2014 latin american business environment report · this is the 16th edition of the latin american...
TRANSCRIPT
Terry L. McCoyTimothy E. McLendon
December 2014
2014
LATIN AMERICAN BUSINESS ENVIRONMENT
REPORT
The contents of this report were developed under a National Resource Center grant from the U.S. Department of Education. However, those contents do not necessarily represent the policy of the U.S. Department of Education, and you should not assume endorsement by the Federal Government.
* Electronicversionsofall15previousreportscanbeaccessedathttp://www.latam.ufl.edu/researchtraining/la-business-en-vironment/publications. The report may be cited without permission, but users are asked toacknowledge the source.
December 2014
PREFACE
This is the 16th edition of the Latin American Business Environment Report (LABER).
Although changes have been incorporated over the years, the goal of the report remains the same: to present an accessible, balanced appraisal of the economic, social, political, policy and legal developments in the past year that have shaped the business and investment climate in Latin America as a region and in its 18 largest markets.*
LABER is a publication of the Latin American Business Environment Program (LABEP) in the Center for Latin American Studies in collaboration with the Center for Governmental Responsibility (CGR) in the Levin College of Law at the University of Florida. Through graduate degree concentrations, courses and study abroad op-portunities,LABEP(http://www.latam.ufl.edu/research-training/la-business-environment)drawsonthediverseexpertise and considerable resources of the University to prepare students for careers related to Latin American business. It also organizes conferences, supports the publication of scholarly research and provides professional consulting services.
CGR is a legal and public policy research institute at the Levin College of Law with research programs and grant projects in environmental law, social policy, international trade law, and democracy and governance. CGR pro-vides academic and clinical instruction for law students, and public extension and information services through conferences and publications. CGR has a long history of collaborative work in Haiti, throughout Latin America, EuropeandAfrica.CGR(http://www.law.ufl.edu/academics/centers/cgr)hostsanannual“Legal&PolicyIssuesinthe Americas Conference”, now in its 15th year.
Karina Lins helped with research for the legal environment analysis. JoAnn Klein assisted with editing, and Len-nyKennedyassistedwithformattingthefinaldocument.Wethankthemfortheirinvaluableassistance,butwealone are responsible for the content and analysis.
TerryL.McCoy,DirectorEmeritus TimothyE.McLendon,StaffAttorneyLatin American Business Environment Program Center for Governmental ResponsibilityCenter for Latin American Studies Levin College of [email protected] [email protected]
University of Florida
i
CONTENTS
PREFACE i
EXECUTIVE SUMMARY 1
INTRODUCTION 2
I. REGIONAL OVERVIEW 5
EXTERNAL ENVIRONMENT 5 Global Developments 5 Regional Developments 5
DOMESTIC ENVIRONMENT 6 Economic and Financial Performance 6 Social Environment 11 Political Environment 12 Policy Environment 12 Legal Environment 13
II. COUNTRY PROFILES 15 NAFTA REGION 15 Mexico 15
DR-CAFTAREGION 17 Dominican Republic 17 Costa Rica 18 El Salvador 19 Guatemala 20 Honduras 22 Nicaragua 23 Panama 24
ii
ANDEAN SOUTH AMERICA 25 Bolivia 25 Colombia 27 Ecuador 28 Peru 30 Venezuela 31
BRAZIL&SOUTHERNCONE 33 Argentina 33 Brazil 34 Chile 36 Paraguay 37 Uruguay 38
III. OUTLOOK 41 OUTLOOK FOR THE REGION 41 External Environment 41 Domestic Environment 42 COUNTRY OUTLOOKS 43 Attractive Environments 44 Problematic Environment 46 Mixed Environment 47 TABLES 49
SELECTED SOURCES 62
iii
1
2014 LATIN AMERICAN BUSINESS ENVIRONMENT REPORTTerry L. McCoy and Timothy E. McLendon
EXECUTIVE SUMMARY
2014wasnotagoodyearforLatinAmerica.Itexperiencedlowerthanexpectedgrowthforthefourthcon-secutiveyear.Weakerglobalgrowth,especiallyintheemergingeconomies,reducedthedemandfor,andtheprices of, Latin American commodities. The prolonged nature of the economic downturn began to cascade into the rest of the environment.
Weclassifytheregion’s18largesteconomiesintothreebroadcategories–attractive,problematic,andmixed–accordingtheoverallcharacteroftheirbusinessenvironments.Thetablefurtherindicatesiftheyearlyperformance has improved (▲), deteriorated (▼),nosignificantchange(=)oruncertain(?).In2014,onlyfiveenvironments improved and eight deteriorated, while the remaining were unchanged. None of the changes wasofthemagnitudetojustifyreclassifyinganenvironmentnordidanycountryabandonitsbasicorienta-tion.Theoutlookfor2015wasagainguardedbecauseoftheuncertainglobalenvironmentandtheregion’semergingfiscalandexternalimbalances.
Latin American Business Environments
2013 Environment 2014 Environment 2015 Attractive Problematic Mixed Attractive Problematic Mixed Outlook
Mexico ▲ ▲▼ ? Dom Rep ▼ ▲ = Costa Rica = = = El Salvador ▼ = = Guatemala ▲ = = Honduras ▼ = Nicaragua ▲ = = Panama = ▲ = Bolivia ▲ ▲ = Colombia ▼ ▲ ? Ecuador = ▲ = Peru ▼ = = Venezuela ▼ = ▼ Argentina ▼ ▼ ?Brazil ▼ ▼ ? Chile = ▼ =
Paraguay ▲ = =Uruguay ▲ = Total 9 4 5 9 4 5
PREFACE
2
December 16, 2014
2014 LATIN AMERICAN BUSINESS ENVIRONMENT REPORT
INTRODUCTION
For the fourth year in a row, the business environment in Latin America in 2014 failed to regain the
dynamismofthe2003-2010cycle,anditappearedthat2015wouldbringonlymodestimprovements
at best. Dragged down by the large South American economies, regional growth again declined,
althoughitincreasedinMexicoandinCentralAmerica.Inadditiontolowercommoditypricesandfinancial
market volatility, Latin American governments also struggled to cope with growing economic imbalances.
Inthefaceofthesechallenges,the14countriesadheringtothecentristsocial-marketparadigmdidnot
deviatefromtheirgenerallybusiness-friendlypolicies.Atthesametime,thefourleftist,populistregimes
continued their course of heavy state intervention in the economy. The outcome of national elections in 2014
reinforced the political and policy status quo.
Figure 1Components of the Latin American Business Environment
External Environment
Economic ------------- Financial
Social
Political Policy
--------------- Legal
Global
Regional
Domestic Environment
3
TheconceptualframeworkinFigure1capturesthosecomponentsthatconstituteacountry’sbusiness
environmentforpurposesofthisanalysis.Withtheserelationshipsinmind,PartIofthe2014LatinAmerican
Business Environment Report (LABER) summarizes the major regional developments for each component,
beginning in the last quarter of 2013 and continuing through October 2014. Part II presents thumbnail
assessments of the performance of the 18 largest Latin American economies in 2014, grouped by geographic
region and trading bloc (see Map). The report concludes in Part III with the 2015 outlook for the region and
for each of the 18 countries, regrouped according to the overall character of their business environments:
attractive, problematic or mixed. The tables that follow the text contain country and regional averages for
the indicators referred to in this analysis. The Selected Sources section at the end of the report lists the
publications we regularly consulted throughout the year to monitor developments in the region.
4
BRAZIL & SOUTHERN CONE
NAFTA
ANDEAN SOUTH AMERICA
DR-CAFTA Venezuela
Colombia
Brazil
Ecuador
Peru
Bolivia
Argentina
Chile
Uruguay
Paraguay
PanamaCosta Rica
Mexico
El Salvador Guatemala Nicaragua
Honduras Dominican Republic
1 Venezuela, a founding member of the Andean Community (CAP), which left the Community and became a full member of Mercosur in 2012, is treated here in the Andean South American section. Bolivia is a member of CAP and associate member of Mercosur.ChilerejoinedCAPin2007andisanassociatememberofMercosur.
4
5
I. REGIONAL OVERVIEW
EXTERNAL ENVIRONMENT
The global economic environment deteriorated in 2014. Not only did economic growth not pick up, as
projectedattheendof2013,butgeopoliticaltensionsdeepenedinseveralregions.Whilenotamajor
playerininternationalaffairs,LatinAmericawasaffectedbytheoveralldownturn.Theregionalenvironment
continued to evolve, both internally and in its relations with the U.S.
Global Developments ▼2
• Global recovery stalled
InOctober,theIMFlowereditsforecastfor2014globalgrowthto3.3%from3.7%inApril.Worldoutputexpanded at 3.3% in 2013. Although growth picked up in the U.S. in Q2, it fell in the EU zone, while growthintheemergingeconomies–mostimportantlyChina--settledintoaslowerpace.Thismeantweaker export demand. In late September, The EconomistCommodityPriceIndexwasdown7.1%yearonyear.
• Global trade stagnated for third year in a row
InSeptember,theWorldTradeOrganizationprojectedtradevolumetoincreasebyonly3.1%,comparedto 4.6% in April. Because of falling commodity prices, trade revenue grew more slowly. During the 20yearsprecedingthe2008-09financialcrisis,worldtradegrewonaverageatmorethantwicethecurrent growth rate. Multilateral trade negotiations were stalemated. The plunge in crude oil prices was particularly damaging for economies heavily depend on oil, the most extreme case being Venezuela wherea$1dropinthepriceofcrudetranslatesinto$755millioninlostexportrevenue.
• Global fi nancial markets stabilized at mid-year
Foremergingmarkets,thistranslatedintotherecoveryofcapitalinflows,lowerbondspreadsandstrengthened currencies. Volatility returned in October presaging increased risk aversion.
• BRICS sought to enhance infl uence in international aff airs
Attheirsixthsummit,theBRICSstates–Brazil,Russia,India,ChinaandSouthAfrica–fiveleadingemergingeconomies,agreedtoestablishadevelopmentbankasafinancingalternativetotheIMFandWorldBank.However,observerssawthisasanattempttocountertheBRICS’decliningeconomicinfluenceinthefaceofweakergrowth.
2 Symbolsindicatesignificantchangeintheenvironment(▲improved; ▼deteriorated;=nosignificantchange)sincethe2013 report was released.
6
Regional Developments ▼
• Pacifi c Alliance members deepened integration and explored ties with Mercosur
InFebruary,thepresidentsofthefourAlliancemembers–Mexico,Colombia,PeruandChile–agreedtoeliminatetariffson92%ofalltradeamongthem.InSeptember,theforeignministersofthePAand Mercosur announced they would attempt to strengthen ties between the two blocs. Bridging the gap between the open market economies of the PA and the more closed, protectionist economies of Mercosur will not be easy, although Uruguay, Paraguay and even Brazil favor allowing Mercosur member countriestonegotiatebilateralagreementswithnon-members.Intraregionaltradewascomparativelylow as was participation in global and regional value chains.
• Region continued to assert independence from Washington and diversify external relations
InthefaceofU.S.opposition,theregionstoodunifiedinsupportingboththeelectionofVenezuelatoaseatontheUNSecurityCouncilandCuba’sparticipationinthe2015SummitoftheAmericasinPanama.The Presidents of China and Russia made state visits to key Latin American countries. Over the last 25 years, Chinese trade and investment with Latin America has skyrocketed. They were important to all countries and crucial to several.
• The International Court of Justice ruled in longstanding Chile-Peru boundary dispute
ThedecisionawardedalargetrackofthePacificOceanterritorialwaterstoPerubutkeptrichfishinggroundsunderChileansovereignty.TheterritorialdisputebetweenChileandBolivia–alsodatingbacktothe1879-83WarofthePacific–awaitedtheCourt’sruling.
DOMESTIC ENVIRONMENT
Largely because of sagging growth after 2010, the business environments of Latin America were losing the
dynamismthatbothmadethemincreasinglyattractivetoinvestorsandgeneratedsignificantsocialadvance-
ment. The low growth cycle was not reversed in 2014. Not only did external conditions deteriorate, but
domesticconditionsbecamemorechallenging;inflationincreasedasdiddeficitsanddebt.Noneofthishad
yet provoked widespread social unrest or political pressure for major policy changes. The 14 social market
and four populist policy paradigms remained in place. However, in 2014 their comparative performances did
not conform to recent patterns. The most notable underperformers were the resource rich economies of
SouthAmerica–mostnotablyBrazilandArgentina–thatdidverywellduringthecommodityboom.The2014
growthratesofthesetwocountries,alongthoseofChile,PeruandUruguay,wereprojectedtofallwellbe-
lowtheir2005-2014annualaverages(Table1).AmongthesocialmarketSouthAmericanenvironments,only
Colombia exceeded its average. By comparison, the 2014 growth rates for two of the three populist South
American environments (Bolivia and Ecuador) did better, with both growing above the average rate. On the
other hand, Venezuela did very badly. Also notable were the accomplishments of Central America (including
Nicaragua),whichhadlaggedduringthecommodityboom.Allofthesecountriesexceededorapproximat-
edtheir2005-14averages.
7
Thisreversalunderlinestheimportanceofevaluatingeachenvironmentannuallyacrossallofitscompo-
nents. Even though they were growing, Bolivia, Ecuador and Nicaragua had important components that were
not business friendly in contrast to Chile, Peru, Uruguay and even Brazil, which slowed down but continued
toattractsignificantforeigninvestment.Mexico,where2014growthbarelyexceededthemodestaverage,
merited special attention for the package of structural reforms enacted during the year with the potential to
sustain higher future growth.
Economic and Financial Performance ▼
• Growth was down and infl ation up
The October IMF outlook lowered the 2014 forecast of regional economic growth to only 1.3%, (Figure 2),thelowestannualratesincetherecessionof2009.Despiteweakgrowth,inflationincreasedattheregional level (Figure 3). Although the poor performance of three large economies (Brazil, Argentina and Venezuela)skewedregionalrates,onlyfiveofthe18–themostimportantbeingMexico--wereprojectedtogrowfasterin2014than2013(Table1),whileinflationdeclinedinonlysix(Table2).
• Slower global trade fl ows and falling commodity prices hurt the region
Exportgrowthagainstagnatedasdidimports(Figure4)whiletheregionalcurrentaccountdeficitincreased(Table3).Fallingcommodityprices,whichweakenLatinAmerica’stermsoftradein2013(Figure5),continuedthrough2014.TheDowJonesCommodityindexwasoff9.11%fortheyearinearlyOctober.Inthefirsthalfof2014LatinAmericantradevolumeincreased5.2%butvaluedeclined5.5%,accordingtotheUN’sEconomicCommissionforLatinAmericaandtheCaribbean(ECLAC).Forthesame period, import value was down 2.85% and volume up 2.2%. For the year, ECLAC expected only a 0.8%increaseinexportsandasmallcontractionforimports.ThedropoffwouldbemostpronouncedinSouth America, while Mexico and Central American trade were expected to grow in part because of the U.S. recovery.
• Capital fl ows held steady
At the regional level, net foreign direct investment (FDI) increased in 2013 (Figure 6), largely due to bigjumpinMexico(Table5).Thegrowthofintra-regionalFDIalsocontinued.However,inthefirstsix months of 2014, ECLAC reported that inward FDI in 13 of the larger economies fell 23%. Declining investment in mining and large corporate acquisitions were the major causes. The return of low volatility anddiminishedriskaversionininternationalfinancialmarketsboostedbondsalesbyLatinAmericangovernmentsandfirmsinthefirsthalfof2014.Issuerstookadvantageoflowborrowingcoststosellnewbondsandrefinanceexistingdebt.VolatilityjumpedinOctober,andtheregion’sstockmarketsgavebacktheir earlier gains for the year.
• Remittances to the region increased but were still not back to pre-crisis levels
AccordingtotheInter-AmericanDevelopmentBank,remittancestoCentralAmericahavenowexceededthe levels of 2008. However, remittances to Mexico and South America actually fell in 2013 and, while ECLADreportsthattheseincreasedinthefirsthalfof2014,theyhavenotyetrecoveredtothelevelof2008.
• External debt and debt/GDP ratios increased
Total debt increased for six consecutive years through 2013, and the debt/GDP burden measured as a ratio ofdebttoGDPincreasedinfouryearspriorto2013(Figure7).Duringthefirsthalfof2014,governmentsandcorporationstookadvantageoffavorablefinancialmarketsandimprovedriskratingstosellinternationalbonds.
8
9
Figure 2
Figure 3
4.5
5.5 5.5
3.8
-1.9
5.6
4.3
2.92.5
2.2
1.3
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Perc
enta
ge C
hang
e
Latin American GDP Growth, 2005-2015(Sources: ECLAC 2014, IMF 2014)
6.1
5.0
6.5
8.1
4.6
6.5 6.8
5.6
7.6
8.7
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Perc
enta
ge C
hang
e in
CPI
Latin America Average Annual Inflation Rate, 2005-2014(Source: ECLAC 2014)
9
10
Figure 4
Figure 5
1,010,954
1,247,896 1,268,701 1,270,984
1,012,795
1,243,1851,297,777 1,335,528
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2010 2011 2012 2013
Latin American Exports and Imports of Goods and Services, 2010-2013
(Source: ECLAC 2014)
Exports Imports
Mill
ions
of U
S D
olla
rs
95.0100.0
107.4 109.9 113.8103.3
114.1123.0 118.7 116.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Terms of Trade, 2004‐2013 (2005=100)(Source: ECLAC, 2014)
10
11
Figure 6
Figure 7
50,19257,653
33,317
93,756100,555
69,08280,462
126,704128,887
152,235
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2103
Mill
ions
of U
S D
olla
rsLatin American Net Foreign Direct Investment, 2004-2013
(Source: ECLAC 2014)
764.3676.4 666.2
737.4 761.2823.3
994.2
1110.61198.9
1262.4
34.8 24.5 20.5 19.2 17.0 19.7 19.8 19.1 20.6 21.0
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Latin American Total Gross External Debt, 2003-2013(Source: ECLAC 2014)
Debt (Billions of US Dollars) Debt as % of GDP Linear (Debt as % of GDP)
11
SOCIAL ENVIRONMENT =
The evidence suggested that the ongoing economic downturn had not yet reversed the social improvements
of the last ten years. During the past decade, Latin America made progress in meeting the Millennium
Development Goals in several important areas (reducing extreme poverty, hunger and child mortality),
but the results are less impressive in others (equal representation for women, maternal mortality and
deforestation). By the same token, crime and violence continued at high levels, especially in several Central
American countries (Figure 8).
Unemployment remained low across the region (Table 8)
Inthefirsthalfof2014,theregionalunemploymentratedeclinedslightly.Thiswasinspiteofslowerformalsectorjobcreation–theprimarycauseoffallingpoverty,unemploymentandinequality–whichsuggests that that the drop was due to lower labor force participation, according to an October ECLAC/ILO survey.
12
Social Environment =
The evidence suggested that the ongoing economic downturn had not yet reversed the
social improvements of the last ten years. During the past decade, Latin America made progress
in meeting the Millennium Development Goals in several important areas (reducing extreme
poverty, hunger and child mortality), but the results are less impressive in others (equal
representation for women, maternal mortality and deforestation). By the same token, crime and
violence continued at high levels, especially in several Central American countries (Figure 8).
Unemployment remained low across the region (Table 8) In the first half of 2014, the regional unemployment rate declined slightly. This was in spite of slower formal sector job creation – the primary cause of falling poverty, unemployment and inequality – which suggests that that the drop was due to lower labor force participation, according to an October ECLAC/ILO survey.
Figure 8
4.7
23.725.5
10.0
70.2
38.5
91.6
12.6
21.316.1
33.2
18.2
10.3
45.1
5.5
21.8
3.7
11.45.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Homicide Rate 2008-2011(Source: UN Dev. Pgm 2014)
12
POLITICAL ENVIRONMENT =
Elections created uncertainty and the possibility of abrupt policy shifts. Nine of the 18 LABER countries held
national elections. Although several elections featured tight contests and unexpected outcomes, there was
no major political realignment in policy or ideological terms. However, divided government in those countries
wherethewinners’partiesdidnotwincongressionalmajoritiescomplicatedgovernability.
• The Presidents of Colombia, Bolivia and Brazil were elected with congressional majorities; the candidate (and former president) of the ruling party in Uruguay won in Uruguay with a majority in congress.
• Governing party nominees won in Honduras and El Salvador but they will not enjoy legislative majorities.
• Opposition candidates won in Costa Rica and Panama, again without control of congress.
POLICY ENVIRONMENT ▼
Slowinggrowthwiththethreatofhigherinflationpresentedgovernmentswithtoughchoices:relaxmonetary
andfiscalpoliciestostimulatereignitegrowthorraiseinterestratesandreducespendingtocurbinflation.
• Astheyearprogressedandeconomiesstagnated,officialsoptedforgrowth-promotingpolicies.
• Fiscaldeficitsgrewforfourthconsecutiveyear(Figure9,Table11).
• Some retreat from resource nationalism, especially in Mexico.
14
Figure 9
Legal Environment =
The overall legal environment in Latin America saw only minor changes. The social
market countries continued to maintain a positive legal environment, while the rule of law
continued to diminish in the populist states. There was incremental progress both in combatting
corruption and in dealing with the legacy of the past in Central America, with several high
profile cases moving forward and the trial for genocide of Guatemala’s former president, Efraín
Ríos Montt, scheduled to resume in 2015. Further south, Argentina’s vice president faces
corruption charges while Brazil’s supreme court reduced the sentences of several former leaders
in the ruling Workers Party who were convicted for corruption and money laundering. This
followed last year’s decision that many of the defendants found guilty in the Mensalão
corruption scandal would need to be re-tried. In the more populist states, Venezuela had jailed
1.4
-0.9
-0.1
0.1
-0.1
-0.6-0.2
-3.5
-2.4 -2.3-2.6
-2.8
-4
-3
-2
-1
0
1
2
2008 2009 2010 2011 2012 2013
Perc
enta
ges
of G
DP
Latin American Central Government Balance, 2008-2013
(Source: ECLAC 2014)
Primary Balance Overall Balance
13
LEGAL ENVIRONMENT =
TheoveralllegalenvironmentinLatinAmericasawonlyminorchanges.Thesocialmarketcountriescon-
tinued to maintain a positive legal environment, while the rule of law continued to diminish in the populist
states. There was incremental progress both in combatting corruption and in dealing with the legacy of the
pastinCentralAmerica,withseveralhighprofilecasesmovingforwardandthetrialforgenocideofGua-
temala’sformerpresident,EfraínRíosMontt,scheduledtoresumein2015.Furthersouth,Argentina’svice
presidentfacescorruptionchargeswhileBrazil’ssupremecourtreducedthesentencesofseveralformer
leadersintherulingWorkersPartywhowereconvictedforcorruptionandmoneylaundering.Thisfollowed
lastyear’sdecisionthatmanyofthedefendantsfoundguiltyintheMensalãocorruptionscandalwouldneed
tobere-tried.Inthemorepopuliststates,VenezuelahadjailedandchargedoppositionleaderLeopoldo
Lopez for violence surrounding a February opposition rally. Both Ecuador and Nicaragua had adopted laws
eliminating presidential term limits. Violence and crime remained key problems in many countries, especially
in parts of Central America and Mexico.
Boliviabeganimplementingitsnewconstitutionwithanewmininglawthatrequiresstateinvolvementinmin-
erals extraction. Oil concessions in the Amazon continue to prompt protests in Ecuador, while large mining
projectsremaincontroversialinChile,PeruandGuatemala.Movingintheoppositedirection,Mexicoadopt-
ed laws opening its strategic oil resources to foreign involvement. Argentina passed a new hydrocarbons law
intendedtopromoteshaleandoffshoreoilexploration.
• Boundary disputes simmer
Followinglastyear’sadjudicationofNicaraguan-Colombianmaritimeboundaries,anICJdecisionadjusted the maritime boundaries of Peru and Chile to the advantage of the former. Costa Rica and NicaraguahavereturnedtotheICJtoadjudicatetheirboundariesinthePacificandCaribbean.WhileEcuadorandCostaRicareachedamicablesettlementoftheirlongstandingboundaryissuesinthePacific,thebitterestandintractabledisputebetweenChileandBoliviaoveraccesstothePacificremainedbefore the ICJ.
• Pro-business reforms in some countries
TheWorldBank’sDoingBusiness2015reportedthatreformsadoptedthroughouttheregionreducedprocedural obstacles to starting and running a business. As a result, Colombia, Peru and Mexico surpassed Chile as the easiest countries to do business in. However, Venezuela ranked 182 out of 189 countries; while Brazil ranked 120 and Argentina 124.
14
15
II. COUNTRY PROFILES
NAFTA REGION
The presidents of the three NAFTA countries met in Mexico in February to mark the 20th anniversary of
the trade bloc and to discuss its future. There was speculation that they would agree on steps to deepen
andmodernizetheagreementandtointegrateitintotheTrans-PacificPartnership.However,political
controversyandoppositioninWashington,mostdamaginglyfromPresidentObama’sownparty,forcedthem
totablethesemeasures.Whilethereisnodoubtthatcrossbordertradeandinvestmenthaveincreased
dramatically,themajorstickingpointwasovertheimpactofNAFTAonjobs–creationvs.losses.The
immigration issue also clouded the meeting as did the crises in the Ukraine and in the Middle East. As a
result,whilesomesignificantlowleveladvancescameoutofthesummit,therewasnobreakthroughon
deepeningNAFTA,oronusingNAFTAasabuildingblocktowardalargerPacificBasintradeagreement.
The U.S. and Mexico got caught up in a dispute over Mexican sugar exports, which U.S producers argued
constituteddumpingsincetheyweresubsidized.Onamorepositivenote,Mexicowasbeginningtobenefit
fromtheU.Srecovery,whileU.S.investorsstoodtobenefitfromPresidentPeñaNieto’snewmarketopening
reforms.
Mexico ▲▼3: Nationwide outrage over disappearance of students overshadowed passage of key reforms.
• Growth picked up during year
Exportsincreasedtooffsetweakerconsumerdemandandprovokefasterexpansionafterweakfirstquarter.TheIMFforecastcalledfor2014growthtobetwicethe2013rate.Inflationstayedwithinthecentralbank’stargets.Earlier,thebankleftthebenchmarkinterestrateunchangedtodampeninflation,butrateswerecutinJunetospurgrowth.Thegovernmentalsotookmeasurestospeedupinfrastructure spending.
• Strong external performance
Basedonthe2013economicreforms,Moody’supgradedMexico’srating.inFebruarymakingMexicooneofonlytwoLatinAmericancountriestoattainasovereignratinginthe“A”range.Ittookadvantageofitslower spreads to place four sovereign bond issues, making Mexico the most active seller in the region, accordingtoECLAC.BothexportsandFDIpickedupin2013,whileFDIwasoffinthefirsthalfof2014,largely due to fewer large corporate acquisitions than during the same period in 2013. For 2014, ECLAC predictedthatexportsandimportsandthecountry’scurrentaccountdeficitwouldallcontinuetogrow.Althoughdebtincreased,itwasquitemanageable,givenfavorablefinancingtermsandMexico’sstrongcurrency reserves.
3 The symbols for each country indicate the following trends: ▲ business environment improved,▼business environment deteriorated,=nosignificantchangesincethe2013report.Thevarioustablesinthisreportcontaincountry-leveldataoneachcomponent of the environment.
16
• Violence grew as a serious threat to environment
Thepresident’sfighttoreigninthecartelsandimprovecitizensecuritydidnotyieldthesameresultsashis economic reform agenda. Instead, images of gruesome revenge killings and mass executions remained part of daily life, overshadowing a statistical decline in violent crime. The government created a unit of 5,000 gendarmes within the Federal Police to strengthen security forces. In early October, 43 students wentmissingafterbeingcaughtingunfirefromlocalpoliceandmaskedgunmeninsouthernMexico.Alocalmayorandhiswifewithallegedtiestodrugtraffickerswereimplicatedinthedisappearance.Withthe students still missing in early November, the government felt compelled to issue a statement saying theevent–bythenanationaloutrage–hadnotaffectedinvestmentflows.
• President’s approval ratings declined
MexicansdidnotsharetheenthusiasminforeigncirclesforPresidentEnriquePeñaNieto.InaSeptemberpoll,only37%ofrespondentsapprovedofhismanagementoftheeconomy.Incontrasttothebrightfuturepaintedbythepresident,hisfellowcitizensweremorefocusedontheeconomy’sweakperformanceandthelackofattentiontosecurity.Inspiteofgrowingdisillusionment,thethree-partyPactofMexicoheldtogetherinCongressinordertopassPeñaNieto’sreformpackage.
• Reforms established framework for further opening the economy
Inmid-December,Congressandthestatesapprovedacomprehensiveenergyreformthat,whilepreserving state ownership of hydrocarbons, opened the energy sector to private participation for the firsttimesince1938.Expertshadlongarguedthatprivateinvestmentandmanagementwerenecessarytoreversedecliningproduction.Oneestimatewasthatupto$20billionofFDIwouldflowintothesector by 2025. The president signed implementing legislation in August that included the Fund for Stabilization and Development to manage energy revenues in a productive fashion. Measures were approved in July to complement 2013 constitutional reforms aimed at making the highly concentrated broadcasting and telecommunications sectors more competitive. Finally, a banking reform law was passed earlier in the year with the objective of increasing private sector lending to boost development andofstrengtheninggovernmentregulationofthefinancialservicesindustry.
• New popular consultation law allows for plebiscites
In March, the Congress approved the Federal Law of Popular Consultation, intended to increase societal participationinpublicaffairs.Thelawprovidesfororganizingreferendaonpublicpolicies,andallowsforaplebisciteconvenedbythepresident,one-thirdofeitherchamberofCongress,plusamajorityof the other chamber, or the support of at least 2 percent of registered voters. However, policies related to human rights, national security, elections, and state spending cannot be subjected to popular consultation. The opposition may seek to use the law to force a referendum on the new energy reform legislation.
17
DR-CAFTA REGION
DR-CAFTAcelebrateditstenthanniversaryin2014.Whileitsignificantlyincreasedbothtradeand
investmentintheregion,ithasnotbeentransformational;andsomeofthemembercountries–namely
CostaRicaandNicaragua–benefittedmorethanothersfromtheagreement.Therewereconcernsthat
completionoftheTrans-PacificPartnershipnegotiationswouldwipeoutthispreferentialarrangementwith
the U.S. The IMF projected that Central American economies would grow by 3.8% in 2014 in contrast to
slowergrowthtothesouth.CentralAmericabenefittedfromtheU.S.recoveryandarecoveryofgrowthin
coffeeexports.ECLACexpectedtheregion’sexportstobeupalmost4.0%.Whathadnotimprovedwas
the wave of violent crime, which made the Northern Triangle one of the most dangerous regions in the world.
Dominican Republic▲: Strongergrowthandreduceddeficitsproducedmodestimprovement.
• Growth picked up and infl ation held steady
• Mixed external performance
InAprilthecountrysoldarecord$1.25billionofitsfirstlong-terminternationalbondissuesince1994.Itheld back on a second placement due to low investor interest. Exports increased in 2013; imports and thecurrentaccountdeficitdecreased.
Exportswereexpectedtogrowmodestlyin2014,andimportscontracted.WhileFDIinflowsfellin2013,theyincreasedby20%inthefirsthalfof2014.Boththeexternaldebtanddebt/GDPratioincreased.
• Poverty remained entrenched
Whiletherecentgrowthratewasamongthehighestintheregion,povertydeclinedmuchlessthanelsewhere.TheWorldBankreportedthatonlytwopercentofthepopulationescapedpovertyinthepreviousdecade,comparedto40%inLatinAmericaasawhole.Thegovernmentputthefigureat10%,and pointed out there are designated social programs for the poor. Unemployment was among highest in region.
• Policies focused on stabilizing the economy
As he promised in his 2012 campaign, President Danilo Medina stabilized the currency and reduced the fiscaldeficitbyenactinganunpopularincreaseinthetaxrate.Healsotookstepstoshiftincreasedinvestment in education. These steps helped lower the output gap, but the absence of structural reforms limitedprospectsforimprovingpotentialoutput,asdidthehighlysubsidized,inefficientenergysector.
• Flawed legal environment
InspiteofMedina’spromisetolaunchaseriousfightagainstcorruption,therewasnoevidencethatitwasin retreat. Ease of doing business and global competitiveness persisted as barriers to higher investment. The Medina government also was engaged in reforming the penal code, hoping to reduce crime and violence.
18
• Dominican Republic withdraws from Inter-American Court of Human Rights
InNovember,theconstitutionalcourtruledthattheDominicanRepublicneverproperlyratifiedthe1999agreementwiththeInter-AmericanCourtasrequiredbythecountry’sconstitution.Asaresult,theDominicanRepublicwithdrewfromthejurisdictionoftheInter-AmericanCourt.ThatdecisioncameonlyweeksaftertheInter-AmericanCourthadruledagainstanearlierdecisionbythecountry’ssupreme court which invalidated the citizenship of thousands of migrants of Haitian descent living in theDominicanRepublic.TheInter-AmericanCourtfoundthatthesupremecourtdecisionviolatedtheInter-AmericanConventiononHumanRightsandgavetheDominicanRepublicsixmonthstoremedythesituation.
• Citizenship law reformed
The new citizenship law was enacted to remedy the situation created by a September 2013 supreme court ruling which invalidated the citizenship of thousands of Dominicans of Haitian descent. The new lawallowspeoplebornbetween1929and2007toapplyforarestorationoftheircitizenship,butonlyifthey have the proper registration. Lack of registration is a concern, as many Haitian descendants were never allowed to register their births or be listed in the civil registry.
Costa Rica =: New administration got a slow start.
• Growth and infl ation held steady
• Mixed external performance
Tradeheldsteady,andthecurrentaccountdeficitdecreased.FDIjumpedin2013butsodidtheexternaldebtanddebt/GDPratio.InwardFDIwasdown21%inthefirsthalfof2014.InApril,CostaRicaissuedasovereignbondtotakeadvantageoffavorableborrowingconditions.ButMoody’sdealtitasetbackin September when it downgraded government bonds to junk status because of persistent political obstaclestoreininginthegrowingfiscaldeficitanddebt.BothIntelandaBankofAmericasubsidiaryannouncedcutsintheirCostaRicaoperations.Noprogressoccurredwithregardtothecountry’sincorporationintothePacificAlliance,andthenewadministrationseemedlesslikelytopushit.
• Voters again opted for divided government
LuisGuillermoSolísoftheCitizen’sActionPartywonthepresidencyinAprilwithnearly78%ofthevoteafterthecandidateoftherulingparty,hopelesslybehindinthepolls,withdrewfromtherunoff.Solísisanewcomerwhohadneverbeforeheldpublicoffice.Heranasanoutsider,promisingtogovernfromthecenter-left,givingprioritytoreducingpovertyandinequalitywithincreasedsocialspending.However,hispartywononly13ofthe57seatsintheunicameralNationalAssembly,whichagaincomplicatedgovernability.
19
• Continued stalemate on fi scal policies
Althoughthefiscaldeficithaddeepenedovertheprecedingdecade(Table11),previousadministrationsfailed to enact the reforms needed to bring it under control because they were unable to build consensusintheincreasinglyfragmenteddemocracy.Arrivinginoffice,Solísdecidedtopostponeproposing a comprehensive reform to grow revenue (converting the sales tax to a value added tax and adopting a global income tax) in favor of spending cuts, while at the same time he increased support for socialprograms.InSeptember,thefinanceministryreportedthatthedeficit,thenat3.9%ofGDP,wasprojectedtogrowto6.7%in2015.
• Strong legal environment helped off set policy inaction
Withastrongruleoflawcultureandlowcorruption,CostaRicahadthethirdmostcompetitiveenvironment in Latin America again in 2014 (Table 12).
• Border disputes with Nicaragua at the ICJ
In November, Costa Rica won a judgment from the International Court of Justice (ICJ) that ordered Nicaragua to withdraw from disputed border territory in the Isla Calero, an environmentally sensitive area of three square kilometers along the San Juan River, where Nicaragua had been conducting dredging activities.InFebruary,CostaRicaannouncedthatitwouldfileanewcomplaintintheICJagainstNicaraguaoverdisputedmaritimeterritoryinthePacificandCaribbean.CostaRicaclaimedthatsomeareas opened by Nicaragua for oil exploration concessions lie within Cost Rican waters.
El Salvador =: Close election reinforced deep polarization.
• Weak economic performance
Overthepastdecade,ElSalvador’seconomygrewatjustoverhalftheregionalaverage(Table1).Againin 2013, GDP growth was the slowest of the 18 LABER countries. In 2014, only Venezuela, Argentina and Brazilwereprojectedtohaveslowergrowthrates.Withsuchweakgrowth,inflationwasnotaproblem.
• Weak external performance
Exportsandimportsremainedstagnant.WhileexportswereonatrajectorytogrowintherestofCentralAmericain2014,theoutlookforElSalvadorwasa1.5%decline.Thecurrentaccountdeficithadprogressivelyincreasedoverthepastfouryears.NetFDIdecreasedin2013asdidinwardFDIthefirsthalfof2014(down67%).Theexternaldebtcontinuedtogrow,andthedebt/GDPratioremainedthehighestinLatinAmerica(Table7).
• Homicides up as gang truce collapsed
InApril,theattorneygeneralannouncedthatthecountry’s2006anti-terrorismlawwouldbeappliedtogangswhocarriedoutattacksonpolicestations.ElSalvadorstruggledtofindameansofcombatinggangs,withbothmilitarizationandpacificationmeasuresseeminglyineffective.
20
• FMLN retained the presidency
SalvadorSánchezCerénekedoutarazor-thinvictoryovertheArenaparty’sNormanQuijano.ThebittercampaignandvirtualtieinpopularvotesconfirmedthatElSalvadorwasdeeplydivided.Ifanything,polarization deepened, rendering governability even more problematic. Although it lost the presidency, Arenadidbetterthanexpected.Thenextfaceoffwillcomeinthe2015legislativeelections.
• Tax reform enacted
WithenoughvotesfromminorpartiestoovercomeArenaandbusinessopposition,Congressnarrowlyapprovedabillthatincludedanalternativeminimumincometax,ataxonfinancialtransactionsandotherrevenue-enhancingmeasures.Passagewasaccompaniedbyafiscalresponsibilityframework(FRF).Although passage of the reform demonstrated that Congress could act, it remained to be seen how much revenue would be generated, and whether the FRF would be fully developed and carried out. In themeantime,thefiscaldeficitandpublicdebtcontinuedtogrow.Eventhoughhewasidentifiedwiththe more left wing of the FMLN, Sánchez Cerén was not expected deviate from the orthodox economic policies of his predecessors.
• Combating corruption and dealing with the past
Former president Francisco Flores was arrested in September for corruption and for embezzling an estimated $15 million that was sent to El Salvador as aid from Taiwan. In January, Flores had been prevented from leaving the country. Meanwhile, a Spanish appeals court upheld jurisdiction over a case involvingthe1989massacreofJesuitsduringthecountry’scivilwar.FiveoftheJesuitswereSpanishcitizens.ASpanishtrialcourthadearlierindicted20Salvadoranmilitaryofficialsformurder,terrorismand crimes for acts committed during the civil war.
Guatemala =: Therewerenosignificantchangesinmixedenvironment.
• Growth and infl ation kept pace
There were indications that growth would pick up in the second half of 2014 due to the stronger U.S. economy.
• Fitch lowered credit rating in June
In dropping Guatemala from BB+ to BB, the agency cited weak prospects for accelerating growth, a narrowrevenuebaseandlimitedfiscalflexibility.Withregardtothelatter,therecenttaxreformhada“mutedimpactontaxcollection”.Exportswerestagnantin2013,butbothexportsandimportswereexpectedtogrowin2014.FDIin2013duplicatedthe2012FDI,whileinwardFDIinthefirsthalfof2014held steady. Total external debt, which had increased every year since 2005, grew again in 2013.
• Comprehensive social development initiative launched in late 2013
Guatemala is one of the poorest, most socially underdeveloped countries in the region. To reduce malnutrition, improve education and increase employment opportunities, an alliance of government, business community and religious leaders announced a national agreement on human development in early November. The initiative, which originated in civil society, sought to build a broad nonpartisan consensus on social issues.
21
• Fiscal defi cit decreased slightly
To spur growth, the Central Bank embarked on a cycle of interest rate cuts.
• Minimal progress in combating corruption
In March, former President Alfonso Portillo, who had be extradited to the U.S., pleaded guilty in a New York courttoconspiracytouseaU.S.banktolaunderbribesfromTaiwanwhilehewasinoffice.Hewassentencedtofiveyears10monthsinprison.However,inspiteofgrowingcivilsocietymobilizationagainstcorruption,hundreds of corruption cases languish in the courts.
• Ríos Montt genocide trial to resume in 2015
TheconstitutionalcourtruledthatthegenocidetrialofformerdictatorJoséEfraínRíosMonttwillresumeinJanuary2015.RíosMontthadbeenfoundguiltyinMay2013ofgenocide,tortureandrapeofindigenousMayansduringhis1982-83rule,buttheconstitutionalcourtoverturnedtheconviction.Theearliergenocidetrial was marked by the removal and reinstatement of trial judges, and by a series of rulings that attempted to invalidate actions taken by other judges in the case.
• Removal of attorney general a negative step in fi ght against impunity
The constitutional court reduced the term of the respected attorney general, Claudia Paz y Paz, raising concernsabouttheruleoflawinGuatemala.TogetherwiththeUN’sInternationalCommissionagainstImpunityinGuatemala(CICIG),whosemandateissettofinishinSeptember2015,PazyPaziswidelyconsideredtobeakeytotheprogressofeffortstoendthecultureofimpunity.Formersupremecourtjustice,Thelma Adana, was appointed to replace her.
• Former guerrilla leader convicted
InAugust,aGuatemalancourtsentencedformerguerrilla,FermínFelipeSolanoBarillas,to90yearsimprisonmentforterrorismandcrimesagainsthumanitycommittedduringthecountry’s1960-1996civilwar.Whileafewformermilitaryofficialshavereceivedsentencesforwarcrimes,theconvictionofaformerguerrilla is unprecedented.
• New “Monsanto” law repealed
In September, the Guatemalan constitutional court suspended, and the congress repealed, a law passed in Junethatwouldhaveprovidedpropertyprotectionfornewplantvarieties.Dubbedthe“Monsanto”lawbycritics,thelawdrewwidespreadoppositionfromindigenousandfarminggroups.Thelaw,enactedtofulfillobligationsundertheCAFTA-DRagreement,hadprovidedforGuatemala’saccessiontotheInternationalConvention for the Protection of New Plant Varieties, recognized property rights over new hybrid plant varietiesandimposedpossiblefinesandimprisonmentfortheunauthorizedsaleoruseofprotectedplants.
22
Honduras▼: New administration inherited deteriorating environment.
• Economy underperformed.
GDP growth in 2014 was expected to show a modest improvement over 2013, but the economy has not recoveredtherobustpre-crisisgrowth.ThecoffeeblighthurtCentralAmerica’slargestproducer.Risinginflationcomplicatedmonetarypolicy-making.
• Government sought IMF assistance.
Moody downgraded the credit rating in February to the same rank as Argentina and the Congo. It singled outthesurgingdeficitandplacementofshort-termlocalbondsasthejustification.Weakexports(down10%in2013withonlyamodestincreaseexpectedin2014)andflatFDIexacerbatedthesituation.Foreigndebtjumped27%in2013asdidthedebt/exportratio.ThegovernmentandIMFenteredintonegotiationstosecureathree-yearsupportguarantee.
• Gang violence triggered surge of unaccompanied minors to U.S.
Although homicides were down, the rate was still the highest in the world (Table 12). Migrant remittances constituted 16% of GDP in 2013.
• Conservative National Party won presidency but not control of Congress
PresidentJuanOrlandoHernándezassumedofficeinJanuarypromisingtoactdecisivelytolowerthefiscaldeficitandreversethewaveofviolence,buthisNationalPartycapturedonly47seatsinthe128-memberCongress. Libre, the party of the deposed President Manuel Zelaya (whose wife lost to Hernández in the presidential election), and the opposition Liberal Party won 39 and 26 seats respectively.
• Fiscal reform law enacted
Themeasureaimedtoincreasetaxrevenuewasneededtoreducethedeficit,whichsurpassedsevenpercentin2013(Table11).TheIMFconditioneditssupportongovernmentmeasurestorestorefiscalstabilityandspurgrowth.Congresspassedalawopeningtheailingstate-ownedtelecommunicationsandelectricitycompanies(Hondutel and ENEE) to private investment.
• Military mobilized to supplement police
This measure underlined the weakness and corruption inherent in the legal system. Of all the murders committed, it is estimated that the police are able to investigate only about 20%.
• New shoot down law targets drug traffi cking
A new shoot down law, passed in February, gives the Honduran air force and navy broad powers to force down planes and intercept ships suspected of carrying drugs. A special agency took control of the four main airports inthecountryinafurtherattempttorestrictdrugtrafficking.
23
Nicaragua=: Environment blended populist politics and mainstream economics.
• Healthy growth with moderate infl ation continued
Growthof4.0%exceededNicaragua’s3.8%averagefortheperiodfrom2005-2014(Table1).Inflationcontinuedtofall,reaching4.7%in2014(Table2).
• External support from Venezuela and DR-CAFTA ties sustained external performance
Exportsdeclinedin2013butwereprojectedtoincreasein2014relievingthelargecurrentaccountdeficit.Respondingtomacroeconomicstabilityandthegovernment’sencouragementofforeigninvestmentandrespect for private property, FDI increased in 2013. The main recipients were energy, telecommunications, tourismandthefreetradezones.TheincreaseinexternaldebtwasoffsetbythehighestlevelofinternationalreservesinNicaragua’shistory.
• Avoided region’s wave of violent crime
Nicaragua has remained an island of calm in an increasingly violent region. Overall violence, as well as gang activity remains far below average for Central America.
• President Daniel Ortega remained fi rmly in control
The Sandinista president used social mobilization and social welfare programs to solidify support among the poor (nearly 60% of the population were below the poverty line) and used a friendly business climate towintheacceptanceofthewelloff.Theabsenceofaneffective,activeopposition,especiallyinCongress,facilitatedtheinstitutionalizationofOrtega’sdominance.AchangetoNicaragua’sconstitution,allowingforunlimitedre-electionofpresidents,pavedthewayforOrtegatorunforathirdconsecutivetermin2016.A compliant supreme court had already invalidated the provision of the Nicaraguan constitution barring a president from serving more than one term, thus allowing Ortega to run a second time in 2012. The new reform also eliminated the rule that the winning candidate needs to receive at least 35% of the vote to be elected president.
• Nicaragua ran a small fi scal defi cit
However, the country maintained a small primary surplus (Table 11). Nicaragua has reduced its external debt since2003,andhascontinuedtomakesmallreductionsinrecentyears(Table7).
• On balance, strongest legal environment of four populist countries
Nicaragua ranked ahead of Bolivia, Ecuador and Venezuela in rule of law, economic freedom and the ease of starting a business (Table 12). It trailed all but Venezuela on perception of corruption and Ecuador on property rights.
24
Panama▲: Opposition candidate prevailed in presidential election.
• Growth slipped but still highest in region
The dispute between the Canal Authority and a Spanish construction company pushed back completion of the Panama Canal expansion.
• Positive external profi le strengthened
PanamahasgainedwidespreadrespectforitsoperationoftheCanal–whichcelebratedits100thanniversaryinAugust–andforitsmanagementoftheconstructionofathirdsetoflockstoaccommodatethenewpostPanamax container ships. The most concrete dividend of this positive assessment was the surge in FDI, whichincreasedagainin2013andthefirsthalfof2014.Tradealsowasup,butincreaseddebtremainedonthenegativesideoftheledger.PresidentVarelasignaledhewasrealigningthecountry’sforeignpolicymoreclosely with the region by restoring full diplomatic relations with Venezuela and by welcoming Cuba to the April 2015 Summit of the Americas hosted by Panama.
• Unemployment was among the lowest rate in the region
Panama’surbanunemploymentratein2013was4.7%.AmongLABERcountries,onlyGuatemalahadalowerrate (Table 9).
• Juan Carlos Varela won the presidency
Varelacamefrombehindtowin,buthisPanameñistapartywononly12ofthe71seatsintheunicamerallegislature while the outgoing ruling Cambio Democrático won 32 seats. This would necessitate negotiating supportfromoppositionpartiestopasslegislation.However,inoneofhisfirstactsheinvokedexecutivepower to deliver on a major campaign promise: price controls on basic food items.
• Measures taken to curb fi scal defi cit
InSeptembertheVarelaadministrationannouncedthatitwassellingglobalbondstohelpfinancethe2014budgetdeficit,whichhadexceededtheprescribed2.0%ofGDPsince2009(Table11).Earlieritannouncedthat it would be delaying some of the large infrastructure projects begun under the previous government.
• Steps to strengthen the legal environment
Beyond reiterating the commitment of all newly elected Panamanian leaders to reduce corruption, Varela promised to restore balance in the separation of powers and to strengthen transparency. In an unprecedented act, supreme court justice, Alejandro Moncada, was charged with corruption involving improper business ties to former president Ricardo Martinelli. Moncado, who faced impeachment by the legislature, was suspended fromofficeandhadhisassetsfrozen.
25
ANDEAN SOUTH AMERICA
FallingcommoditypricesaffectedthemineralresourceeconomiesoftheAndeanregion.However,the
impact on growth was not uniform. The downturn was greatest in Venezuela, which fell into recession.
GrowthincreasedmodestlyinColombiaandwasoffonlyslightlyinEcuador.BoliviaandPeruexperienced
largerdropsbutstillstayedpositive(Table1).Theregion’sgovernmentscontinuedtopursuedivergenttrade
strategieswithColombiaandPeru--bothbusiness-friendly,attractiveenvironments--optingforthePacific
Allianceandtheothertwocountries–problematicbusinessenvironments--forAlba-Mercosur.Thenew
Chilean President, Michelle Bachelet, took the lead in attempting to bridge the two trade blocs.
Bolivia▲: Pragmatic populist Evo Morales easily won a third term as president.
• Solid economic performance continued
Althoughgrowthdeclined2013-14,itwasstillthesecondhighestrateamongthe18LABERcountrieswithinflationprojectedtofallaswell.Overthe2005-14decade,annualGDPgrowthhasaveraged5.0%.
• Strong external performance
Taking advantage of its favorable terms of trade, exports have been the most important component of the recentgrowthspurt.Commoditiescomprisemorethan80%ofexportsandabout33%offiscalrevenues.Inspite of declining commodity prices, exports increased in 2013 and were forecast by ECLAC to grow again in2014.ThekeycomponentinexportgrowthwasnaturalgasexportstoArgentinaandBrazilunderlong-term contracts. The government has managed the export windfall to build balance of trade and current account surpluses and to generate currency reserves. Although still modest, FDI increased in 2013, despite thepresident’sinflammatoryrhetoricagainstforeigncompanies.InJune,S&PupgradedBoliviawithastableoutlook. It has the strongest rating of the four populist countries.
• Economic growth and redistributive social policies lowered poverty and unemployment
OneresultofBolivia’sdecadeofhighgrowthhasbeenadecreaseinpoverty,fallingto36.3%in2011.Urbanunemployment stood at 5.8% in 2011 (Table 9).
• Morales overwhelmed divided opposition
Aftertheconstitutionalcourtruledthathecouldrunforathirdterm,Morales’re-electionaspresidentwasnever in doubt, and his MAS party again retained its 2/3 majority in Congress, which meant that the opposition couldnotblocklegislation.WhilethetotalvoteforMoraleswaslowerthaninthelastelection,hewonintheopposition stronghold of Santa Cruz.
• Healthy fi scal accounts
Bolivia was one of two countries in the region (Peru was the other) to have a budget surplus in 2013 (Table 11).
26
• Flawed legal environment created investor risk
Weakruleoflawandpropertyrights,highcorruptionandloweconomicfreedomweigheddownglobalcompetitiveness (Table 12). One sign of this weak rule of law was the suspension by Congress of two judges ontheseven-memberconstitutionalcourtforderelictionofdutyandmalfeasance.Thejudgeswereelectedin2011underaconstitutionalreformthatmadejudicialofficeselectedpositions.TheUNOfficeoftheHighCommissioner for Human Rights in Bolivia expressed fears that the trial of the two judges could harm due process and judicial independence in Bolivia.
• New child labor law draws criticism
Congress enacted a law lowering the minimum age of child workers. In an economy where child labor is widespread,thegovernmentarguedthatthemeasureaffordedthemtherecognitionandprotectionofthestate. However, the new law will permit children as young as 10 to join the legal workforce, with parental approvalandsolongasitdoesnotinterferewiththechild’seducation.ThechildlaborlawwouldseemtocontravenetheILO’sMinimumAgeConvention,towhichBoliviaisaparty,whichsets14astheminimumworking age.
• Bolivia fi les suit in ICJ to reclaim its coast
InApril,BoliviafiledsuitintheICJ,claiminga240-milestripofcoastlineinChilethatwaslostbyBoliviatoChileduringtheWarofthePacific(1879-1883).InJuly,Chile’sPresidentMichelleBacheletannouncedthathergovernment will object to the authority of ICJ in the case. Bolivian grievances resulting from its loss of access to the sea have long embittered relations between the two countries. The suit comes after the January 2014 ICJ decision setting the maritime boundary between Peru and Chile.
• New mining law takes eff ect
Thenewmininglawreplacestheprivatizationlawenactedin1997,andconformsthemineralssectortoBolivia’s2009constitution.Originally,thenewlawhadbannedthecommonpracticeoflocalco-operativespartnering with private companies, whether they are domestic or multinational corporations. However, protestsbyminersfromco-operatives,whorepresentsome30%oftheminingoutput,promptedchangestoallowco-operativesandprivatecompaniestoformmixedcompaniestogetherwiththestate.Thenewlawalsoprohibits privately owned mines from registering their minerals as property, thus preventing them from using the minerals as collateral for loans or listing them as assets, and also limits mining concessions to no more than 62,000 hectares.
• Shoot down law for drug traffi ckers
In April, Morales promulgated a new law authorizing the air force to intercept and force down suspected drug planesflyingthroughBolivianairspace.Thecountryjoinsotherswhichhaveadoptedsimilarlawsinthepastyearinanattempttocombatdrugtrafficking.
Colombia ▲: President re-elected with mandate to conclude peace negotiations.
• Growth held steady and infl ation fell
Colombia’s2014GDPgrowthwasexpectedtosurpassPeru,andbesecondonlytoBoliviainSouthAmerica(Table1).Theeconomy,whichsurpassedArgentinaasthethirdlargestinLatinAmerica,benefittedfromgrowing middle class consumption and construction, as well as the from 2012 labor market reforms that werebeginningtotakeeffect.Inadequateinfrastructureremainedaproblem,butthegovernmentwasimplementing procedures to speed up private investment.
• On balance positive external performance
BothtradeandFDIwereoffin2013,butinwardinvestmentflowsincreasedinthefirsthalfof2014.Externaldebtrose.InJuly,citinggrowth,Moody’sraisedtheinvestmentgraderatinganotchtothesamelevelastheothertwoagencies’ratings.InOctober,thegovernmentsoldglobalbondstohelpfundthe2015budget.
• Farmers again took to the streets and armed guerrilla attacks increased
Theprotestswereafollow-uptolastyear’sprotestsandtoanagreementwiththegovernmenttoimprovesupport to agriculture. Their principal grievance was the negative impact of the U.S. free trade agreement on small farmers. In 2013 and into 2014, U.S. exports to Colombia jumped while Colombian exports to the U.S. fell. Although falling, the unemployment rate is the highest in the region (Table 9). The FARC and ELN guerrilla movements stepped up destruction of energy and infrastructure projects. Oil production, which accounts for 40% of export earnings, has declined in recent years.
• Santos prevailed in run-off
Former President Álvaro Uribe mounted serious opposition to the incumbent and his former protégé, Juan ManuelSantos,bychallengingthecenterpieceoftheSantoscampaign–thepeaceprocessaboutwhich,itturnedout,manyColombianshadreservations.TheMarchlegislativeelectionsprovidedthefirsttest.AlthoughSantos’alliesmaintainedeffectivecontrolofCongress,Uribe’sDemocraticCenterPartywon12seatsin the Lower House and 19 in the Senate, including the seat won by Uribe, to become the second largest force. Followingabittercampaign,andwiththesupportofsmallleftistparties,SantosdefeatedUribe’scandidate,ÓscarIvánZuluaga,51%to45%intheJunerunoff.Santosranas,andwaselectedas,thepeacecandidate,butit was clear that he would face constant scrutiny of the Uribe forces in future negotiations.
• Negotiations with guerrillas continue
In June, the government announced it would open peace negotiations with the smaller, resurgent ELN guerrillas, while there was still no agreement in the ongoing negotiations with FARC about reparations for victims, transitional justice or the disarming, demobilization and reintegration of the guerrillas into the political process. However, the government and FARC did reach agreement to set up a truth and reconciliation commission.ThedifficultyofnegotiatingpeacewashighlightedinNovemberbyFARC’scaptureofaColombian army general in the northwest of the country.
27
Colombia ▲: President re-elected with mandate to conclude peace negotiations.
• Growth held steady and infl ation fell
Colombia’s2014GDPgrowthwasexpectedtosurpassPeru,andbesecondonlytoBoliviainSouthAmerica(Table1).Theeconomy,whichsurpassedArgentinaasthethirdlargestinLatinAmerica,benefittedfromgrowing middle class consumption and construction, as well as the from 2012 labor market reforms that werebeginningtotakeeffect.Inadequateinfrastructureremainedaproblem,butthegovernmentwasimplementing procedures to speed up private investment.
• On balance positive external performance
BothtradeandFDIwereoffin2013,butinwardinvestmentflowsincreasedinthefirsthalfof2014.Externaldebtrose.InJuly,citinggrowth,Moody’sraisedtheinvestmentgraderatinganotchtothesamelevelastheothertwoagencies’ratings.InOctober,thegovernmentsoldglobalbondstohelpfundthe2015budget.
• Farmers again took to the streets and armed guerrilla attacks increased
Theprotestswereafollow-uptolastyear’sprotestsandtoanagreementwiththegovernmenttoimprovesupport to agriculture. Their principal grievance was the negative impact of the U.S. free trade agreement on small farmers. In 2013 and into 2014, U.S. exports to Colombia jumped while Colombian exports to the U.S. fell. Although falling, the unemployment rate is the highest in the region (Table 9). The FARC and ELN guerrilla movements stepped up destruction of energy and infrastructure projects. Oil production, which accounts for 40% of export earnings, has declined in recent years.
• Santos prevailed in run-off
Former President Álvaro Uribe mounted serious opposition to the incumbent and his former protégé, Juan ManuelSantos,bychallengingthecenterpieceoftheSantoscampaign–thepeaceprocessaboutwhich,itturnedout,manyColombianshadreservations.TheMarchlegislativeelectionsprovidedthefirsttest.AlthoughSantos’alliesmaintainedeffectivecontrolofCongress,Uribe’sDemocraticCenterPartywon12seatsin the Lower House and 19 in the Senate, including the seat won by Uribe, to become the second largest force. Followingabittercampaign,andwiththesupportofsmallleftistparties,SantosdefeatedUribe’scandidate,ÓscarIvánZuluaga,51%to45%intheJunerunoff.Santosranas,andwaselectedas,thepeacecandidate,butit was clear that he would face constant scrutiny of the Uribe forces in future negotiations.
• Negotiations with guerrillas continue
In June, the government announced it would open peace negotiations with the smaller, resurgent ELN guerrillas, while there was still no agreement in the ongoing negotiations with FARC about reparations for victims, transitional justice or the disarming, demobilization and reintegration of the guerrillas into the political process. However, the government and FARC did reach agreement to set up a truth and reconciliation commission.ThedifficultyofnegotiatingpeacewashighlightedinNovemberbyFARC’scaptureofaColombian army general in the northwest of the country.
28
• Santos announced policy agenda for second term
ThepoliciesassociatedwithColombia’sbusiness-friendlyenvironmentwerenotanissueintheelection.However, the president promised to take steps to improve education. As the economy picked up steam, the Central Bank raised interest rates in April and continued into August.
• Reforms enhanced ease of doing business
InitsDoingBusiness2015,theWorldBankrankedColombiahighestoftheLABERcountries,justaheadofPeru.
• Saga of Bogotá’s mayor illustrates legal shortcomings
In January, a court suspended the 2013 decision of the prosecutor general dismissing Bogotá mayor, Gustavo Petro,aformerleft-wingrebel,formismanagementofthemunicipalrubbishcollection,andforattemptingtoreverse the privatization of this service. In March, the supreme court found the dismissal within the scope of thepresident’sauthority,buttheInter-AmericanCommissiononHumanRightsthenawardedprecautionarymeasurestothemayorandorderedhisreinstatementtooffice.FollowingtheCommission’sorder,thesuperiortribunalorderedhisreinstatement,andPresidentSantoscomplied,allowingPetro’sreturnasmayor.
Ecuador ▲: Another pragmatic populist environment became less problematic.
• Moderate growth continued and infl ation was not a problem
Ecuador’sgrowthratein2014was4.0%,nearingthe4.3%averagegrowthrateofthepreviousdecade(Table1).At3.2%,inflationwasamongthelowestofLABERcountries(Table2).
• Steps to regain access to fi nancial markets
Ecuadorhadnotbeenabletoaccessinternationaldebtfinancingsinceits2008default,whichdepressedFDI. Instead of repairing relations, it turned to China for loans and investment, using its natural resources, especially oil, as collateral. In April, President Rafael Correa announced that his government was preparing to sellinternationalbondsintheamountof$700millionbytheendoftheyear.Observerspointedoutthattheshiftmayhavebeenpromptedbyagrowingfiscaldeficit(thesecondhighestdebt/GDPratiointheregion,seeTable11)andChina’saversiontograntingmoreloanstoEcuador.Preparationinvolvedbuyingbackthedefaultedbondsandre-establishingrelationswiththeIMF.InAugust,S&Pupgradedthecountry’screditratingtoB+.Injustifyingtheupgrade,itcitedpragmaticfiscalpolicies,andanimprovedinvestmentclimate.
• Protests continued
Inspiteofimpressivesocialprogressmadeunderhistutelage,PresidentCorrea’srelationswithindigenouscommunitiesandNGOhaveremainedrocky.OnesourceofcontentionwasCorrea’sdecisiontoopenareserve in the Amazon to oil exploration, as well as a new water law that set up a board to regulate water use.
29
• Opposition made big gains in February municipal elections
By winning most major cities, including Quito, the opposition dealt President Correa a surprising setback just oneyearafterheeasilywonre-electionandhisAlianzaPAISpartywon100ofthe137seatsintheNationalAssembly. However, the opposition remains too fragmented, and Correa is too popular and securely in control ofthegovernmentforthissetbacktoconstituteathreattohisdomination.Correa’sdecisiontoseekNationalAssemblyapprovalofaconstitutionalamendmentallowingindefinitepresidentialre-electionsuggestedthathe did not trust putting the measure for a popular vote in a referendum, his previously preferred method for securing such changes. In October, the constitutional court ruled that the Assembly may consider the constitutional amendment.
• Digital currency introduced
To increase access to banking (40% of the population does not have bank accounts), a new monetary code allowed the government to create a digital currency that was kept in electronic wallets accessible on mobile phones. Designed to complement not replace cash, authorities assured the public that every digital dollar wouldbebackedbyaphysicalU.S.dollar(thecountry’sofficialcurrency)intheBankofEcuador.Thenewdigitalcurrency,thefirstofitstype,wastobecomeavailableinDecember.
• Ease of doing business – the best of a bad lot?
Of the four populist Latin American countries, Ecuador was the easiest in which to do business in according to theWorldBank,andthecountryevenoutrankedBrazilandArgentina.
• Chevron suit – the saga continues
InNovember2013,anEcuadoriancourtorderedChevrontopay$9.51billioninfinesandlegalfeesforpollutionin the Amazon by Texaco, which was later purchased by Chevron. This was a considerable reduction from an earlier judgment of $18 billion. In September 2013, an international arbitration tribunal, convened under the U.S.-EcuadorBilateralInvestmentTreaty,hadheldthatpreviousagreementsbetweenEcuadorandTexacohadvalidly released the American corporation from environmental claims.
In March, the U.S. District Court for the Southern District of New York issued a ruling in a civil RICO lawsuit broughtbyChevronagainsttheplaintiffs’lawyersandconsultantsinvolvedintheEcuadoriancase.TheNew York court found that the Ecuadorian judgment was the product of fraud and racketeering activity, and that lawyers had committed extortion, money laundering, witness tampering and obstruction of justice. The plaintiffs’attorneyswereenjoinedfromseekingtoenforcetheEcuadorianjudgmentintheU.S.Chevronsubsequentlyfiledaclaimagainsttheplaintiffs’attorneysfor$32millioninattorneys’feesspentbythecorporation in the case. The federal trial court ruling has since been appealed. In December 2013, an Ontario appeals court had allowed a suit to recover the Ecuadorian judgment from Chevron assets located in Canada. However,theCanadianSupremeCourtagreedtohearChevron’sappealofthedecision.
• Ecuador and Costa Rica reach amicable settlement of border dispute
Breaking the pattern of appeals to the ICJ, Ecuador and Costa Rica reached a bilateral agreement to demarcate their maritime border. The agreement followed 29 years of intermittent talks.
30
Peru ▼: Attractive environment lost some of its luster.
• Economy continued to soften
GDP growth, which had slowed in each of the previous two years but at the beginning of 2014 was projected to recover,inOctoberwasonatrajectoryfall,toalmosthalfthe10-yearrunningaverage.Weakermineralpricesandslowinginvestmentintheminingsectorwerethemajorcausesoftheslowdown.Inflationremainedundercontrol.
• Rating upgrade
BothexportsandFDIincreasedin2013andinto2014.InJuly,Moody’sraisedtheinvestmentgradetwonotchesinresponsetoasolidfiscaloutlookandtheprospectsforstructuralreformsboostingpotentialgrowth.ThegovernmentissuedbondsontheglobalmarketinOctoberforthefirsttimeintwoyearstoretireshort-termdebt.
• Weaker president beset by challenges with two years left in term
PresidentOllantaHumala’sapprovalratingswerestuckinthemid-20%range.Theturnoverinhiscabinetcontinuedwithsixcabinetsinhisfirstthreeyears.ThepresidentalsolackedapartytosupporthiminCongress.ThelegislatureconfirmedhissixthprimeministerbyonlyasinglevoteinSeptember.HewasincreasinglyovershadowedbyhisfirstladyandtheMinisterofEconomyandFinance,whohadbeenamemberof all six cabinets. The October regional elections delivered victories to leaders, some of whom were linked to corruptionanddrugtrafficking,atoddswiththetraditionalpartiesandthecentralgovernment.
• Policies adopted to stimulate the economy
In July the government proposed a package of reforms to promote growth and attract more investment. They targeted elimination of structural bottlenecks instead of falling back on increased spending. The government negotiatedenoughsupportinCongresstopassthepackage.ThiswasoneoftheconsiderationsinMoody’sratings upgrade. Congress also approved partial privatization of the national oil company, Petroperu. For its part, the Central Bank loosened monetary policy.
• Peru wins maritime boundary dispute with Chile at ICJ
In January, the ICJ ruled on the maritime boundary dispute between Peru and Chile. The court gave Peru about70%oftheareaitclaimed.ThedisputedareaarosefromChile’svictoryoverPeruandBoliviaintheWarofthePacific(1879-1883),andfromanincompletedemarcationofthemaritimeboundaryinthe1920’s.Undertheruling,theChilewillretaintheinshorewaters,whicharerichfishinggrounds.Implementationoftheruling was not expected to endanger the relations between the two countries, or mutual economic ties, both of which have improved greatly over the past decade.
31
• Continued success against Sendero Luminoso
In April, some 24 members of Movadef, the political wing of the Sendero Luminoso guerrilla group were arrested. The arrests followed an unsuccessful attack by the organization against a military base in Southern Peru. In a controversial action, eight members of Movadef, including the secretary general and the lawyers who have represented Abimael Guzmán, were released by penal court judges in August. As a result, the judicial council removed the three penal court judges who ordered the releases. The release of the Movadef members will not halt the terrorism proceedings against them.
Venezuela▼:Fallingoilpricesaddedtowoesofregion’smostproblematicenvironment.
• Economy in crisis
GDP growth turned negative in 2014 and was predicted to remain in recession through 2015. And with the annualcost-of-livingincreasejustunder65%(triplethenexthighestrate,Table2),hyperinflationgrippedtheeconomy. The dwindling supply of dollars allocated through a complicated set of currency controls forced companies short on repair parts and imported inputs to cut back on production or to shut down. This created shortages, everything from automobiles to medicines to basic food staples and even toilet paper, and triggered athrivingblackmarketindollars.InSeptember,theblackmarketbolívar-dollarexchangerateinColombia(fueledinpartbyprice-controlledgoodssmuggledacrosstheborderforresale)wasapproaching100-to-1,whilethelowestofficialratewas6.3bolivars.
• External performance deteriorated on several fronts
The shortage of dollars produced a sharp decline in imports in 2013 and 2014. Exports also fell, but there was stillacurrentaccountsurplus.FDIwasupin2013butoffbyhalfinthefirsthalfof2014accordingECLAC.Unabletoexchangebolivarsfordollars,internationalcompaniesbegantopulloutofVenezuela.BothMoody’sandS&Pcutthecountry’screditrating.ThespreadoverU.S.Treasuriesrosetoover13%bymid-September.The government repeatedly assured investors there was no danger of a default, but it had to divert scarce dollarsfromimportstocovermaturingbonds.ByOctober,hardcurrencyreservesfelltoneara10-yearlow.
• Student protests challenged the regime
TheFebruaryprotestswerelargelypeacefulbutresultedincasualtieswhencounter-protestersbackingthegovernmenttooktothestreetsofCaracas.Thestudents’angerwasdirectedatthegovernmentofPresidentNicolás Maduro for not dealing with a variety of problems including rampant crime. Venezuela has one of the highest homicide rates in the region (Table 12), a fact highlighted by the brutal slaying of a former Miss Venezuela and her husband in January.
• Political polarization and fragmentation deepened.
Thegovernmentprevailed49-43%intheDecembermunicipalelections,butlostkeycitiestotheopposition.The high abstention rate and public opinion surveys revealed growing public disenchantment. Growing majoritiesfeltthatthecountrywasonthewrongpath,whileconfidenceinPresidentMadurofellduringtheyear. The opposition, which had united under the Democratic Unity Roundtable for the past two elections, had its own problems, especially over participation in the student demonstrations. The government arrested a leading opposition leader, who was to be put on trial.
32
• Government responded to economic problems with more state control
Periodically throughout the year, speculation rose that President Maduro would be forced to make painful decisions–liftthesubsidyongasoline,devaluethebolivarandingeneralreintroducemarketmechanismsto spur investment and production. This did not happen. Instead, aside from minor tinkering with exchange controls, he expanded state intervention in the economy with more price controls, rationing, and threats to expropriate companies he deemed uncooperative.
• Student leaders deported from Colombia, arrested in Venezuela
In September, two Venezuelan student leaders who had sought refuge in Colombia were deported by Colombia for overstaying their visas and for engaging in political activity in contravention of the terms of their visas. The student leaders were promptly arrested by Venezuela. Venezuelan authorities wanted to charge the students for participating in violent protests in 2010.
• Deeply fl awed legal environment
By all important measures, Venezuela was by far the riskiest business environment in Latin America (Table 12) with little respect for property rights.
BRAZIL AND THE SOUTHERN CONE
Mercosur, the Common Market of the South, was founded in 1991, has expanded throughout South America.
WiththeadditionofVenezuelain2013,therearecurrentlyfivefullmemberstatesandfiveassociate
members. Of the associate members, Bolivia and Ecuador have applied for full membership. At their July
summit, the Mercosur presidents agreed to promote establishment of an economic zone that would include
the member states of ALBA and Caricom, and in November, they will explore ways of strengthening ties with
thePacificAlliance.Noneoftheseinitiativeswasexpectedtoproduceseriouseconomicintegrationinthe
near future, given the uneven success the four original members have had in integrating their economies and
the current domestic challenges they face. GDP growth in Brazil and the four Southern countries was hit
hard by the global slowdown and cooling commodity prices (Table 1).
Argentina▼: Default weakened increasingly problematic environment.
• Economy fell into recession and infl ation surged
Afteraremarkablerecoveryanddecadeofhighgrowth,Argentina’seconomystalledin2012andcontractedin2014.Inflationgrewunabated.Thegovernmentrevisedthemuchcriticizedofficialconsumerpriceindextogive it more credibility and to avoid losing IMF recognition. Under the improved methodology, the 2014 cost of living increase was expected to be double the 2013 CPI.
• Default anchored weak external performance
Argentine bonds outperformed other emerging markets in 2013 as investors bet the government would reach an agreement with its holdout creditors who have been litigating in U.S. courts to enforce servicing of their bonds.Butinvestorsbeginpullingoutearlyin2014asthefinancialsituationdeteriorated.Thepesoplunged,andforeign-exchangereservesdwindled,raisingconcernsaboutthegovernment’sabilitytoservicethedebt.Whenaddedcontrolsfailedtostemtherunondollars,thecentralbankunderamorepragmaticpresidentofficiallydevaluedthepesoinJanuary.Thisstabilizedbonds,buttheJulyrulingbyaU.S.FederalDistrictcourtjudge, stating that Argentina could not make payments to those holders who had accepted the rescheduled bonds unless it also made payments to the hedge fund holdouts, put the country into default for the second timesince2001.Moody’s,FitchandS&Palldowngradedratings.Exports,whichhadfueledthepost-2002growth spurt, slumped as commodity prices weakened and the current account balance turned negative. FDI, which dropped in 2013, evaporated in 2014. Under pressure, the central bank president resigned in October to be replaced by an appointee more in line with the administration. The new president implemented a set ofmeasuresaimedatreducingtherunondollarsthatreducedthegapbetweentheofficialandblackmarketexchange rates.
33
BRAZIL AND THE SOUTHERN CONE
Mercosur, the Common Market of the South, was founded in 1991, has expanded throughout South America.
WiththeadditionofVenezuelain2013,therearecurrentlyfivefullmemberstatesandfiveassociate
members. Of the associate members, Bolivia and Ecuador have applied for full membership. At their July
summit, the Mercosur presidents agreed to promote establishment of an economic zone that would include
the member states of ALBA and Caricom, and in November, they will explore ways of strengthening ties with
thePacificAlliance.Noneoftheseinitiativeswasexpectedtoproduceseriouseconomicintegrationinthe
near future, given the uneven success the four original members have had in integrating their economies and
the current domestic challenges they face. GDP growth in Brazil and the four Southern countries was hit
hard by the global slowdown and cooling commodity prices (Table 1).
Argentina▼: Default weakened increasingly problematic environment.
• Economy fell into recession and infl ation surged
Afteraremarkablerecoveryanddecadeofhighgrowth,Argentina’seconomystalledin2012andcontractedin2014.Inflationgrewunabated.Thegovernmentrevisedthemuchcriticizedofficialconsumerpriceindextogive it more credibility and to avoid losing IMF recognition. Under the improved methodology, the 2014 cost of living increase was expected to be double the 2013 CPI.
• Default anchored weak external performance
Argentine bonds outperformed other emerging markets in 2013 as investors bet the government would reach an agreement with its holdout creditors who have been litigating in U.S. courts to enforce servicing of their bonds.Butinvestorsbeginpullingoutearlyin2014asthefinancialsituationdeteriorated.Thepesoplunged,andforeign-exchangereservesdwindled,raisingconcernsaboutthegovernment’sabilitytoservicethedebt.Whenaddedcontrolsfailedtostemtherunondollars,thecentralbankunderamorepragmaticpresidentofficiallydevaluedthepesoinJanuary.Thisstabilizedbonds,buttheJulyrulingbyaU.S.FederalDistrictcourtjudge, stating that Argentina could not make payments to those holders who had accepted the rescheduled bonds unless it also made payments to the hedge fund holdouts, put the country into default for the second timesince2001.Moody’s,FitchandS&Palldowngradedratings.Exports,whichhadfueledthepost-2002growth spurt, slumped as commodity prices weakened and the current account balance turned negative. FDI, which dropped in 2013, evaporated in 2014. Under pressure, the central bank president resigned in October to be replaced by an appointee more in line with the administration. The new president implemented a set ofmeasuresaimedatreducingtherunondollarsthatreducedthegapbetweentheofficialandblackmarketexchange rates.
34
Argentina adopts law to service debt outside U.S. jurisdiction
In September, President Cristina Fernández de Kirchner signed a law that will allow holders of the $29 billion in Argentine bonds governed by foreign law to exchange them for bonds governed by Argentine law. The law wouldalsoreplacetheU.S-basedBankofNewYorkMellonwithanArgentinebankasthecountry’sfinancialintermediary. This would allow the government to evade the U.S. courts which have issued orders to enforce bonds held by holdout creditors. Passage of the law prompted the U.S. federal judge overseeing the bond case to hold Argentina in contempt for seeking to evade his order.
• Social programs and a higher minimum wage lowered poverty and reduced inequalities
On a number of important indicators, Argentina continued to have the strongest social environment in the region (Table 9).
• Country began gearing up for 2015 presidential election
A key question for the presidential election in October 2015 would be whether a united opposition candidate emerges to challenge ruling Peronist party.
• Hydrocarbons law passed to stimulate foreign investment in shale deposits
Severalinternationalfirmshadalreadysignedjointventurecontractstomakelarge,long-terminvestmentsinshale.Butasmuchas$200billionisneededtobringthelargefieldsintofullproduction.Thelawsimplifiestheinvestmentprocessandcreatesfiscalincentives.Fullimplementationofthelawwouldtakeplaceunderthe next administration.
• Weak legal environment undermined global competitiveness
Argentina’sweaklegalenvironmentwasunderlinedbyitsfailuretoenforceICSIDawards,seekingtoforceclaimants to go to Argentine courts for enforcement of their awards.
Brazil ▼:Re-electedpresidentfacedmountingchallenges.
• Economic performance continued to deteriorate
Instead of recovering as predicted at the beginning of 2014, GDP growth declined during the year. In July the economywentintothefirstrecessioninmorethanfiveyears,andtheconsensuswasgrowthwouldbenearzerofor2014.Weakerindustrialproduction,investment,consumptionandexportearningswerethemajorcausesoftheslowdown.Lowergrowthdidnotdampeninflation,whichexceededtheuppertargetceilingdespite tighter monetary policy.
35
• Except for World Cup, external performance slipped
WithworldattentionfocusedonBrazil,expectingtheworst,theeventcameoffsmoothly.Thestadiumswereready(just)intime,andthepopularproteststhatsurroundedlastyear’sConfederationsCupdidnotrecur.After the Cup, things went downhill. Exports declined in 2013, and were expected to decline in 2014, while thecurrentaccountdeficitincreased.FDI,whichjumpedin2013,heldsteadythroughthefirsthalfof2014,butwasnolongersufficienttocoverthecurrentaccountgapgeneratedbythewideningtradedeficit.S&PdowngradedBraziltoitslowestinvestmentgraderatinginMarch,andinSeptemberMoody’slowereditsoutlookforBraziltonegative,citingweakgrowthandthedeterioratingfiscalsituation.Devaluationoftherealacceleratedaftertheelectionfallingto2.58inmid-Novemberfrom2.47inmid-October.
• Weakening economy threatened to reverse gains in employment and poverty reduction
Unemployment fell to a record low in September, but in October, the economy lost the greatest number of jobs recorded since 1999. Between 2012 and 2013, the ranks of Brazilians in extreme poverty increased for the firsttimesince2003.
• Problematic economic situation and surprise contender tightened presidential contest
Atthebeginningof2014,expectationswerethatPresidentDilmaRousseffwouldcoasttore-election.Theonlyquestionwaswhethershewouldwininthefirstroundorhavetogotoarunoffagainstthesecondplacefinisher.Earlyintheyearbothofthetwomajorpartycontenders–AécioNevesandEduardoCampos--languishedinthepolls.ButCampos’deathinanairaccidentinJulyturnedtheraceupsidedown.MarinaSilva,whowasCampos’svicepresidentialrunningmate,replacedhimattopoftheticketoftheSocialistParty.Theenvironmentalactivist,whofinishedthirdinthe2010election,quicklyjumpedintotheleadinthepollsastheoutsidercandidateofchange.Thismadeitclearthatnotonlywouldtherelikelybearunoff,butthepresidentcouldlose.Thefirstroundproducedasecondsurprise:Neves,ofthecentristSocialDemocracyParty,toppedMarinaSilvatofinishinsecondplace.Intheverynegativerunoffcampaign,Rousseffwarnedthat,ifelected,Neveswouldreversethesocialgainsmadeunder12yearsofrulebytheWorkersParty.Forhispart,Nevespointed to the corruption that had occurred under these same governments. Both promised to restart the economy,althoughNeveswasperceivedtobethemorebusiness-friendlyofthetwo.Intheend,poorerBraziliansinthenorthofthecountrygaveRousseffthesmallestwinningmarginsince1948.Theelectionalsostrengthened the opposition in Congress, but it appeared that the government would again cobble together a loosecoalition,anchoredbytheWorkersParty,fromthe28partiesrepresentedinthelegislativebody.
• Policy makers struggled to balance competing needs
Thezig-zagcourseinmonetary-pursuedpolicyduringtheyearillustratedthedifficultchoicesfacingauthorities.AfterprogressivelyraisingtheSELICinterestrateovertheprevious12monthstocombatinflation,the central bank opted to keep it at 11% beginning in April as growth faltered. It then unexpectedly raised it to 11.25%attheendofOctoberinanattempttoregaininvestorconfidenceinthegovernment’seffortstocontrolinflation.Fiscalpolicyretainedapro-growthbiasdespitegrowingafiscaldeficitwiththeprimarybudgetbalancefallingintodeficit.Respondingtopublicpressuretoimproveeducation,CongresspassedaNationalEducational Plan in June, which among other commitments, called for increasing spending on education to 10% of GDP. After the election the government did raise energy prices to reduce the drain on Petrobras.
36
• Escalating Petrobras corruption scandal dominated post-election environment
Duringthecampaign,Rousseff,whoservedasministerofenergyundertheLulagovernment,wasdoggedbycharges of high level corruption involving Petrobras, the national oil company. After the election, they erupted intoaseriouscrisisinvolvingchargespayoffstocompanyofficials,politiciansandtheexecutivesofleadingconstructionfirms.TheU.S.SecurityandExchangeCommissionlauncheditsownprobeintothewrongdoingssincePetrobrasADRsaretradedintheU.S.Thescandaladdedtotheheavilyindebtedoilcompany’swoesasitwasstrugglingtoraiseproductionandprofits.Italsocomplicatedthepresident’sneedtogiveheradministration a fresh start.
• Tax information exchange agreement signed with U.S.
In September, Brazil and U.S. agreed on a tax information exchange agreement that will allow information about U.S. taxpayers in Brazil to be provided to the American tax authorities. In return, U.S. institutions will supply Brazilian tax authorities with information on Brazilian taxpayers. The updated tax information exchange agreement will help both countries combat tax evasion, and was prompted by passage of the U.S. Foreign AccountTaxComplianceAct(FATCA),whichaimstoidentifyfinancialactivitiesofU.S.taxpayersabroad.
• Trade dispute with U.S. settled
InOctober,BrazilandtheU.S.reachedagreementendinga12-yeardisputeovercottonsubsidies.Undertheagreement,BrazilwillnolongerpursueWTOcomplaintsagainsttheU.S.,whiletheU.S.willpayBraziliancotton producers some $300 million. More importantly, the U.S. agreed not to extend credit guarantees to cottonexportsformorethan18months(asopposedtoitspreviouspracticeofproviding3-yearguarantees).
• New internet law takes eff ect
In April, Brazil approved the Marca Civil da Internet law, which will ensure net neutrality, online privacy and freedom of expression, and protect providers from liability for 3rd party content. However, the law provides that it applies to any internet provider with a Brazilian user, meaning that foreign companies that comply with theirowndataprotectionlawscanbeliableforviolatingBrazil’senhancedstandards.Possiblepenaltiesincludefinesof10%ofBrazilianrevenuesorblockingserviceinBrazil.Earlierdraftsofthelawhadrequiredall information on Brazilian users to be stored on servers physically located in Brazil, but lobbying by providers and businesses convinced the government to drop this measure.
Chile▼: Economic slowdown challenged new administration
• Growth slipped throughout the year
The growth outlook at the beginning of 2014 was 4.5%. In October, the government reported growth of only1.4%year-on-year,andtheconsensuswasthatitwouldremainunder2.0%,orlessthanhalfthe10-yearaverage, for the year. Mining, manufacturing, consumption and investment all declined. Uncertainty regarding the ambitious policy agenda of the new administration may have contributed to the investment slowdown. InflationinSeptemberwasthehighestin5yearsduetofallingpeso,butlowergrowthforcedtheCentralBankrepeatedlytoeasemonetarypolicy.Thestockmarketwasup4.7%inNovemberfortheyearinpesosbutdown 6.6% when measured in dollars. Unemployment increased as growth fell.
37
• External performance softened
The weakening price of copper (down nearly 25% in three years), which accounts for 60% of Chilean exports, wasamajorfactorinexportstagnation.Thecurrentaccountdeficitjumpedin2012andstayedup.FDIrosein2013butwasdown16%inthefirsthalfof2014.Externaldebtincreased,asdidthedebt/GDPratio,butthisdidnotthreatenthecountry’sinvestmentgradecreditratingbecauseofstrongcurrencyreserves.ByOctober,thepesohadlost17%ofitsvaluefromayearearliervis-à-visthedollar.
• Terrorist bombings raised security threat
In the worst outbreak of violence since the dictatorship, the year witnessed more than 30 bomb attacks in Santiago, including one in September in a crowded restaurant that injured 14 people.
• Michelle Bachelet returned to power promising big changes
Becausetheformerpresident’smulti-partyNewMajoritycenter-leftcoalitioneffectivelywoncontrolofboth houses of Congress, the opposition could not block the tax, education, health care and constitutional reformsshepromisedinordertomakeChile“differentandfairer”.Inforeignrelations,BacheletpromisedtostrengthenrelationswithherclosestneighborsandtobridgethegapbetweenthePacificAllianceandMercosur.
• Congress passed tax reform
ThemeasurewaspromotedtoraisetherevenuenecessarytofundBachelet’scommitmenttoprovideuniversal free education, the principle demand of student protestors. To be phased in over four years, the tax reformwouldraisecorporatetaxesandcloseloopholesbenefitingthewealthy.Itdidnot,asalsopromised,simplify the tax system. Opponents argued that the timing could not have been worse, since the tax increase would hurt the investment needed to revive the economy.
• Losing top spot in ease of doing business ranking tarnished environment
Chile had long been considered to have the most attractive business environment and the most dynamic economyinLatinAmerica.FallingbehindColombia,PeruandMexicoontheWorldBank’s2015easeofdoingbusiness ranking was a setback for this image.
Paraguay =: Environment featured sound economic fundamentals but weak institutions.
• Credible economic performance
Growth declined in 2014 from an unsustainable 13.6% of 2013, but was still the highest of the Southern Cone countries.Inflationwasupbutremainedmanageable.
• Mixed external performance
Exports picked up in 2013 but slowed in 2014. The current account was balanced. FDI was the second lowest in the region (Table 5) as was external debt (Table 6).
38
• Economic model privileging commercial agriculture was transforming countryside
Investors, mainly from Brazil, consolidated small holdings into large agribusinesses for livestock and grain production. The rural poor without land or jobs migrated to the cities where there were limited formal sector jobs. In April peasant associations, urban unions, religious groups and leftist parties organized a general strikeprotestingtheadministration’sneglectofthepoor.Thepresidentagreedtoenterintodialoguewithrepresentativesofthestrikeorganizerstodiscusstheirconcerns.ThePeople’sArmyinsurgencycontinuedtodefyagovernmentoffensiveinthenorth.
• President’s approval rating held up during fi rst year
The biggest challenges to President Horacio Cartes came from the ruling Colorado Party, which, on returning topower,waseagertosharethespoilsofofficethattheyhadenjoyedpriorto2008.
• Business-friendly structural reforms enacted
ThePublic-PrivatePartnershipLawwasaimedatimprovinginfrastructurewhiletheFiscalResponsibilityLawsoughttorationalizethebudgetingprocess.BothreflectedCartes’focusonattractingforeigninvestmentasthekeytostimulatinggrowth,andexamplesofpolicybiasesofhisgovernmentfavoringthewelloff.
• Return to Mercosur
Following the impeachment of President Fernando Lugo in 2012, Paraguay had been suspended from Mercosur,whichhadtheeffectofallowingVenezuelatojoin.InDecember,ParaguayhadratifiedVenezuela’sfull membership in Mercosur, representing a policy reverse by Cartes. Paraguay was welcomed back to membership, attending the Caracas summit in July. However, Cartes protested some of the 183 resolutions adopted by Mercosur without the participation of Paraguay, including the protocol under which Bolivia will join Mercosur, claiming that these will need Paraguayan involvement in order to be implemented.
• Flawed legal system and weak institutions hurt environment
PresidentCartesmadelittleprogressinfollowinguponhiscampaignpromiseofreducingcorruption–thesecond highest of the LABER countries (Table 12).
Uruguay =: Election dominated but did not disrupt environment.
• Growth diminished and infl ation increased
Although Uruguay took steps to reduce its ties to Argentina (exports were down to 5% from 25%) following the Argentine devaluation, the 2014 economic downturn in its large neighbor was still a drag on Uruguayan growth. InMarch,withinflationtopping9%,thegovernmentcuttheVATonfoodandutilities.
• Solid external performance
Eventhoughitdiversifieditsexportportfolio,commoditiesstillweighedheavily,andliketheotherregionaleconomies,exportgrowthdeclined.FDIincreasedeveryyearfrom2010-13,andagainduringthefirsthalfof2014.Debtwasalsoup.AfterMoody’supgradedtheinvestmentgradecreditratinganotch,thecountysuccessfullyissued30-yearbonds.
• Former president returned to offi ce
Althoughthecontestturnedouttobecloserthanexpected,TabaréVázquezprevailedinarunoffagainstLuisLacalle Pou of the National Party, and the ruling Broad Front party retained its majority in the Assembly. The close race strengthened the opposition. Education and security were the main campaign issues. Neither candidate questioned the business friendly economic model or the social welfare system.
• Steps to shield economy from shocks and volatility
Thegovernmentbuiltexternalandfiscalbuffers,securedcontingencylinesofcredit,improveddebtmanagementandmaintainedaflexibleexchangeratetocushiontheeconomy.Thecurrentaccountdeficitincreasedin2013whilethefiscaldeficitdecreased.
• Marijuana regulations entered force
Having adopted a law providing for the legalization of marijuana in 2013, the government began implementing the legislation. In May, it issued a decree regulating the production, distribution and sale of marijuana. The decreefixestheprice,themaximumpermittedquantityconsumersmaypurchase,and,significantly,themannerinwhichconsumerswillbeidentified.Underthenewlaw,thegovernmentwillsupervisethegrowthand distribution of marijuana.
39
• Former president returned to offi ce
Althoughthecontestturnedouttobecloserthanexpected,TabaréVázquezprevailedinarunoffagainstLuisLacalle Pou of the National Party, and the ruling Broad Front party retained its majority in the Assembly. The close race strengthened the opposition. Education and security were the main campaign issues. Neither candidate questioned the business friendly economic model or the social welfare system.
• Steps to shield economy from shocks and volatility
Thegovernmentbuiltexternalandfiscalbuffers,securedcontingencylinesofcredit,improveddebtmanagementandmaintainedaflexibleexchangeratetocushiontheeconomy.Thecurrentaccountdeficitincreasedin2013whilethefiscaldeficitdecreased.
• Marijuana regulations entered force
Having adopted a law providing for the legalization of marijuana in 2013, the government began implementing the legislation. In May, it issued a decree regulating the production, distribution and sale of marijuana. The decreefixestheprice,themaximumpermittedquantityconsumersmaypurchase,and,significantly,themannerinwhichconsumerswillbeidentified.Underthenewlaw,thegovernmentwillsupervisethegrowthand distribution of marijuana.
40
41
III. OUTLOOK
OUTLOOK FOR THE REGION
Inrecentyears,theend-of-yearoutlooksforLatinAmericapredictedrecoveryfromthedisappointing
performance of the concluding year. However, each year turned out to be a disappointment. As 2014 drew
to a close, the outlook for 2015 was less optimistic. 2015 seemed to promise less upside and more downside
potential. The external environment was more unsettled, which did not augur well for improved trade
andinvestmentflows,andfiscalimbalancesweregrowing.Afterfouryearsofdisappointinggrowth,Latin
America could no longer wait for another commodity boom nor could it rely on implementing conventional
countercyclicalmonetaryandfiscalmeasures.Insteadthepolicychoiceswouldbemoredifficultpolitically—
implementing structural reforms to increase savings, investment and productivity. Although the challenge
of transitioning to a new, more productive economic structure was widely understood and advocated, there
was little evidence that governments were equipped to transform their economies, or that populations were
willing to endure the pain during the adjustment. However, some countries were more likely to begin taking
the necessary steps in 2015.
For each component of the regional business environment, and each country, we use following symbols to
represent the outlook for the year ahead: likely to improve (▲), deteriorate (▼), or remain the same (=). A
questionmark(?)indicatesthattheoutlookwasuncertain.Wefurtheridentifykeyvariablestomonitorin
the coming 12 months.
EXTERNAL ENVIRONMENT
• Global ▼
The global outlook for 2015 was not promising. In October, the IMF adjusted both its global and emerging markets growth forecasts downward to 3.8% and 5.0% respectively. Of the mature markets, only the U.S. was growing–goodnewsforMexicoandCentralAmerica–whileChinawascontinuedtoslowdown–badnewsforSouthAmericancommodityexporters.Increasedfinancialmarketvolatilityandinvestorriskaversionwerealso headwinds.
Keys: Geopolitical tensions; fi nancial markets shocks; European, Japanese and Chinese growth.
• Regional =
Themajorquestionconcernedthefateofthetwomajortradeblocs,thenewPacificAllianceandMercosur.Wouldtheygotheirseparatewaysorfindsomewaytoreconcilethetwocompetingparadigms?Therewasunlikely to be a major shift in U.S relations with the region.
Key: Summit of the Americas in April
42
DOMESTIC ENVIRONMENT
• Economic and Financial Performance
Theregion’seconomieswerenotexpectedtosignificantlyrecoverin2015.InOctober,theIMFregionalforecast was for 2.2% growth. Subsequent predictions were lower. Increased market volatility and risk aversionthreatenedtoraisecostofdebt.Aprolongeddeclineinoilpriceswouldbenefitimportingcountriesbutdamageexporters,especiallythosewithhighcurrentaccountandfiscaldeficitsandgrowingexternaldebts.
Keys: Commodity prices; interest rates
• Social Environment ▼
Slowergrowthandhigherinflationwouldeventuallyweakenkeydeterminantsofthestrongersocialenvironment: the creation of high wage formal sector jobs, higher minimum wages, cheap consumer credit andtherevenuetofinanceinfrastructure,educationandsocialprogram,especiallyconditionalcashtransfers.Increased poverty and deceleration of middle class expansion would feedback on the economy through reducedspending.Withregionaleconomiespoisedforafifthyearofweakeconomicperformance,2015waslikely to see a deteriorating social environment.
Keys: Economic growth; spending on social programs
• Political Environment =
Whiletherewerelegislativeelectionsscheduledin2015thatcouldaffectgovernability,therewasonlyonepresidentialelectiononthecalendar.However,thatelectionwasanimportantone--Argentina.Victorybytheoppositioncouldsignificantlyalterthebusinessenvironment,whichhadbeendriftinginapopulistdirection in recent years.
Keys: Election in Argentina
• Policy Environment ?
The policy environment promised to be more challenging and as a result more uncertain, in 2015. The top prioritythroughouttheregionwouldbetorevivegrowth.Countrieswithlowinflationwereexpectedtopursueloosemonetaryandfiscalpolicies.However,theprospectsofhigherinterestratesandgrowingbudgetconstraints meant tighter limits on policies in both arenas. If the funding of popular social programs becomes more problematic, tax reform s could be advanced to generate more revenue. Countries with low growth and highinflationconfrontedevenmorechallengingpolicyenvironments.Thebiggerpolicytestin2015wouldbewhether governments begin to enact the deeper structural reforms necessary to sustain long term growth.
Keys: Policies in Brazil, Argentina and Venezuela
43
• Legal Environment =
SecurityremainedamajorissueinMexicoandseveraloftheCAFTA-DRcountries.Venezuela,ArgentinaandBoliviaremainedproblematicenvironmentsforpropertyrights.Argentina’songoinglegaldisputewithAmerican bondholders continued as a drag on its economy even while legal and policy solutions remained elusive. Threats to the rule of law remained as evidenced by threats to judicial independence in Guatemala, BoliviaandevenPeru,andwiththewithdrawalbytheDominicanRepublicfromthejurisdictionoftheInter-American Court of Human Rights. ICJ decisions had settled several mainly maritime border disputes, but the most problematic (Bolivia vs. Chile) would continue to percolate. The adherence of Latin American nations to internationalbodies,onceuniversal,hassuffered,withvariousstatesrejectingtheInter-AmericanCourt,theICJ’sjurisdictionandparticipationinICSID.
COUNTRY OUTLOOKS
Attractive Environments (9)
Thesenineenvironmentswereclassifiedattractivebyvirtueofhavingachievedsustainedgrowthwith
moderateinflation;stable,globallyintegratedfinancialsystem;povertyreductionwithagrowingmiddle
classes;stable,multiparty,centristpolitics;social-marketeconomicpolicies;andslowlyimprovinglegal
systems.AllexceptCostaRicaandtheDominicanRepublichadinvestment-gradesovereigncreditratings,
andtogethertheyaccountedforover80%oftheregion’sGDPcomparedtoonlyaboutone-thirdin2000,
accordingtoS&P.Investmentgradecountrieswerebetterpositionedtosuccessfullyadapttoweaker
commoditypricesandmorerisk-aversefinancialmarkets,buttheirperformanceswerenotuniformduring
2014. Neither was their outlook for 2015. Growth in both Chile and Peru slipped, while Colombia did
comparativelywell.Mosttroublingwastheregion’slargestmarket,Brazil.Alsoofgrowingconcernatthe
end of the year was Mexico.
• Mexico ?
Whatlookedlikeapromisingyearwithpassageofadditionalreformsthatweretoinspireinvestorconfidenceand set the table for accelerated growth turned sour in October when a national outrage exploded over the disappearance and apparent murder of 43 students. Charges of corruption involving the purchase of the president’sprivateresidencefurtherunderminedthegovernment’scredibility.As2014wounddown,therewas considerable doubt about the health of the 2015 business environment.
Keys: Resolution of missing students and credible steps to curb violent crime and corruption; U.S. re-covery; implementation of reforms
• Dominican Republic =
The test for 2015 was progress on the longstanding challenges of advancing structural reforms, reducing energy subsidies and lowering corruption.
Keys: Improved legal environment; continued U.S. recovery
44
• Costa Rica ?
Seriousfiscalreformcannotbepostponedmuchlonger.Notonlydoesinactionunderminethecountry’sinternational creditworthiness, but it promises to erode the overall attractive standing of the business environment.
Keys: Executive and legislative action to enact measures bring the budget back into balance.
• Panama =
Over the past decade Panama became the most dynamic business environment in Latin America. It was second only to Chile on global competitiveness (Table 12). The opposition victory did not threaten but confirmedthebusiness-friendlypolicyconsensusundergirdingtheenvironment.ThequestionbecamehowfarVarelaadministrationwouldmovePanamatowardthegoalofbecomingtheregion’sbusinesshubandworld class trade logistics center
Keys: Executive-legislative relations; management of recently-created sovereign wealth fund.
• Colombia =
Colombia had become one of the most attractive business environments in Latin America, a remarkable achievementconsideringwherethecountry’spositionatthebeginningofthecentury.Successfulcompletionofthepeacenegotiationswouldbringanevengreaterbreakthroughwithmultiplebenefits.PresidentSantospromisedtoaccomplishthis,butanumberofdifficultissuesremainedtoberesolvedtothesatisfactionbothofthecombatantsandthecitizens,whomustapproveanyfinalagreementinareferendum.Failureofthetalkscouldreverserecentgains.Inmid-NovemberSantossuspendednegotiationswiththeFARCfollowingthe kidnapping of a general, which underlined how delicate the peace process is.
Keys: Credible progress in the peace negotiations
• Peru =
The consensus outlook for Peru was that economic growth would recover but not return to the rapid rate associated with the commodity boom. Transitioning to the next stage of development would require difficultreformsandlongterminvestmentineducation,health,communicationsandinfrastructure.Itwasquestionable whether the political system, which seemed almost irrelevant during the boom, was up to the task.Withnationalelectionsonthehorizon,2015wouldbeagoodtest.
Keys: Mineral prices; executive-legislative relations.
45
• Brazil ?
TheBrazilof2014presentedaverydifferentenvironmentthanthatof2010whencountrywasgroupedamongtherecentlychristenedgroupofgrowingBRICstatesandwhenDilmaRoussefffirstassumedthepresidency.HerthinmarginofvictoryunderlinedhowpolarizedBrazilhadbecome–bothsociallyandpolitically.Shemustreviveaneconomyenteringitsfifthyearofalow-growthandbringinflationdown,whileprotectingthesocialgainsofPT’snewmiddleclassconstituentsandregainingtheconfidenceofinvestors.Theinvestmentgrade rating hung in the balance. To add to her worries, she was under pressure to reduce violent crime and corruption,allofwhichshepromisedtodointhecampaign.RousseffmustcarryoffthisbalancingactworkingwithastrengthenedoppositionandafractiousmultipartyrulingcoalitioninCongress.Shedidnotgetofftoapromising start. The Petrobras scandal delayed renewal of her cabinet, most importantly the replacement of themuchcriticizedfinanceminister.
Keys: Fate of investment grade rating; outcome of Petrobras scandal
• Chile ?
MichelleBacheletreturnedtothepresidencywithanambitiousreformagenda–onerespondingtotheprotestsofrecentyears.TherewereconcernsthatherprogramwoulddamageChile’sbusiness-friendlyenvironment just as the economy slumped. Likewise the terrorist bombings in Santiago created a security threat requiring government action. The challenges facing Chile as 2014 drew to a close were much more complicated than they seemed in March when the president was inaugurated.
Keys: Economic growth; price of copper; fate of reform proposals
• Uruguay =
The 2015 election demonstrated again that Uruguay is a functioning representative democracy with a broad social-marketpolicyconsensus.TheprinciplechallengefacingthenewVásquezadministrationwasrevivingeconomy growth (2015 forecast 2.8%) in the context of the slowdown of its neighbors, especially Argentina. Itwouldalsohavetodealwiththefiscaldeficitanddeliveroncampaignpromisestostrengtheneducationsystem and improve citizen security.
Keys: Developments in Argentina; commodity prices
46
Problematic Environments (4)
Thedefiningfeaturesofthesefourenvironmentswerepopulistpoliticsandpolicies,whichcreatedsignificant
risk. Venezuela remained in a class by itself, with one of the most problematic business environments in
theworld.WhiletheotherthreeremaincloselyalliedwithVenezuelapolitically,theymanagedtodistance
themselveseconomicallybyachievingsustainedgrowthwithlowinflation.However,fallingenergyprices
cast a shadow over the 2015 outlook for Bolivia and Ecuador as well as Venezuela.
• Nicaragua=
Considering the absence of commodities, Nicaragua could be considered the most successful of the populist regimes. The highly personal nature of the political system raises questions about its long run survival. This it shareswiththeotherthree.However,biggestunknownintheshortrunwasthefateofVenezuela’soff-booksubsidiesgiventhatcountry’sdeepeconomicproblems.
Keys: Continued Venezuelan assistance; U.S. growth.
• Bolivia=
PresidentMoraleseffectivelybalancedthepopulist,nationalistrhetoricofHugoChavezwithmoreorthodoxmacroeconomicpoliciesandgeneroussocialbenefits.Thismixsustainedgrowthandimprovedstandardsof living. Per capita income has surged and poverty dropped. Continuing this success depends heavily on maintaining natural gas production and relatively high global gas prices. For this Morales needs increased investment, both public and private. Congress passed a bill, which he had yet to sign, to stimulate private investment.
Keys: Gas production: price and exports
• Ecuador=
Rafael Correa has transformed Ecuador, for better and for worse. He brought political stability, economic prosperity and meaningful social improvements to the country. In 2014, he even took steps to rebuild relations withtheinternationalfinancialcommunity.Butaswithhisfellowpopulists,Correahasconcentratedpowerishis hands and increasingly limited the space for contending voices.
Keys: Energy prices; access to international fi nancial markets
• Venezuela?
DespitetheongoingeconomiccrisisandMaduro’slowapprovalratings,hewasnotindangerofbeingforced fromofficeaslongasheretainedthesupportofthemilitaryandChavistaleaders.Thenextbigelectoraltest of his government would be the 2015 National Assembly elections. A defeat at the polls might convince the power brokers it was time for a change. The national elections also posed a challenge for the opposition. Coulditreuniteandmountacampaignthatappealedtothedisillusionedchavistarankandfile?GivenVenezuela’soverwhelmingdependenceonoilexports(96%ofhardcurrencyearnings),continuedlowpriceswould have widespread repercussions, including the possibility of default.
Keys: Legislative elections; oil prices
47
Mixed Environments (5)
Thebusinessenvironmentsinthesefivecountriesweremixedfordifferentreasons.Whilethethree
CentralAmericancountriesallimplementedmarket-friendlypolicies,growthwasweak;moresignificant,
however,wastheepidemicofviolent,drug-relatedcrime.TheU.S.recoverywasapositivedevelopmentfor
Central America. Both of the South American mixed environments had enjoyed strong growth thanks to
the global commodity boom, but Argentina faltered. Paraguay continued to grow, but failed to roll back the
institutionalized corruption that discourages investors.
• El Salvador =
Intractablepoliticalpolarizationwasamajor–ifnotthemajor–constraintontheweakesteconomyintheregion.Withoutthisconfrontationandstalemate,itisestimatedthatElSalvadorcouldachievethe3-4%annualgrowthrateofitsneighbors.However,the2015legislativeelectionsofferthekindofenvironmentwherepoliticalconflictandconfrontationthrive.Theeconomywasexpectedtogrowatthesamelowlevelin2015.
Keys: Legislative elections; U.S. growth
• Guatemala =
The outlook is for a slight uptick in growth but no breakthroughs or major setbacks for a small export economy closely linked to the U.S. through trade, investment, migration and remittances.
Keys: U.S. growth
• Honduras =
Nobreakthroughinreininginthehighlevelsofdrug-related,violentcrimeappearedlikelyin2015,meaningthat Honduras would remain a troubled environment in spite prospects for an IMF loan agreement.
Keys: IMF agreement
48
• Argentina ?
In the context of lower global growth and weak commodity prices, exports were unlikely to continue compensating for the lack of access to international capital markets prolonged by the most recent default. Coming to an agreement with the bond holdouts in 2015 was therefore essential to reversing the current downward spiral. The upcoming campaign and October 2015 presidential election were likely to further politicizethepolicyagenda.ThePeronistswouldbefightingtoretainthepresidencywithoutaKirchnerforthefirsttimesince2003againstanenergizedbutfragmentedopposition.Theeconomywasexpectedtostayin recession making 2015 the fourth consecutive year of low/no growth.
Keys: Resolution of default; October election
• Paraguay =
The economy has become increasing dependent on export agricultural. Agriculture constituted an estimated 50% of GDP. The IMF forecast was for growth to increase to 4.5% in 2015. However, this was contingent on uncertain commodity markets. Although poverty has declined during the growth spurt, rural unrest continued. Having committed to a dialogue with popular organizations, the president must deliver credible responses to their demands, which included a higher minimum wage, land reform, and safer farm working conditions. Investors also awaited progress in reducing corruption before they increase their stake in the growing economy.
Keys: Agricultural commodity prices
49
TABLES
Table 1 GDPGROWTH,2005-2015
Table 2 ANNUALINFLATION,2005-2014
Table 3 EXPORTS,IMPORTSANDCURRENTACCOUNTBALANCE,2010-2013
Table 4 TERMSOFTRADE,2004-2013
Table 5 NETFOREIGNDIRECTINVESTMENT,2004-2013
Table 6 TOTALGROSSEXTERNALDEBT,2004-2013
Table 7 TOTALEXTERNALDEBTASPERCENTAGEOFGDP,2003-2013
Table 8 EXCHANGE RATES, COUNTRY RISK AND IMF AGREEMENTS, 2014
Table 9 SOCIAL ENVIRONMENT, 2014
Table 10 POLITICAL ENVIRONMENT, 2014
Table 11 CENTRALGOVERNMENTBALANCE,2008-2013
Table 12 LEGAL ENVIRONMENT, 2014
50
52
Tabl
e 1
GD
P G
RO
WTH
, 200
5-20
15
(Per
cent
age
Cha
nge)
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
Aver
age
2005
-201
420
151
NAFT
A RE
GION
Me
xico
3.3
5.1
3.4
1.2
-6.0
5.3
3.9
4.0
1.1
2.4
2.4
3.5
DR-C
AFTA
COU
NTRI
ES
Domi
nican
Rep
ublic
9
.3 1
0.7
8.5
5.3
3.5
7.8
4.5
3.9
4.1
5.0
6.2
Costa
Rica
5
.9 8
.8 7
.9 2
.7 -1
.05.0
4.55.1
3.53.6
4.63.6
El S
alvad
or
3.6
3.9
3.8
1.3
-3.1
1.4
2.2
1.9
1.7
1.7
1.8
1.8
Guate
mala
3.3
5.4
6.3
3.3
0.52.9
4.23.0
3.73.4
3.63.7
Hond
uras
6
.1 6
.6 6
.2 4
.2 -2
.4 3.7
3.8
3.9
2.6
3.0
3.8
Ni
cara
gua
4.3
4.2
5.0
4.0
-2.2
3.65.7
5.24.6
4.03.8
4Pa
nama
7
.2 8
.5 1
2.1
10.1
3.9
7.5
10
.8 10
.2 8.4
6.6
8.5
6.4
AN
DEAN
SOU
TH A
MERI
CA
Boliv
ia 4
.4 4
.8 4
.6 6
.1 3.4
4.1
5.2
5.2
6.8
5.2
5.0
5
Colom
bia 4
.7 6
.7 6
.9 3
.5 1.7
4.06.6
4.04.7
4.84.8
4.5Ec
uado
r 5
.3 4
.4 2
.2 6
.4 0.6
2.8
7.8
5.1
4.5
4.0
4.3
4
Peru
6.8
7.7
8.9
9.8
0.98.8
6.56.0
5.83.6
6.55.1
Vene
zuela
1
0.3
9.9
8.8
5.3
-3.2
-1.5
4.2
5.6
1.3
-1.7
3.9
-1
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
9
.2 8
.5 8
.7 6
.8 0.9
9.2
8.6
0.9
3.0
-1
.7 5.4
-1
.5 Br
azil
3.24.0
6.1
5.2
-0.3
7.52.7
1.02.5
0.33.2
1.4Ch
ile
5.6
4.6
4.6
3.7
-1.0
6.1
5.8
5.4
4.1
2.0
4.1
3.3
Para
guay
2.1
4.8
5.4
6.4
-4.0
13.1
4.3-1
.213
.64.0
4.94.5
Urug
uay
6.6
4.1
6.5
7.2
2.2
8.9
7.3
3.7
4.4
2.8
5.4
2.8
LATI
N AM
ERIC
A &
CARI
BBEA
N 4.5
5.5
5.5
3.8
-1
.9 5.6
4.3
2.9
2.5
1.3
3
.4 2.2
SO
URCE
S: 20
05-2
014,
ECLA
C, 20
14 E
cono
mic
Surv
ey o
f Lat
in Am
erica
and
the
Carib
bean
-Brie
fing
Pape
r(Ju
ly 20
14);
IMF,
Wor
ld Ec
onom
ic Ou
tlook
(Octo
ber 2
014)
1 IM
F pr
ojec
tion,
Jul
y 20
14
50
51
53
Tabl
e 2
AN
NU
AL
INFL
ATI
ON
, 200
5-20
14
(Per
cent
age
varia
tion
in C
PI, D
ecem
ber t
hrou
gh D
ecem
ber)
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
1
NAFT
A RE
GION
Me
xico
3.3
4.1
3.8
6.5
3.6
4.4
3.8
3.6
4.0
3.9
DR-C
AFTA
COU
NTRI
ES
Domi
nican
Rep
ublic
7.4
5.0
8.9
4.5
5.7
6.3
7.8
3.9
3.9
3.7
Co
sta R
ica
14.1
9.410
.813
.94.0
5.84.7
4.53.7
4.2El
Salv
ador
4.3
4.9
4.9
5.5
-0
.2 2.1
5.1
0.8
0.8
0.9
Gu
atema
la8.6
5.88.7
9.4-0
.35.4
6.23.4
4.43.2
Hond
uras
7.7
5.3
8.9
10
.8 3.0
6.5
5.6
5.4
4.9
6.2
Ni
cara
gua
9.710
.216
.212
.71.8
9.18.6
7.15.4
4.7Pa
nama
3.4
2.2
6.4
6.8
1.9
4.9
6.3
4.6
3.7
3.2
ANDE
AN S
OUTH
AME
RICA
Bo
livia
4.9
4.9
11.7
11.8
0.3
7.2
6.9
4.5
6.5
6 Co
lombia
4.94.5
5.77.7
2.03.2
3.72.4
1.92.8
Ecua
dor
3.1
2.9
3.3
8.8
4.3
3.3
5.4
4.2
2.7
3.2
Peru
1.51.1
3.96.7
0.22.1
4.72.6
2.93.2
Vene
zuela
14
.4 17
.0 22
.5 31
.9 25
.1 27
.2 27
.6 20
.1 56
.2 64
.3
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
12
.3 9.8
8.5
7.2
7.7
10.9
9.5
10.8
10.9
21.3
Braz
il 5.7
3.14.5
5.94.3
5.96.5
5.86.2
6.3Ch
ile
3.7
2.6
7.8
7.1-1
.4 3.0
4.4
1.5
3.0
4.4
Pa
ragu
ay9.9
12.5
6.07.5
1.97.2
4.94.0
3.74.8
Urug
uay
4.9
6.4
8.5
9.25.9
6.9
8.6
7.5
8.5
8.8
LATI
N AM
ERIC
A &
CARI
BBEA
N 6.1
5.0
6.5
8.1
4.6
6.5
6.8
5.6
7.6
8.7
SO
URCE
:ECL
AC,2
013
Econ
omic
Surv
ey o
f Lat
in Am
erica
& th
e Ca
ribbe
an; E
CLAC
, 201
4 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
-Brie
fing
Pape
r(Ju
ly 20
14).
IMF,
Wor
ld Ec
onom
ic Ou
tlook
(Octo
ber 2
014)
1 Cha
nge i
n 12 m
onths
thro
ugh M
ay 20
14
51
52
54
Tabl
e 3
EXPO
RTS
, IM
POR
TS1 A
ND
CU
RR
ENT
AC
CO
UN
T B
ALA
NC
E, 2
010-
2013
(M
illio
ns o
f US
dolla
rs)
2010
2011
2012
2013
2
Ex
ports
Im
ports
C/
Acco
unt
Expo
rts
Impo
rts
C/Ac
coun
t Ex
ports
Im
ports
C/
Acco
unt
Expo
rts
Impo
rts
C/Ac
coun
t NA
FTA
REGI
ON
Mexic
o 31
4,116
32
7,720
-2
,519
365,5
28
381,5
84
-12,5
56
387,5
24
401,8
59
-15,0
58
400,4
93
413,4
55
-25,8
56
DR-C
AFTA
COU
NTRI
ES
Domi
nican
Rep
ublic
11
,908
17,67
4 -4
,330
14,18
5 20
,201
-4,35
9 15
,076
20,61
2 -3
,971
16,05
3 19
,758
-2,46
7 Co
sta R
ica
13,83
614
,739
-1,28
115
,402
17,32
2-2
,187
16,92
818
,814
-2,38
217
,378
19,12
1-2
,529
El S
alvad
or
5,553
9,1
77
-576
5,8
79
10,20
2 -1
,112
6,094
10
,513
-1,28
8 6,4
02
11,11
3 -1
,577
Guate
mala
10,80
215
,099
-563
12,78
617
,868
-1,59
912
,594
18,25
1-1
,310
12,75
118
,975
-1,46
5Ho
ndur
as
7,087
10
,076
-836
9,0
00
12,57
2 -1
,408
9,340
12
,886
-1,58
7 8,9
69
12,66
6 -1
,655
Nica
ragu
a3,7
365,5
12-8
594,4
396,6
85-1
,267
5,008
7,364
-1,34
75,0
007,3
35-1
,280
Pana
ma
18,89
5 19
,948
-2,76
5 25
,001
28,28
6 -4
,993
28,22
0 29
,597
-3,81
6 27
,272
28,97
1 -4
,806
ANDE
AN S
OUTH
AME
RICA
Bo
livia
7,171
6,6
22
766
9,238
9,1
76
77
12,23
9 9,6
17
2,259
12
,542
10,89
3 1,0
12
Colom
bia45
,274
46,53
4-8
,809
63,08
861
,735
-9,85
466
,711
67,47
0-1
1,834
65,75
468
,392
-12,7
22Ec
uado
r 19
,610
22,65
1 -1
,625
24,66
9 26
,393
-325
26
,378
27,73
0 -3
31
27,75
8 29
,861
-1,23
2 Pe
ru39
,257
34,85
4-3
,782
50,64
043
,660
-3,17
751
,282
48,47
0-6
,281
47,99
149
,832
-9,12
6Ve
nezu
ela
67,60
2 49
,661
12,07
1 94
,666
62,36
5 24
,387
99,54
5 77
,503
11,01
6 90
,800
71,00
0 8,0
00
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
81
,782
68,67
6 1,3
60
99,66
1 88
,983
-2,27
1 96
,034
84,02
9 48
97
,441
90,38
9 -4
,330
Braz
il 23
3,515
244,2
02-4
7,272
294,2
4930
2,388
-52,4
7328
2,442
304,0
88-5
4,249
281,3
1232
5,975
-81,0
75Ch
ile
81,94
5 68
,446
3,224
94
,543
86,55
6 -3
,068
90,42
1 90
,190
-9,08
1 89
,471
90,26
2 -9
,485
Para
guay
9,993
10,67
1-6
5413
,361
12,68
710
912
,410
12,01
0-2
2214
,447
13,01
262
1Ur
ugua
y 10
,719
10,08
9 -7
53
12,86
8 12
,779
-1,37
4 13
,398
14,68
5 -2
,709
13,60
3 14
,964
-3,12
0
LATI
N AM
ERIC
A
& CA
RIBB
EAN
31,0
10,95
4 1,0
12,79
5 -5
7,943
1,2
47,89
6 1,2
43,18
5 -7
9,690
1,2
68,70
1 1,2
97,77
7 -1
06,45
5 1,2
70,98
4 1,3
35,52
8 -1
55,50
6 SO
URCE
:ECL
AC,2
013
Stat
istica
l Yea
rboo
k for
Lat
in Am
erica
& th
e Ca
ribbe
an; E
CLAC
, 201
4 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
1 Exp
orts
and I
mpor
ts Inc
lude b
oth go
ods (
FOB)
and s
ervic
es2 P
relim
inary
figur
es
3 Inclu
des o
nly th
ose c
ountr
ies w
hich h
ave c
omple
te da
ta for
the f
our y
ears
52
53
55
Tabl
e 4
TER
MS
OF
TRA
DE,
200
4-20
13
(200
5=10
0)20
0420
0520
0620
0720
0820
0920
1020
1120
1220
13NA
FTA
REGI
ON
Mexic
o 98
.110
0.010
0.510
1.410
2.290
.897
.710
4.710
2.610
2.5
DR
-CAF
TA C
OUNT
RIES
Do
minic
an R
epub
lic
101.0
100.0
99.0
102.3
97.7
105.7
101.8
96.5
95.5
93.2
Costa
Rica
10
4.010
0.097
.196
.192
.595
.691
.888
.487
.988
.2El
Salv
ador
10
0.010
0.098
.797
.795
.098
.194
.494
.493
.2Gu
atema
la10
0.910
0.098
.196
.393
.810
1.810
1.310
0.494
.992
.9Ho
ndur
as10
0.010
0.095
.493
.687
.994
.096
.610
4.791
.485
.6Ni
cara
gua
101.4
100.0
97.6
96.6
92.4
101.3
102.2
101.8
101.8
93.4
Pana
ma10
1.910
0.097
.196
.291
.896
.394
.492
.492
.792
.3
AN
DEAN
SOU
TH A
MERI
CA
Boliv
ia 93
.010
0.012
5.012
7.012
8.712
4.614
0.915
6.416
1.815
8.9Co
lombia
92.2
100.0
103.8
112.1
124.4
107.0
121.0
135.4
135.5
128.5
Ecua
dor
89.3
100.0
107.3
110.3
121.1
107.2
118.0
129.8
131.7
133.5
Peru
93.2
100.0
127.3
132.0
114.4
108.1
127.7
143.9
136.9
130.4
Vene
zuela
76
.510
0.011
9.413
0.916
1.611
7.613
9.816
8.116
9.716
6.3
BR
AZIL
& S
OUTH
ERN
CONE
Ar
genti
na10
2.210
0.010
6.011
0.012
4.611
8.911
8.412
6.312
5.811
8.5Br
azil
98.7
100.0
105.3
107.5
111.3
108.7
126.1
136.1
128.1
125.2
Chile
89.3
100.0
131.1
135.6
117.9
119.3
146.0
146.9
138.5
134.5
Para
guay
107.1
100.0
98.1
102.7
110.2
107.8
107.8
110.3
111.4
110.8
Urug
uay
110.1
100.0
97.6
97.8
103.7
106.8
110.2
112.2
116.4
118.5
LATI
N AM
ERIC
A &
CARI
BBEA
N 95
.010
0.010
7.410
9.911
3.810
3.311
4.112
3.011
8.7
116.0
SOUR
CE:
ECL
AC, "
Latin
Am
erica
: ter
ms o
f Tra
de fo
r Goo
ds f.
o.b.",
ECL
AC, 2
014
Econ
omic
Surv
ey o
f Lat
in Am
erica
n an
d th
e Ca
ribbe
an-B
riefin
g Pa
per (
July
2014
).
53
54
56
Tabl
e 5
NET
FO
REI
GN
DIR
ECT
INVE
STM
ENT,
200
4-20
13
(Mill
ions
of U
S do
llars
)
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13 1
NAFT
A RE
GION
Mexic
o 20
,389
18,20
6 15
,105
23,99
7 27
,156
7,727
8,3
03
10,71
8 -4
,842
25,34
8
DR-C
AFTA
COU
NTRI
ES
Domi
nican
Rep
ublic
90
9 1,1
23
1,085
1,6
67
2,870
2,1
65
1,622
2,2
75
3,142
1,9
90
Costa
Rica
73
390
41,3
711,6
342,0
721,3
391,4
412,1
181,9
042,4
09El
Salv
ador
36
6 39
8 26
7 1,4
55
824
366
-226
21
8 48
4 13
7 Gu
atema
la25
547
055
272
073
757
478
21,0
091,2
051,2
75Ho
ndur
as
553
599
669
926
1,007
50
5 97
1 1,0
12
1,004
1,0
33
Nica
ragu
a25
024
128
738
262
646
349
196
176
178
4Pa
nama
1,0
19
918
2,547
1,8
99
2,147
1,2
59
2,363
2,9
56
3,162
4,3
71
ANDE
AN S
OUTH
AME
RICA
Bo
livia
63
-242
27
8 36
3 50
9 42
0 65
1 85
9 1,0
60
1,750
Co
lombia
2,873
5,590
5,558
8,136
8,110
3,789
-147
5,101
16,13
59,1
20Ec
uado
r 83
7 49
3 27
1 19
4 1,0
58
308
163
644
585
703
Peru
1,599
2,579
3,467
5,425
6,188
5,165
7,062
7,518
11,84
09,1
61Ve
nezu
ela
864
1,422
-2
,032
1,587
45
-4
,374
-1,46
2 4,9
19
756
2,400
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
3,4
49
3,954
3,0
99
4,969
8,3
35
3,307
10
,368
9,232
11
,064
7,857
Br
azil
8,339
12,55
0-9
,380
27,51
824
,601
36,03
336
,919
67,68
968
,093
67,54
1Ch
ile
5,096
4,9
62
5,214
7,7
20
6,367
5,6
54
6,264
3,1
92
6,212
9,3
35
Para
guay
3236
114
202
209
9521
655
748
038
2Ur
ugua
y 31
5 81
1 1,4
95
1,240
2,1
17
1,512
2,3
49
2,511
2,6
93
2,812
LATI
N AM
ERIC
A &
CA
RIBB
EAN
50,19
2 57
,653
33,31
7 93
,756
100,5
55
69,08
2 80
,462
126,7
04
128,8
87
152,2
35
SOUR
CE:E
CLAC
, 201
3 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
(200
3 & 20
04 da
ta); E
CLAC
, 201
4 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
-Brie
fing
Pape
r(Ju
ly 20
14).
1 Pre
limina
ry es
timate
from
ECL
AC, J
uly 20
14
54
55
57
Tabl
e 6
TOTA
L G
RO
SS E
XTER
NA
L D
EBT,
200
4-20
13
(Mill
ions
of U
S do
llars
)
20
0420
0520
0620
0720
0820
0920
1020
1120
1220
13
NAFT
A RE
GION
Me
xico
130,9
2512
8,248
119,0
8412
8,090
129,4
2416
5,932
197,7
2720
9,743
227,3
2325
8,560
DR-C
AFTA
COU
NTRI
ES
Domi
nican
Rep
ublic
2 6,3
805,8
476,2
956,5
567,2
198,2
159,9
4711
,625
12,87
214
,919
Costa
Rica
5,7
656,7
637,1
918,4
449,1
058,2
389,1
3510
,919
14,50
917
,158
El S
alvad
or
8,211
8,877
9,692
9,349
9,994
9,882
9,698
10,67
012
,530
13,11
3Gu
atema
la3,8
448,8
329,8
4410
,909
11,16
311
,248
12,02
614
,021
15,33
917
,493
Hond
uras
6,0
235,1
353,9
353,1
903,4
643,3
453,7
734,1
884,8
446,6
42Ni
cara
gua2
5,391
5,348
4,527
3,385
3,512
3,661
3,876
4,073
4,289
4,532
Pana
ma2
7,219
7,580
7,788
8,276
8,477
10,15
010
,439
10,80
010
,782
12,23
1AN
DEAN
SOU
TH A
MERI
CA
Boliv
ia 7,5
627,6
666,2
785,4
035,9
305,8
015,8
756,2
986,7
117,7
56Co
lombia
39,49
738
,507
40,10
344
,553
46,36
953
,719
64,72
375
,903
78,76
391
,879
Ecua
dor
17,21
117
,237
17,09
917
,445
16,90
013
,514
13,91
415
,210
15,91
318
,488
Peru
31,24
428
,657
28,89
732
,894
34,83
835
,157
43,67
447
,977
59,37
660
,823
Vene
zuela
43
,679
46,42
744
,735
53,37
853
,223
70,24
697
,092
110,7
4511
8,949
118,7
66BR
AZIL
& S
OUTH
ERN
CONE
Arge
ntina
17
1,205
113,7
6810
8,839
124,5
4212
4,916
115,5
3712
9,333
141,1
3914
1,889
133,6
72Br
azil
201,3
7316
9,451
172,6
2119
3,159
198,4
9219
8,136
256,8
0429
8,204
312,8
9830
8,625
Chile
43
,515
46,21
149
,497
55,73
364
,318
74,04
186
,738
98,89
511
7,569
130,7
24Pa
ragu
ay2,9
012,7
002,6
182,7
313,1
243,0
443,6
213,8
644,5
805,1
31Ur
ugua
y 11
,593
13,71
712
,977
14,86
415
,425
17,96
918
,425
18,34
521
,122
22,88
2
LATI
N AM
ERIC
A &
CARI
BBEA
N 76
4,304
676,3
8466
6,155
737,4
3076
1,192
823,3
3399
4,166
1,110
,570
1,198
,926
1,262
,443
SOUR
CE:E
CLAC
, 201
3 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
(for 2
003-
2005
); EC
LAC,
2014
Eco
nom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
-Brie
fing
Pape
r (Ju
ly 20
14).
1 Inclu
des d
ebt o
wed t
o the
Inter
natio
nal M
oneta
ry Fu
nd.
2 Refe
rs to
exter
nal p
ublic
debt.
55
56
58
Tabl
e 7
TOTA
L EX
TER
NA
L D
EBT
AS
PER
CEN
TAG
E O
F G
DP,
200
4-20
13
20
0420
0520
0620
0720
0820
0920
1020
1120
1220
131
NAFT
A RE
GION
ocixeM 1
7.3
15.
2 1
2.5
12.
4 1
1.8
18.8
19.1
17.9
19.2
20.4
DR-C
AFTA
COU
NTRI
ES
cilbupeR nacinimoD
29.
6 1
7.4
17.
7 1
6.0
15.
917
.619
.318
.521
.924
.5Co
sta R
ica
31.
0 3
3.9
31.
9 3
2.1
30.
527
.825
.222
.132
.034
.5 rodavlaS lE
52.
0 5
1.9
52.
2 4
6.5
46.
647
.845
.342
.652
.654
.1Gu
atem
ala2
16.0
13.7
32.6
32.0
28.5
29.8
29.1
29.4
30.4
32.3
sarudnoH 6
7.9
52.
6 3
6.0
25.
8 2
5.0
22.9
23.8
23.6
26.1
35.7
Nica
ragu
a3 9
3.1
84.
6 6
6.7
45.
4 4
1.4
40.1
43.4
41.1
40.3
40.0
Pana
ma3
50.
9 4
5.9
42.
6 3
9.2
34.
139
.236
.232
.528
.428
.8
ANDE
AN S
OUTH
AME
RICA
aiviloB
86.
2 8
0.3
54.
8 4
1.2
35.
633
.529
.926
.324
.825
.3Co
lombia
33.
7 2
6.3
24.
7 2
1.5
19.
023
.122
.620
.721
.324
.2 rodaucE
52.
7 4
1.5
36.
5 3
3.1
31.
222
.324
.019
.118
.219
.7Pe
ru 4
4.8
37.
7 3
2.6
32.
2 2
8.9
29.2
29.7
28.0
30.8
30.1
aleuzeneV 3
8.8
31.
9 2
4.4
23.
2 1
6.9
21.3
40.5
35.0
31.2
32.0
BRAZ
IL &
SOU
THER
N CO
NE
anitnegrA 1
11.8
51.
1 4
1.1
37.
6 3
0.6
41.2
27.8
25.3
23.5
21.0
Braz
il 3
0.3
19.
2 1
5.8
14.
1 1
2.0
12.2
12.0
12.0
13.9
13.6
elihC 4
3.2
37.
1 3
2.1
32.
2 3
5.8
43.1
39.9
39.4
44.1
47.1
Para
guay
36.
1 3
0.9
24.
6 1
9.8
16.
919
.118
.115
.418
.616
.8 yaugurU
83.
9 6
5.8
66.
3 6
3.5
50.
859
.047
.438
.842
.240
.6
LATI
N AM
ERIC
A &
NAEBBIRAC
34.8
25.4
21.3
20.0
17.7
20.4
20.2
19.4
20.6
21.0
SOUR
CE:E
CLAC
, 201
4 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
; ECL
AC,2
013
Stat
istica
l Yea
rboo
k1 P
relim
inary
figur
e for
Lat
in Am
erica
and
the
Carib
bean
. Dat
a by c
ount
ry n
ot ye
t ava
ilable
for 2
012.
2 For
200
3-20
05, p
ublic
exte
rnal
debt
only
3 Pub
lic e
xtern
al de
bt on
ly
56
57
59
Tabl
e 8
EXC
HA
NG
E R
ATE
S, C
OU
NTR
Y R
ISK
AN
D IM
F A
GR
EEM
ENTS
, 201
4 US
Dol
lar E
xcha
nge R
ate
Coun
try R
isk1
Curre
ncy
Oct.
16, 2
013
Oct.
22, 2
014
% c
hang
e Se
ptem
ber 2
013
Octo
ber 2
014
IMF
Relat
ions
NA
FTA
REGI
ON
Mexic
o pe
so
12.99
13
.53
-4.16
%
BBB
BBB
Flexib
le Cr
edit L
ine (1
1/12-
11/14
)
DR-C
AFTA
COU
NTRI
ES
Domi
nican
Rep
ublic
pe
so
42.84
43
.06
-0.51
%
B BB
Co
nsult
ation
: Red
uced
defic
its
Costa
Rica
co
lón
517.4
652
7.22
-1.89
%
BBBB
Repo
rt: Im
prov
ed fis
cal tr
ansp
aren
cy
El S
alvad
or
colón
/U.S
. doll
ar
8.93
8.57
4.03%
BB
BB
Co
ncer
ns: W
eak g
rowt
h, de
ficits
Gu
atema
laqu
etzal
8.12
7.47
8.00%
BB
BBCo
nsult
ation
: Inad
equa
te re
venu
e Ho
ndur
as
lempir
a 20
.82
20.84
-0
.10%
CC
C CC
C
Cons
iderin
g 3-yr
supp
ort p
rogr
am
Nica
ragu
acó
rdob
a oro
24
.8726
.21-5
.39%
CC
C CC
CSt
aff R
epor
t: Fav
orab
le Pa
nama
ba
lboa/U
.S. d
ollar
1.0
2 1.0
0 1.9
6%
BBB
BBB
Cons
ultati
on: S
trong
econ
omy
ANDE
AN S
OUTH
AME
RICA
Bo
livia
boliv
iano
7.60
6.75
11.18
%
BB
BB
Cons
ultati
on: S
ignific
ant p
rogr
ess
Colom
biape
so1,8
88.00
2,029
.89-7
.52%
BB
BBB
BFle
xible
Cred
it Line
(6/13
-6/15
) Ec
uado
r U.
S. do
llar
1.00
1.00
0.00%
CC
C B
Reen
gage
d with
Fun
d Pe
runu
evo s
ol 2.8
12.8
5-1
.42%
A
BBB
Cons
ultati
on: S
tromg
but s
lowing
Ve
nezu
ela
boliv
ar fu
erte
6.31
6.29
0.32%
CC
C CC
C
No co
nsult
ation
sinc
e 200
4
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
pe
so
5.84
8.47
-45.0
3%
CCC
CCC
Await
ing ne
w CP
I and
GDP
data
Braz
il re
al2.1
82.4
7-1
3.30%
BB
BBB
BCo
ncer
n: La
rge e
xtern
al de
fificit
Ch
ile
peso
49
9.00
584.0
0 -1
7.03%
A
A
Cons
ultati
on: E
xtern
al ch
allen
ges
Para
guay
guar
ani
4,551
.884,4
71.00
1.78%
BB
BBCo
nsult
ation
: Stro
ng fu
ndam
ental
s Ur
ugua
ype
so
21.98
24
.00
-9.19
%
BB
BB
Cons
ultati
on: B
asica
lly po
sitive
SO
URCE
S:Oa
nda <
www.
oand
a.com
/conv
ert/fx
histor
y>; IM
F Ho
mepa
ge <
www.
imf.o
rg>
Key f
or IM
F Ag
reem
ents:
Th
e Flex
ible C
redit
Line
wor
ks as
a re
newa
ble cr
edit l
ine, w
hich a
t the c
ountr
y’s di
scre
tion c
ould
initia
lly be
for e
ither
one-
or tw
o-ye
ars w
ith a
revie
w of
eligib
ility a
fter t
he fir
st ye
ar.
Unde
r Artic
le IV
of th
e IMF
's Ar
ticles
of A
gree
ment,
the I
MF ho
lds bi
later
al dis
cuss
ions w
ith m
embe
rs, us
ually
ever
y yea
r. A
staff t
eam
visits
the c
ountr
y, co
llects
econ
omic
and f
inanc
ial
infor
matio
n, an
d disc
usse
s with
offic
ials t
he co
untry
's ec
onom
ic de
velop
ments
and p
olicie
s.
1 Cou
ntry r
isk is
base
d on S
over
eign R
isk fig
ures
from
theE
cono
mic I
ntellig
ence
Unit
2013
.
57
58
60
Tabl
e 9
SOC
IAL
ENVI
RO
NM
ENT,
201
4 PO
PULA
TION
AAV
G. P
OP.
GROW
THA
LITE
RACY
RATE
AGD
P PE
R CA
PITA
DGD
P P/
C (P
PP)
GROW
THC
INCO
MEIN
EQUA
LITY
A HD
IAPO
PULA
TION
IN
POVE
RTYB
URBA
N UN
EMPL
OYME
NT
RATE
C
(Milli
ons)
%(%
age 1
5+)1
(PPP
$U.S
.) 2
%GI
NI in
dex 4
(Wor
ld ra
nk) 5
%%
2013
20
10-2
015
2005
-201
2 20
13
2013
3 20
03-2
012
2013
20
12
2013
NA
FTA
REGI
ON
Mexic
o 12
2.3
1.293
.5$1
6,463
-0.1
47.2
7137
.15.7
DR-C
AFTA
REG
ION
Domi
nican
Rep
ublic
10
.4 1.2
90.1
$11,6
962.8
47.2
102
41.4
7.0Co
sta R
ica
4.9
1.496
.3$1
3,872
2.250
.7 68
17.8
9.2El
Salv
ador
6.3
0.7
84.5
$7,76
21.1
48.3
115
45.3
(201
2) 6.
2Gu
atema
la 15
.5 2.5
75.9
$7,29
51.2
55.9
125
(200
6) 54
.83.8
Hond
uras
8.1
2.0
85.1
$4,59
10.6
57.0
129
(201
0) 67
.46.0
Nica
ragu
a 6.1
1.4
78.0
$4,57
13.1
40.5
132
(200
9) 58
.3(2
010)
9.7
Pana
ma
3.9
1.694
.1$1
9,411
6.651
.9 65
(201
1) 25
.34.7
ANDE
AN S
OUTH
AME
RICA
Bo
livia
10.7
1.691
.2$6
,130
5.256
.3 11
3(2
011)
36.3
(201
1) 5.
8Co
lombia
48
.3 1.3
93.6
$12,3
713.3
55.9
9832
.910
.6Ec
uado
r 15
.7 1.6
91.6
$10,4
692.8
49.3
9832
.24.7
Peru
30.4
1.389
.6$1
1,775
4.548
.1 82
23.7
5.9Ve
nezu
ela
30.4
1.595
.5$1
8,194
-0.1
44.8
6723
.97.8
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
41
.4 0.9
97.9
$14,7
602.1
44.5
494.3
67.1
Braz
il20
0.4
0.890
.4$1
5,074
1.754
.7 79
18.6
5.4Ch
ile
17.6
0.998
.6$2
1,911
3.252
.1 41
(201
1) 11
.05.9
Para
guay
6.8
1.7
93.9
$8,04
311
.852
.4 11
1(2
011)
49.6
8.4Ur
ugua
y 3.4
0.3
98.1
$19,5
904.0
45.3
505.9
7.1SO
URCE
S:UN
DP,H
uman
Dev
elopm
ent R
epor
t 201
4A ; EC
LAC,
Sta
tistic
al Ye
arbo
ok 2
013B ;
ECLA
C, E
cono
mic
Surv
ey o
f Lat
in Am
erica
n &
the
Carib
bean
201
4C ;W
orld
Bank
, Wor
ld De
velop
men
t Ind
icato
rs, G
DP P
er C
apita
(cur
rent
int'l
$), 2
013D
1 Data
refer
to pe
rcenta
ge of
popu
lation
aged
15 or
olde
r who
can,
with
unde
rstan
ding,
both
read
and w
rite a
shor
t sim
ple st
ateme
nt on
their
ever
yday
life.
2 GDP
per c
apita
(Pur
chas
ing P
ower
Par
ity in
$U.S
.). 1
PPP
dolla
r has
the s
ame p
urch
asing
powe
r in th
e dom
estic
econ
omy a
s 1 U
.S. d
ollar
has i
n the
U.S
. eco
nomy
. 3 P
relim
inary
figur
es fo
r ann
ual g
rowt
h rate
s. 4 T
he G
ini in
dex m
easu
res i
nequ
ality
over
the e
ntire
distr
ibutio
n of in
come
or co
nsum
ption
. A va
lue of
0 re
pres
ents
perfe
ct eq
uality
, and
a va
lue of
100 p
erfec
t ineq
uality
.5 T
he H
uman
Dev
elopm
ent In
dex (
HDI)
meas
ures
a co
untry
's ac
hieve
ments
in th
ree a
spec
ts of
huma
n dev
elopm
ent: l
onge
vity (
life ex
pecta
ncy a
t birth
), kn
owled
ge (c
ombin
ation
of lit
erac
y rate
and e
nroll
ment
ratio
), an
d a de
cent
stand
ard
of liv
ing (G
DP pe
r cap
ita -
PPP
in $U
.S.).
HDI
rank
is ba
sed o
n a to
tal of
169 c
ountr
ies.
6 Per
cent
of ur
ban p
opula
tion i
n pov
erty.
58
59
61
Tabl
e 10
POLI
TIC
AL
ENVI
RO
NM
ENT,
201
4 Le
vel o
f Dem
ocra
tic C
onso
lidat
ion
Curre
nt G
over
nmen
t El
ectio
n In
augu
ratin
g Un
sche
duled
Po
litica
l Ci
vil
Dem
ocra
cy
Hea
d-of
-Sta
te C
hang
es
Righ
ts1
Libe
rties
2 Pr
esid
ent /
PM
Term
Co
ntro
l of L
egisl
atur
e NA
FTA
REGI
ON
Mexic
o 20
00
3 3
Peña
Niet
o 20
12-2
018
Govt.
Coa
lition
DR
-CAF
TA C
OUNT
RIES
Do
minic
an R
epub
lic
1963
1
2 2
Medin
a 20
12-2
016
Gove
rnme
nt Co
sta R
ica
1949
11
Solís
2014
-201
8Op
posit
ion
El S
alvad
or
1984
2
3
Sánc
hez C
erén
20
14-2
019
Shifti
ng A
llianc
es
Guate
mala
198
5 31
34
Pere
z Moli
na
2012
-201
6Op
posit
ionHo
ndur
as
1982
1
4 4
Hern
ánde
z 20
14-2
018
Shifti
ng A
llianc
es
Nica
ragu
a19
845
4Or
tega
2011
-201
5Go
vern
ment
Pana
ma
1994
1
2 Va
rela
2014
-201
9 Op
posit
ion
ANDE
AN S
OUTH
AME
RICA
Bo
livia
198
0 3 7
3 3
Mora
les
2015
-202
0 Go
vern
ment
Colom
bia19
583
4Sa
ntos
2014
-201
8Go
vt. C
oaliti
on
Ecua
dor
197
8 3 8
3 3
Corre
a 20
13-2
017
Govt.
Coa
lition
Pe
ru 1
980 3
12
3Hu
mala
2011
-201
6Op
posit
ionVe
nezu
ela
1958
6
5 5
Madu
ro
2013
-201
9 Go
vern
ment
BRAZ
IL &
SOU
THER
N CO
NE
Arge
ntina
1
983 3
4 2
2 C.
Fer
nánd
ez
de K
irchn
er
2011
-201
5 Go
vern
ment
Braz
il 19
892
2Ro
usse
ff20
15-2
019
Govt.
Coa
lition
Ch
ile
1989
1
1 Ba
chele
t 20
14-2
018
Gove
rnme
nt Pa
ragu
ay19
933
3Ca
rtes
2013
-201
8Go
vt. C
oaliti
on
Urug
uay
1985
1 1
Vázq
uez
2015
-202
0 Go
vern
ment
SOUR
CE:F
reed
om in
the
Wor
ld 20
12: T
he A
rab
Upris
inga
and
their
Glob
al Re
perc
ussio
ns.<
http:/
/www
.free
domh
ouse
.org/r
epor
t/free
dom-
world
/free
dom-
world
-201
2>
1 Fre
edom
Hou
se de
finitio
n: Th
ose r
ights
that e
nable
peop
le to
partic
ipate
freely
in th
e poli
tical
proc
ess.
On th
is sc
ale 1
repr
esen
ts the
mos
t free
and 7
the l
east
free.
2 Fre
edom
Hou
se de
finitio
n: Fr
eedo
ms to
deve
lop vi
ews,
institu
tions
and p
erso
nal a
utono
my ap
art fr
om th
e stat
e. On
this
scale
1 re
pres
ents
the m
ost fr
ee an
d 7 th
e lea
st fre
e.
3 Inte
rrupte
d dem
ocra
cies
Up o
r dow
n ind
icate,
resp
ectiv
ely, a
n imp
rove
ment
or a
worse
ning o
f the p
olitic
al en
viron
ment
from
2013
.
59
60
62
Tabl
e 11
CEN
TRA
L G
OVE
RN
MEN
T B
ALA
NC
E, 2
008-
2013
(P
erce
ntag
es o
f GD
P)
Prim
ary B
alanc
e Ov
erall
Bala
nce
2008
20
09
2010
20
11
2012
20
13
20
08
2009
20
10
2011
20
12
2013
NA
FTA
REGI
ON
Mexic
o -0
.2 -0
.5 -1
.2 -1
.0 -1
.1 -0
.8 -1
.6 -2
.2 -2
.7 -2
.5 -2
.7 -2
.4 DR
-CAF
TA C
OUNT
RIES
Do
minic
an R
epub
lic
-1.9
-1.6
-0.7
-0.1
-4.1
-0.8
-3.5
-3.5
-2.7
-2.2
-6.6
-3.1
Costa
Rica
2.4
-1.3
-3.1
-1.9
-2.3
-2.9
0.2-3
.4-5
.2-4
.1-4
.4-5
.4El
Salv
ador
1.8
-1
.2 -0
.4 -0
.1 0.5
0.6
-0
.6 -3
.7 -2
.7 -2
.3 -1
.7 -1
.8 Gu
atema
la-0
.3-1
.7-1
.8-1
.3-0
.9-0
.6-1
.6-3
.1-3
.3-2
.8-2
.4-2
.1Ho
ndur
as
-1.9
-5.3
-3.7
-3.2
-4.3
-5.4
-2.5
-6.0
-4.7
-4.6
-6.0
-7.6
Nica
ragu
a10.0
-0.7
1.22.1
1.60.8
-0.9
-1.7
0.10.9
0.1-0
.1Pa
nama
3.4
1.4
0.1
-1
.1 -0
.8 -2
.3 0.3
-1
.5 -2
.4 -3
.3 -2
.7 -4
.2 AN
DEAN
SOU
TH A
MERI
CA
Boliv
ia 1
0.8
-0.4
1.4
-0.2
2.7
1.9
0.0
-2.0
-0.1
-1.1
1.8
1.3
Colom
bia0.6
-1.2
-1.2
-0.3
0.1-0
.1-2
.3-4
.1-3
.9-2
.8-2
.3-2
.9Ec
uado
r 0.3
-3
.5 -0
.9 -0
.7 -1
.0 -4
.6 -1
.0 -4
.2 -1
.6 -1
.5 -1
.9 -5
.9 Pe
ru1
3.5-0
.22.3
4.34.2
2.92.1
-1.4
1.13.2
3.11.8
Vene
zuela
0.1
-3
.7 -2
.1 -1
.8 -2
.2 -0
.3 -1
.2 -5
.0 -3
.6 -4
.0 -4
.9 -3
.4 BR
AZIL
& S
OUTH
ERN
CONE
Ar
genti
na
2.8
1.4
1.2
-0.1
-0.2
-1.4
0.7
-0.8
-0.1
-1.9
-1.9
-2.6
Braz
il2.4
1.22.1
2.31.8
1.6-1
.2-3
.5-1
.7-2
.6-2
.3-2
.9Ch
ile
4.6
-3.7
0.1
1.8
1.2
0.0
4.1
-4.2
-0.4
1.3
0.6
-0.6
Para
guay
2.80.6
1.61.0
-1.6
-1.6
2.30.1
1.20.7
-1.8
-1.9
Urug
uay
1.8
1.3
1.3
1.9
0.4
0.9
-1.1
-1.5
-1.2
-0.6
-2.0
-1.6
LATI
N AM
ERIC
A &
CA
RIBB
EAN
1.4
-0
.9 -0
.1 0.1
-0
.1 -0
.6
-0.2
-3.5
-2.4
-2.3
-2.6
-2.8
Sour
ce: E
CLAC
, 201
3 Ec
onom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
(for 2
008-
2009
); EC
LAC,
2014
Eco
nom
ic Su
rvey
of L
atin
Amer
ica &
the
Carib
bean
-Brie
fing
Pape
r(Ju
ly 20
14).
1 Gen
eral
gove
rnme
nt
60
61
63
Ta
ble
12
LEG
AL
ENVI
RO
NM
ENT,
201
4 Ru
le of
Law
1Ho
mici
deRa
te2
Corru
ptio
nPe
rcep
tion3
Econ
omic
Free
dom
2014
4Pr
oper
tyRi
ghts
5Ea
se o
f Doi
ng
Busin
ess6
Glob
alCo
mpe
titive
ness
7
Perc
entil
e Ran
k 201
3 20
08-2
011
Rank
2013
Ra
nk
Perc
entil
e Ran
k Ra
nk 20
14
Rank
NA
FTA
REGI
ON
Un
ited S
tates
(for
comp
ariso
n)
90.5
4.7
19
12
80
7
3
Mexic
o 36
.0
23
.7
106
55
50
39
61
CAFT
A-DR
Do
minic
an R
epub
lic
37.0
25.0
12
3
80
30
84
101
Costa
Rica
65
.9
10
.0
49
53
50
83
51
El S
alvad
or
29.9
70.2
83
59
40
109
84
Gu
atema
la 13
.3
38
.5
123
83
25
73
78
Hond
uras
10
.4
91
.6
140
11
2
30
104
10
0
Nica
ragu
a 31
.3
12
.6
127
102
15
119
99
Pana
ma
47.9
21.3
10
2
71
30
52
48
ANDE
AN S
OUTH
AME
RICA
Boliv
ia 14
.2
16
.1
106
15
8
10
15
7
105
Colom
bia40
.8
33
.2
94
34
50
34
66
Ecua
dor
11.8
18.2
10
2
15
9 20
11
5
n/a
Peru
33.2
10.3
83
47
40
35
65
Vene
zuela
1.
0
45.1
16
0
17
5
5
182
13
1
BRAZ
IL &
SOU
THER
N CO
NE
Ar
genti
na
28.4
5.5
106
16
6
15
12
4
104
Braz
il 52
.1
21
.8
72
114
50
120
57
Chile
87.7
3.7
22
7
90
41
33
Pa
ragu
ay
24.2
11.4
15
0 78
30
92
120
Urug
uay
66.4
5.9
19
38
70
82
80
ASIA
(for c
ompa
rison
)
China
39.8
1.
080
137
2090
28
Up o
r dow
n ind
icate,
resp
ectiv
ely, a
n imp
rove
ment
or a
worse
ning o
f the e
nviro
nmen
t from
2013
LAB
ER. T
he ab
senc
e of a
n arro
w ind
icates
"no c
hang
e" fr
om th
e pre
vious
year
. 1:
As m
easu
red b
y the
Wor
ld Ba
nk's
Gove
rnan
ce In
dicato
rs: 19
96-2
013 <
www.
world
bank
.org>
. The
perce
ntage
s mea
sure
the e
xtent
to wh
ich ag
ents
have
confi
denc
e in a
nd ab
ide by
the r
ules o
f soc
iety,
includ
ing pe
rcepti
ons o
f the i
ncide
nce o
f crim
e, the
effec
tiven
ess a
nd pr
edict
abilit
y of th
e jud
iciar
y, an
d the
enfor
ceab
ility o
f con
tracts
. 2:
UN D
ev. P
gm, H
uman
Dev.
Rep.
201
4.3:
As m
easu
red b
y Tra
nspa
renc
y Inte
rnati
onal,
Cor
rupti
on P
erce
ption
s Ind
ex 20
13 <
www.
trans
pare
ncy.o
rg>.
Foc
uses
on co
rrupti
onin
the pu
blic s
ector
and d
efine
s cor
rupti
on as
the a
buse
of pu
blic o
ffice f
or pr
ivate
gain.
The
scor
es us
ed in
the i
ndex
rang
e fro
m 10
(cou
ntry p
erce
ived a
s virtu
ally
corru
ption
-free
) to a
lmos
t 0 (c
ountr
y per
ceive
d as a
lmos
t total
ly co
rrupt)
. The
coun
try ra
nks m
easu
re th
e cor
rupti
on le
vel in
177 c
ountr
ies as
perce
ived b
y bus
iness
peop
le, ris
k ana
lysts,
inve
stiga
tive j
ourn
alists
and t
he ge
nera
l pub
lic.
4: As
mea
sure
d by t
he H
erita
ge F
ound
ation
's 20
14 In
dex o
f Eco
nom
ic Fr
eedo
m. S
core
s are
base
d on a
1 to
100 s
cale,
1 =
an en
viron
ment
that is
leas
t con
duciv
e to e
cono
mic f
reed
om, 1
00 =
mos
t con
duciv
e. C
ountr
ies ar
ealso
rank
ed in
orde
r of e
cono
mic f
reed
om, 1
being
the m
ost fr
ee.
5: As
mea
sure
d by t
he H
erita
ge F
ound
ation
's 20
14 In
dex o
f Eco
nom
ic Fr
eedo
m. %
ages
meas
ure d
egre
e to w
hich a
coun
try’s
laws p
rotec
t priv
ate pr
oper
ty rig
hts &
degr
ee to
whic
h its
gove
rnme
nt en
force
s tho
se la
ws. I0
0% =
priva
te pr
oper
ty is
guar
antee
d by t
he go
vern
ment,
0% =
priva
te pr
oper
ty is
outla
wed.
6: W
orld
Bank
Gro
up, D
oing
Busin
ess 2
014.
The
Doin
g Bus
iness
repo
rts ra
nk co
untrie
s on t
heir e
ase o
f doin
g bus
iness
base
d on a
serie
s of fa
ctors,
inclu
ding t
ime r
equir
ed to
star
t a bu
sines
s, re
gister
prop
erty,
enfor
ce co
ntrac
ts, an
d tra
de ac
ross
bord
ers,
acce
ss to
credit
and t
ax st
ructu
re.
7:As
mea
sure
d by t
he G
lobal
Com
petiti
vene
ss R
epor
t 201
4-20
15, p
rodu
ced b
y the
Wor
ld Ec
onom
ic Fo
rum
<http
://www
.wefo
rum.
or/re
ports
>. T
his ra
nking
is ba
sed o
n a to
tal of
142 c
ountr
ies an
d is d
eterm
ined b
y mea
surin
g 12 p
illars
of co
mpeti
tiven
ess,
includ
ing: In
stitut
ions,
Infra
struc
ture,
Healt
h &
Prim
ary E
duca
tion,
High
er E
duca
tion,
Good
Mar
ket E
fficien
cy, L
abor
Mar
ket E
fficien
cy, F
inanc
ial M
arke
t Dev
elopm
ent, T
echn
ologic
al Re
adine
ss, M
arke
t Size
, Bus
iness
Sop
histic
ation
, and
Inno
vatio
n.
61
62
63
SELECTED SOURCES MONITORED FOR 2014 LABER
The Wall Street Journal
Online
América Economía (http://www.americaeconomia.com/)
BBC Mundo.com (http://news.bbc.co.uk/hi/spanish/news/)
Bloomberg.com: Latin America (http://www.bloomberg.com/news/regions/latinamerica.html)
Business News Americas (http://www.bnamericas.com/)
Brazil Focus: Weekly Report([email protected])
Christian Science Monitor (http://www.csmonistor.com)
CouncilonHemisphericAffairsReport(http://www.coha.org/)
Economist Intelligence Unit (http://www.eiu.com/)
The Economist (http.//www.economist.com)
Infolatam (http://www.infolatam.com)
Jurist (http://jurist.org)
Latin American Newspapers accessible through Latin American Network Information Center at:
http://www1.lanic.utexas.edu/la/region/news/
Latin America Advisor (Subscriptions available to mailto:[email protected])
Latin American Caribbean & Central America Report (http://www.latinnews.com)
Latin American Andean Group Report (http://www.latinnews.com)
Latin American Brazil & Southern Cone Report (http://www.latinnews.com)
Latin American Herald-Tribune (http://laht.com/)
64
Latin American Mexican & NAFTA Report (http://www.latinnews.com )
Latin American Monitor (http://www.latinamericamonitor.com/)
Los Angeles Times (http://www.latimes.com)
Mercopress (http://en.mercopress.com)
Miami Herald (http://www.herald.com)
Mining.com
The New York Times (http://www.nytimes.com/)
SUR1810 (www.sur1810.com)
Tico Times (http://www.ticotimes.net)
Primary Data Sources
International Monetary Fund (http://www.imf.org/)
UN Economic Commission for Latin America and the Caribbean (ECLAC)
http://www.cepal.org/default.asp?idioma=IN
65
Latin American Business Environment ProgramCenter for Latin American StudiesUniversity of FloridaPO Box 115530Gainesville,FL32611-5530USATel:(352)273-4723Fax:(352)392-7682http://www.latam.ufl.edu/research-training/la-business-environment
Center for Governmental ResponsibilityUniversity of Florida Fredric G. Levin College of LawPOBox117629Gainesville,FL32611-7629USATel:(352)273-0835Fax:(352)392-1457http://www.law.ufl.edu/academics/centers/cgr