Political Risk Latin America Blog @PolRiskLatam

Argentina: ghosts of 2001 default linger

Posted in News and Articles, Political Risk by politicalrisklatam on August 11, 2011

by Jude Webber for Financial Times – Beyond Brics, August 11th, 2011.

Argentina believes it has closed the chapter on its $100bn sovereign default in 2001 after two debt swaps, in 2005 and 2010, which have restructured more than 92 per cent of the defaulted bonds.

It says the two take-it-or-leave-it offers prove its good faith in the matter, and has vowed not to negotiate or settle with the remaining “holdouts” – especially so-called “vulture” funds which are among those to have been pursuing it through US courts.

But a new avenue of litigation has been opened with a 283-page decision last week by the World Bank’s arbitration tribunal, ICSID, which has not yet been made public, that it is competent to hear a claim for more than $1bn brought by some 60,000 jilted Italian bondholders.

At a time of financial market panic and default fears in Greece, when the fine print of bond jurisdictions is under the spotlight in case bond holders need to sue to get their money back, the ICSID decision could reverberate widely.

Represented by global law firm White & Case, the Italian bondholders say Argentina is accountable under a bilateral investment protection treaty. The World Bank’s International Centre for the Settlement of Investment Disputes ruled on August 4 that it was competent to hear the case. (continue reading… )


Colombia-Brazil: where’s the trade, hombre?

Posted in News and Articles, Political Risk by politicalrisklatam on August 4, 2011

by Naomi Mapstone for Financial Times – Beyond Brics, August 4th, 2011

For all the talk of south-south investment flows, some of Latin America’s strongest economies are finding it easier to access Chinese, American or European consumers than Brazilians.

Colombia, which shares a 1,950km Amazon border with Brazil, is a case in point.

Bilateral trade between the two nations has quadrupled since 2004, off a low base, largely thanks to Brazilian exports.

According to a new study by the Inter-American Development Bank, out on Thursday:

Despite all the dynamism of the last decade, bilateral trade in 2010 accounted for only 0.7% of the total trade of both countries, well below the already modest 20% share intraregional trade in Latin America.

The study’s lead author, Mauricio Mesquita, told beyondbrics the slow progress was due in large part to Brazil’s reluctance to lower tariffs. This year, as part of a 15-year tariff reduction deal, the average preferential tariff on Colombian exports to Brazil was 5.8 per cent, while Brazil’s was 2.4 per cent. Other factors – including a significant infrastructure deficit in the Amazon region and high logistics costs – have also contributed to the low level of trade between the two countries.

Stiff competition from Chinese manufacturers should also strengthen the case for boosting internal markets, the report notes. (continue reading… )

Bolivia: killing its cash cow slowly with its drill

Posted in Uncategorized by politicalrisklatam on July 29, 2011

by Andres Schipani for Financial Times – Beyond Brics, July 28th, 2011.

Cerro Rico, a mountain towering over the Bolivian city of Potosí, was once the world’s greatest treasure trove, a mine that for centuries bankrolled the Spanish empire.

But now, over 450 years after the first hole was drilled, it is in danger of collapsing. Intense mining has turned this soaring Andean peak into a honeycomb of gaping tunnels that threatens to cave in. For Bolivia, which has been riding the commodity price boom, the news could not have come at a worst time.

“The Andean mines are getting exhausted,” says Alicia Polo, a mining analyst at CRU.

Despite being largely a natural gas producer, Bolivia is inherently (socially as well as economically) a mining country, producing mostly tin, silver and zinc. It was born a republic thanks to mining and Cerro Rico is even emblazoned on the country’s heraldic shield.

“We have already hit almost $1.7bn in mineral exports in the first semester, seventy per cent more than last year, so we expect to surpass the $3bn by the end of the year. Volumes are slightly inferior, but the price is good,” Bolivia’s deputy mining minister, Héctor Córdova told beyondbrics. (continue reading… )

Chile mine strike raises fears for copper supply

Posted in News and Articles, Political Risk by politicalrisklatam on July 27, 2011

by Javier Blas for Financial Times, July 26th, 2011.

Copper prices rose on Tuesday as a strike at the world’s largest mine of the metal entered its fifth day, stoking worries of a stalemate which could reduce supplies.

The Escondida mine, located in the Atacama desert in Chile, accounts for around 7 per cent of global copper production. Although the strike has been, so far, too short to have a meaningful impact on physical copper markets, investors and traders worry that the lack of negotiations between the miners and the company could lead to a prolonged outage and potentially extend to other mines.

RBC Capital Markets said in a note to clients that the strike was providing some support to the copper market, but warned: “These industrial actions are generally short lived.” Investors are, however, worried that the strike could continue.

The operator of Escondida said the company would not engage in talks with the miners, which are demanding higher bonuses and salaries after a rally in copper prices of 32.7 per cent since January 2010, until they stop the strike. The miners have requested a second-round of government-mediated negotiations. (continue reading… )

Central America’s dirty drug wars

Posted in News and Articles, Political Risk by politicalrisklatam on July 26, 2011

Financial Times Editorial, July 25th, 2011.

Last week, Mexico seized more than 800 tonnes of precursor chemicals – enough to make several billion dollars worth of methamphetamine. The week before, the Mexican army also discovered the biggest marijuana field ever found in the country: a 120 hectare farm, yielding an average crop of 120 tonnes, worth $160m a year. These were rare triumphs in Mexico’s four- year assault on organised crime, which has so far cost 40,000 lives but done little to slow the flow of illegal drugs north to the US.

Of course, the idea that drug problems are caused by illegal drugs themselves is an illusion. Such problems are caused instead by the desire to consume drugs and the illicit industry that arises to meet that desire. Interdiction can only achieve so much. Even if the US built a 50ft wall around itself, drug traffickers would simply build 51ft ladders. What fighting organised crime can hope to do, however, is to raise the standards of law and order in the producing country, a good in its own right. It can also boost – if only slightly – the cost of illegal drugs. (continue reading… )

ING sells Latin American insurance operations

Posted in News and Articles, Political Risk by politicalrisklatam on July 25, 2011

by Matt Steinglass in Amsterdam for Financial Times, July 25th, 2011.

ING is to sell its insurance operations in Latin America for €2.68bn ($3.85bn) to Colombia’s Grupo de Inversiones Suramericana, the Dutch bancassurer said on Monday.

The deal moves ING closer to meeting European Commission demands that it split its banking and insurance operations as a condition for receiving Dutch state aid during the financial crisis.

The deal excludes ING’s 36 per cent stake in Brazilian insurer Sul America, which the company plans to sell separately in the near future. ING plans to complete the divestment of its insurance arm by spinning off its American and Eurasian insurance operations in separate initial public offerings by the end of this year.

ING said it would make a profit of €1bn on the sale to the Colombian conglomerate, which valued the Latin American operations at 1.8 times book value and approximately 16 times estimated earnings. The businesses to be sold had combined revenues of €670m in 2010.

“The cash earnings and the multiple were both higher than we or the market expected,” said analyst Cor Kluis of Rabobank. “It’s impressive that they continue to divest their insurance activities at a high speed.” (continue reading… )

Chile’s middle class people power

Posted in News and Articles, Political Risk by politicalrisklatam on July 19, 2011

by Janie Hulse for Financial Times – Beyond Brics, July 19th, 2011.

It all must seem so unfair. Chile is one of the world’s most politically stable countries. The economy is growing gangbusters. And yet Sebastian Piñera, the president, is increasingly unpopular.

His approval rating has sunk to 31 per cent. The country has been riven by strikes at Codelco, the state-owned copper miner, and elsewhere; it has been shaken by environmental protests over a multi-billion-dollar hydroelectric project in the south of the country; and it has been surprised by massive student protests – in June, some 80,000 students took to the streets, the largest such gathering since the transition to democracy in 1990. What to do? Piñera’s response: re-shuffle eight ministers in his 22 strong cabinet.

The reshuffle, the second in his government, is a sign that Piñera is listening to the country and aware of the need for change, although there are only four points about the shuffle worth noting.

First, two Senators from the governing party’s coalition partner, the conservative UDI, have been given positions as economy minister and government spokesman. That could mute UDI criticism and make it easier for Piñera to govern.

Second, the ever-popular Laurence Goldorne, who won his spurs during the celebrated government rescue of 33 trapped miners, is moved from energy and mining to public works – which gained higher visibility following last year’s major earthquake. No change in mining policy is expected.

And, third, Felipe Larraín remains in the post of finance minister. Financial markets will be relieved. (continue reading… )


Venezuela: Chávez van Gogh

Posted in News and Articles, Political Risk by politicalrisklatam on July 15, 2011

by Stefan Wagstyl for Financial Times – Beyond Brics, July 15th, 2011.

It is well known that Hugo Chávez is a former military man. Many are also aware of his passion for baseball, a career the left-handed pitcher abandoned in order to join the army. But it often goes unmentioned that he is also an enthusiastic painter.

Venezuela’s multi-talented leader clearly wanted to remind the nation of this, as he greeted ministers to a televised cabinet meeting at the presidential palace this morning, while putting the finishing touches to his latest masterpiece.

At a time when the notoriously active leader is having to moderate his normally energetic schedule, as he faces the prospect of undergoing chemotherapy – media reports sugges the may go to the same hospital in Brazil where Paraguayan president Fernando Lugo was successfully treated for his cancer – he seems to continue to want to give the impression that he is in control, and can do anything and everything.

That is in spite of his own admission this week that he “needs to learn to delegate”, and that he must temper his micromanaging style. “I was killing myself…. It was permanent anxiety, sometimes I couldn’t breathe,” he confessed, approvingly quoting advice from his
mentor Fidel Castro: “Chávez cannot be the mayor of all Venezuela.” (continue reading… )

Argentina: beggaring our neighbours

Posted in News and Articles, Political Risk by politicalrisklatam on July 14, 2011

by Judde Webber for Financial Times – Beyond Brics, July 14th, 2011.

Argentina has run into trouble before with trade tactics that often seem like knee-jerk reactions to events rather than a coherent policies.

The result is a growing reputation for protectionism, which is earning it few friends and making many enemies.

A couple of months ago, it upset its biggest trade partner, Brazil, with restrictions on Brazilian exports to which Brasilia responded by limiting car imports from Argentina with the result that 40,000 Argentine vehicles are still blocked at customs, according to Miguel Ponce of the Argentine Chamber of Importers.

Now, the government is planning to extend to importers of almost all finished goods a 1:1 policy already in place in the car, agricultural machinery, shoe and toy sectors, whereby imports must now be matched dollar for dollar by exports.

As has become customary, Argentina has enacted the measures without committing them to paper, something Ponce says underlines their discretionary, arbitrary nature. (continue reading… )

Codelco’s strike: the start of something bigger?

Posted in News and Articles, Political Risk by politicalrisklatam on July 12, 2011

by Jude Webber for Financial Times – Beyond Brics, July 11th, 2011.

It wouldn’t be hard to beat the last big strike at Codelco, the Chilean state copper miner, 18 years ago. It lasted for 45 minutes. This time around, workers walked off the job from 4 am and union leaders were delighted with the turnout of the 24-hour stoppage, called to protest restructuring plans and fears that the government is plotting to privatise the company (despite its assurances to the contrary).

A day-long strike may still not sound much – but its ramifications could be a lot bigger than any short-term dent in the price of copper.

“The strike is a total success. Radomiro Tomic, Chuquicamata, Gabriela Mistral, El Salvador, El Teniente, Andina and Ventanas are all paralysed,” said Raimundo Espinoza, head of the Federation of Copper Workers, listing the company’s divisions. He urged the government to drop any thought of privatisation or “undoubtedly” face more strikes.

Despite the disruption, the one-day stoppage is not expected to have any lasting impact on production targets for this year, though it has helped unsettle markets. (continue reading… )