UPDATE [24 January 2014]: Argentina – a tense weekend ahead

Full original article:

The recent fall in foreign exchange reserves, and the rise in the black market ‘Dólar Blue’, exchange rate has prompted many commentators to suggest that Argentina is headed imminently towards an inevitable – and major – currency and monetary crisis. In our view, this is incorrect. A full blown crisis of that scale would require an exogenous shock. In the event of such a shock, be it the result of problems with the soybean harvest or something else, there are numerous policy options still available to the government led by President Cristina Fernández to bring the situation under control.

Various recent developments have highlighted the fragility - and long-term unsustainability - of the economic model that continues to be pursued by the Fernández administration (notwithstanding the recent and important changes to her economics team). The central bank’s foreign reserves hit US$29.8bn in mid-January, their lowest level since 2006, having slipped from US$30.7bn in early December 2013 and US$33.2bn in late October 2013. Thanks to the continued monetisation of the budget deficit, inflation is generally reckoned to be running at around 25%-30%.

Prompting particular commentary is the fairly sharp depreciation in the Dólar Blue rate in central Buenos Aires. As of 20 January, the rate stood at ARS11.95/US$. This compares with the official rate of ARS6.81/US$. Another widely followed unofficial exchange rate, the Dólar Bolsa, stands at ARS10.35/US$. The Dólar Bolsa is the rate at which institutional investors may gain access to foreign currency, by buying debt securities in pesos and then selling the securities for US dollars.

Overall, though, it is premature to suggest that a financial crisis is imminent. In terms of the numbers of pesos that may be bought with one US dollar, the Dólar Blue rate stands at a premium of about 75% to the official exchange rate. Although that is quite high by the standards of the second half of 2013, when the premium was typically in the 50%-65% range, it is less than the 100% premium reached when the Dólar Blue spiked to above 10 (the so-called 'Messi Rate', for the jersey worn by the Argentine football star) for the first time in May this year.

Moreover, as is indicated by the figures above, the rate at which foreign reserves have been falling appears to have slowed. Reports indicated that in early January, the Administración Nacional de la Seguridad Social (ANSES - the state pension fund agency) raised around US$2.3bn in US dollars by selling Argentine government treasury notes maturing in 2018. ANSES had purchased these securities from the government in 2011.

The unresolved disputes in US courts between the Argentine government, on one hand, and the 'vulture funds' that hold its debt on the other; mean that the government continues to be denied access to global capital markets. The government simply cannot raise money the orthodox way - through a large-scale issue of US dollar denominated bonds.

However, unorthodox sources remain available to the government. As we pointed out in Latin American Economy & Business (July 2013), two Chinese state-owned policy banks, China Development Bank (CDB) and China Ex-Im Bank, have been active lenders in Latin America over the last five years or so. Some funds have also been forthcoming from Industrial & Commercial Bank of China (ICBC - one of the four large state-owned commercial banks). Sometimes, the Chinese institutions lend at higher interest rates than those demanded by multilateral lenders such as the World Bank; on other occasions, at lower rates. On occasions, the Chinese banks advance the money on a loan-for-oil basis: the Latin American borrowers gain US dollar cash immediately, while Chinese parties have access to a reliable supply of oil over the medium term. If the borrower is not providing oil, it may be required to make commitments for the award of contracts to Chinese companies for infrastructure construction or supply of capital goods.

Data compiled by the Inter-American Development Bank (IDB) and the World Bank indicates that, from 2005 to 2011, Chinese institutions lent US$10.0bn to Argentina. Over the same period, the World Bank and the IDB advanced US$7.2bn and US$9.6bn respectively. Over the same period, the total amount lent by these three sources to Mexico was, at US$27.4bn, very similar to the US$26.8bn advanced to Argentina. However, the Chinese institutions only lent US$1.0bn to Mexico: the remainder came from the two multilateral lenders.

In March last year, we suggested that the government would likely face problems on at least one of two fronts. One was the possibility that Argentine households and businesses shun peso deposits in order to avoid the impact of structurally (very) high inflation. In this situation, the money would likely be spent on goods and services and/or invested in real assets within Argentina, given the capital controls that have been imposed by the government. Alternatively, we saw the possibility that rampant inflation (including demands by workers for wage increases) or a disruption to the flow of tax revenues from soybean farmers to the government, would result in a budgetary crisis.

Notwithstanding that the premium of the Dólar Blue rate to the official rate has surged in recent weeks, it appears that we were overly pessimistic. The government appears to be generating the revenues that it needs to maintain its regular operations (albeit critics accuse it of ‘robbing Peter to pay Paul’). There have not been the shortages of consumer goods or a bubble in real asset prices that would take place in the event that households and businesses refused to support the peso.

In short, the Argentine government has proven itself able to ‘muddle through’ a challenging financial and economic environment – much as it has for most of the time since the 2001-02 crisis. Since May 2013, foreign reserves have fallen dramatically, from around US$39bn. In the meantime though, the global economic environment has improved. It is not obvious that there have been any other fundamental changes. Argentina posted estimated real GDP growth of 4.5% year-on-year in 2013, on (December 2013) estimates by the UN’s Economic Commission for Latin America and the Caribbean, which however projects slower growth of about 2.6% in 2014.

Mainstream media reports indicate that Argentina is headed towards a bumper soybean crop this (southern) summer. This would boost foreign exchange earnings and the government’s tax revenues. We concede that any development over the next 13 weeks or so which results in a weaker-than-expected harvest (be it anti-government action by farmers and other workers, dislocation in global soybean markets, or weather-related problems), would likely have a sharply negative impact on investor sentiment and would substantially increase the challenges facing the government.

In the event of a true crisis in the coming weeks, the government would have to achieve three outcomes simultaneously. It would need to boost the foreign currency reserves at its disposal. It would need to stabilise the Dólar Blue rate. And it would need to engineer a profound change in sentiment of investors and other market protagonists.

This would be difficult, but not impossible. We suggest that the government has the following policy options to deal with a crisis, whatever the exogenous shock may be:

• The government could tap unorthodox sources (such as Chinese loans or the foreign currency assets of entities under its control).

• The central bank could increase the Badlar rate (paid by banks on wholesale deposits in pesos) from the current level of around 20%. The Badlar rate has not provided wholesale depositors with a real return for a long time: if it were perceived to be doing so, the flow of money from dollars to pesos could be substantial.

• The government could issue new tranches of US dollar certificates of deposit (Cedins) and economic development bonds (Bodes) on attractive terms, with the aim of attracting ‘blue’ dollars circulating within Argentina.

• The government could intervene aggressively in the Dólar Blue market, in order to suppress the premium to the official rate (which, presumably, would continue to weaken as a result of the ‘sliding peg’ policy). This intervention would probably be accompanied by ferocious rhetoric from the President and her economy team: they would argue that the move was essential to counter currency speculators seeking to undermine the government and the economy. Anyone that had been foolish enough to borrow ‘blue’ dollars to speculate would be hurt badly.

We recognise that pursuing the third and fourth of these options (or both together) would result in a substantial dollarisation of the financial system. More crucially, it would likely produce a massive currency mismatch within Argentina’s banks. In the short term, US dollar deposits would be boosted enormously. However, loans and securities would be denominated mainly in pesos. The mismatch would greatly increase the risks within the system.

Paris Club

As the government continues tightening currency controls, on 22 January Economy Minister Axel Kicillof said that Argentina was ‘optimistic’ about rescheduling its Paris Club foreign debt and was expecting an initial response from the creditors.

Argentina faces a potentially very serious dollar shortage in the last two years of President Fernández’s term (running to end-2015). A successful renegotiation of Paris Club debts, which have been in default since late 2001, might help ease some of that pressure. At issue is whether next year’s democratic transition will have to be carried out against the backdrop of a deepening financial crisis - or whether it will be a calmer affair.

The Paris Club groups creditor governments and multilateral financial institutions. Argentina stopped servicing its Paris Club debts at the end of 2001. By end-2012, outstanding debt stood at US$6.5bn, mostly owed to Germany and Japan. If overdue interest and penalties are included, the total could be US$9.5-US$10bn, on some estimates. Kicillof and Hernán Lorenzino (the former economy minister who now heads the government’s debt restructuring team) were in Paris in mid-January to meet Club officials and present their proposals. Details were scant, but the Argentine press speculated that Buenos Aires might be offering a down payment (perhaps US$2bn) and might accept the Club’s demand that it ‘normalise’ its relationship with the International Monetary Fund (IMF), which would mean allowing its economic policies to be reviewed through the mechanism known as Article IV consultations.

Speaking on his return to Buenos Aires, Kicillof said he was “optimistic” about the outcome, but warned that negotiations could take time and insisted that Argentina would not change its economic policies. “The worst agreement with a creditor is one that can’t be delivered” he noted. Separately, the former finance secretary Guillermo Nielsen, said that one point in favour of an agreement was that the Paris Club was being lobbied by big companies and capital equipment suppliers, “who don’t want the Argentine market to be left entirely to the Chinese, who continue lending to the country”.

• The Damocles Sword

Of the many court cases involving Argentine foreign debt still working their way through the US legal system, two stand out. The ‘big’ case involves the demand by a group of ‘hold-out’ creditors, including many hedge funds, that demand that they be paid in full for money owed when Argentina defaulted on its foreign debt of around US$100bn in late 2001/early 2002. While about 93% of the country’s creditors by value accepted a write down of around 70% in rescheduling agreements reached in 2005 and 2010, the remaining 7% of hold-out creditors have been arguing that they have a right to payment in full. The reason this issue is being dealt with in the US legal system is that most of Argentina’s debt contracts were written under US law. The US courts have tended to agree with the holdouts. In October 2013, Judge Thomas Griesa of the New York-based 2^nd Court of Appeals ruled that Argentina cannot service its restructured debt if it does not at the same time pay off US$1.33bn to the holdouts, something the Buenos Aires government has consistently refused to do. There is a stay on execution of this ruling to allow Argentina to appeal to the Supreme Court. While dates may change, Argentina is expected to submit its appeal by mid-February. There is no firm date for a final judgement. The outcome is critically important to the Argentine economy because if the ruling is upheld and Argentina still refuses to pay, a technical default will be triggered.

• The Supreme Court separately has agreed to hear the ‘little case', but one which also has important repercussions. On 10 January, the court agreed to hear an appeal by Argentina against a lower court ruling allowing one of the holdouts, NML Capital (a unit of Elliott Management Corp), to subpoena records of Argentine assets from the US offices of Bank of America and Banco de La Nación. NML says it has obtained over US$1.6bn in legal judgements against Argentina, and has the right to subpoena the bank records to identify assets and locations where it may recover its debts. NML and other creditors have already taken some actions in this regard. They were behind the temporary seizure of ARA Libertad, the Argentine navy’s training ship, in Ghana in late 2012. “Federal law does not give Argentina the right to conceal its assets from its lawful creditors” an NML lawyer said. Argentina made no official comment, but has in the past said such a subpoena would violate its sovereign immunity. On this point, the US authorities seem to be inclined to support Argentina. US Solicitor General Donald Verrilli said that without condoning Argentina’s refusal to pay debts as ordered by US courts, the lower court ruling would impose “worrisome burdens on a foreign State”.

• In another move to preserve scarce dollars, the Argentine tax collection agency (AFIP) has introduced new regulations forcing Argentines purchasing goods from international websites to make a sworn declaration and produce it at a customs office, where packages have to be collected. Items purchased from websites like Amazon and eBay are no longer delivered to home addresses. Argentines are allowed to buy up to US$25 worth of goods from abroad tax-free; above that level a 50% tax is levied. These new restrictions on online shopping come on top of a pre-existing 35% tax on credit card transactions outside the country.

In late November an outline deal was reached to resolve one of Latin America’s biggest and bitterest commercial disputes: the battle over compensation after the Argentine government expropriated a 51% shareholding in the country’s main oil company Yacimientos Petrolíferos Fiscales (YPF), previously controlled by the Spanish oil major Repsol. A key broker in the deal was Mexico’s state-owned Petróleos Mexicanos (Pemex), itself an important shareholder in Repsol. So what are these three companies now trying to achieve?

A lot can happen in both politics and the oil industry in 19 months, and in this case, a lot has. Nineteen months ago, in April 2012, the Argentine government led by President Cristina Fernández, worried at a growing energy deficit and angry at what it believed was Repsol’s repeated failure to invest and boost production in the local oil and gas sector, announced it was ‘renationalising’ YPF. The move was seen as a defiant affirmation of energy nationalism: the rhetoric was that a state-owned YPF would invest in new oil fields and achieve exactly the type of turn-around that the foreign and privately-owned Repsol had failed to deliver. Repsol, too, was angry and defiant over its treatment. Backed by the Madrid government, which described the expropriation as “arbitrary, hostile, and discriminatory” it began various legal actions and lodged a formal complaint with the World Bank’s International Centre for Settlement of Investment Disputes (Icsid). Repsol demanded at least US$10.5bn in compensation.

Nineteen months on, it is evident that both positions have changed. Argentina has seen its energy deficit get progressively worse, to the point that it is now the main cause of a foreign exchange scarcity that is threatening the country’s growth. On the plus side, Buenos Aires has realised that its Vaca Muerta shale oil and gas deposits located in Patagonia, and discovered just before the ‘renationalisation’ of YPF, are one of the largest of their kind in the world. But YPF on its own has neither the investment cash nor the expertise to develop them without external help. So the US major Chevron has stepped into the gap, but its involvement has in turn been threatened by two related lawsuits filed by Repsol in Spain and the US. As subsequently recognised by Argentine economy minister Axel Kicillof, with the Icsid arbitration process underway, the Buenos Aires government knew it would not be able to get away without paying some kind of compensation, at some point.

Despite reaching agreement in principle in Buenos Aires in late November, it is clear that the exact value of the compensation deal has yet to be settled. Nothing has been officially revealed, but YPF sources spoke of a US$5bn compensation payment in 10-year Argentine government bonds. Brufau has mentioned the figure of US$8bn. Repsol has also said it wants rock-solid guarantees, and has appointed Deutsche Bank as its adviser on the payment terms. The parties suggested that a full settlement might be reached before the end of 2013, but detailed negotiations could take longer.

What about Pemex?

Interestingly, the Mexican state company is struggling with some of the same challenges faced by YPF in Argentina. It too has seen falling oil production over the last ten years; it too has discovered significant new shale, conventional, and offshore deposits, but does not have the investment cash to develop them on its own. Pemex is now affected by a landmark energy reform, approved by the Mexican congress in December, which is designed to attract the international oil majors back into Mexico through a variety of production-sharing, profit-sharing, and licensing mechanisms. Strategically, it is clear that Pemex is preparing itself to compete more pro-actively, not only at home but internationally as well. Pemex has made it clear that it too would like to be involved in association with YPF in developing the Vaca Muerta fields. To do that, the Mexicans needed to act as peace brokers and help resolve the YPF-Repsol dispute. It is also possible that Pemex will be seeking to attract Repsol to invest in future joint projects in Mexico.

• Repsol pressures

There were also pressures on Repsol’s side. The company has been performing well, but two of its key shareholders are keen to see it maximise its cash position to take advantage of new investment opportunities. While chief executive Antonio Brufau wanted to get as much compensation from Argentina as possible, Pemex’s CEO Emilio Loyoza (with a 9.3% stake in Repsol) and Isidro Fainé, the head of the Barcelona-based CaixaBank (with a 12.0% stake in Repsol) both put a greater value on getting cash in hand.

Costa Ricans became aware in early December that a group of about 100 citizens had begun to undergo military training, ostensibly to prepare for the eventuality of war with Nicaragua. The government has condemned the initiative, which is headed by a former police chief, and warned that it could become a threat to the country’s institutions.

It was Telenoticias that broadcast on 2 December the news that a group of men wearing military fatigues had been training somewhere close to the Caribbean coast in infantry tactics. Their leader, retired commissar José Fabio Pizarro Espinoza, proclaimed, ‘We must prepare for the worst, for the ultimate situation that could present itself, which is an armed conflict — and that is what we are doing [...] National sovereignty is not negotiated, it is defended.’ He dismissed suggestions that his organisation, the Frente Patriótico para la Defensa Nacional (FPDN) was a paramilitary force. Pizarro, after a stint as chief of the country’s Policía de Fronteras (PF, border police), had served as director-general of the Fuerza Pública (FP, national police) from 2007 to 2009.

On 5 December one of the ‘cells’ of the FPDN which calls itself Patrulla 1856 stated on Facebook , ‘We are not a threat to the government’ — then went on to claim that when they had offered to assist the FP they had been rebuffed. ‘We were not surprised,’ said their communiqué, ‘but this makes it clear that the government continues to accumulate mistakes [...] ignoring and disdaining the pure will of the people to prepare to defend their land if needs be. We want to make it clear to our President, Mrs Laura Chinchilla that we are not guerrillas, that we are not interested in striking at the weak system that governs us. We will continue to abide by the law and will not carry out operations without authorisation, but will continue to exercise our right to defend ourselves.’

Public security minister Mario Zamora told the Nicaraguan newspaper El Nuevo Diario, ‘It is a warning call that our régime of public liberties allows mercenary groups to start forming by free association, beyond all institutional and civil control [potentially] posing a threat to the rule of law and our democratic system.’

He went on to say, ‘I regret these types of actions which bring to our country the seed of what led other nations to sort out their internal problems by force. When these groups appear they always seek legitimacy by association with a good cause. In the end the big questions are who controls them, where is the civil power controlling these groups; who do they serve and by what criteria do they select their members.’

In another public statement Zamora noted that there was an established institution for those who wished to support the police, namely, the FP reserve. Indeed, since 2008 the government has tried to boost the reserve’s strength.

On 15 December a large group of FPDN members turned up at the headquarters of the FP reserve with the declared intention of enlisting. Though they had given advance warning of their arrival, they found the doors closed. They told journalists that they would try again, and underlined that many of their members, as former FP officers, were well acquainted with the reserve. The FPDN has announced a second large training event, to be held in San José in late December.

Link: FPDN’s Facebook page: www.facebook.com/fpdnCR

Ever trying to put a positive spin on things, Brazil’s finance minister Guido Mantega sought to put the disappointing Q3 GDP figures news in context. “Among the Brics we were the country that grew the most in the second quarter. In the third quarter we had the lowest growth,” he said, blaming the external sector for the volatility. He has also been rebuffing concerns about Brazil’s fiscal position, also on the slide. Problematically, Mantega has long since lost credibility with the markets, and even though foreign investors are still pouring billions into the populous domestic consumer market, the country’s macroeconomic policy credibility is under intense scrutiny, with Brazil bears talking up the possibility of it losing its investment grade rating in 2014, a general election year.

The economy posted a quarter-on-quarter contraction of 0.5% in the July-September period, according to the national statistics institute (Ibge), down from 1.8% in the second quarter and the worst quarterly result since the start of 2009. The year-on-year result was positive at 2.2%, but that was below expectations. In the first nine months overall, growth was 2.4% year-on-year; and it was 2.3% year-on-year over the rolling four quarters.

The quarter-on-quarter result was dragged down by weak investment (-2.2%) and exports (-1.4%), which was not sufficiently offset by only marginal growth in household and government consumption (1.0% and 1.2% respectively). The year-on-year results looked better, with investment up 7.3% (led by capital goods), and household and government consumption each up 2.3%. Net exports were a big drag, however (-10.6%).

Mantega insisted upon the release of the results on 3 December that the economy has touched bottom and is already in recovery mode. However, the Ibge reported the very next day (4 December) that its index of industrial production was up just 0.6% month-on-month and 0.9% year-on-year in October, hardly anything to write home about. Industrial output has been volatile all year and the latest figures underline that it is still struggling to recover. On the upside, the growth in October was more broadly based (across 21 of the 27 industrial sectors on a month-on-month basis, and 17 of the 27 on a year-on-year basis), and was also strongly linked to capital goods, suggesting that manufacturers are re-stocking at the very least. However, there was also a strong base effect in the October annualised figures (+18.8%), as capital goods output had contracted 5.1% in October 2012.

Though Mantega blamed the still weak external scenario for Brazil’s woes, critics also point the finger at the lack of domestic macroeconomic policy stability and transparency, saying that the government’s meddling, however well-meaning, has completely muddled the investment environment for the local private sector. The subsequent (6 December) local consensus forecast of local private economists compiled by the central bank and published in its weekly Focus report was for real GDP growth of 2.35% in 2013, down from 2.5% the prior week; while the 2014 forecast was unchanged at 2.1%. There is some concern about a further GDP contraction in the fourth quarter, which would tip Brazil into a technical recession.

Weak growth will complicate Copom’s life

On 27 November the central bank’s monetary council (Copom) unanimously voted to lift the benchmark Selic interest rate 50 basis points to 10% (without bias), returning it to its highest level since March 2012.

The Copom has now lifted the Selic by 275 basis points since April in an effort to temper inflation, which though trending down (it was 5.77% year-on-year in November, from 5.84% in October), is still stuck at the higher end of the official target range of 4.5% +/- 2.0%.

The Copom faces a difficult scenario moving into 2014. Brazil is stuck in low gear, but with fairly persistent inflation. The inflation outlook is complicated by a new rise in domestic fuel prices (see below) and the inevitable prospect of the tapering of the US Federal Reserve’s US$85bn monetary stimulus programme. That will hit the Real, already one of the worst performing currencies against the US dollar this year, and thereby threaten additional imported inflation. As we went to press on 11 December the Real was trading at R$2.31/US$, having declined by about 12% this year.

The latest (6 December) consensus forecast in the central bank’s Focus report was for faster inflation in 2014 of 5.92%, up from 5.7% this year.

The country’s fiscal (and current account) position is also deteriorating and although the government led by President Dilma Rousseff is paying lip service to fiscal consolidation there is no real sign of this happening on the ground.

Mantega repeated that the government would eliminate some subsidies and tax exemptions to meet its year-end primary fiscal surplus target and noted that the national development bank (Bndes) would also rein in financing for regional governments. Yet as we point out in the latest (November 2013) edition of our sister publication, Latin American Economy and Business, “much of the news flow in recent weeks suggests that the government is taking steps so that the state lenders, Banco do Brasil (BB) and Caixa Econômica Federal (CEF), can reinforce their balance sheets so as to allow both institutions to be better placed to increase lending from mid-2014 should the economy slow once more. In essence, the 'credit cannon' is being reloaded.

Mantega also stated that there would no ‘creative accounting’ to meet the primary surplus target of about 2.3% of GDP (R$110.9bn). Yet congress recently approved two separate pieces of legislation effectively loosening up the fiscal rules for states and municipalities, prompting critics to complain that the government had shifted from ‘creative accounting’ to ‘creative legislation’ to manoeuvre around the primary fiscal surplus target.

R$40bn to meet year-end target

Brazil posted a primary surplus of R$5.4bn (US$2.3bn) in October, the weakest for the month since October 2004, on the latest treasury figures. The accumulated year to date (ytd) surplus is now R$33.4bn, down 48.2% (or R$31.1bn) on the same period of 2012. Nonetheless treasury secretary, Arno Augustin, said that he was confident that the government would meet its full year R$110.9bn target. Augustin projected “double digit” surpluses in November and December, boosted by a cash windfall from recent auctions for the country’s major Libra offshore oilfield and as well as tax settlements by some of the country’s big corporates including the mining giant Vale. Augustin noted that combined these extras would bring in R$38.4bn alone.

The treasury can also use an accounting measure to discount from the final primary surplus calculations investment made under the growth acceleration program (PAC). Critics say the government is scrambling around to meet its targets for a second year in a row, with the credibility of its fiscal policy management being seriously eroded. With the government unwilling or unable to rein in fiscal policy, the heavy lifting against inflation is being left to the central bank. However a higher Selic will also increase debt costs for the government, adding to its fiscal woes.

Consumers hit with new fuel price increases

The state oil company Petrobras lifted wholesale diesel and gasoline prices by 8% and 4% respectively on 1 December in order to “make prices in Brazil converge with the international benchmarks, within a compatible period, [and] assure that debt and leverage rates return within 24 months to the limits established by the 2013-2017 Business Plan”, the company’s Chief Financial Officer Almir Barbassa said.

Since June 2012 Petrobras has increased gasoline prices by 15% and diesel prices by 22% to reduce the discount with international prices. For Brazilian consumers, the latest increases, the first since March last, will amount to a 2.5%-3.0% increase at the pump, according to estimates by local analysts. On 25 October Petrobras had put a new automatic price adjustment formula to the board. However the board asked for a revised formula. The new formula has not been divulged but sector analysts saw in the latest increase the staying hand of Finance Minister Mantega, who is the company’s chairman. The Brazilian government, which controls Petrobras through a majority of voting shares, has been reluctant to sanction additional price rises ahead of an election year, at a time when consumers are already feeling the inflationary pinch.

Mercosur talks

Some of the trade disputes between Argentina and Brazil are on their way to solution, and the two countries, along with Paraguay and Uruguay, should be able to present a joint Southern Common Market (Mercosur) position to the European Union (EU) on an inter-bloc association agreement (FTA) before the end of this month, Brazil’s trade minister Fernando Pimentel said on 5 December in Buenos Aires.

Pimentel’s statement is a sign that the reshuffled Argentine ministerial team under Cabinet Chief Jorge Capitanich and Economy Minister Axel Kicillof is ready to rebuild bridges with its main trading partner. Bilateral Argentina-Brazil trade is worth US$30bn a year, but has been troubled by a barrage of Argentine protectionist measures, which have also irritated Paraguay and Uruguay, the smaller Mercosur members. Pimentel is optimistic that the four countries (with Venezuela, the recently added Mercosur member taking a back seat) can now get serious about inking a trade deal with the EU (pending since 1999). While there has clearly been an advance, forging a common position in the EU negotiations will remain a challenge.

According to Pimentel, Capitanich and Kicillof have promised that Brazilian car and footwear exports to Argentina, stuck on the border for months because of complex Argentine import regulations, will start moving next week. “This issue that has been upsetting our exporters has been resolved”,” Pimentel stated. “There’s been a change of team and we think that is positive”. There were even suggestions that the thaw might extend to other products, including pharmaceuticals. Analysts believe the breakthrough has been made possible by the departure of Argentina’s controversial former domestic trade secretary Guillermo Moreno, and are talking of a desmorenización of trade policy. Pimentel diplomatically avoided answering a direct question on the subject, but smiled broadly.

The change raises hopes for a Mercosur–EU association agreement. The free trade deal has been in on-and-off discussions for more than a decade. Talks collapsed in 2004 and were revived in Madrid in May 2010. In January this year, both sides agreed to exchange initial offers before the end of 2013, so there is now a tight window in which to do so, ahead of 15 December deadline for submission of the Mercosur offer to Brussels. The Mercosur countries must agree a common list of products that will be tariff-free. EU officials want the list to cover 90% of existing trade. Pimentel says Brazil will be close to that level, while Capitanich says Argentina can cover 70% “for sure”. What remains to be seen is whether Argentina can really liberalise its trade policies at a time when its heterodox economic policy still relies on exchange rate and other interventionist measures to conserve limited foreign currency reserves. It is a problem the new economic team has yet to resolve. There has been talk of a differentiated agreement, allowing Argentina to go in a slower speed.

• Investment laggard

Brazil wants to increase its ratio of investment to GDP from its current 19% to well over 20%. Blamed the global financial crisis, Finance Minister Mantega said it will now take Brazil a few years to get to 24%. China’s ratio currently stands at 46%; India’s at 36%. Critics say domestic tax and labour reform, along with a downsizing of the bloated public sector, are key to boosting the investment rate.

• Trade deficit to November

Brazil posted a trade surplus of US$1.74bn in November, above expectations. The accumulated trade deficit in the first 10 months of 2013 was US$89m, compared to a US$17.2bn surplus in the same period of 2012. Exports totalled US$221.3bn (down 1.1% year-on-year) and imports US$221.4bn (up 7.2%), driven up by higher fuel purchases among others.

• Paraguay gives the nod to Venezuela

Paraguay’s senate approved Venezuela’s full adhesion to Mercosur on 10 December. The adhesion protocol, sent down by President Horacio Cartes, will now go to the congress, where it is also expected to pass.

Development: On 27 November after a four-hour meeting in Madrid, the board of Spanish oil firm Repsol accepted in principle an offer of compensation from the Argentine government for last year’s expropriation of its majority stake in Argentina’s national oil company, Yacimientos Petrolíferos Fiscales (YPF).

Significance: This landmark agreement has major implications for both sides. For Repsol it minimises the losses on its unhappy Argentine adventure, and marks the rising influence of Pemex, the Mexican state oil company that is a minority shareholder in the Spanish group. Critically for Argentina, the deal will help unlock much-needed new foreign investment in its depressed hydrocarbons sector.

Key points:

• In April 2012, in what was presented as ringing statement of economic nationalism, the Argentine government led by President Cristina Fernández issued a decree expropriating Repsol’s 51% controlling stake in YPF. The Spanish government described the move as “arbitrary, hostile, and discriminatory”. By December 2012 Repsol had lodged a formal complaint with the World Bank’s International Centre for Settlement of Investment Disputes (Icsid) seeking US$10.5bn in compensation. Things have not gone so well for either side since then. Economic nationalism has not solved the problem of Argentina’s dwindling currency reserves; while Repsol’s minority shareholders, including Pemex (which owns 9.3% of Repsol), were impatient with the failure to recover some of the group’s Argentina losses. Pemex was particularly concerned, since the dispute was effectively preventing it from investing in Argentina’s massive Vaca Muerta shale oil and gas deposits in Patagonia.

• In the end, the Repsol board has given the green light to the deal brokered earlier this week in Buenos Aires by Argentina’s economy minister, Axel Kicillof; Spain’s industry minister, José Manuel Soria; YPF CEO Miguel Galuccio; and Pemex director general, Emilio Lozoya Austin. While not officially revealed, it is reported that Argentina has offered to pay US$5bn in compensation in the form of dollar-denominated bonds. Given the country’s poor credit rating, Repsol is said to have made the agreement conditional on guarantees of payment that have yet to be defined. While the amount is around half of Repsol’s Icsid claim, it is not that far below the value the company had declared for its Argentine assets in its most recent accounts (US$7.35bn). Taking into account the legal fees of a long-drawn out dispute, Repsol appears to have judged that it was ultimately better to settle.

• However, the future of Repsol CEO Antonio Brufau, who was conspicuously absent from the Buenos Aires negotiations and who has been criticised by Lozoya, may now be under something of a cloud. President Fernández meanwhile thanked her Mexican counterpart, Enrique Peña Nieto, for the “preponderant role” Pemex played in brokering the deal.

• For Argentina the agreement may provide a way out of its serious energy deficit, something that will take a number of years to correct. Ironically Kicillof, one of the intellectual authors of the original YPF expropriation, will now have to struggle with the problem of reducing the subsidy on domestic petrol prices and seek to attract the once-vilified international oil and gas companies. With price controls lapsing, petrol prices are reported to have increased by 11% in November in Argentina, something which analysts believe will push the real inflation rate in Argentina beyond 30% per annum. Correcting the imbalances in the Argentine economy should keep Kicillof’s hands full for some time yet.

Mexico’s fiscal reform bill, approved by both houses of congress at the end of October and now awaiting the signature of President Enrique Peña Nieto, has not gone down well with the country’s mining industry. The general aim of the bill was to boost non-oil tax revenues to strengthen the government’s fiscal position. Most economists agreed that with some of the lowest general taxation rates in the Organisation for Economic Cooperation and Development (OECD), Mexico definitely needs to strengthen government finances. But Mexico’s mining industry, the biggest in Latin America, says it has been unfairly singled out and is being asked to make a disproportionate contribution.

The main new provision in the bill, which is expected to come into force at the beginning of 2014, is for a mining royalty of 7.5%, charged as a percentage of profits. Gold and silver miners will have to pay an additional 0.5%, taking their total royalty up to 8.0%. Companies will also face other unfavourable changes, such as the loss of the tax-deductible status of exploration expenses, together with a new green fuel tax and a tax on dividends applied across the Mexican corporate sector.

The Mexican mining industry has until now been one of the few that has been free of royalties and some argue that this, along with very attractive copper, gold, silver, zinc and iron deposits, is precisely what has attracted investors. Mining accounts for around 4% of Mexican GDP. Investment in 2005-2012 was around US$28bn, putting the country at the top of the Latin American ranking for mining investment inflows. Mexico is the world’s largest silver producer.

The mining sector responded to the new taxes with a loud ‘ouch!’, but there were interesting nuances in what different companies had to say. Camimex, the Mexican Chamber of Mining, issued a statement saying that the changes would make Mexico one of the most expensive countries in the world for mining operations. It said its members had been planning to invest US$30bn in 2013-18, a figure which as a result of the new bill would be reduced by 60% to US$12bn; it also claimed that up to 60,000 new jobs would not now materialise in the sector.

Grupo México, the world’s third largest copper producer, said it would maintain its current US$5bn Mexico investment programme for 2013 and 2014, but would reconsider after that. “We will be obliged to redirect our future investment programme of US$3.5bn for the coming years, which is primarily allocated to Mexico, and analyse opportunities in countries where investment conditions are more favourable, such as the US, Canada, Peru or Chile,” the company said in a statement.

The US-based Hecla Mining said it would re-evaluate its San Sebastián silver-gold mine in Durango state following news of the tax changes. It had been thinking of building a series of small pits to start revenue flows before incurring big capital expenditure on a ramping system. Although this might be the best way to improve net asset value, the company’s chief executive officer (CEO) Phil Baker stressed that “we are going to have to weight that against the new taxes.”

Brad Cooke, chief executive of Canada’s Endeavour Silver, said that as a result of the new royalty taxes, investors might question whether Mexico is “still an attractive jurisdiction for new operations”. He described the change as taking Mexico “from one of the most attractive jurisdictions worldwide to one of the worst”. He calculated that his company would need to find over US$6m a year in additional tax payments. Yet he also seemed quite resigned to the hit. “The government wants the money, it has got the right to it, and we are going to pay it. I guess the way to adjust for that is to tighten up our costs” he said, adding that “if we saw a US$1.00 per ounce [upwards] movement in the silver price, it would be enough to offset the additional taxes.”

Jason Reid, CEO of the US mining company Gold Resource Corp., said the royalty would “hurt’ his company’s Mexico operations but he also noted that a provision that 50% of the revenue generated from the royalty be paid to local municipalities or states might have positive effects. People living close to potential new mines might “want a piece” of the associated revenues and therefore become supportive of local development. Reid says this redistributive aspect might allow Gold Resources to make “greater headway” at its El Rey project in Oaxaca, which to date has encountered determined local opposition.

Some analysts suggest that mining companies might reasonably demand a quid-pro-quo in return for paying the new tax. Jean-Baptiste Bruny of BBVA Bancomer noted: “In all countries you have to pay a royalty. The issue in Mexico is if you pay a royalty of 7.5%, you will want the same services as in other countries.” He noted that despite paying the royalty, some companies in Mexico might still need to finance the building of access roads or spend on security.

The security issue is a serious and expensive one, as there is evidence that some of Mexico’s drug-smuggling syndicates are moving in on mining. In October a government official (the land and urban development minister Jorge Carlos Ramírez Marín) said that criminal groups had started displacing landowners in Guerrero, parts of Michoacán and Jalisco, with the objective of establishing illegal mining centres.

A new emerald war in Colombia?

A grenade attack killing four people in the town of Pauna, in the western Boyacá department, has sparked concerns about a revival of the so-called ‘green war’ between rival emerald tycoons in the department in the 1980s.

Colonel Carlos Antonio Gutiérrez, the departmental police chief for Boyacá, (where the country’s largest emerald mines are located), told reporters on 10 November that the grenade lobbed the previous day into a crowd in the town centre was an assassination attempt on Pedro ‘Orejas’ Nel Rincón. A leading player in the local emerald mining business, Nel Rincón had been attending a local festival and, along with one of his sons, was injured in the attack.

Colombia is the world’s largest emerald producer and Boyacá and surrounding areas were at the centre of the ‘green war’ in the 1980s, as competition for control of the increasingly profitable emerald mines grew. The violent attacks took place between the Nel Rincón clan and that of Víctor Carranza (known as Colombia’s emerald tzar), both of which developed ties to the powerful local drug trafficking organisations of the time. This violence only appeared to subside after a truce agreed between the emerald tycoons in 1990 and the death of the drug lord Pablo Escobar two years later.

Concerns about a revival of the ‘green war’ have been building in recent months, following Carranza’s death from cancer in April 2013. Nel Rincón may have seen in this an opportunity to expand his control of local mines. According to the Colombian weekly Semana, 25 people were killed in the first ten months of the year in this new ‘war’. These included some of Carranza’s close collaborators. His right hand man, Pedro Ortegón, was shot dead in July and one of his lawyers, Óscar Casas, was killed the previous month. The government has since deployed 250 soldiers and police deployed to the municipalities Pauna, Quípama, Muzo and Maripí, as well as Boyacá.

But the prospect of renewed violence has provoked concerns from various sectors, including the Catholic Church. Monseñor Luis Felipe Sánchez, bishop of Chiquinquirá, described the situation in Boyacá as “worrying” and called on the Bogotá government to closely monitor the situation. He also called on the emerald tycoons to sit down at a “dialogue table” and talk “sincerely” about their commitment to peace, as agreed 23 years ago.

That Mexico should figure prominently in the US Drug Enforcement Administration (DEA)’s public summary of its drug threat assessment is not surprising. What does catch the eye is the fact that it foresees increases in the supply of all the drugs that Mexico produces, and a possible continuing decline in only one – cocaine - for which Mexico acts only as a conduit.

The DEA’s 2013 National Drug Threat Assessment Summary (NDTAS) was made public on 18 November. As a 28-page summary it is somewhat short on the statistical underpinning of its conclusions. It is also cautious when it comes to explaining the causes of perceived trends; in most cases it prefaces the identification of causes and correlations with ‘likely’, ‘may’ and ‘appear to’ — but it swings over to certainty when it comes to predicting future developments. What follows is a synopsis under our own headings (using edited excerpts from the text) of what the NDTAS says.

Heroin

Facts cited: According to National Seizure System (NSS) data, the amount of heroin seized at the Southwest Border increased by 232% from 2008 (558.8 kilos) to 2012 (1,855kg).

Conclusion: Heroin availability in the US continued to increase in 2012.

Conjectures: The increase in seizures appears to correspond with increasing levels of production of Mexican heroin and the expansion of Mexican heroin traffickers into new US markets. The increase in availability is most likely due to an increase in Mexican heroin production and Mexican traffickers expanding into the eastern and midwestern US markets traditionally supplied with white heroin.

Outlook: The US wholesale heroin market will remain in flux for the near term as Mexican traffickers attempt to expand control over certain markets and gain entry to others. It is likely that Mexican traffickers will continue to expand into lucrative white heroin markets by increasing their own access to white heroin and, to a lesser extent, attempting to introduce Mexican brown and black tar heroin into eastern US heroin markets.

Methamphetamine

Facts cited: Prices decreased more than 70% between the third quarter of 2007 and the second quarter of 2012, while purity increased almost 130%. Seizures of Mexican methamphetamine coming across the Southwest Border have increased [presumably supported by NSS data]. Abuse and demand data indicate that methamphetamine abuse is stable [Presumably supported by data from the National Drug Threat Survey (NTDS)].

Conclusion: Availability of methamphetamine in the US may be increasing.

Conjectures: The increase may be due largely to sustained production of high-quality methamphetamine in Mexico, the primary foreign source for the US market.

Outlook: With the inflow of high-quality Mexico-produced methamphetamine, large-scale domestic production will continue to diminish; however, it will not disappear.

Marijuana

Facts cited: NTDS data show 88.2% of responding agencies reporting that marijuana availability was high in their jurisdictions. National-level data for 2011 show more individuals reporting having used marijuana in the past year than reported using all other drugs combined. According to the Potency Monitoring Project, the average percentage of tetrahydrocannabinol (THC), the constituent that gives marijuana its potency, increased by 37% from 2007 (8.7%) to 2011 (11.9%). There have been record levels of eradication, increased growing in previously uncultivated areas, and a considerable increase in large-scale cultivation by transnational criminal organisations (TCOs) and criminal groups, particularly involving Mexican traffickers [unsourced]. Marijuana smuggling into the US has been consistently high over the past 10 years, primarily across the US–Mexico border, where more than a million kilos of marijuana are seized annually [presumably supported by NSS data].

Conclusion: Marijuana availability in the US appears to be increasing.

Conjectures: The increase in marijuana availability may be due to increased domestic cannabis cultivation and sustained high levels of production in Mexico.

Outlook: TCOs and criminal groups will increasingly exploit the opportunities for marijuana cultivation and trafficking created in states that allow ‘medical marijuana’ grows and have legalised marijuana sales and possession. Marijuana abuse levels will increase over the next decade, particularly if its use continues to be increasingly accepted by adolescents.

Cocaine

Facts cited: According to NSS data, approximately 16,908 kilos of cocaine were seized at the Southwest Border in 2011; in 2012, only 7,143 kilos were seized, a decrease of 58%. Price and purity data also indicate decreased availability of cocaine [unsourced]. Available data on cultivation, yield, and trafficking indicate that cocaine production in Colombia declined in 2012 from the high levels seen in the period 2005 to 2007.

Conclusion: The trend of lower cocaine availability in various areas of the US that began in 2007 continued in 2012.

Conjectures: Counterdrug efforts may be sufficiently disrupting Colombian traffickers’ ability to increase cocaine transportation; the combined effect of several large seizures and the arrests of several high-level traffickers makes TCOs reluctant to transport large shipments of cocaine. Conflict between and within TCOs in Mexico may affect the amount of cocaine moved, as groups scale back their smuggling efforts until disputes abate.

Outlook: Trends in Colombian cocaine production — the primary source for cocaine distribution in the US — will continue to affect US cocaine availability in the near term. Law enforcement efforts in source and transit countries as well as the US, combined with a decrease in domestic demand, will contribute to reduced availability, a situation which is unlikely to change in the immediate future.

• Mexico identifies cartel ‘corridors’

On 6 June Mexico’s national security council, CNS, said that a programme launched last July had led to the identification of four main corridors leading into the US which are used by organised crime and the drug cartels:

▫ Sonora-Arizona

▫ Chihuahua-New Mexico-West Texas

▫ Coahuila-Nuevo León-Tamaulipas- South Texas

▫ Baja California-California

A grenade attack killing four people in the town of Pauna, in the western Boyacá department, has sparked concerns about a revival of the so-called ‘green war’ between rival emerald tycoons in the department in the 1980s.

Colonel Carlos Antonio Gutiérrez, the departmental police chief for Boyacá, (where the country’s largest emerald mines are located), told reporters on 10 November that the grenade lobbed the previous day into a crowd in the town centre was an assassination attempt on Pedro ‘Orejas’ Nel Rincón. A leading player in the local emerald mining business, Nel Rincón had been attending a local festival and, along with one of his sons, was injured in the attack.

Colombia is the world’s largest emerald producer and Boyacá and surrounding areas were at the centre of the ‘green war’ in the 1980s, as competition for control of the increasingly profitable emerald mines grew. The violent attacks took place between the Nel Rincón clan and that of Víctor Carranza (known as Colombia’s emerald tzar), both of which developed ties to the powerful local drug trafficking organisations of the time. This violence only appeared to subside after a truce agreed between the emerald tycoons in 1990 and the death of the drug lord Pablo Escobar two years later.

Concerns about a revival of the ‘green war’ have been building in recent months, following Carranza’s death from cancer in April 2013. Nel Rincón may have seen in this an opportunity to expand his control of local mines. According to the Colombian weekly Semana, 25 people have been killed in the first ten months of the year in this new ‘war’. These included some of Carranza’s close collaborators.  His right hand man, Pedro Ortegón, was shot dead in July and one of his lawyers, Óscar Casas, was killed the previous month. The government has since deployed 250 soldiers and police deployed to the municipalities Pauna, Quípama, Muzo and Maripí, as well as Boyacá. But the prospect of renewed violence has provoked concerns from various sectors, including the Catholic Church.

• Church concerns

Monseñor Luis Felipe Sánchez, bishop of Chiquinquirá, described the situation in Boyacá as “worrying” and called on the Bogotá government to closely monitor the situation. He also called on the emerald tycoons to sit down at a “dialogue table” and talk “sincerely” about their commitment to peace, as agreed 23 years ago.

On 4 November Argentina’s defence minister, Augustín Rossi, announced that a clean-up of old military files had uncovered a series of ‘blacklists’ with the names of artists and journalists considered ‘uncooperative’ by Argentina’s last military government (1976-1983). Along with the other military governments in the Southern Cone at the time, Argentina launched the infamous ‘Plan Cóndor’, a regional intelligence-sharing operation begun in the mid-1970s that allowed the authoritarian right-wing governments to systematically target and persecute government opponents regardless of where they lived.

Rossi said that the documents were part of a large file collection discovered in the basement of the air force headquarters – otherwise known as ‘the Cóndor’ building. According to Rossi, the list classified dissidents according to the strength of their links to Marxist politics. Artists and journalists were ranked on one of four levels, reflecting their potential danger to the military regime. Anyone ranked level one was considered an “inoffensive” individual, but those ranked level four were considered to be of “dangerous” nature and were marked out to be ‘marginalised’. This might include denying them employment offers, job promotions and scholarships.

According to Rossi, a special armed forces unit, Equipo Compatibilizador Interfuerzas (ECI), was tasked with monitoring and classifying suspected dissidents. The minister also noted that Plan Cóndor apparently was conceived of as long-term project, with a view to managing a gradual return to democracy by the year 2000. As part of this, the documents suggested that the restrictions placed on some of the most ‘dangerous’ individuals would also be relaxed over time, allowing them to slowly reincorporate back into public and political life.

Some of the more recognisable names on the blacklists included the late singer-songwriter and poet María Elena Walsh; the late novelist Julio Cortázar; actors Norman Briski and Federico Luppi; and musicians Víctor Heredia and the late Mercedes Sosa. Significantly, the name of the Argentine film maker-turned politician, Fernando ‘Pino’ Solanas (now a senator-elect), also appeared on the list.

• Plan Condór

The governments of Argentina, Brazil, Bolivia, Chile, Paraguay and Uruguay all participated in Plan Condór. Political dissidents in the region have also accused the US government, and specifically the former US secretary of state Henry Kissinger, of tacit or active involvement in the intelligence operations.

The Dominican Republic (DR)’s energy sector has long been the main weak point of an otherwise surprisingly solid domestic economy. Plagued by chronic production and financing problems, the sector is often considered the main factor holding back the country’s economic development. Successive Dominican governments have sought to address the sector’s issues to little avail. Since taking office in August 2012, President Danilo Medina similarly pledged to fix the sector once and for all. While there has been hitherto little progress on this front, a recent show of interest from the US is fuelling hopes that the Medina administration may be able to deliver on its promise.

The DR relies on electricity produced by energy plants run on hydrocarbon fuels and as it is not a hydrocarbons producer, it must import these fuels at a very high cost. This has made it historically difficult for energy companies operating in the DR to make a profit. The fact that since the 1990s the country’s energy sector has been organised into a public-private scheme in which the state-run Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE) is in charge of sourcing energy from the private sector in order to distribute it across the country, means that the government directly and indirectly absorbs the sector’s massive costs [RC-04-12]. Indeed the DR’s sizable energy bill is largely responsible for the country’s mounting fiscal deficit.

Upon assuming power the Medina government identified cutting the fiscal deficit as one of its main economic objectives and immediately launched an extensive government austerity plan. While this has delivered some positive results [RC-06-13], it has become increasingly clear that any long term solution to the government’s financial difficulties will require an overhaul of the energy sector. This was recognised in part in the government’s ‘strategic plan for the energy sector’ which Medina presented at the start of the year which includes plans to increase the country’s generation capacity by at least 1,500 Megawatts (MW) over the next four years – an objective which the government recognises would require attracting some US$3m in investment. This would allow it not only to boost its installed capacity but also to diversify the energy generation matrix so as to reduce the rising costs. While the government has announced it would finance the construction of two new 300MW coal-fuelled energy plants in the south of the country (which are currently in the public tender stage), Finance Minister Simón Lizardo Mézquita and CDEEE executive vice-president, Rubén Jiménez Bichara, travelled to Washington D.C. in May in search of funding from US and multilateral organisations for other projects.

Positive response

The Medina government may have had to wait months for an official response from the US for its proposed plans but when it came it was surprisingly positive. On 30 October a US delegation led by Under Secretary of Commerce for International Trade Francisco J. Sanchez visited Santo Domingo, where it held a meeting with President Medina. Following the meeting Sanchez told reporters that Summit Power, a subsidiary of US firm Wellford Energy, had expressed an interest in installing and operating a 1,000MW natural gas operated energy plant in the north of the country. Sanchez added that the Barack Obama administration “wholly” backs the project. Significantly, Sanchez said: “I wanted to tell the president that not only would we back it, but importantly that we will also ensure the supply of US natural gas from 2015 onwards. In addition other important issues that will help carry out this project could also be satisfied… we are here to do everything possible so that the project can be carried out for the benefit of all Dominicans”. Such strong backing will surely give the Medina government the confidence to move along with its plans.

• IMF calls for sector reform

On 10 October the International Monetary Fund (IMF) concluded its first follow-up review of the Dominican Republic after the two sides ended their stand-by agreement in February 2012. In a statement by its executive board, the IMF recommended the DR reform its energy sector so as to limit the burden that it represents to the national fiscal budget. According to the statement, the IMF’s directors “welcomed the authorities’ plans to remedy the structural shortcomings in the electricity sector. In this regard, they highlighted the need for a comprehensive strategy to improve efficiency in the sector without undermining the public finances.” According to the CDEEE figures, its debt to energy generators to 30 September stood at US$568.26m. This, after the Medina government paid off US$1.5bn owed to the sector in the first nine months of the year.