Similarly, about a third of Chile’s electric power – depending on the time of day – is sourced from the sun and the wind.

  • Brazil has also made significant strides in incorporating wind, and to a lesser degree, solar power into its energy matrix. The primary motivation is the need to offset carbon emissions from the burning of rain forests and the country’s greater use of natural gas.  Brazil has long enjoyed the cleanest energy of any large economy in the world because of its heavy reliance on hydropower, which still covers some two-thirds of the country’s electric needs.  Brazil was also a pioneer in the development of more environmentally friendly sugar-based ethanol (as opposed to corn favored in U.S. ethanol production); most passenger vehicles today have flex-fuel engines.  Paraguay gets almost all its electricity from hydropower (and exports the bulk of what it produces).
  • Argentina, while increasing exploitation of its large shale gas and oil reserves, in 2017 expanded renewable energy projects nearly 800 percent over the previous year, according to reports. President Mauricio Macri has created a more inviting investment climate for the private sector, rapidly increasing natural gas output, especially from the Vaca Muerta shale reserves in Patagonia.  He is also encouraging the expansion of renewable energy beyond large hydro by, among other things, allowing long-term power purchase agreements in U.S. dollars as a hedge against currency devaluations.  Furthermore, large industrial consumers face penalties if they do not meet increasing thresholds set for renewable energy use.  Current laws require that at least 20 percent of the nation’s electricity come from non-conventional renewables by the end of 2025, and they include tax exemptions, import duty waivers, and a special trust fund called FODER, created in 2016, to provide subsidized loans and other assistance.

The rapid expansion of the renewable energy sector in the Southern Cone will enable countries to export excess production to their neighbors, facilitated by a robust regulatory framework to facilitate the cross-border trade in energy resources.  In addition, by creating a fully integrated regional market in renewable energy products, a crucial backup is established for resources such as wind and solar power that are inevitably prone to interruptions during the day.  It would also mitigate the impact of droughts on hydro-generated electricity, which are likely to worsen with global climate change.  Accordingly, there are strong incentives to revive efforts begun by MERCOSUR in the late 1990s to integrate energy markets that collapsed with the Argentine energy crisis at the start of the 21st century.  The fact that all the Southern Cone governments are now ideologically aligned in favor of market-oriented economic and investment policies facilitates achieving a regional consensus on energy for the first time.  Governments in the region now need to move beyond the discussion phase to turn all this into a concrete reality.

October 19, 2018

*Thomas Andrew O’Keefe is the President of Mercosur Consulting Group, Ltd. and currently teaches at Stanford University in Palo Alto and Santiago, Chile.

Argentina: From Gradualism to Shock Therapy

By Arturo C. Porzecanski*

Argentine President Mauricio Macri

Argentine President Mauricio Macri. / Wikimedia / Creative Commons

The austerity measures that President Mauricio Macri announced yesterday to deal with the sharp depreciation of the Argentine peso and acceleration of inflation in the past couple of months are a belated but entirely appropriate effort to stem the country’s massive capital flight.  His administration intends to lower government spending and reimpose taxes on exports to reduce the fiscal deficit faster than envisioned in May, when a three-year economic program was agreed with the International Monetary Fund (IMF).  This is in addition to a previously announced government hiring freeze and cuts to subsidies for electricity and other services.

  • Specifically, the goal now is to minimize the public sector’s financing requirement for 2019, limiting it to rolling over debt maturities coming due plus borrowing $15 billion mostly from the IMF, World Bank, and Latin America’s development banks (CAF and IADB), to cover the interest payments coming due next year. All told, the fiscal deficit contraction that would be achieved between 2017 and 2019 is equivalent to about four percentage points of GDP, compared to the previously pledged 2¾ percent of GDP in savings embodied in the IMF program.
  • In return, Macri’s government has requested the IMF to speed up disbursements under the $50 billion loan facility, which had envisioned a $15 billion up-front payment in June, made on schedule, plus installments of about $3 billion per quarter through June 2021, depending on performance and need. The Fund’s Managing Director, Christine Lagarde, has instructed IMF staff to work with the Argentines to reach a rapid conclusion of discussions to present to the Executive Board for approval.

Macri’s announcement was an admission that what had been advertised in May as a strictly “precautionary” loan must now be amended to provide emergency financing full-throttle.  While a number of emerging-market currencies have come under downward pressure in recent months, the sell-off in Argentina is only comparable to that in Turkey: both the Argentine peso and the Turkish lira currently buy about half as many U.S. dollars as they did at the start of the year (now 100 pesos = $2.60 vs. $5.40 then).  The currency downdraft has dragged Argentine stocks and bonds down when measured in dollar terms; the probability of a debt default in Argentina, as deduced from bond yields, currently ranks highest of all in the emerging markets but for Venezuela, in default since late 2017.

  • Last December, the central bank of Argentina (BCRA) committed itself to achieving an inflation rate of 15 percent during 2018, but prices rose more than that just in the first six months of the year. Given the cost-push pressures unleashed by the peso’s sharp depreciation since May, Argentina would be lucky to end the year with inflation cumulating less than 40 percent.  The patent failure of monetary policy to stabilize the currency and curb inflation thus far will probably be hotly discussed during the government’s negotiations with the IMF.  Last week the BCRA hiked its target interest rate to 60 percent from 40 percent in early August, which is more than double the level that prevailed through May.  Chances are that the IMF will pressure the central bank to keep interest rates significantly above expected inflation until the fever breaks.

We wrote in mid-May that we were witnessing in Argentina the demise of President Macri’s cherished – and popular – gradualism in tackling the poisoned inheritance left after 12 years of populism under presidents Néstor and Cristina Kirchner.  Now we are beholding the embrace of “shock therapy” in fiscal and monetary policies by the Macri administration.

  • Macri and his economic team keep blaming adverse circumstances, such as the worst drought in 30 years, which has delivered the poorest harvest since 2009; risk aversion among investors because of the tightening of U.S. monetary policy; and uncertainty generated by the “corruption copybooks” scandal involving Kirchner government officials and construction industry businesspersons. Their diagnosis is patently wrong.  Despite the poor harvest, Argentine export earnings through July have increased in the best performance in several years.  The tightening of U.S. monetary policy has been very gradual and well telegraphed in advance; it has not caused problems in prudently managed countries.  And the recent scandal is tarnishing Macri’s opposition in the legislature and has not reached the scope of the “carwash” scandal in Brazil.
  • Macri and his team are reaping what they sowed. In 2016-17 they claimed that they could do little to address the inherited fiscal and monetary problems because otherwise they would lose precious seats in midterm congressional elections and end up as lame ducks.  And then, after Macri’s party Cambiemos did well in the October 2017 contest, they claimed that in 2018-19 they could do little to address the inherited fiscal and monetary problems because otherwise they would lose the presidential elections in October of next year.  Up until February, local and foreign investors were willing to give the Macri administration the benefit of the doubt, but then they got impatient, started to pare their positions especially in short-term government bonds, and subsequently decided to exit on a large scale when the central bank failed to tighten monetary conditions sufficiently to keep the peso from depreciating rapidly.

September 4, 2018

*Dr. Arturo C. Porzecanski is Distinguished Economist in Residence at American University and a member of the faculty of the International Economic Relations Program at its School of International Service.

Fake News: Threat to Democracy

By John Dinges*

Newspaper stand in Mexico City

A newspaper stand in Mexico City. As traditional news media faces growing competition from social media and emerging technologies, fake news poses a threat to legitimate news media and democracy itself. / Pablo Andrés Rivero / Flickr / Creative Commons

Fake news threatens to destroy the fundamental values of a free press throughout the hemisphere, and only a redoubling of efforts to build and protect investigative journalism would appear to offer hope in stemming its growing influence.  Journalism faces a number of challenges, including violence, authoritarian pressure, manipulation by commercial interests, and competition from “social media.”  But the combination of fake news and new technologies to spread it pose an asymmetric threat to legitimate news media and to democracy itself.

  • In its strict – and now largely unused – definition, fake news is fabricated information that’s designed to look like journalistic content but whose real purpose is to twist the truth and manipulate people’s behavior. Also called “black propaganda” and “disinformation,” it was engendered principally by intelligence agencies.  The CIA used it during the Cold War in Chile and other Latin American countries.  The Soviet Union’s KGB disseminated fabricated documents with authentic-looking formatting and signatures from Chile’s secret police.  Cuba’s Radio Havana promoted the false narrative that socialist president Salvador Allende was murdered in the 1973 military coup – he actually committed suicide.
  • The phenomenon now is broader and more threatening. Fake news has evolved to include attacks on the legitimacy of independent media, and its agile use of social media spread rapidly through personal electronic devices enhances its impact.  U.S. President Donald Trump has alleged (as recently as July 15) that the “media are the enemy of the American people.”  Latin American politicians have used accusations of fake news to attack legitimate media.  In Venezuela, the Chavista government invented the concept of “media terrorism.”  Fake news techniques are found most commonly in campaigns by authoritarian parties and governments.  Russia’s intelligence services, under President Vladimir Putin, have weaponized the techniques and are now systematically using them to intervene in European and U.S. elections, notably in supporting the 2016 victory of Donald Trump.

There is no consensus among journalists on a solution.  Tough experiences have shown, for example, that government regulatory actions tend to backfire against a free press; political leaders all too easily resort to actions that lead to the imposition of political hegemony and control.  Media laws in Ecuador, Venezuela, and Argentina were hailed as progressive in some quarters – mandating fairer distribution of broadcast spectrum, for example.  But they were most effectively used to impose political control on opposition media.  Journalists, moreover, have been thrown off balance by the phenomenon of fake news.  They have struggled to respond to effective attacks on their credibility and so far have failed to develop the tools needed to mount an effective counterattack.

  • The double challenge is how to enable consumers of media information to distinguish between false and truthful information – especially because the fake news products are designed to resonate with their biases – and how to strengthen legitimate journalists’ ability to rebuild their beleaguered credibility. Talking Points Memo journalist Josh Marshall, speaking of politically motivated falsehoods in a memo published by the U.S. House Permanent Select Committee on Intelligence last February, said:  “Conventional news and commentary [are] incapable of handling willful lying in the public sphere.”  In the case of the committee’s misleading memo, most observers agree, the legitimate media published accurate fact checking, but apparently the accurate stories had little corrective impact on public perceptions of the memo – handing a victory to fake news.

The other serious threats that journalism faces – such as the murder of dozens of Mexican journalists with practically total impunity, and the consolidation of ownership of the media in the hands of very few owners in most countries – are not insignificant.  Fake news, however, presents a more serious, even existential, threat because it short-circuits all three of the main functions of journalism in the preservation and consolidation of democracy – as sources of information the public needs in voting, as forums for political debate, and as investigators to monitor and evaluate government and private power.  In the ongoing asymmetric war between journalism and fake news, investigative journalism, if protected and funded, would appear to offer the most efficient defense for democracy.  Digital platforms have created new tools and platforms for investigative journalism, and new organizations, such as ProPublica, the International Consortium for Investigative Journalism, among others, are raising the skill level of professional journalists and enhancing their best practices.  Investigative journalists have the methodology, international base, and decades of experience needed to be the guard dogs against fake news – to investigate its purveyors, lay bare their agendas, and, over time, re-establish the truth upon which all democracies depend.

July 24, 2018

*John Dinges is an emeritus professor of journalism at Columbia University and lectures frequently in Latin America on media and democracy and investigative journalism.

Argentina: The Downside of Gradualism

By Arturo C.  Porzecanski*

Tortoise heads down a dirt path surrounded by greenery

Towards Turtle Path / Maxpixel / Creative Commons

President Mauricio Macri made a surprise announcement on May 8 that his government would seek financial support from the IMF to enable the country to “avoid a crisis like the ones we have faced before in our history” – essentially, an admission that time may be up for his policy of gradualism in dealing with the legacy of populism.  Sources in his administration expressed confidence that Argentina could obtain some $30 billion in “precautionary” loans at low interest rates and with few strings attached as an alternative to more borrowing in the international capital markets at higher and rising rates.  His finance minister, Nicolás Dujovne, and other members of the economic team departed Buenos Aires for Washington, DC, that same evening to formalize the request at IMF headquarters and to meet with a top Trump administration official at the U.S. Treasury.  After an initial round of friendly conversations, the parties agreed to meet again starting on May 14 to initiate a negotiation process that they acknowledged would take several weeks.

  • Macri blamed downward pressure on the Argentine peso (despite drastic hikes in short-term interest rates and the sale of one-tenth of hard-currency official reserves), on tighter monetary conditions and on volatility abroad at a time when the government must still raise money internationally to finance its large fiscal deficit.  “The problem that we have today is that we are one of the countries in the world that most depends on external finance, as a result of the enormous public spending that we inherited and are restoring order to,” the President stated.
  • The decision to turn to the IMF surprised observers because it came at an unusually early point in the country’s financial cycle.  Argentina’s central bank still has about $55 billion in international reserves, the equivalent of some 10 months of imports, or three times the amount of foreign-currency government debt maturing in 2018.  Also, foreign investors by no means have slammed the door on Argentina’s face, though admittedly the government probably could not sell another 100-year dollar bond like it did last June, raising $2.75 billion from die-hard optimists.  Argentina in the past, like most other countries, has generally turned to the IMF only in desperation once they were unwelcomed by Wall Street and their vaults were almost bare.
  • The onus placed by Macri on deteriorating financial conditions abroad was also surprising.  After all, the U.S. Federal Reserve has barely begun its monetary tightening process: the overnight fed funds rate, currently around 1.7 percent per annum, is still below U.S. inflation of 2.1 percent, so it has yet to enter positive territory.  Moreover, U.S. bond yields now in the vicinity of 3 percent for 10-year Treasuries, are up from 2.3 percent a year ago but have merely bounced back to a level they were at as of end-2013.  And the financial markets’ “fear” index VIX, a measure of expectations implied by options on the S&P 500 index, has fluctuated in the teens, which while higher than last year’s mostly single digits, remains very far from the range of 30 to 80 seen during prior episodes of extreme risk aversion in the financial markets.

 President Macri’s announcement did not have the favorable intended effect on confidence and market behavior, as evidenced by the peso remaining under downward pressure in the three business days that followed.  Despite renewed central bank intervention to boost the currency, it now takes almost 24 pesos to buy a U.S. dollar when it took fewer than 16 pesos to do so a year ago – a loss of about one-third in the currency’s purchasing power.  One reason is that Macri’s blaming adverse developments abroad for his currency’s woes rings hollow with investors, given how very slowly his administration has moved to reduce a fiscal deficit running above 6 percent of GDP since 2015; how much debt (around $100 billion) he has taken on in just a couple of years; and how timid his central bank has been in its attempt to bring down inflation running at about 2 percent per month.  And the other reason is that it quickly became apparent that any loan from the IMF will come with strict conditionality attached, because Argentina’s request was routed to the Fund’s regular, “stand-by” window – and not to its easier-access, precautionary lending window for highly creditworthy borrowers.  The Fund spelled out its economic policy advice for Argentina in its December 2017 “Staff Report for the 2017 Article IV Consultation,” and it calls for a more assertive reduction in the fiscal deficit, especially by cutting government spending, and for supply-side reforms it called “indispensable” to support economic growth, raise labor productivity, attract private investment, and enhance the country’s competitiveness.  These are all recommendations that fly in the face of President Macri’s gradualist approach to defusing the economic minefield left behind by his populist predecessor, Cristina Fernández Kirchner, and will therefore paint his government into a politically fragile corner.  We are witnessing the demise of Macri’s cherished – and popular – gradualism.

 May 14, 2018

*Dr.  Arturo C.  Porzecanski is Distinguished Economist in Residence at American University and Director of the International Economic Relations Program at its School of International Service.