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Richest Latin Americans should pay ‘much more’ tax, says IMF

Richest Latin Americans should pay ‘much more’ tax, says IMF
Richest Latin Americans should pay ‘much more’ tax, says IMF

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The IMF’s top official for Latin America has urged governments to make the rich pay “much more” in tax, saying the world’s most unequal region will not develop unless it addresses demands for a fairer economic system.

In an interview with the Financial Times as he prepared to step down after eight years in the job, Alejandro Werner, the fund’s western hemisphere director, said that recent social unrest in Latin America highlighted the need for a much more equal distribution of income.

The IMF has previously called for high earners across the globe who have prospered because of the pandemic to pay more tax on a temporary basis to help those hit hardest. Latin America has suffered more than any other region as coronavirus exacerbated long-running problems of low growth, high inequality and poverty.

Werner flagged “underused” property taxes as a good place for Latin America to start.

“You need to have a much more progressive taxation system where . . . the upper segments of the population pay much more and then you have to have an economic system in which economic competition is much stronger than it is today,” he said.

“Latin America cannot be the most unequal region in the world and jump into the next stage of economic development.”

Before moving to the IMF in 2013 Werner was a senior Mexican finance ministry official and worked at a Mexican bank; he will retire from the fund at the end of August.

The spillover effects of the US stimulus, strong growth in China and high global commodity prices have helped the region to a faster-than-expected bounce back from last year’s 7 per cent fall in gross domestic product, and the IMF, along with private sector economists, has become more optimistic about its prospects.

Werner said the IMF’s current forecast of 4.6 per cent growth in Latin America this year was likely to be revised up, partly because economies had been able to maintain activity at a higher level than expected, despite continuing Covid infections.

“The correlation between economic activity and the rate of contagion is much weaker now than in [the second quarter] of last year,” he said.

The region’s two largest economies, Brazil and Mexico, have given priority to reopening their economies despite high death tolls, helping them recover more quickly than some neighbouring countries that have persisted with lockdowns. 

An FT study of excess mortality found that Latin American countries have suffered some of the world’s highest death rates from the pandemic, with relatively little difference between countries that imposed strict lockdowns, such as Peru and Colombia, and those that did not, such as Brazil or Mexico.

Latin American countries also took divergent paths on extra spending, with Brazil, Peru and Chile among nations taking on significant additional debt to support those most affected by coronavirus.

Mexico was the notable exception and although Wall Street banks are forecasting it will grow by more than 5 per cent this year, this will not make up for the 8.5 per cent contraction it suffered last year. Werner said it “would have been much better served” with a stimulus package.

The region’s politics have been turbulent in recent years, with waves of street protests rocking Chile and Ecuador in 2019. They spread to Peru and more recently Colombia, polarising politics and strengthening the hand of outsider candidates from the extremes of left and right in elections. 

In Peru, Pedro Castillo, the candidate of a Marxist-Leninist political party, appears to have won this month’s presidential election, although his conservative opponent Keiko Fujimori has challenged his victory with claims of electoral fraud.

“The swings that we see in the political choices by the population reflect that there’s a very strong demand for a much better income distribution, and beyond that, a much . . . fairer economic and social system,” said Werner.

In April Colombia attempted a tax reform to boost revenues and broaden its tax base but the government was forced to scrap it within days after a wave of violent protests across the country.

Werner said revenue-boosting tax changes were needed to repair public finances across the region but added that Bogotá’s experience showed the need for broad agreements on economic reforms that went beyond the traditional political class.

“The political environment is very tough for the implementation of reforms and therefore countries will have to be very careful in designing these reforms, in engaging with the population at large and eventually in generating the consensus . . . because these reforms are necessary,” he said.

“If not, we will see significant instability that will hurt employment, that will hurt the recovery, will hurt social indicators. It’s a very difficult landscape.”

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US places sanctions on head of Cuban military over protest crackdown

US places sanctions on head of Cuban military over protest crackdown
US places sanctions on head of Cuban military over protest crackdown

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The US has imposed economic sanctions on the head of Cuba’s military in response to Havana’s crackdown on protesters, in an effort by Joe Biden to increase pressure on the communist regime.

The sanctions announced by the Treasury department on Thursday targeted Alvaro Lopez Miera, Cuba’s defence minister, for “serious human rights abuses” in connection with the protests, as well as the “Black Berets”, a unit of the interior department that was deployed to curb the unrest.

Thousands of people took to the streets on July 11 in Cuba’s biggest anti-government protests in decades, in what appeared to be spontaneous demonstrations in multiple towns and cities to protest against shortages of food and medicine and call for greater freedoms.

The government responded by sending out police in large numbers to disperse the demonstrators and restricting internet access in most of the island. Human Rights Watch later said that about 400 people had been detained.

“I unequivocally condemn the mass detentions and sham trials that are unjustly sentencing to prison those who dared to speak out in an effort to intimidate and threaten the Cuban people into silence,” Biden said in a statement on Thursday.

“The Cuban people have the same right to freedom of expression and peaceful assembly as all people. The United States stands with the brave Cubans who have taken to the streets to oppose 62 years of repression under a communist regime,” the US president added.

Miguel Díaz-Canel, Cuba’s president, has repeatedly blamed exiles in the US for encouraging and organising the protests. Like Cuban leaders before him, he has pointed the finger at the American embargo for causing shortages and economic hardships, although independent economists say the country’s state-dominated economy and inefficient central planning play big roles.

Díaz-Canel’s administration had hoped that Biden would revive the Obama-era policy of detente with Havana. Despite promises from the US president on the campaign trail to alleviate some of the embargo’s humanitarian consequences, these hopes have so far been frustrated.

Cuba’s crackdown on the protesters further limits Biden’s political space for making any moves towards dialogue with Havana.

Biden said the US would “continue to sanction individuals responsible for oppression of the Cuban people” while working with “civil society organisations and the private sector to provide internet access to the Cuban people that circumvents the regime’s censorship efforts”.

He said the US was also “reviewing our remittance policy to determine how we can maximise support to the Cuban people” and was committed to “restaffing our embassy in Havana” to “provide consular services to Cubans and enhance our ability to engage with civil society”.

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Leftist Pedro Castillo finally confirmed as Peru’s next president

Leftist Pedro Castillo finally confirmed as Peru’s next president
Leftist Pedro Castillo finally confirmed as Peru’s next president

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Leftwing candidate Pedro Castillo has finally been confirmed as Peru’s next president and will be sworn in to office next week after one of the longest and most bitter electoral battles in the country’s history.

The National Electoral Jury confirmed Castillo’s victory in a televised address on Monday night, more than six weeks after a second-round poll. Keiko Fujimori, Castillo’s only rival for the presidency, grudgingly acknowledged defeat, saying she would “recognise the results because that’s what the law and the constitution I swore to defend order”.

However, Fujimori described the JNE’s announcement as “illegitimate” and said that electoral fraud that she claimed tipped the vote in Castillo’s favour “will come to light”.

In a swipe at Castillo and Vladimir Cerrón, the hardline Marxist leader of his political party, Fujimori, the daughter of the country’s former authoritarian leader Alberto Fujimori, warned that Peru was embarking on a dangerous new chapter.

“It will be difficult because communism doesn’t assume power only to then give it up,” she said. “But I am totally sure that the Peruvians will not allow Pedro Castillo and Vladimir Cerrón to turn Peru into Cuba or Venezuela.”

Peru’s electoral authorities said weeks ago that Fujimori lost the June 6 run-off by 44,000 votes, or a margin of 49.9 per cent to 50.1 per cent. The EU, the Organization of American States and the US described the elections as fair. Washington as far as calling the poll “a model of democracy in the region”.

But in an echo of Donald Trump in last year’s US presidential election, Fujimori insisted the victorious Perú Libre party had cheated. Her lawyers bombarded the JNE with objections, forcing the body to painstakingly review ballot papers from across the country and delaying the formal announcement of the winner.

Analysts consulted by the Financial Times said the lawyers had produced some evidence of irregularities, but not enough to meaningfully affect the result.

“There is no evidence of fraud. Nothing,” said David Sulmont, professor of political science at Lima’s Pontifical Catholic University. “In a world in which everyone has a cell phone, if there was fraud it would have surfaced on social media by now and it hasn’t. Her narrative is 100 per cent fake news.”

Castillo, 51, is rural primary school teacher who emerged from obscurity to win the election by appealing to Peru’s poor, particularly in remote villages in the Andes and the Amazon basin. His campaign slogan — “no more poor people in a rich country” — resonated with many.

The prospect of his victory pushed Peru’s currency, the sol, to unprecedentedly low levels against the dollar. It has depreciated 9 per cent since Castillo emerged as a potential election winner in April despite repeated interventions from the central bank. Wealthy Peruvians have shifted money out of the country.

Castillo denies that he is a Marxist but his critics point to Cerrón’s influence over the party.

A Cuban-trained doctor who was barred from running himself because of a corruption conviction, Cerrón was the author of a notorious manifesto that praised Daniel Ortega in Nicaragua and Hugo Chávez and Nicolás Maduro in Venezuela. It warned foreign companies in Peru that they would have to hand over most of their profits to the state and would face expropriation if they refused.

Castillo has since distanced himself from the document and moved closer to more moderate leftists, although he insisted that he would try to rewrite the country’s 1993 constitution.

His party will have only 37 of the 130 seats in Peru’s fragmented Congress and may find it hard to govern. The country’s constitution also lends itself to politicians impeaching the president — Castillo will be the fifth leader in five years.

He will take office on July 28, the 200th anniversary of Peru’s independence from Spanish rule.

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Drought puts Amazon at risk of ‘large scale dieback’, researchers warn

Drought puts Amazon at risk of ‘large scale dieback’, researchers warn
Drought puts Amazon at risk of ‘large scale dieback’, researchers warn

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Increasingly severe climate conditions threaten to accelerate a “large scale dieback” of the Amazon rainforest, according to the authors of a new study finding that 2.5bn trees perished in the biome following a drought several years ago.

Central Brazil is currently reeling from the worst drought in 100 years, which has triggered water shortages and the risk of power blackouts. The southern reaches of the world’s largest rainforest are forecast to be impacted by the dry spell later this year.

A joint group of UK and Brazilian scientists have warned that tree loss caused by these extreme dry spells can push the rainforest past its so-called “tipping point”, the threshold at which it can no longer sustain its water recycling ecosystem. This would cause more trees to perish and trigger sharp climate fluctuations across Latin America.

“With droughts becoming more common and more intense, this means more tree mortality and less water being recycled. This could lead to a large-scale dieback,” said Erika Berenguer, a Brazilian researcher at the universities of Oxford and Lancaster.

In an eight-year study released on Monday, Berenguer’s team found that droughts and wildfires following the 2015-16 El Niño caused the death of more than 2.5bn trees and woody vines in the most affected area of the rainforest.

By comparison, 129m trees are estimated to have perished in California since 2010 because of droughts and wildfires, according to the US Forest Service.

According to the UK-Brazil study, the destruction of the forest resulted in almost 500m tonnes of carbon dioxide emissions. The mortality rates of trees was also higher than expected for three years following the drought.

“After three years, only around a third of the emissions were reabsorbed by plant growth in the forest. This shows that the Amazon’s vital function as a carbon sink can be hampered for years following these drought events,” the researchers said.

Scientists have generally worried that the Amazon would cross its “tipping point” as a result of human-led deforestation, which has soared during the rightwing Jair Bolsonaro’s administration in Brazil. Some environmental campaigners also believe the country’s ongoing drought is directly linked to the surging deforestation in the Amazon.

The rainforest has long been considered a crucial buffer against climate change, with billions of trees acting as a giant sink for carbon emissions.

A series of new studies, however, including one published last week in Nature, suggest that parts of the biome are now releasing more carbon than they are absorbing as a result of deforestation and farmers using fire to clear land.

Berenguer also highlighted how the drying of the forest makes it more susceptible to fires set by farmers, which she said cause six times more carbon emissions compared with trees that are only affected by drought.

The study was conducted by gathering data from 21 plots of primary forest, secondary regrowing forest and forests that had been logged, with results extrapolated to the region.

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Haiti’s interim prime minister agrees to step aside

Haiti’s interim prime minister agrees to step aside
Haiti’s interim prime minister agrees to step aside

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Haiti’s acting prime minister, who has been in charge of the country since president Jovenel Moïse was assassinated 12 days ago, has agreed to step aside under diplomatic pressure and hand over power to a rival.

Claude Joseph told The Washington Post on Monday that he would cede power to Ariel Henry, who had been appointed by Moïse as prime minister two days before the killing but was not sworn in.

“Everyone who knows me knows that I am not interested in this battle, or in any kind of power grab,” Joseph told the paper. “The president was a friend to me. I am just interested in seeing justice for him.”

Mathias Pierre, Haiti’s election minister, confirmed the news, saying Joseph would return to his previous job as foreign minister. A new government would be sworn in as early as Tuesday, he said.

Henry, a 71-year-old surgeon, had reiterated his claim to the prime minister’s job in a recording issued on Sunday. He described the assassination as a “coup d’état”, vowed to bring those responsible to justice and praised the Haitian people for their “political maturity”.

Joseph’s decision to step aside comes days after a group of foreign ambassadors and envoys, who had supported him in the immediate aftermath of the assassination, appeared to change tack and throw their weight behind Henry.

In a statement, the so-called “Core Group” — which includes representatives of the US, France, Spain, Brazil, Germany, Canada, the EU, the UN and the Organization of American States — stressed the need for a “consensual and inclusive government” put together by “designated Prime Minister Ariel Henry”. They encouraged Henry to continue “the mission entrusted to him to form such a government”.

Moïse was murdered by a hit squad that burst into his private residence on the outskirts of the capital Port-au-Prince and fired 12 bullets into him. His wife Martine was seriously injured in the attack and flown to Florida for treatment.

She returned to the Caribbean nation at the weekend ahead of her husband’s funeral, which is due to take place on Friday.

The assassination has plunged Haiti, the poorest nation in the Americas, deeper into chaos as politicians, business leaders and powerful gang bosses vie for power amid spiralling violence and dire food and fuel shortages. Moïse’s widow accused her dead husband’s domestic opponents of organising the killing for political and business reasons.

Joseph had urged the UN and US to intervene by sending troops to help guard critical installations, but international powers are wary of deeper involvement in Haiti, which has struggled to find stability after decades of political turbulence and repeated natural disasters.

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Samarco hits back at creditors in battle over Brazil mining disaster

Samarco hits back at creditors in battle over Brazil mining disaster
Samarco hits back at creditors in battle over Brazil mining disaster

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Samarco, an iron producer responsible for one of Brazil’s worst environmental disasters, has accused creditors of an “unfortunate attempt” to disrupt a restructuring the miner says will safeguard thousands of jobs.

The criticism from Samarco, a joint venture between global mining groups Vale and BHP, comes after lawyers for a group of creditors, including London-listed asset manager Ashmore and US group Canyon Partners, this week branded the proposed restructuring as “absurd”.

Under the plan, Samarco has given bondholders and other lenders the option of being paid just 15 per cent of the face value of the notes in 2041, or else swap the debt for a stake in the business. The dissenting creditors are owed R$22bn ($4.3bn).

The battle between Samarco and its creditors comes more than five years after the breach of the Fundão tailings dam at the Germano mining complex, which killed 19 people and polluted one of Brazil’s largest river basins with a torrent of mining waste.

Saddled with about $10bn in borrowings, Samarco earlier this year filed for a judicial reorganisation, a court-supervised process in Brazil akin to bankruptcy protection.

The group of creditors, which include distressed debt specialist Solus Alternative Asset Management, have claimed the plan is intended to shield BHP and Vale from obligations arising from the November 2015 disaster. The creditors account for most of Samarco’s third-party debt.

Lawyers for the creditors, which hold mostly bonds as well as some export loans, dismissed the proposal they take an 85 per cent haircut on their debts as “absurd”, according to a document submitted this week to a court in the state of Minas Gerais, where Samarco is based.

In the court documents, they also accused Vale and BHP of abusing their position to extract value to the detriment of creditors, arguing that the two joint venture partners should only receive any repayments from Samarco after its other debts are settled.

Just under half of Samarco’s debts are owed to Vale and BHP, which will be subject to the same discount and repayment terms.

Samarco said in response to the court filing: “This is one more unfortunate attempt from some financial creditors to disrupt the judicial reorganisation process and confuse public opinion.” The company insisted it was prepared to negotiate “despite the numerous disputes and accusations” by financial creditors.

“The plan presented was prepared in accordance with the current financial capacity of the company” and aimed to preserve more than 6,000 direct and indirect jobs as well as tax contributions, it added.

Samarco has said that filing for a court-supervised restructuring was required to prevent creditors affecting its ability to operate and make payments towards Renova, a foundation set up to oversee reparations for the disaster under a settlement with Brazilian prosecutors.

Samarco only resumed production in December and its output is expected to be less than a third of its total before the dam disaster. However, the group is selling its iron ore into a booming market.

Prices for the steelmaking ingredient have hit a record high this year, helping Samarco’s defaulted bonds recover much of their value. They are trading at almost 80 cents on the dollar, up from less than 40 cents in early 2020 as the pandemic erupted.

Ivan Apsan, vice-president of legal and corporate affairs at BHP Brasil, described Samarco’s terms as “fair and reasonable”.

“[They] present the best solution that enables Samarco to . . . continue operating, contributing to the local economy of Minas Gerais and Espírito Santo and funding the Renova Foundation,” he said.

Vale expressed support for the restructuring plan, which it described as “built according to the company’s capacity”.

Ashmore and Canyon Partners declined to comment. Solus did not respond to a request for comment.

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Lula keeps policies a mystery on Brazil comeback trail

Lula keeps policies a mystery on Brazil comeback trail
Lula keeps policies a mystery on Brazil comeback trail

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Since his return to Brazilian politics in March with a rollicking speech at a metalworkers’ union outside São Paulo, the popularity of Luiz Inácio Lula da Silva has continued to rise.

Opinion polls suggest “Lula” — who served two terms as president between 2003 and 2010 — would easily defeat the firebrand conservative Jair Bolsonaro if elections scheduled for October next year were held today.

But while the leftwing former leader’s call for a return to normality after three divisive years of Bolsonaro’s populist rule has resonated, some Brazilians wonder what a new Lula presidency could look like. Over half a century in Brazilian politics the 75-year-old has shown different stripes.

Lula has conceded that his ideas “change when the facts change”, and he has veered from socialist union leader to the head of a liberal economic administration in 2003. Today he pledges support for the free market while vowing to intervene in state-run companies if it means improving the wellbeing of Brazilians.

Some also wonder whether Lula would seek political vengeance once back in power. He spent almost two years in prison following a corruption conviction in Brazil’s sprawling Lava Jato, or Car Wash, investigation. He deems the conviction — which was quashed by the Supreme Court in March — the result of a political plot by his opponents.

The former president’s allies insist any third term would be characterised by pragmatic dealmaking, progressive values and the protection of democracy.

“He is keen to improve the lot of poor people and doesn’t think of the economy in a way that is separate from employment, life conditions, health and education,” said Celso Amorim, who served as foreign minister in Lula’s government. 

“My impression is that internally we would try do something not unlike what Joe Biden is doing in the US. Of course we don’t have the same resources, but it would mean a greater role for the state especially in social areas. If the [neoliberal] view has departed from the main centre of capitalism in the US, we shouldn’t be shy of adopting measures that are similar.”

Still, while supporters insist Lula is a pro-democracy pragmatist, he is a longtime backer of repressive governments in Cuba and Venezuela.

After thousands of Cubans demonstrated on the streets last week, Lula signed a letter as part of the leftwing Puebla Group that expressed “its support for the government of Miguel Díaz-Canel with the complete certainty that he will know how to handle the recent social situation with prudence and diligence”.

Luiz Felipe d’Avila, a political scientist at the Center of Public Leadership in São Paulo, said Lula’s support for the Cuban regime was “worrisome and signals the perpetuation of radicalism”.

“We have a rightwing radicalism, and we continue to have a leftwing radicalism, which the Brazilian voter does not want. Today, they do not want either Lula or Bolsonaro. They are tired of radicalism that has not improved their lives.”

An aide to the former president said Lula would not reveal economic policies so far ahead of the election but said there was “a need for the country to have a strong consumer market, a return to dialogue with the world and [a focus on] sustainable development, including in agribusiness”.

Lula has used social media to criticise a ceiling on government spending — beloved by investors for keeping Brazil’s fiscal house in order — and the Bolsonaro government’s campaign to privatise state-run entities.

“If you want to see the surrender of national sovereignty and selling national heritage, don’t vote for me. Be afraid, because we are not going to privatise,” he said earlier this year.

‘Lula in jail’: Brazilians celebrate after the former president was convicted on corruption charges and sentenced to almost 10 years in prison in 2017 © Nacho Doce/Reuters

However, Lula’s relative silence has had the effect of keeping the media focus on Bolsonaro’s botched handling of the pandemic and anti-democratic rhetoric.

“So far, he has been cleverly quiet — he seems to have understood that being out of the spotlight could be actually helping his popularity right now,” said Eduardo de Carvalho, a portfolio manager at Pacifico Asset Management.

“If Lula comes back like the one from 2003, it would be good news for the economy. Back then, he had a good economic team and implemented a very sound economic policy. However, if he arrives proposing policies closer to his second mandate and the [successor Dilma] Rousseff government — both in which public spending heavily increased — then investors could flee Brazilian assets.”

Those close to him say the Lula that Brazilians would encounter in a third term would be a dealmaker, not an ideologue.

“We are working in a strategic way, constructing alliances,” said Aloizio Mercadante, a co-founder alongside Lula of the leftwing Workers’ party. He points to the former leader’s outreach to centre-right politicians, including his one-time nemesis, former president Fernando Henrique Cardoso.

“Lula had the most popular presidency in recent Brazilian history. He has shown that he is capable of constructing a meritocratic, competent government.”

Hussein Kalout, who served in the rightwing Michel Temer administration, said Lula’s attempts to build alliances would override any inclination to seek retribution for his imprisonment.

“Maybe the Workers’ party will become more radical and want to avenge what happened, but I don’t see Lula going there because it doesn’t fit his personality and it doesn’t fit his politics. He knows he could not govern only sticking with the left,” he said.

Bolsonaro’s success in the 2018 election was largely attributed to voter discontent over rampant corruption during the presidencies of Lula and Rousseff between 2003 and 2016.

Many voters today say they would still not vote for Lula because of this. Lula has not helped by deriding the Car Wash corruption investigation as a political witch-hunt, despite the probe recovering billions of dollars in stolen public money. It was the largest corruption investigation in Latin American history, with scores of politicians and businessmen arrested across the continent.

Kalout points out, however, that while the Workers’ party was clearly involved in corruption alongside many other parties, the administrations of Lula and Rousseff did much to strengthen the institutions and rules that allowed the Car Wash investigation to happen. In particular, he says the independence of prosecutors was bolstered.

Additional reporting by Carolina Pulice

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