Andean, Central America, & Caribbean Weekly Report

Nicaragua: Fiscal Sustainability Back on the Table

May 19, 2017BancTrust & Co. Research & Strategy Team
  • The International Monetary Fund warned about the increasing deficit of the Nicaraguan Social Security Institute and recommended a set of measures to regain sustainability
  • We expect the decision-making and implementation of these policies to lag in time as they might hurt the left-wing government’s popularity
  • The economy continues to show a healthy growth in February while inflation sends mixed signals about its path this year
Following a revision under Article IV, the International Monetary Fund (IMF) urged the Nicaraguan government to guarantee the sustainability of the Social Security Institute (INSS in Spanish) by 2019, due to an increase in its deficit which will reach 0.43% of GDP by year-end. The institution recommended a set of policies to restrain the growing deficit of USD50mn that includes rationalizing operating and health expenditures and increasing the retirement age, which is currently 60 years old.

From where we stand, we see difficult the implementation of these measures as they might hurt the left-wing government’s popularity as well as its political base. We are leaned to believe the government would choose to increase the financing of the deficit in the short-term while updating and cleaning the registry of the INSS. Furthermore, the government has yet to tackle fiscal issues related to exoneration, exemptions and VAT evasion, which according to the IMF could translate into an extra USD275mn yearly to the government’s finances.

Besides the abovementioned measures, the IMF also recommended to increase the period of minimum contribution, to increase the employer and employee contributions, to review the mechanism for adjustment of pensions, to reduce granted benefits, and to assume some government spending as special pensions. According to the IMF, delays in policy implementation would increase costs and public debt in the long-term.

As no surprise, INSS President Roberto López stated that, despite these recommendations, the Nicaraguan government will not raise the retirement age nor the contributions by employees.  Without mentioning the measures the administration would take, Lopez did admit that President Daniel Ortega ordered to identify solutions to enhance income flows of the INSS. In this regard, the presidential advisor on economic affairs said the reforms to be implemented will be agreed between the government, businessmen and workers unions – which we see with good eyes as it would provide political strength to the reform and ease any possible turmoil.


Andean, Central America, & Caribbean Weekly Report

Jamaica & PR

May 12, 2017BancTrust & Co. Research & Strategy Team

Jamaica: Committed to its Goals

  • The IMF first revision under the Stand-By Agreement showed positive results, reason why we maintain our previous 2% GDP growth forecast by year-end
  • Tourism keeps presenting as the leading sector for accomplishing growth goals, by enhancing job creation and FX inflows

Under the framework of the Stand-By-Agreement (SBA) approved last 11 November, the IMF went for the first revision of Jamaica performance, which finalized on 14 April. The organism highlighted the macroeconomic discipline and visible reforms the country is having. They also showed confidence on the 2% growth target for fiscal year 2017-2018, which is going to be boosted by tourism – once again – and construction.  We see that these factors increase investor’s confidence, making possible the entry of more foreign direct investment. However, what remains crucial is to continue with fiscal consolidation in order to achieve further debt reduction. We reinforce our expectations of a 2% GDP growth for the end of this fiscal year – as we stated in our previous Jamaica report “Jamaica: Entering the Growth Path” of 20 January –, while we also see important opportunities in the tourism sector.

Andean, Central America, & Caribbean Weekly Report

Trinidad & Tobago: A Bad News’ Streak

May 5, 2017BancTrust & Co. Research & Strategy Team
  • The IMF cut their GDP growth forecast for 2017 while also negatively revised 2016’s total figure. Meanwhile, ECLAC estimates minimum growth in 2017
  • S&P downgraded Trinidad & Tobago’s credit rating to BBB+ and Moody’s soon followed with a downgrade to Ba1 (speculative grade). Both agencies see the outlook “stable”
  • The opportunity to build the Angelin platform locally vanished after delays in the signing of the contract with BP. However, the company expects to invest between USD5bn-USD6bn in the next 5 years

Trinidad & Tobago has received nothing but bad news recently, and from where we stand the light at the end of the tunnel seems like it’s still too far away. Lower oil prices have had quite an impact in the Trinitarian economy and growth prospects have been significantly affected, judging by the IMF’s and ECLAC’s (Economic Commission for Latin America and the Caribbean) recently published estimates. The IMF reduced importantly their GDP growth estimate for 2016, taking it from -1.1% to -5.1% in April’s World Economic Outlook (WEO), while for 2017 the story was no different the growth forecast negatively changed from 1.8% to 1.1%. On the other hand, the ECLAC updated their forecast for 2017 and placed it at barely 0.5%.

Andean, Central America, & Caribbean Weekly Report

Puerto Rico: Top Decision Ahead

April 28, 2017BancTrust & Co. Research & Strategy Team
  • Puerto Rico will face in two weeks the deadline for establishing the renegotiation of the debt with bondholders. Nonetheless, negotiations seems far from over
  • Moody’s Rating Agency downgraded USD13bn on the island’s debt while reaffirming the ratings on COFINA and GO debt
  • The Island will go on statehood plebiscite on June 11

Puerto Rico is close to reaching the deadline proposed under The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) which contemplates that after 1 May 2017 if no agreement is achieved between the government and bondholders, the island should initiate the bankruptcy process. And what has been shown so far, PR is far from accomplishing an appropriate negotiation but instead has been focusing on the mediation between the two largest bondholders, the ones from COFINA and the ones with Constitutionally Guaranteed General Obligation debt (GO).

Andean, Central America, & Caribbean Weekly Report

Paraguay: Still a Good Choice

April 14, 2017BancTrust & Co. Research & Strategy Team
  • The government is trying to settle the draft amendment controversy with a dialogue strategy. We see this as its best chance to maintain stability
  • Amid the social unrest the Inter-American Development Bank (IDB) held an investment forum that keeps consolidating Paraguay as a great investment opportunity
  • The IDB is planning to issue USD180mn in local currency destined to finance private sector projects

Paraguay’s 1992 Constitution prohibits the reelection of the president and the vice-president after the long experience of a dictatorship for 35 years (1954-1989) imposed by General Alfredo Stroessner. Nonetheless, the citizens have been manifesting in a peaceful way since early days of last week due to the intention to approve in the Congress a draft amendment that would allow the so feared reelection. But late night on Friday 31 March tempers flared after the Chamber of Senators approved the bill, with a majority of 25 votes against 19, and the protests climbed until they ended burning down parts of the congress building with a large number of police detentions.

  • Thursday, May 25 2017

    - During a televised press conference, the top Public Prosecutor Luisa Ortega Diaz addressed several events regarding the wave of protests in Venezuela. In detail, the prosecutor denounced the possession of arms by the population despite the current ban by the Ministry of Interior, the performance of state security forces and military trials of civilians. One of the statements with greatest impact referred to the cause of death of a young opposition demonstrator product of a metal projectile fired by an official of the Bolivarian

  • Wednesday, May 24 2017

    - Finance Minister Ramon Lobo and the Executive Board of the Central Bank of Venezuela (BCV in Spanish) announced the start of operations of the new FX system DICOM. The system will work through two weekly auctions (the first one will take place tomorrow) and a bands’ system where the FX rate will fluctuate – the starting rate has not been announced yet. The official rate will be the lowest offered by those who are adjudicated, but a “contingent” auction will take place in case that such rate exceeds the upper band establis

  • Tuesday, May 23 2017

    - For today, the new FX scheme, DICOM, is set to begin operations, and yesterday the Minister of Foreign Trade and International Investment, Jesus Faria, assured that the main goal is to reduce the impact of the parallel dollar and to increase the assignment of currency for business. It is expected that today further details of the mechanism will be disclosed from the facilities of the Central Bank of Venezuela (BCV for its words in Spanish), so stay tuned for more.


    - The US Treasury Secretary, Steven Mnuchin, told the Senate yesterday that regulators would review Rosneft’s stake of Citgo Petroleum Corp., this as concerns have emerged over possible control from the Russian company in case that PDVSA fails to make payments on the bonds guaranteed by Citgo’s collateral. Senators raised their concerns – regarding Rosneft’s “control of a major US energy supplier” – on what they consider a national security matter to Mnuchin, who heads the Committee on Foreign Investment in the Unite


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