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Latin America Update, September 2013

Brazil enacts tough anti-bribery law

Brazil’s new anti-bribery law covers both bribery of foreign officials by Brazilian companies and bribery of local officials by any company, domestic or foreign. Companies found guilty will face fines of up to 20% of their gross annual revenue for the previous year or a maximum of 60 million Brazilian Reais (approximately $26.22 million). There are also provisions through which a company’s operations could be suspended, assets confiscated or even face possible dissolution. The new law provides for the blacklisting of companies convicted of bribery, banning them from receiving public lending and government subsidies and withholding government contracts for up to five years. The law includes provisions to encourage self-disclosure of bribery cases – a practice quite new to Brazilian business.

The legislation was required by the Organization for Economic Cooperation and Development (OECD), since Brazil is a party to the OECD’s Anti-bribery Convention – although it is not a member of OECD, where other regional countries such as Chile and Mexico have membership. Brazil’s Congress passed the law in record time in the wake of the sweeping protests that shook the country’s political establishment in June.

The European Union’s FTA with Colombia, Honduras, Nicaragua and Panama have come into effect from 1 August. 

In 2012, the volume of the European Union’s trade with Colombia was $18 billion and with Central America $18 billion – which includes $1.8 billion worth of trade with Honduras, $1.5 billion with Panama and $500 million with Nicaragua. El Salvador and Costa Rica are likely to complete their formalities to make their FTAs with EU operative in the coming weeks. The EU-Peru FTA is already in force since March 2013, and invitations have been extended to Ecuador and Bolivia as well to sign an FTA with the EU.

The FTAs will help Central America’s economy grow by over $3.3 billion annually in the coming decade. The Central American countries export mostly agricultural and fishery products (coffee, pineapple, sugar and shrimps) to Europe, while the EU exports pharmaceutical products, petroleum, cars and machinery.

The Central American countries as well as Colombia and Peru have already signed FTAs with US. These FTAs have some obvious adverse impact on India’s exports to these countries. The tariff-free exports of these countries to EU and US will also add to the competition for India’s exports to these two large markets in the case of some products.

Protests in Peru too

There were protests in Lima, the capital of Peru in July. The trigger for the protests was the release of a recording in the media of an apparent behind-the-scenes deal between Peru’s five main political parties to appoint six new judges to Peru’s highest court, the new human rights ombudsman and three Central Bank board members. Although the appointments were legally and constitutionally valid, the manner in which they were pushed through led to some of the largest street protests in Lima since the late 1990s. The appointments, now commonly referred to as the repartija (carve-up), were subsequently withdrawn by a special session of Congress.

As in the case of Brazil, the protestors were not against President Ollanta Humala but were indignant with the whole political establishment. Humala, who started off as a hard-line leftist, has become moderate and pursues Lulaism: a balanced mix of pro-poor and business-friendly policies.

Chile expects mining investments of $112 billion in the next eight years

In the second week of August, Chile’s Minister of Mining announced that the country expects an investment of $112 billion over the next eight years. Out of this, $86.7 billion will be spent on copper mining (Codelco, the state company, will invest $27 billion) of which Chile is the world’s leading producer and exporter; $21.7 billion on gold and silver mining and $3.6 billion on iron and other industrial minerals. The northern region of Antofagasta will get the most investment, with $43 billion dollars, followed by the northern region of Atacama, with $34 billion.

Brazil writes off 870 million dollars debt of 12 African countries

The government of Brazil decided on 3 August to write off the debts of 12 African countries. The major beneficiaries are Tanzania, with $237 million, Zambia, with $113 million, and Congo-Brazzaville, with $352 million. The others in the list are: Sudan, Gabon, Equatorial Guinea, Ghana, Guinea Bissau, Ivory Coast, Mauritania, Senegal, and Sao Tome and Principe. This is not simply a gesture of generosity but an indication of the transformation of Brazil from the status of debtor to creditor in the last decade.

It was Brazilian President Lula da Silva who took the initiative to engage with Africa, a continent which was not in the radar of Itamaraty, the Brazilian foreign office. Now Brazil has more embassies in Africa than India does.

Mexico takes initiative for energy reforms

The energy sector is the Holy Cow in Mexico. The Mexicans have overzealously controlled the energy sector since the 1930s, fearing a loss of energy sovereignty to the big companies from the North – namely the United States. But this policy has lead to stagnation, inefficiency and a fall in oil production. The national oil company, Pemex, lacks the much-needed funds and technology for investment. Its funds are diverted for government expenditure with inadequate allocation for investment. The centre-right PAN party attempted to open up the energy sector when they were in power over the last decade, but they were kept at bay by the leftists and the centre-left PRI, the most prominent party in the country. The new, young and dynamic President Enrique Peña Nieto of the ruling PRI has now taken the initiative to open up the energy sector. This is likely to get the support of PAN, which has tabled a comprehensive plan going beyond PRI’s proposals. Nieto has already proven his mettle by forging the Mexican Pact under which all major political parties in the country have pledged broad support to some policies of national priority. Through this, Nieto has already succeeded in reforming the education and telecom sectors. It is hoped that he will be able to succeed with the most challenging energy reforms too.

The Mexican energy reform will lead to an increase in production of oil and help in the discovery of new fields. This is welcome news for India, which has been importing Mexican crude oil regularly in recent years. The huge investment expected after the opening of the energy sector will also be good for Indian exports of products and services.

Argentina attracts Chevron in its shale project 

Oil-major Chevron has announced an investment of $1.24 billion to exploit the shale gas reserves of the Vaca Muerta field in Patagonia. This field alone is estimated to hold 16 billion barrels of shale oil and 8.7 trillion cubic metres of shale gas. Argentina is reported (by U.S. sources) to have the world’s fourth largest reserves of shale oil and the second largest reserves of shale gas. The exploitation and production of shale will help the country save precious foreign exchange on energy imports – expected to reach $14 billion in 2013 – and make the country a net energy exporter in the long run. The entry of Chevron will encourage new foreign investments, at least in the oil and gas sector, in Argentina. This is welcome news for a country which has suffered a bad image after the nationalization of YPF, an oil company owned by Spain’s Repsol, in 2012.


Ambassador Viswanathan is Distinguished Fellow, Latin America Studies, Gateway House. He is the former Indian Ambassador to Argentina, Uruguay, Paraguay and Venezuela, and Consul General in Sao Paulo. 

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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