06 04 2016 artículo negativo SP Latin American Advisor by Sintesis Informativa

LATIN AMERICA ADVISOR www.thedialogue.org BOARD OF ADVISORS Diego Arria Director, Columbus Group Genaro Arriagada Nonresident Senior Fellow, Inter-American Dialogue Joyce Chang Global Head of Research, JPMorgan Chase & Co. W. Bowman Cutter Former Partner, E.M. Warburg Pincus

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FEATURED Q&A

TODAY’S NEWS

Who Is Likely to Succeed Correa in Ecuador?

Dirk Donath Senior Partner, Catterton Aimara

John Maisto Director, U.S. Education Finance Group Nicolás Mariscal Chairman, Grupo Marhnos Thomas F. McLarty III President, McLarty Associates Carlos Paz-Soldan Partner, DTB Associates, LLP Beatrice Rangel Director, AMLA Consulting LLC José Antonio Ríos Chief Executive Officer, Vadium Technology Inc. Gustavo Roosen Chairman of the Board, Envases Venezolanos Andrés Rozental President, Rozental & Asociados and Senior Policy Advisor, Chatham House Shelly Shetty Head, Latin America Sovereign Ratings, Fitch Inc. Roberto Sifon-Arevalo Managing Director, Americas Sovereign & Public Finance Ratings, Standard & Poor’s

Mossack Fonseca, the Panama-based law firm at the center of a massive data leak, aided clients who were subject to international sanctions, documents show.

Vale to Sell Stake in CSA Plant to ThyssenKrupp

Donna Hrinak President, Boeing Latin America

Craig A. Kelly Director, Americas International Gov’t Relations, Exxon Mobil

Panama Firm Kept Internationally Sanctioned Clients

BUSINESS

Peter Hakim President Emeritus, Inter-American Dialogue

James R. Jones Co-chair, Manatt Jones Global Strategies LLC

POLITICAL

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Marlene Fernández Corporate Vice President for Government Relations, Arcos Dorados

Jon Huenemann Vice President, U.S. & Int’l Affairs, Philip Morris International

Tuesday, April 5, 2016

Rafael Correa, pictured last week at the presidential palace in Quito, was first elected Ecuador’s president in 2006. // File Photo: Ecuadorean Government.

Ecuadorean President Rafael Correa told a group of broadcast journalists last month that he will not run again for president in 2017. Who is Correa likely to position as his successor? What issues are likely to be most important to voters as they decide whom to select as their next president? Might Correa change his mind and decide to run for another term? Is Correa likely to exert a great deal of influence in Ecuadorean politics after his presidency ends?

Daniela Chacón Arias, deputy mayor of Quito: “Correa’s announcement has certainly shaken the political outcomes for 2017. His party, Alianza Pais, is under internal disputes over who will be the successor. The strongest candidates are former Vice President Lenín Moreno and the current one, Jorge Glas. The likeliest candidate will be one that can ensure continuity of Correa’s model and the unity of the party. Given that the economy is in bad shape due to oil prices and poor management of the economy during the good years, the main issues will be job creation and getting the economy up again. The state of the country’s democratic institutions and liberties will be on the campaign agenda as well, especially for the social and political groups that have been protesting over these important issues. Correa exerts a great influence in Ecuador’s politics, so every move the government makes this year will have a great impact on the elections. Correa continues to introduce bills to obtain more resources to balance the budget and this is creating social unrest. It is likely that the year will continue in such manner. Therefore, depending on the economy and the results of Continued on page 3

Brazilian mining company Vale said it plans to sell its 27 percent stake in the Companhia Siderúrgica do Atlantico steel plant to its German partner. Page 3

POLITICAL

Brazil Lawyer Makes Last-Ditch Effort to Prevent Impeachment The Brazilian government’s top defense lawyer told a special legislative committee that President Dilma Rousseff has broken no laws and was the victim of a “coup” by her political rivals. Page 2

Rousseff // File Photo: Brazilian Government.

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Tuesday, April 5, 2016

LATIN AMERICA ADVISOR POLITICAL NEWS

Panama Firm Helped Clients Subject to Sanctions The Panama-based law firm at the center of a data leak involving more than 11 million documents had clients that were subject to international sanctions, including entities in Iran, North Korea and Zimbabwe, according to documents that were part of the leak, BBC News reported. Among the clients of law firm Mossack Fonseca were 33 individuals or

The right to privacy is very important—everyone has the right.” — Ramón Fonseca

companies that had been sanctioned by the U.S. Treasury. One of them was linked to North Korea’s nuclear program. In some cases, the firm began working with the blacklisted clients before the sanctions were imposed, but then it continued working with them afterward as a proxy, according to documents. The huge data leak was revealed Sunday by a consortium of media organizations and the Washington-based International Consortium of Investigative Journalists, which published details of an investigation showing that Mossack Fonseca allegedly helped powerful clients hide assets through various offshore entities, the real owners of which were made difficult to trace. The law firm has denied wrongdoing. In an interview with the Financial Times, one of the firm’s founders, Ramón Fonseca, called the data leak a media “witch hunt” and added that establishing offshore companies is a legitimate business. “The right to privacy is very important—everyone has the right,” he told the newspaper in a telephone

interview. “It’s something that’s being lost today but it’s a human right.” Fonseca added that his clients had done nothing wrong. “I don’t expect this to lead to one single legal case,” he told the Financial Times. The socalled “Panama Papers” name at least a dozen current or former heads of state, as well as sports figures and other celebrities. Among the political leaders mentioned are Icelandic Prime Minister Sigmundur Gunnlaugsson, associates of Russian President Vladimir Putin and Argentine President Mauricio Macri. Gunnlaugsson and Macri have denied wrongdoing, as has Putin through a spokesman. The “Panama Papers” show that Macri served as director of Fleg Trading, a Bahamas-based company that was founded in 1998 and dissolved in 2009, BBC News reported. Macri said in a television interview on Monday that his father had set up the company and denied wrongdoing. “It was an offshore company to invest in Brazil, an investment that ultimately wasn’t completed, and where I was director,” said Macri. “There is nothing strange about this.” Late on Sunday, Macri’s administration said the president had never had a stake in the firm so he had not been required to disclose his association with it. “To create a company in a tax haven is not a crime in and of itself,” the head of Argentina’s anti-corruption office, Laura Alonso, said in a posting on Twitter.

ECONOMIC NEWS

Ecuador Begins Drilling in Yasuní Rainforest Block Ecuador has started drilling for oil on the edge of a block of the undeveloped Yasuní rainforest inhabited by two of the world’s last tribes living in voluntary isolation, The Guardian reported Monday. The well platform is known as the Tiputini C, which is now operational a few kilometers from the Peruvian border in the Yasuní National Park, and is one of as many as 200 wells that would be needed to extract the estimated 920 million barrels of crude beneath

NEWS BRIEFS

Trump Would Threaten to Cut off Remittances to Force Mexico to Fund Wall U.S. presidential candidate Donald Trump said he would force Mexico to pay his proposed wall along the United States’ southern border by threatening to cut off the flow of remittances from the United States to Mexico, The Washington Post reported today. “It’s an easy decision for Mexico. Make a one-time payment of $5-10 billion to ensure that $24 billion continues to flow into their country year after year,” Trump told the newspaper in a memo.

Brazil Gov’t Lawyer Makes Last-Ditch Effort at Preventing Impeachment The Brazilian government’s top defense lawyer, Solicitor General José Eduardo Cardozo, told a special parliamentary committee Monday that President Dilma Rousseff had broken no laws and was a victim of a “coup” by rivals, The Wall Street Journal reported. The committee in question is tasked with recommending whether Brazil’s lower house should move forward with the impeachment proceedings against Rousseff, and Cardozo’s statement was seen as a last-ditch effort to convince legislators to shelve the proceedings. The committee is likely to issue its recommendation this week.

Honduras’ Murder Rate Falls in First Three Months of the Year Honduras registered 1,122 murders in the first three months of the year, down 14.6 percent from the same period last year, the Security Ministry said Monday, EFE reported. A daily average of 12 homicides per day was registered during the period, as compared to 14 per day during the same period in 2015, the ministry’s report said. The document highlighted Tegucigalpa and San Pedro Sula as the cities with the highest murder rates. PAGE 2

Tuesday, April 5, 2016

LATIN AMERICA ADVISOR F E A T U R E D Q & A / Continued from page 1

the Ishpingo Tambococha Tiputini (ITT) block. Many Ecuadoreans have said they expect oil exploitation in Yasuní to lead to pollution, forest destruction and the decimation of the two tribes, the Tageri and the Taromenane, living within the national park. The government’s ministry of strategic sectors said in a statement that state oil company PetroAmazonas would use directional and horizontal drilling to extract the crude and would adhere to high international standards. Ecuador’s decision to allow oil companies to drill the ITT block, which contains nearly 30 percent of the country’s remaining oil reserves, has been a controversial topic since 2007 when President Rafael Correa sought $3.6 billion from the international community in exchange for not drilling for oil. In August 2013, Correa withdrew the proposal, saying pledges received from countries were minimal and that the international community had failed Ecuador.

BUSINESS NEWS

Vale to Sell Stake in CSA Plant to ThyssenKrupp Brazilian mining company Vale said Monday it plans to sell its 27 percent stake in the Companhia Siderúrgica do Atlantico, or CSA, steel plant to its German partner, ThyssenKrupp,

the latest measures, Correa will decide to run. He has changed the Constitution for it, so the possibility cannot be discarded. If he leaves, he will continue to exert a great deal of influence in our politics, which could be detrimental to anyone who wins, and in my view, to the country as well.”

Vicente Albornoz, dean of business and economics at the Universidad de Las Américas in Quito: “During the first seven years of Rafael Correa’s presidency, public expenditure in Ecuador grew by 220 percent in real terms, triggering a period of consumption-driven economic growth. That period came to a sudden halt as Ecuador entered recession in 2015, due to a sharp fall in public spending caused by falling oil prices. This economic downturn has dented the popularity of President Correa’s government, and now all public policy is focused on keeping that popularity as high as possible in order to achieve a good result in the upcoming February 2017 presidential and legislative elections. As the skillful maneuverer that he is, Correa will keep all his options open until the last minute and then choose the one with the best winning chances. This means he might be a candidate for re-election, or he might choose a member of his party. The constitutional ban on third presidential terms should not be a real obstacle because the president exerts enough power over the judiciary to create some sort of exception for him. Should Correa decide not to run for president, then the most probable candidate is his former vice president, Lenin Moreno, who enjoys some level of popularity. Under

that scenario, a probable option for Correa would be to opt for a seat in the legislature, so he can keep his immunity and exert the greatest possible influence during the next government.”

Ramiro Crespo, president of Analytica Securities in Quito: “It has long been clear that if President Correa were to credibly take himself out of the next presidential race and truly assure that the elections will be free and fair, there would be a surge in private investment in the country. Correa has done neither, and Ecuador is suffering for it: Thanks to an appeal by a tiny group of the president’s sympathizers, the Correa-controlled Constitutional Court has agreed to review whether constitutional amendments, including an end to term limits, but ruling out the incumbent for 2017, actually comply with the 2008 Constitution. So he might run for president next year after all. We don’t know if this is just a ploy to strengthen his hand in negotiations with vice president Jorge Glas and the much more popular former Vice President Lenín Moreno, two potential candidates to succeed Correa during what is currently a mandatory, four-year hiatus before he can run again. Clearly, he wants to either extend his rule forever or, if his presidency ever ends, to continue to exert power behind the scenes. Sadly, rather than a decade of lost rights, faulty economic management has strengthened the opposition. Correa could still retain effective power through harsher repression, abuse of his control of the electoral council (including gerrymandering and other tampering) or a Continued on page 4

Ferreira // File Photo: Vale.

for a “symbolic price,” giving the company full ownership of the plant, The Wall Street Journal reported. Vale, led by CEO Murilo Ferreira, added that it will retain the rights to sell iron ore to the plant under an existing shareholder agree-

ment. Vale will be entitled to future income if ThyssenKrupp eventually sells a controlling stake of CSA to a third party. ThyssenKrupp first inaugurated CSA in 2010 in an effort to expand its steel business into the Americas, but it has proved to not be as profitable as once thought. The firm has to write down a large part of the approximately $13.7 billion it had invested in Brazil and in another plant in

Alabama. It sold the U.S. plant in 2014 and has expressed interest in selling CSA as well. The recent economic downturn in Brazil as well as the global low price for steel has caused CSA to post an approximately $84 million operating loss in the first quarter of fiscal year 2016. Vale said it had decided to sell its stake to ThyssenKrupp “as part of its initiatives to streamline its asset portfolio.”

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Tuesday, April 5, 2016

LATIN AMERICA ADVISOR

F E A T U R E D Q & A / Continued from page 3

last-minute funding deal with the IMF. That said, a well-run government by a current opposition leader, including economic reform and investigation into corruption, could cause Correa’s influence to vanish.”

obligingly, accepted to consider the cause. Still, unlike years past, Correa’s persona and government appear to be damaged goods—

Francisco X. Swett, chairman of Pallas Management Corp. and former Ecuadorean minister of finance, member of Congress and central bank president: “In the best tradition of caudillismo, Correa does not have a successor. Former Vice President Lenín Moreno and the current one, Jorge Glas, in that order, seem to be heirs apparent, but there is a gap to close. Moreno, who is currently living in Switzerland, projects an image that is the antithesis of Correa: easy going, ideologically light and kind; but he has said in confidence that he is not really interested in running for office. Glas, on the other hand, is not a crowd pleaser; he has been denounced for allegedly improper business dealings and was caught plagiarizing his electrical engineering thesis. Correa has stated repeatedly his desire to enjoy a, in his view, well-deserved sabbatical in Belgium. But, to distract attention, he gave the nod to young female supporters calling themselves the ‘Rafael forever’ squad, to petition the Constitutional Court to remove an impediment to his being able to run, and the court,

Unlike years past, Correa’s persona and government appear to be damaged goods.

is published every business day by the Inter-American Dialogue, Copyright © 2016 Erik Brand Publisher ebrand@thedialogue.org Gene Kuleta Editor gkuleta@thedialogue.org Nicole Wasson Reporter, Assistant Editor nwasson@thedialogue.org

— Francisco X. Swett Michael Shifter, President Genaro Arriagada, Nonresident Senior Fellow Sergio Bitar, Nonresident Senior Fellow

seriously hit by the economic crisis and the demise of other like-minded governments in the region. He aims to keep a presence in the National Assembly and to curtail the probing that will follow his decade-long tenure in power. He is, however, being fired at from left and right, and he may find that his power base, which he has always boasted about, has now evaporated.” Editor’s note: The Ecuadorean Embassy in Washington was invited to submit a commentary, but declined to do so. The Advisor welcomes comments on its Q&A section. Readers can write editor Gene Kuleta at gkuleta@thedialogue.org.

Joan Caivano, Director, Special Projects Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program Maria Darie, Director, Finance & Administration Ramón Espinasa, Nonresident Senior Fellow Ariel Fiszbein, Director, Education Program Alejandro Ganimian, Nonresident Fellow Peter Hakim, President Emeritus Claudio Loser, Senior Fellow Nora Lustig, Nonresident Senior Fellow Margaret Myers, Director, China and Latin America Program Manuel Orozco, Director, Migration, Remittances & Development Jeffrey Puryear, Senior Fellow Lisa Viscidi, Director, Energy Program Latin America Advisor is published every business day, except for major U.S. holidays, by the Inter-American Dialogue at: 1211 Connecticut Avenue NW, Suite 510 Washington, DC 20036 Phone: 202-822-9002 Fax: 202-822-9553

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www.thedialogue.org ISSN 2163-7962 Subscription Inquiries are welcomed at freetrial@thedialogue.org The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily represent the views of their respective employers or firms. The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher. PAGE 4