- Political Events -
Renewed Hope For Democratic Restoration
January 10th: Nicolás Maduro took assumed possession of the Venezuelan Presidency for the second time this decade. However, the Venezuelan opposition along with much of the international community, declared that the May elections were fraudulent, making Maduro’s presidency illegitimate.
International Community: Several countries including the United States of America instantly recognized Guaidó’s presidency. President Donald Trump tweeted and Vice President Mike Pence shared a video recognizing Juan Guaidó and offering the countries full support to his agenda. Maduro’s allies also responded in short notice: China, Cuba, Mexico, Russia, and Turkey were the first to either support Maduro or declare neutrality towards Guaidó. By January 26, the European Union was fully involved in the conflict and the French President Emmanuel Macron tweeted saying that if Maduro didn’t call elections in eight days the French nation would recognize Guaidó as the interim president of Venezuela. On January 28th, the United States began imposing economic sanctions on the nation because Maduro remained unwilling to organize new elections. By the next day, $7 billion dollars belonging to PDVSA (Venezuelan Petroleums S.A.) were blocked and secretary of state Micheal Pompeo gave Juan Guaidó complete control over the Venezuelan accounts in the Federal Reserve Bank of New York and other the United States based banks. The objective of the economic sanctions was to direct more power to Juan Guaidó and the National Assembly, and Maduro’s government counteracted by imposing a travel ban and freezing the interim president’s bank accounts.
Humanitarian Aid Crisis: From the moment Juan Guaidó declared his presidency to the 5th of February, 11 of the 14 countries in the Lima Group recognized his presidency, and over 19 countries part of the European Union declared him the legitimate president of Venezuela. After international and economic support was obtained, Guaidó’s next move was to provide humanitarian aid to relieve the crisis in Venezuela. In response to Guaidó’s agenda, the United States pledged 20 million dollars of aid – non-perishable food and medicine – for Venezuela, which translated to eight trucks of aid in the Colombian border and two cargo ships that would come in from Puerto Rico. This situation became increasingly delicate for Maduro, which immediately prohibited the access of humanitarian relief. He claimed the “humanitarian aid intervention” was a cover-up for what was really a military intervention on the behalf of the US. Maduro ordered to close all the borders, and by the 7th of February, bridge Tienditas, connecting Colombia and Venezuela, was completely blocked by the military. Despite this, Guaidó established that by February 23rd, one month after his proclamation to become president, the aid would enter Venezuela.
February 23rd: Guaidó left the country and thereby challenging Maduro's Court of Justice’s orders and attended the Live Aid Concert for Venezuela, funded by Richard Branson, which took place in Colombia-Venezuela border. On this day, thousands of volunteers came together on the Venezuelan border to receive the aid. Even though over 200 of Venezuelan military officials changed sides and joined the opposition, the majority of the officials with the help of paramilitary groups burned the trucks, threw tear gas at the volunteers, and even shot and severely injured over 40 people on the border.
LatAm Tour and Return: On February 26, the Lima group met Juan Guaidó in Bogotá, Colombia. The intention of this meeting was to establish the consequences Maduro should face for blocking the humanitarian aid. Mike Pence said that there was "no turning back" this time in the fight for democracy in Venezuela as he addressed the corruption issues the government suffered. They agreed to sanction four government officials that backed Maduro, and most importantly, the group of countries agreed to present a case to the International Criminal Court against Maduro for blockading the humanitarian aid. This was the beginning of Guaidó’s short yet effective tour through Latin America, where he made alliances with countries that agreed to back him up against Maduro. After visiting Brazil, Argentina, Paraguay and Ecuador, Guaidó returned to Venezuela on March 4th without being arrested even though the travel ban against him had not been pulled out. The opposition with the guidance of Guaidó are planning to continue fighting until liberal democracy Venezuela once lived in is fully restored, and the odds are in their favor, considering how many military men and public officials have deserted Maduro and that over 50 countries have declared their support for Guaidó.
Sources: France24 | Guardian | Post | Jazeera | Euro 1 | Euro 2 | Bloomberg | NPR | Universal | Analitica
Jair Bolsonaro's 50 day Report Card
In his first 50 days, president Bolsonaro has eased gun ownership laws, stood firm against Nicolas Maduro, introduced a revised anti-crime bill penalizing unofficially declared campaign funds aimed at fighting corruption, and has unveiled a large-scale pension overhaul to tackle Brazil’s growing deb. This is aligned with some of his focal points while campaigning, which helped legitimize the right-winger formerly known for supporting Brazil’s military dictatorship.
Sources: As/Coa | WSJ 1 | WSJ 2 | UOL |
- Macroeconomic Events -
Turbulent Times for Nicaragua
Current situation: Protests over the rule of President Ortega have been going on, leading to the imprisonment of over 700 people imprisoned and 300 deaths. Protesters call for free and fair elections, having grown tired of Ortega who has been in power for the last 12 years. Of the 700 people that have been jailed, it is estimated that 100-150 are to be released. The human rights group Civic Alliance are calling for the release of the captured protesters and stated that the ones that are going to be released are not enough.
US Involvement: The US has placed sanctions on the Vice-President of Nicaragua Rosario Murillo. Rosario Murillo is the wife of the president Daniel Ortega. They are accusing her of corruption as well as several human rights abuses such as extra-judicial killings, torture, and kidnaping. She is also accused of exerting control over the police and youth wing of the Sandinista Liberation Front. The sanctions are said to have come through an executive order from Donald Trump.
Economically speaking: There are steep pension cuts as well as tax increases taking place. It is feared that this combination could plunge Nicaragua into a recession. Pensions are said to be cut by 30-40%. This decrease is said to affect nearly 800,000 people, a significant number given Nicaragua’s population is 6.2 million. On top of this, taxes on independent workers’ income has increased from 18.25% to 22.25%. The tax that funds disability, age and death insurance is also rising from 10% to 14%.
Analytical View: The Nicaraguan economy will continue to be negatively affected as political instability leaves investors doubtful as to the development of the country. Social unrest continues to be a reality. Although there have been steps to free those that have been wrongfully imprisoned, these steps have been deemed insufficient by human rights groups. Reductions in credit, as well as reductions in social assistance by the government has weakened the positive effects that consumption and investment have on the economy. The burdens of the fiscal deficit are not likely to be eliminated in the near-future.
Sources: IMF | Trading | Today
Ecuador's IMF Bailout Package
Deal: The Ecuadorian Government has reached a preliminary agreement with the IMF for a $4.2 billion USD Extended Fund Facility, which now must be accepted by the Executive Board at the Fund. This loan is part of a larger $10.2 billion USD bailout package provided by other entities such as the World Bank for the financially troubled country. Ecuador has seen low growth rates for some time as well as a rising fiscal deficit and levels of debt. In an effort to finance the troubled economy, the Ecuadorian Government recently issued $1 billion USD in debt but at an extremely high interest rate of almost 11%.
Investor Perspective: Reaching the agreement with the staff at the IMF has increased investor outlook on Ecuador’s sovereign debt outstanding, thus, raising demand. This translates to a price increase, which since the start of this year has totaled 8.4%; partially due to greater global demand for risk. This could potentially serve Ecuador well if it decides to raise further debt, although the Western Hemisphere Director for the IMF does not expect the country will need to for the duration of the Fund Facility, three years. A defining factor in this case could well be oil prices, a driving source of revenue for the nation.
Historical Perspective: The IMF’s history in Ecuador and the broader Latin American region goes back several decades. Ecuador’s first agreement with the Fund was in 1961 followed by 18 more including the current one assuming the Executive Board approves it. In Latin America, the Fund’s vast involvement by started during the 1980s Debt Crisis, when countries all around the region became over-levered and subsequently required bailouts by the Fund. There is much debate on whether the conditions on loan by the IMF lead to economic prosperity, but for the moment the only thing certain is that Ecuador’s government believes such funds are necessary.
Sources: IMF 1 | IMF 2 | JSTOR | WSJ | Bloomberg
- Environmental -
Suspicion Over Damn Burst in Brazil
On January 25th, a tailing dam belonging to Vale, a Brazilian mining company, collapsed, unleashing a wave of mud and debris that took the lives of 179 people. This disaster was the deadliest of its kind in more than 50 years.
During safety audits conducted by German Company TUV SUD, concerns about the structural safety of the dams were raised. However, after these inspections, Vale’s higher management insisted on the safety audits being signed. Makoto Namba, senior engineer inspector for TUV SUD, described that he felt pressure to sign the declaration. Without his approval, Vale would have needed to halt operations, costing them more than $1million a day in iron ore.
Over the years, construction mistakes in the dam’s drainage system weakened the structure of the damn. As inspectors from TUV SUD toured the dam, they noticed cracks in the internal drainage system and an unusually high water level near the pipes. In May 2018, after Mr. Namba expressed concern over the dam’s safety, Mr. Rocha, Vale’s risk manager, talked to Mr. Namba promising to repair these damages. Mr. Rocha also pointed out how a previous safety audit company had labeled the dam as safe. In June, Mr. Yassyda of TUV SUD signed off on the safety declaration.
Vale began working on reparations, but halted them by sealing a hole in the drainage system, raising the water level and causing the structure to erode. Another safety audit followed this process, but it also concluded that the dam was stable. On January 10, water levels rose enough to initiate evacuations, but nothing was done. Fifteen days later, the dam burst.
Source: WJS 1 | WSJ 2
- Cultural & Markets -