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.

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.

 

Argentina: Excessive Optimism?

By Nicolás Comini*

Man delivers a speech on an airfield.

Argentine President Mauricio Macri. / Cancillería del Ecuador / Flickr / Creative Commons

Argentine President Macri’s Cambiemos coalition won an overwhelming victory in last month’s legislative elections – a step toward fulfilling his 2015 promise of a “revolution of joy” – but it’s not clear yet whether the administration’s optimism translates into national hope.  The coalition won in 15 of the 24 provinces of the country, including the five largest jurisdictions – the City of Buenos Aires, Buenos Aires, Córdoba, Mendoza, and Santa Fe.  Government officials and Macri’s supporters have expressed optimism that the economy will turn around and political confrontation will be overcome.  Macri won the presidency in 2015 with an alliance that made optimism – and the appearance of optimism – a central theme for overcoming what he called the polarization generated by his predecessor, former President Cristina Fernández.  His discourse was rooted in the ideas of change, happiness, efficiency, and meritocracy.

  • Even critics acknowledge that the government has generated innovation in terms of political discourse and representation, rooted in a greater horizontality of leadership and greater citizen access to public officials. News of some officials’ questionable business practices as revealed in the “Panama Papers” and “Paradise Papers” has caused little or no backlash.  Second, the idea of “normalization” of the country, supported by the media, has had a positive impact on part of society.  GDP growth at almost 3 percent this year and the lifting of exchange controls and imports have also buttressed this theme.  The unfavorable trade balance, with a deficit of US$765 million in 2017, has not been a factor.  Third, the government is still able to blame the country’s problems – including high levels of inflation and indebtedness – on the “received inheritance” from his predecessors, whose rule implied corruption, social polarization, and isolation from the world.
  • Rejection of the legacy of Cristina Fernández and her husband/predecessor, Néstor Kirchner, also seems to be one of the Macri government’s greatest assets. Even though Cristina is the most popular candidate in the opposition, her rejection among the broader population is greater; many of the votes that the government’s allies garnered were “anti-Kirchner” votes.  Cristina won a seat in the Senate, but in national politics, there’s a growing sentiment of “anyone but Cristina,” while a civil war simmers within the ranks of her Peronista base.  The political rise of Macri ally María Eugenia Vidal as governor of the Province of Buenos Aires – historic bastion of Peronismo and the country’s main electoral district – attests to these troubles.

Macri’s gains indicate a significant strengthening of the government, which is key to the reform package that the administration launched almost immediately after the election.  Proposals include aggressive changes in tax and labor matters.  While the tax reform has triggered battles with some large corporations, such as Coca-Cola, that will pay higher taxes, the labor reform has broad support from employers.  The latter faces strong resistance from a large part of society and, above all, of the union and opposition sectors, who fear that it, similar to one already carried out in Brazil, will contribute to job insecurity.  Macri’s increasingly forceful discourse on reducing public employment has also raised concerns despite his assurances that reducing state structures will help create private-sector jobs.

British theorist Terry Eagleton has said that an optimist is someone who thinks that things will improve even if there are no reasons for it.  The optimism of the government and its supporters is as easy to understand – there are some clear reasons for it – as it is palpable.  Macri has a strong government in a Latin America plagued by weak governments.  He not only has power in parliament; the country’s large corporations, mass media, security forces and, of course, an important part of the people are also behind him.  But Argentina is accustomed to living in cycles.  Expecting that in Argentina one or two or even three electoral victories will produce a durable revolution and fundamentally change those cycles, as the current government’s rhetoric suggests, may not be warranted by the facts.  Each administration usually assumes that the previous one did things absolutely wrong, and they will do better this time.  But this kind of impulse has an expiration date.  Joy and good vibes can have a positive impact on a society’s feelings about itself, but a real lasting solution will require addressing the underlying causes of the country’s polarization, poverty, and exclusion.  This implies, above all, state policies and continuity through different administrations.

November 15, 2017

* Nicolás Comini is Director of the Bachelor and Master Programs in International Relations at the Universidad del Salvador (Buenos Aires) and Professor at the New York University-Buenos Aires. He was Research Fellow at CLALS.

And the Winner is… Trump in Latin America

By Nicolás Comini*

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U.S. President Trump and Argentine President Macri meet in the Oval Office. / Official White House Photo by Shealah Craighead / Wikimedia / Creative Commons

Criticism of U.S. President Donald Trump’s policies toward Latin America ranges from mild to furious in the region and among many U.S. Latin America watchers, but that anger is not likely to drive greater regional unity and demands for a more balanced relationship.  Trump’s rhetoric – emphasizing sovereignty, nationalism, and protectionism – have long been popular concepts in many countries of the region.  During Latin America’s recent “turn to the left,” for example, political leaders embraced a developmentalist emphasis on using tariffs and non-tariff trade barriers to give domestic industries an advantage in national economic expansion strategies.  But the U.S. President’s statements have generally infuriated not only the left as reflecting bias on an array of issues, such as immigration, but also the right.

  • Trump’s policies contradict the prescriptions that Washington has been advocating – and most conservative politicians have embraced – for Latin America for many years. Those prescriptions have emphasized free trade but touched on other issues as well, such as the shift (symbolic and material) of resources from traditional national defense to the “war on drugs.”  Trump’s “America First” approach undercuts his natural allies in Argentina, Brazil, Mexico, and elsewhere.  It has also given their leftist opponents a sense of legitimization of their anti-Americanism speeches, something that is surging also because of Washington’s new policies toward Cuba.
  • The U.S. summary abandonment of the Trans-Pacific Partnership (TPP), conservatives’ last great hope for deeper trade integration with the United States, left them angry. According to the ECLAC, 73 percent of all FDI in Latin America in 2016 came from the United States (20 percent) and the European Union (53 percent).  Individuals with strong anti-Communist credentials in Colombia, Chile, and Peru are all flirting with joining China’s Regional Comprehensive Economic Partnership (RCEP).

Regional organizations show no sign of providing leadership in how to respond to U.S. policy.  UNASUR is fading rapidly, in part, because it was labeled by the new conservative governments as too Bolivarian and anti-American.  Something similar is happening with the CELAC.  MERCOSUR is struggling, in part, because of the political tumult in Brazil.  Indeed, most governments are trying to remain friends with Washington, prioritizing bilateral agendas in detriment of regional (multilateral) institutions and mechanisms.

The surge in resentment toward Washington – within and among Latin American countries – is unlikely to lead to increased regional unity.  Internally, the left and right may agree that Trump is harming their interests, but their reasons are different and prescriptions for dealing with it are far apart.  On a regional basis as well, the current context accelerates the atomization of the region – and threatens to expand the bargaining power of the great powers of the United States, China, Germany, or Israel.  Although China is making inroads, in the end the United States has, and will retain, the greatest influence in Latin America – and the lack of efficient regional decision-making will prolong that situation.  Latin American fragmentation will create an image of acquiescence – and President Trump will think he is not doing so badly in the region.

October 18, 2017

* Nicolás Comini is Director of the Bachelor and Master Programs in International Relations at the Universidad del Salvador (Buenos Aires) and Professor at the New York University-Buenos Aires.  He was Research Fellow at CLALS.

Macri in the Next 100 Days

By Nicolás Comini*

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Argentine President Mauricio Macri. / Casa de América / Flickr / Creative Commons

Everybody seems to love President Mauricio Macri outside Argentina – it’s not hard to understand why – but he faces tough challenges at home.  Foreign supporters have plenty of reasons to believe in him.  First, he is not Cristina Fernández de Kirchner, the former president whom they branded a populist too close to Venezuela, Bolivia, or Ecuador.  Like many conservatives inside Argentina itself, they see Macri as the person who avoided the “Venezuelization” of the country, and his market-friendly credentials were sealed through his campaign promise of a “rain of investment” and his government’s implementation of a package of measures aimed at financial liberalization, regulatory flexibility, liberalization of foreign trade, and stronger fiscal discipline.  He has been less confrontational in diplomacy.  “Return to the world,” “de-ideologization,” “pragmatism,” and “transparency” are the continuous slogans that draw the foreign accolades.

Things look different at home, however.  The federal government confronts a convoluted scenario in the next 100 days, during which it will face at least three sets of sensitive issues in the run-up to Legislative primaries in August and elections in October.

  • Domestic issues. The government will have to deal with a hostile internal front.  One challenge will be resolving a long-running pay dispute with teacher unions – especially in the province of Buenos Aires.  Another is quelling complaints about steep increases in the costs of government services and deep slashes in funding for Science and Technology, Culture, Human Rights, Health, Production, and Energy.  Macri’s failure to meet inflation reduction targets (prices rose by 40 percent in 2016); the need to stimulate the economy; and debates on tax reform are a daunting agenda.
  • Controversy over human rights and immigration. One of the Achilles’ heels of the current administration is the imprisonment of social activist Milagro Sala in the northwestern province of Jujuy.  An ally of former President Fernández de Kirchner, Sala was arrested in January 2016 – one month after Macri took office – on highly contested charges: initially of “instigate criminal activity disorder” and later of “illicit association, fraud, and extortion.”  Pope Francis, Canadian Prime Minister Trudeau, and UN officials have expressed concern, fueling tensions inside Argentina.  An immigration reform decree facilitating deportations and restricting access at border crossings has been rejected by social movements, international organizations, and much of the Argentine political opposition.  The repudiation is not only felt in the formal political arena but also on the streets.
  • External dynamics with internal consequences. Brazil’s Lava Jato scandal is splashing as much onto Macri’s government as his predecessor’s.  Officials from both administrations are being accused of receiving bribes from Odebrecht, the largest Brazilian construction company, and no one knows how this process will develop hereafter.  Congresswoman and Macri ally Elisa Carrió claims the whole political elite is complicit in the Odebrecht mess.  The “Panama Papers” – leaked from the law firm Mossack Fonseca, which allegedly was involved in helping companies hide bribes paid to a number of South American leaders – has so far not touched Macri, whose family has links to firms cited in the documents.

The August primaries, followed by full legislative elections in October, are a potential inflection point for both Macri and his opponents.  Neither side has yet announced its slate of candidates, but one essential factor is already clear: the candidacy (or not) of Cristina Fernández de Kirchner.  The primary election will define how the pieces of the political chessboard are placed, and Macri’s handling of his economic, political, and social challenges will be decisive.  Achievement of his reform agenda – including the overhauling the National Institute of Statistics and Census (INDEC, accused of cooking data during previous governments), an ambitious “Plan Belgrano” infrastructure program, and the end of currency controls – may not be enough.  The potential reunification of his key Peronist opponents, increased social unrest, splits in his own coalition, and the spillover from the Brazilian crisis suggest a sobering future.  True love cannot be achieved from one day to the next, but in the domestic political arena it is simple to lose it suddenly.

June 8, 2017

* Nicolás Comini is Research Fellow at CLALS; Director of the Bachelor and Master Programs in International Relations (Universidad del Salvador, Argentina); and Professor at the New York University-Buenos Aires.

Argentina: The (Un)Fulfilled Promises of an Election Year

By Ernesto Calvo*

ArgentineCongressCC

Palace of the Argentine National Congress / Andresumida / Wikimedia / Creative Commons

As the 2017 mid-term election approaches, both Argentine voters and party elites see a gloomy present and a bright future. With only seven months until the October 22 election, the economy still shows few signs of recovery. Patience is running thin in Congress, among governors, and with organized labor – but it seems to be never-ending among voters.

  • For over a year, surveys have shown that a majority of voters perceive their personal economic situation as dire. In survey parlance, each month voters perceive that they are worse off than in the previous month. Yet, to the surprise of specialists, a majority of voters also expect the economy to improve in the next month. Indeed, voters seem as willing to credit the current administration of President Mauricio Macri for its policy choices as they are unhappy with the economy.
  • The opposition is betting its future success on the dismal economic outlook: high inflation, stagnating wages, and lack of growth. The government expects voters’ optimism, the raw expectation of future growth, to carry the day. The increasing gap between current perceptions and future expectations has baffled specialists. The only possible result, many confide, is either a rude awakening for the administration or a real change in the pace of economic growth.

Both parties suffer from divisions. Former President Cristina Fernández’s Front for Victory still carries most support among Peronists, although many fear that a Senate victory by their leader in the Province of Buenos Aires will ensure a divided party in the election of 2019. Peronist dissident Sergio Massa is still running outside the party, and few anticipate any grand-coalition before 2019. The other traditional party, the UCR, remains on life support after a decade of mishaps, and is only a minor partner of President Macri’s party, Republican Proposal (PRO), in the government coalition. Meanwhile, the incumbent PRO has yet to decide their strategy to form Provincial alliances and nominate its candidates.

As the election nears, it is unclear whether voters will hold the government responsible for their current economic malaise or will still believe in PRO’s capacity to deliver a better economy. Voters have one leg in a bad economy and another leg in the promise of a better tomorrow. They are, in the words of the Herald Editor J.G. Bennet, “Like a stork by a frog pond, they are as yet undecided which to rest upon.” Eventually, one of the two legs will have to go up, for either the government or the opposition – but not both – to celebrate on Election Day. Regardless, the mid-term election may provide little information as to who the real winner is. With no presidential candidates on the ballot, no important gubernatorial races to publicize, and only one important Senator on the line (that of the Province of Buenos Aires), the signal will be unclear. If the government does extremely well, it may gather a third of the House vote, all provinces considered together. If the government performs badly, it may get a quarter of the House seats. As the election approaches, it would seem that the only measure of success or failure would be whether the government coalition, Cambiemos, wins first, second, or third place in races for the National Senators of the Province of Buenos Aires. More troubling yet, it is unlikely that the result of the election, whichever it may be, will clarify the choices faced by voters, the future of the Peronists, or the likelihood of a steady government coalition after 2017.

March 9, 2017

*Ernesto Calvo is a Professor and Associate Chair of the Department of Government and Politics at the University of Maryland.

Intense Electoral Year in Latin America

By Carlos Malamud*

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Chilean President Michelle Bachelet with the leaders of her coalition, Nueva Mayoría. The Chilean presidential election of 2017 will determine the legacy of the Nueva Mayoría. / Gobierno de Chile / Flickr / Creative Commons

The new year will be an intense one for Latin American elections.  Although perhaps not as important as those taking place in 2018, this year’s elections will have a significant impact on the countries holding them and, in some cases, the region as a whole.

  • In Ecuador’s presidential and legislative elections on February 19, the PAIS Alliance will run a slate of nominees for the first time without Rafael Correa heading its slate. The President said he’s stepping down for family reasons, but Ecuador’s economic problems, aggravated by the decline in oil prices, apparently convinced him to seal his legacy on a high note now rather than end his time in office in defeat.  The party’s presidential candidate, former Vice President Lenin Moreno, has a 10-point lead in polls over his closest competitor and has the advantage of facing an opposition divided among seven candidates, but his leadership remains uncertain.
  • In Mexico, the state governors of México, Nayarit, and Coahuila and mayor of Veracruz are up for election on June 4. The race in México state will measure the popular backing of the four parties in contention – PRI, PAN, PRD, and López Obrador’s new Movimiento Regeneración Nacional (Morena) – in the 2018 presidential election.  The older parties will begin to weed out the weaker pre-candidates.
  • Elections for half of the Argentine Congress and a third of its Senate in October will define the second half of President Mauricio Macri’s presidency. The government is confident that economic recovery will strengthen its election prospects.  A weak showing will strengthen the Peronista opposition and complicate Macri’s agenda.  The Peronistas are currently divided into three big factions – that of Sergio Massa; the “orthodox” wing headed by some provincial governors, and corruption-plagued Kircherismo grouping headed by former President Cristina Fernández.  Open, simultaneous, and obligatory primaries (known by the Spanish acronym PASO) in August will be an important test for all.
  • Chile will elect a successor to President Michelle Bachelet on November 19. Primaries in July will reveal whether the country’s two big coalitions – the center-left (including the President’s Nueva Mayoría) and the center-right – are holding, as well as the presidential candidates’ identity.  The names of former Presidents Sebastián Piñera and Ricardo Lagos are in the air, but it’s too early to know how things will play out in the environment of growing popular disaffection with politics and politicians.
  • Honduras will hold elections on November 26. Due to a Supreme Court decision permitting reelection, incumbent President Juan Orlando Hernández could face a challenge from ex-President Manuel “Mel” Zelaya, who was removed from office by the Army in June 2009, running as head of the Libertad y Refundación (Libre) Party.
  • Also in November, Bolivia will elect members of various high courts, including the Constitutional, Supreme, and Agro-Environmental Tribunals and the Magistracy Council. These elections will reveal the support President Evo Morales will have as he tries to reform the Constitution to allow himself to run for yet another term in office.

These elections in 2017 have a heavy national component but will shed light on the region’s future direction.  The success or failure of the populist projects in Ecuador and Honduras, or of President Bachelet’s Nueva Mayoría in Chile, will tell us where we are and, above all, help us discern where we’re headed.

January 17, 2017

*Carlos Malamud is Senior Analyst for Latin America at the Elcano Royal Institute, and Professor of Latin American History at the Universidad Nacional de Educación a Distancia (UNED), Madrid.  This article was originally published in Infolatam.

2017: Happy New Year in Latin America?

By Eric Hershberg and Fulton Armstrong

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Brazilian President Michel Temer surrounded by members of his party in mid-2016. His government will continue to face questions of legitimacy in 2017. / Valter Campanato / Agência Brasil / Wikimedia / Creative Commons

The year 2016 laid down a series of challenges for Latin America in the new year – not the least of which will be adapting to a radically different administration in Washington.  Last year saw some important achievements, including an elusive peace agreement in Colombia ending the region’s oldest insurgency.  Several countries shifted politically, eroding the “pink tide” that affected much of the region over the past decade or so, but the durability and legitimacy of the ensuing administrations will hinge on their capacity to achieve policy successes that improve the well-being of the citizenry.  The legitimacy of Brazil’s change of government remains highly contested.  Except in Venezuela, where President Maduro clung to power by an ever-fraying thread, the left-leaning ALBA countries remained largely stable, but the hollowing out of democratic institutions in those settings is a cause for legitimate concern.  Across Latin America and the Caribbean, internal challenges, uncertainties in the world economy, and potentially large shifts in U.S. policy make straight-line predictions for 2017 risky.

  • Latin America’s two largest countries are in a tailspin. The full impact of Brazil’s political and economic crises has yet to be fully felt in and outside the country.  President Dilma’s impeachment and continuing revelations of corruption among the new ruling party and its allies have left the continent’s biggest country badly damaged, with profound implications that extend well beyond its borders.  Mexican President Peña Nieto saw his authority steadily diminish throughout the course of the past year, unable to deal with (and by some accounts complicit in) the most fundamental issues of violence, such as the disappearance of 43 students in 2014.  The reform agenda he promised has fizzled, and looking ahead he faces a long period as a lame duck – elections are not scheduled until mid-2018.
  • The “Northern Triangle” of Central America lurches from crisis to crisis. As violence and crime tears his country apart, Honduran President Hernández has devoted his energies to legalizing his efforts to gain a second term as president.  Guatemala’s successful experiment channeling international expertise into strengthening its judicial system’s ability to investigate and prosecute corrupt officials is threatened by a weakening of political resolve to make it work, as elites push back while civil society has lost the momentum that enabled it to bring down the government of President Pérez Molina in 2015.  El Salvador, which has witnessed modest strides forward in dealing with its profound corruption problems, remains wracked with violence, plagued by economic stagnation, and bereft of decisive leadership.
  • Venezuela stands alone in the depth of its regime-threatening crisis, from which the path back to stability and prosperity is neither apparent nor likely. The election of right-leaning governments in Argentina (in late 2015) and Peru (in mid-2016) – with Presidents Macri and Kuczynski – has given rise to expectations of reforms and prosperity, but it’s unclear whether their policies will deliver the sort of change people sought.  Bolivian President Morales, Ecuadoran President Correa, and Nicaraguan President Ortega have satisfied some important popular needs, but they have arrayed the levers of power to thwart opposition challenges and weakened democratic institutional mechanisms.
  • As Cuban President Raúl Castro begins his final year in office next month, the credibility of his government and his successors – who still remain largely in the shadows – will depend in part on whether the party’s hesitant, partial economic reforms manage to overcome persistent stagnation and dissuade the country’s most promising professionals from leaving the island. Haiti’s President-elect Jovenel Moise will take office on February 7 after winning a convincing 55 percent of the vote, but there’s no indication he will be any different from his ineffective predecessors.

However voluble the region’s internal challenges – and how uncertain external demand for Latin American commodities and the interest rates applied to Latin American debt – the policies of incoming U.S. President Donald Trump introduce the greatest unknown variables into any scenarios for 2017.  In the last couple years, President Obama began fulfilling his promise at the 2009 Summit of the Americas in Trinidad and Tobago to “be there as a friend and partner” and seek “engagement … that is based on mutual respect and equality.”  His opening to Cuba was an eloquent expression of the U.S. disposition to update its policies toward the whole region, even while it was not always reflected in its approach to political dynamics in specific Latin American countries.

 Trump’s rhetoric, in contrast, has already undermined efforts to rebuild the image of the United States and convince Latin Americans of the sincerity of Washington’s desire for partnership.  His rejection of the Trans-Pacific Partnership – more categorical than losing candidate Hillary Clinton’s cautious words of skepticism about the accord – has already closed one possible path toward deepened ties with some of the region’s leading, market-oriented economies.  His threat to deport millions of undocumented migrants back to Mexico and Central America, where there is undoubtedly no capacity to handle a large number of returnees, has struck fear in the hearts of vulnerable communities and governments.  The region has survived previous periods of U.S. neglect and aggression in the past, and its strengthened ties with Asia and Europe will help cushion any impacts of shifts in U.S. engagement.  But the now-threatened vision of cooperation has arguably helped drive change of benefit to all.  Insofar as Washington changes gears and Latin Americans throw up their hands in dismay, the region will be thrust into the dilemma of trying to adjust yet again or to set off on its own course as ALBA and others have long espoused.

 January 4, 2017

NiUnaMenos Gains Momentum

By Brenda Werth* and Fulton Armstrong

marcha_ni_una_menos_1

Protesters gather in Buenos Aires, Argentina as part of the NiUnaMenos movement, which has sparked mobilizations across the country and in many other Latin American cities. / Wikimedia / Creative Commons

Protesters have taken to the streets in Argentina and elsewhere in Latin America to raise awareness about violence against women and girls, pushing for an end to machista culture.  News media estimate that a demonstration under the banner of NiUnaMenos – “not one less woman” due to femicide – in Buenos Aires last Wednesday drew tens of thousands of supporters dressed in black, despite freezing rain.  Other banners declared “We want to live” and demanded “No more machista violence.”  The immediate issue driving the protest was the brutal attack earlier this month on a schoolgirl in Mar del Plata – 16-year-old Lucía Pérez – who was drugged, raped, and tortured to the point of suffering cardiac arrest and died from internal injuries.

  • Argentina passed laws between 2008 and 2012 protecting a range of rights relating to human trafficking, violence against women, marriage equality, and gender and sexual identity, creating new space for discussion of the issue. But the Casa del Encuentro, an NGO that helps victims of gender violence, says that data through 2015 indicate that somewhere in Argentina a woman is killed every 30 hours.  The government’s Secretariat of Human Rights says that 19 women and girls were murdered in the first 18 days of October.  Argentine President Macri, challenged since early days of his administration to address the problem, has reiterated pledges to push legislation that would establish a hotline for reporting abuse and create more shelters for abused women as well as better ways of monitoring abusers.

Similar protests were held in Peru, Mexico, Bolivia, Chile, Paraguay, Uruguay, and El Salvador – with thousands of protesters in capital cities demanding an end to the systematic violation of women’s rights.  Chilean President Michelle Bachelet announced last week that she was joining the NiUnaMenos movement.  She condemned the murder of a 10-year-old girl asphyxiated, burned, and buried by her step-father.  Movement organizers cite research showing that violence against women is a serious problem in much of Latin America.  The Mapa da Violencia published by FLACSO Brazil last year shows that seven of the 10 countries with the highest female murder rate are in this region – with El Salvador (8.9 homicides per 100,000 women), Colombia (6.3), Guatemala (6.2), and Brazil (4.8) near the top of the list.

The demonstrations reflect growing global awareness of gender violence as a violation of human rights and that legislation, while helpful, is not enough.  NiUnaMenos and other groups are also rewriting the traditional definition of violence against women as attacks perpetrated by strangers rather than boyfriends, husbands, or family members – just as coverage of femicide in Mexico in the 1990s raised public awareness of gender violence as systematic and deeply structural as opposed to “every-day,” “familial,” and “private.”  NiUnaMenos is challenging “the culture of violence against women” in machista societies and condemning “the men who think that a woman is their property and they have rights over her and can do whatever they want.”  In Argentina, the mainstream media have stimulated much of the backlash, with reporting that exploits private details of victims’ lives and portrays victims in a manner that suggests responsibility for the crimes committed against them.  This recycling of the “algo habrá hecho” logic that circulated freely during the dictatorship coincides with a renewed focus in Argentine society on cases of torture during those years, treating them specifically as acts of sexual violence.  A week or two of protests obviously will not change ingrained culture, but the burgeoning movement highlighted by NiUnaMenos offers hope of continued progress in protecting the fundamental rights of women throughout the hemisphere.

October 24, 2016

* Brenda Werth is Associate Professor of World Languages and Cultures at American University.

Spain: Too Distracted to Play in Latin America?

By An Observer*

Rajoy Latin America

Photo Credit: La Moncloa Gobierno de España and Heraldry (Modified) / Flickr & Wikimedia / Creative Commons

Spain’s political crisis and problems facing the European Union have undermined Madrid’s ability to pursue interests in Latin America at a time of new opportunities.  Amidst countless months of lameduck government and the failure of either the Partido Popular (PP) or the Partido Socialista (PSOE) to form a government, the country is also tied in knots over corruption scandals, including some touching a Cabinet member and the royal family, and Cataluña’s persistent challenges to central authority.  Even before the current mess, Prime Minister Rajoy had shown only modest interest in Latin America, and King Felipe hadn’t yet demonstrated the mettle of his father, who once famously told Venezuelan President Chávez to shut up at an Ibero-American Summit.  Adding to Spain’s distractions are a series of EU challenges, ranging from refugee crises to terrorism and the Mediterranean countries’ debt overhang.  Spanish elites, who remain committed to the EU vision, are seized with concerns about Brexit, the UK’s flirtation with withdrawal, and perplexed by the absence of a renewed integration project.

Madrid’s declining role coincides with changes in Latin America that would normally grab its attention.  President Obama and Raúl Castro’s historic normalization of diplomatic relations has opened the door to at least one major U.S. hotel firm signing contracts to refurbish and manage several Cuban hotels – an industry in which Spain previously had extraordinary advantages.  Having played “good cop” with Cuba for many years, compared to Washington’s “bad cop,” Madrid’s future role on the island is at most uncertain.  The election of market-friendly President Macri in Argentina, where the previous government nationalized a Spanish energy company and adopted other policies causing bilateral estrangement, also represents an opportunity for Spain.  The near-completion of peace talks between the Colombian government and guerrillas should be the crowning jewel of a foreign policy in which Spain made a strong political investment early on, but Madrid has receded to the role of bit player.  At a time that Latin Americans continue to espouse support for CELAC and other regional organizations that exclude Spain (and the United States), Spain-sponsored Cumbres Iberoamericanas since 1991 have – even more than the U.S.-sponsored Summit of the Americas – lacked dynamism and produced little as the beacon of the Spanish transition was dying down

By turning inward, Spain risks losing what remains of its special cachet as Latin America’s link to Europe and as a country that made a successful transition to democracy with inclusion, human rights, vibrant media, and increasing transparency.  Its political capital in the region is running low, and budgetary constraints have diminished its aid budgets (from 0.5 percent of GDP to 0.13 percent).  But opportunities remain.  Big Spanish companies – Telefónica, Banco Santander, BBVA, Repsol, and others – and numerous mid-sized firms have shown interest in Latin America.  Cuba’s reluctance to embrace U.S. ties too tightly and too fast gives Spain important space to play a role if it wants.  Moreover, Spain’s diplomatic skills, critical for Central America’s peace processes and elsewhere, could still be a positive force in that subregion.   If it weren’t for former Spanish Prime Ministers’ contradictory roles in Venezuela, where U.S. baggage undermines Washington’s approach to political, economic, and security problems, Spain could be active there too.  But the Prime Minister and his cabinet have not given the Foreign Ministry the green light to get more deeply involved.  It’s not too late for Spain to turn things around and get back into the game in Latin America.  For that to happen Spain needs more consistent governance.

April 18, 2016

* The writer is long-time non-academic observer of Spanish foreign policy in Latin America.