NOTICIAS: Bachelet no tiene tiempo para ver Humala

Humala y Bachelet

Humala y Bachelet (Fuente: La Republica)

Gestión: Michelle Bachelet, presidenta de Chile, no tiene tiempo para tener una reunión bilateral con el presidente del Perú en  la  cumbre de la Alianza del Pacífico. Ellos van a tener una reunión informal para que “intercambien puntos de vista” (Gestión).

Perú 21 dijo que Bachelet tiene otras prioridades y no puede quedarse más tiempo en la cumbre en Paracas porque necesita volver a Chile por la final de la Copa América que será mañana.

Los temas en la Alianza del Pacifico son educación, tecnología y la posibilidad de nuevos miembros pero para todos los jefes de Estado el futbol fue el tema más importante.

La Republica ha citado lo siguiente: “Humala le recordó a Bachelet que la selección peruana ‘jugó con 10 hombres en la cancha’.”

La cumbre de negocios con los jefes de Estado del Perú, Chile, Colombia y México ha comenzado el miércoles y termina hoy.

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NY Times Saves Executive from Uruguayan Prison

South America Jail

South American Prison (Source: dailymail uk)

“We are writing to you from an Uruguayan prison, where we have just completed our seventh week,” – Leadgate private equity firm founders in February 2014 Letter to Investors.

(Source: DealBook – An Airline Investment in Uruguay Becomes a Catch-22)

In 2013 three Argentine businessmen were imprisoned without trial by a Uruguayan court for their role in the collapse of the nation’s flagship airline, Pluna. The chief executive, Matias Campiani, was set free on 22nd May 2015; 522 days after being imprisoned but not charged.

They had invested in Uruguay before but their problems began in 2007 when their joint owned private equity firm, Leadgate, bought a controlling stake in Pluna. This investment was ultimately unsuccessful and the airline was renationalised in 2012 and then quickly liquidated. Leadgate was also liquidated and the three founders left the country.

However, in 2013 Campiani and his two Argentinian co-founders Arturo Alvarez-Demalde and Sebastian Hirsch were recalled to Uruguay over accusations of fraud. The three were arrested without a formal charge and imprisoned by the Uruguayan government, headed by the anti-capitalist José Mujica.

Alvare-Demalde and Hirsch were released relatively quickly but Campiani remained in prison until on May 14th 2015 The New York Times published an article; ‘An Investment Airline in Uruguay Becomes a Catch-22’. This drew international attention to the case and he was released on May 22nd.

This quick response can be attributed to the election of Tabaré Vázquez as President of Uruguay. Vázquez has more moderate policies than Mujica and had been in power when Leadgate bought Pluna in 2007. His re-election should reopen the country to foreign investment.

Uruguay remains an attractive prospect for investment, foreign investors receive the same rights as local investors. Santander Investing claims that Uruguay will remain stable despite investment slowdowns in Argentina and Brazil.

Also published in The Market Mogul.

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Effects of the US-Peru Trade Promotion Agreement


Obama (Source: Global Trade Review)

The US-Peru Trade Promotion Agreement (TPA) came into effect on 1 February 2009. The Office of the USA Trade Representative claims that from 2009-2013 total trade between the countries increased from $9-16 billion. However, this increase in trade cannot be attributed solely to a FTA, more likely Peru’s quick recovery after the global recession had a greater effect.

The agreement has its roots in Andean Trade Preference Act (ATPA) between the US and Peru, Bolivia, Columbia and Ecuador. However, when this agreement expired the individual Andean nations opted for individual bilateral treaties with the US.

The TPA was created to eliminate tariffs between the two countries as well as give US investors the same right as local investors and allow the employment of US citizens in Peruvian companies. In addition to increasing foreign direct investment, the agreement also included clauses for the protection of the Peruvian environment. Supporters also claim that both countries are obligated to comply with international labour laws, in particular reducing the amount of child labour in Peru.

The website Public Citizen claims that in April 2006 60,000 signatures were submitted by Peruvian citizens requesting a referendum. However, the agreement was supported by then president Alejandro Toledo, although it has been heavily criticised by his successors Alan Garcia and Ollanta Humala.

It can be argued that bilateral treaties with the US forces the Andean nations to compete with each other for trade with US. Also the introduction of cheap US agricultural imports would hurt small farmers in Peru, possibly forcing them to switch to more profitable crops such as coca.

A higher level of integration with the world economy will naturally see the integration of more transnational corporations to the detriment of small/medium local firms. However, this usually has the effect of improving local production standards, bringing them up to international standards. This then lowers prices for consumers.

Critics describe the agreement as undemocratic as there was no public consultation as to the clauses of the agreement, which was then passed in a lame duck session. However, the TPA should be seen as part of a wider trend of trade liberalisation which includes the currently debated TPP and the Pacific Alliance.

Also published on

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Foreign Direct Investment in Peru

Source: The Market Mogul

Machu Picchu (Source: The Market Mogul)

Peru has the fastest growing economy in South America, averaging 6.4% GDP growth over the last ten years. However, growth has slowed in the last year due to a reduction in metal prices, the decrease in value of the Nuevo sol and the recovery of the US economy. Historical high growth has attracted large amounts of foreign direct investment in the country, totalling $22.6bn in 2013. This has been led by Spanish investment, totalling $4.5bn, followed by British ($4.3bn) and American ($3.9bn).

The extractive industries account for 12% of the country’s GDP and are the principle beneficiary of foreign investment; receiving $5.4bn in 2013. Unsurprisingly China leads the foreign investment in this industry; Chinese interests own 33% of the copper industry in Peru. Chinese impact on this sector is illustrated by the acquisition of Las Bambas copper mine in the Apurímac region by a Chinese consortium led by MMG Limited, partially backed by Beijing, for $5.85bn.

Sceptics are worried that Peru’s reliance on copper makes the country’s rapid growth unsustainable; reductions in metal prices may give credence to these views.  In 2000 the extractive industries accounted for 5.5% of national GDP, this figure more than doubled to 12% in 2011. Conversely the tertiary sector´s share of GDP dropped from 62% to 57% in the same period, breaking from the usual developmental model in which reliance on the primary sector decreases and the tertiary sector grows. Peru is the world´s third largest producer in copper and silver, sixth in the world for gold. If Peru´s mining bubble was to burst, the economic growth of the country would be severely impacted. It is hoped that the government would use the $9bn worth of sovereign wealth in the Fiscal Stabilisation Fund to prop up the Peruvian economy should this happen.

Growth in foreign investment is partially responsible for the 50% growth in the Peruvian middle class over the last ten years. According to the World Bank; the middle class now accounts for 30% of the population (income $10-50 per capita per day). In 2013 direct foreign investment in finance ($4.2bn) and communications ($3.9bn) trailed behind the mining sector but had a larger impact on the quality of life of the middle classes. Foreign investment in finance is extending credit to the middle classes, that this service had not been offered previously is surprising but gives insight into why 60% of the population build their own homes but only 6% are granted a mortgage. Improvements in the quality of life are a key reason why an estimated 80,000 Peruvian migrants have returned to the country since the recession.

Peru recently joined the Development Centre of the OECD, a possible precursor to OECD membership. The Humala administration aims to join Mexico and Chile in the OECD by 2020. This marks a new stage in Peru´s relationship with the outside world and will possibly raise issues with the Andean Community of Nations (Peru, Ecuador, Bolivia and Colombia). Of the four permanent members; Peru and Colombia favour more liberal economic policies, offering a friendlier climate to international investors. It is unclear what effect the decreased GDP growth rate will have on foreign investment on Peru; likewise the elections in April next year will have an impact on investors´ perceptions of the country.

Also published on The Market Mogul.

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Latin American Politics Still a Risk for Foreign Investment


Puyehue Volcano (Source: Dealbook)

In 2007 the private equity firm Leadgate purchased 75% of the Uruguayan national airline Pluna for $15 million (the other 25% remained nationalised). The airline originally flourished under the three Argentinian co-founders of Leadgate but an unfortunate series of external events crippled their investment resulting in its renationalisation in 2012.

Problems started in 2011 when the Argentine government imposed strict capital controls as part of their protectionist policy. This prevented Pluna from accessing capital earned in Argentina to pay for essential upkeep. Added to this was the election of José Mujica as president of Uruguay the year before. Mujica was a guerrilla rebel jailed for 13 years during the country’s military dictatorship and held fiercely anti-capitalist views.

The Argentine government renationalised the country’s flagship airline (Aerolineas Argentinas) during this this period, providing fuel subsidies to cut costs. Aerolineas Argentinas was Pluna’s main regional rival but the hostile Uruguayan government under Mujica refused to match the Argentinian fuel subsidies.

Added to this the Brazilian company Varig which part-owned Pluna prior to nationalisation went bankrupt and their aggressive trade union started litigating for compensation against all potential targets, including Pluna. This was a fatal drain on Pluna’s already fragile cash reserves.

Then disaster struck; Puyehue volcano in Chile erupted, suffocating airline revenues in the region with a cloud of ash.

As a result Leadgate returned their 75% share of Pluna to the Uruguayan government in 2012, writing the investment off as a loss. Despite signing indemnities exempting them from any liability; the three founders of Leadgate were arrested in 2013 but held without charge under accusations of fraud. The chief executive, Matias Campiani, was released at the end of May 2015 due to an article published in the New York Times.

The issues Pluna faced prior to bankruptcy illustrate that regional politics remains a crucial factor in the success of foreign investments. Black swan events such as volcanic eruptions may be unavoidable but polarised election results are not a new phenomenon in this region. Any investment project with a sovereign state as a partner must take into account local politics especially in countries which have seen recent military dictatorships.

Argentina’s protectionist policies could be seen as predictable given their recession in the early 2000s and their current debt crisis. The bankruptcy of Brazilian company Varig and its effect on Pluna, an Argentinian-managed Uruguayan company, shows the symbiotic relationship of companies in the region.

Despite the anti-capitalist view of Mujica; Uruguay remained an attractive FDI prospect during his tenure. In 2011 Uruguay had the second highest FDI per GDP per capita in South America, behind Chile. In April 2012 Standard and Poor assigned Uruguay the investment grade, followed shortly afterwards by Moody’s and Fitch. In the same year FDI in Uruguay was $2.8bn (5.4% GDP). It will be interesting to see the new Uruguayan president’s (Tabaré Vázquez) policies on foreign investment.

Also published on Peru This Week.

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