Andean, Central America, & Caribbean Weekly Report

Honduras: Reaching for Their Goals

July 7, 2017BancTrust & Co. Research Team

• We believe Honduras’ 1Q17 results show that the country will be able to accomplish its year-end goals, showing a 4.4% y-o-y improvement for this period
• The trade deficit decreased by 5.5% y-o-y last April on account of higher exports and despite a stark increase in oil and derivatives purchase
• The customs union, expected to increase trade in USD1bn, finally entered into force this week

Honduras’s economy is showing significant improvements this year, demonstrating that it is capable to reach its 2017 growth target of 3.6% – in our view –, although some private companies estimate that the country could even reach a 4% y-o-y- growth at the end of 2017. In detail, the Central Bank released its report for the performance of the economy in 1Q17 in which is evident the good news with a 1.7% q-o-q growth rate and a 4.9% y-o-y advance as a result of leading sectors like: Manufacture (3.3%) and Agriculture (5.2%), while principal services were: Communications, Real Estate Activities, and Construction, which grew 1.4%, 1.6% and 1.4%, respectively. The boost came from the demand side, as there was an improvement in household consumption influenced by the increasing dynamism of remittances coming from the US. At the same time, government spending was reduced by 2.2% due to spending measures reflected in the Fiscal Responsibility Law.

Andean, Central America, & Caribbean Weekly Report

Puerto Rico: Finding the Way to Recovery

June 30, 2017BancTrust & Co. Research Team
  • We expect the economy of the island to shrink 25% – in cumulative terms – by 2020-end on account of a long-drawn recession; nonetheless, some key sector as tourism and manufacture might experience slight growth rates
  • COFINA got downgraded after missing 1 June’s interest payment. Meanwhile, the government managed to exceed their expectations on cash reserves
  • A new budget is under construction for the 2018 fiscal year, and the claims are all over if it reflects the necessary cuts to the country starts surging from the crisis

During a convention of the Mortgage Bankers Association of Puerto Rico (MBA) in San Juan, several renowned local economists warned about the rocky road ahead for the defaulted island. As we stated in previous reports, the Puerto Rican economy will likely experience a long-drawn-out recession spanning at least five years with negative y-o-y growth rates around 4% and 5%.  This view is also shared by economists Joaquin Villamil and Juan Lara, though they remain more pessimistic regarding economic recovery as they expect it to kick in mid-2020’s. In our view, the economy of the island will shrink about 25% by 2020-end while 2018 is building up to be the year with the steepest economic activity decline, as several sectors have yet to hit bottom and the proposed budget plan by US President Donald Trump would bring up cuts in key programs for Puerto Rico.

Among the sectors with worrisome performance lies the construction activity which, according to the Coincident Economic Activity Index of the Planning Board (ICAE-JP in Spanish), reported a sharp 36.2% m-o-m decline in the value of permits in March, while sales of cement decreased by 6.4% m-o-m in the same month. In this regard, we do not see the government fulfilling its promise of boosting investment in the sector to USD5bn within three years given the stark downtrend seen in this century, which has brought down investment almost 66% since 1999 and the overall negative prospects for the economy in the short-term.

On the bright side, the unemployment rate fell to 11% in May, its lowest level since May 2008, and thus sustaining a continuous drop during the first five months of this year, according to official statistics released by the Department of Labor and Resources Human Rights (DTRH). So far, the unemployment rate has fallen 1.2 percentages points YTD. In spite of the first look being positive, in our view, the falling unemployment statistic is a result of the intense emigration suffered in the recent years, which would cut down the number of people actively looking for a job. Furthermore, sectors like manufacturing and tourism continue to growth at modest rates, benefiting from the connection to external markets.

Andean, Central America, & Caribbean Weekly Report

Peru: The Worst Part is Over

June 23, 2017BancTrust & Co. Research Team
  • Even when 1H17 presented some challenges, we see important improvements in the economic activity for 2H17, helping the country to reach the 3% GDP growth goal
  • Petroperu issued USD2bn in 15-yr and 30-yr bonds to fund the upgrade of Talara oil refinery despite of concerns on elevated leverage and doubts on the project’s profitability
  • The National CPI suffered a -0.58% variation in May, confirming previous expectations of an important reduction on inflation and its return to the target range in 3Q17

Peru’s performance had a slower start than expected, mainly influenced by the disasters caused by “El Niño” phenomenon, which had been hitting the Peruvian coasts since the end of 2016 and that it has caused numerous  floods and destruction of infrastructure. Likewise, the bribe scandals related with the Brazilian company, Odebrecht, has led to the paralysis of great infrastructure works. In this regards, February, March and April have been the worst performers with the latter growing a 0.7% y-o-y, while in total, 1Q17 grew 2.08% and 2Q17 is expected to be below that number. However, it seems that the worst has passed and expectations are positive for 2H17.

Andean, Central America, & Caribbean Weekly Report

St. Kitts & Nevis: Good Economic Results

June 16, 2017BancTrust & Co. Research Team
  • The IMF praised the sustained economic growth of St. Kitts and Nevis spanning five years, and called for the sale of land under the land-for-debt swap to limit financial risks
  • The government hints the end of the Citizenship by Investment (CBI) program and the opposition reacts against it
  • Prime Minister is on the spotlight after accusations of harboring a Chinese-citizen fugitive have sprung

Following the end of its visit to St. Kitts & Nevis (SKN) during April 18-May 4 under the Article IV consultation, the International Monetary Fund (IMF) released a set of recommendations to the Caribbean country as well as updated its estimates for GDP growth in 2017. In summary, the institution expects St. Kitts & Nevis’ economy to grow for the fifth consecutive year with an expansion of 2.7%, mostly due to the positive effects of the Citizenship-by-Investment (CBI) program to the economy. Likewise, the macroeconomic policy set implemented by the current administration of Timothy Harris was praised. Nonetheless, negative factors were also highlighted – including the financial risks brought up by the non-completion of the debt for land swap.

Andean, Central America, & Caribbean Weekly Report

El Salvador & Guatemala

June 9, 2017BancTrust & Co. Research & Strategy Team

El Salvador: Time to Rectify

  • For what is left of 2017, the government has to pay around USD1.1bn between Letes, Certificates of Pension Investments and Eurobonds
  • In our view, a fiscal pact must be accomplished with the participation of the opposition parties, in order to assure that April’s default is not a repeating story

After failing payment of the Certificates of Pension Investments (CPI for its words in Spanish) in the first days of April, the government decided to propose a budget reform in order to redirect some budget items that amounted USD57mn and that allows them to honor their obligations. Thus, regarding the April payment, we can say they are now safe but uncertainty will persist for the rest of the year, especially when no fiscal agreement has been reached with the opposition, as in our view it is a key element to guarantee long-term sustainability.

  • Wednesday, July 19 2017

    -The National Assembly (AN in Spanish) approved the final reports on the popular consultation of 16 July and the candidates for magistrates of the Supreme Court (TSJ in Spanish). The latter is part of the process of one of the main items of the current agenda of “zero hour” established by the opposition party Democratic Unity Roundtable (MUD in Spanish), as the legislators expect to exercise their constitutional ability to name – on Friday 21 July – new magistrates and thus actively repudiate the current Supreme Court and i

  • Tuesday, July 18 2017

    - Following the results of the public consultation election on Sunday, the Democratic Unity Roundtable (MUD in Spanish) called for a 24-hour national strike on Thursday in protest against the National Constituent Assembly (ANC in Spanish) proposed by the administration of Nicolas Maduro. Furthermore, Freddy Guevara, deputy President of the Congress, said they expect to name the new magistrates of the Supreme Court on Friday. We can anticipate this move will not be acknowledge by both the government and the Supreme Court, but will u

  • Thursday, July 13 2017

    - S&P Global Ratings, following its Tuesday action of downgrading Venezuela’s rating, yesterday decided also to downgrade the corporate credit of Corporacion Electrica Nacional, better known as CORPOELEC (former ELECAR). The action resulted in a downgrade from “CCC” to “CCC -“while also maintaining the negative outlook. In detail, the rating agency argued that they are taking this action against the corporate as a result of the sovereign’s downgrade, as it reflects that this is a “government-related entity” (GRE

  • Wednesday, July 12 2017

    - A US appeals court blocked Exxon Mobil Corp from enforcing a USD1.6bn award against Venezuela for an asset seizure back in 2007. The court ruled that the judge made a mistake in excusing Exxon from complying with procedural requirements to enforce the October 2014 ruling. In this way, the court supported Venezuela’s point that Exxon should have tried to enforce the award under the federal Foreign Sovereign Immunities Act (FSIA), instead of streamlined procedures. All-in, Exxon's petition was dismissed without prejudice, meaning


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