Macro Analysis /

BancTrust & Co. LAC Daily Comments 15 March 2023

  • Fitch downgrades Bolivia with a negative outlook

  • Peru: Congressional committee rejects new attempt on early elections bill

  • MSU Energy (MSUNRG) reported stable 4Q22 results, working capital rise impedes leverage reduction

Ramiro Blazquez
Ramiro Blazquez

Head of Research and Strategy

César Alexander Petit
Francisco Schumacher
Bruno Gennari
BancTrust & Co.
15 March 2023
Published byBancTrust & Co.

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* Our tactical positioning is based on the rebalancing of our latest portfolio recommendation against the EMBIG Index’s weights of the credits we track. For more on this, please check LatAm and Caribbean Fixed Income Strategy: “Home-grown factors back on the front burner”, 10 February.


February inflation surprises to the upside and could prompt BCRA to tighten further

Inflation stood at 6.6% m-o-m in February, accelerating for the third consecutive month and exceeding market expectations (6.1% m-o-m according to the central bank’s expectations survey). Core inflation also increased sharply, posting a 7.7% m-o-m rise vs a 5.4% m-o-m in January. Annual inflation, in turn, came in at 102.5% y-o-y, the highest print since the hyperinflation of 1990. Driven mainly by the jump in beef prices, the monthly CPI was the highest print since Economics Minister Massa took office last August and definitely leaves behind the transitory slowdown observed in November and December. Indeed, with inflation at this level, the ex-post real monetary policy rate returned to negative terrain (-3.7% a.r.) in February, following three months on positive ground. This renewed increase in inflation poses upside risks to the policy rate, inasmuch as the government tries to meet its commitment to positive real rates. With the MPR currently at 75%, the central bank would have to lift it by 500bps to bring the real rate back into positive territory. 

Kirchnerism lambasted the IMF but avoided attacking Economics Minister Massa

The kirchnerist youth movement La Cámpora issued a statement harshly criticising the IMF after the announcement of the Staff-level agreement on 13 March. La Cámpora led by Vice-President Cristina Kirchner’s son Máximo Kirchner stressed that “the agreement is inflationary” and that “the adjustment is paid by the people ''. The main criticism was directed at the IMF's recent comments on the approved pension moratorium. La Cámpora also lambasted President Alberto Fernández, reaffirming the rupture of the ruling coalition Frente de Todos (FdT), and former president Mauricio Macri. Although the statement highlighted that currently “the country's economy is managed by the IMF”, it did not include any direct attack on Economics Minister Sergio Massa. With the electoral season approaching, left-wing sectors of the ruling coalition - often embodied in La Campora- are expected to step up their criticism of the IMF so as not to lose votes from the minor leftist parties. 

No meaningful fiscal savings from the cut of social programme beneficiaries

Social Development Minister Victoria Tolosa Paz announced the suspension of 6% of the beneficiaries of the social programme “Potenciar Trabajo”. The minister confirmed the suspension after an official audit showed that these beneficiaries do not meet the requirements for the programme. The revision of the programme was requested by the IMF, but the fiscal savings stemming from it would not be higher than c0.05% of GDP in 2023.

MSU Energy (MSUNRG) reported stable 4Q22 results, working capital rise impedes leverage reduction

MSU Energy reported 4Q22 EBITDA of USD42mn, up 4.0% m-o-m and down 3.5% y-o-y, reflecting its stable profitability bolstered by its PPAs. Net debt to EBITDA LTM remained sequentially stable at 4.9x, with higher financial debt due to the issuance of local hard dollar debt and higher cash & equivalents and short term investments, which, together with the January 2023 issuance, will allow them to pay the USD25m quarterly amortisations of the 24s without FX access risk. Net debt did not decrease sequentially because of increases in trade receivables (slower CAMMESA payments) and tax assets (3 income tax prepayments, during October, November, and December 2022 that the company will recover in ARS terms in May 2023, due to their significant tax loss carryforwards), which together amounted to USD12m increase in working capital q-o-q.

Argentina market run


Oil production declines in February

According to direct communication figures released by OPEC on Tuesday, local oil production fell 3.8% m-o-m in February, to 704k barrels per day (bpd), a level that also represents a decline of 10.7% y-o-y. The information reaffirms the scenario of only a gradual recovery in domestic output throughout 2023, which would become clearer in the second half of the year. In this context, President Nicolás Maduro ordered retaking negotiations with the Vietnam Oil and Gas Group (Petrovietnam), in another effort to foster international investment in the Venezuelan oil sector. The announcement, made late on Monday, occurred only days after awarding a 40% stake in the oil joint venture Petrozamora to the relatively unknown Emirates’ firm GazMin International.  

Academia calls for restitution of the rule of law and democratic principles

The National Academy of Economic Sciences (ANCE) issued a public communication on Tuesday expressing its worries about the “heart-breaking economic situation” of many Venezuelans, which has reflected in numerous protests all over the country to demand improvements in wages and social benefits, especially for public employees and retirees. ANCE attributed this social “tragedy” to the severe contraction of the Venezuelan economy, as well as accumulated monetary, fiscal, and exchange rate disequilibria that feed the persistent increase of consumer prices. The institution, which is composed of the most renowned professionals in the area, also warned about the exhaustion of international reserves in the context of a precarious external income and the lack of access to external financing. After severely criticising the incapacity of the government to reduce its dependence on monetary financing, as well as the current mix of economic policies, the missive calls for an urgent restitution of the rule of law and the possibility of changing national authorities by electoral means.


Authorities ask more time to address oil retailers’ demand to boost profitability

Prime Minister Philip Davis asked members of the Bahamas Petroleum Retailers Association (BPA) to give the government another two weeks to address their profitability problems. Speaking to the local press, Mr Davis acknowledged that “retailers have serious issues concerning their sustainability in the context of what's happening worldwide”. However, he said the government needed more time “to assess the situation and see how best to help them”. As a reminder, the BPA has repeatedly asked the government for a change in the retailers’ profit margins on fuel, but the government refuses to grant them permission to increase their margins amidst fears of inflationary pressures. It has been reported that as of last week, 80% of petroleum retailers started taking measures to reduce their operating costs.


The trade deficit remained stable in January

The trade balance posted a USD139.9mn deficit in January, mildly widening by USD9.3mn from a year earlier. According to our nominal GDP estimates, the trade deficit declined slightly to 2.1% of GDP in January from 2.2% of GDP in the same month of 2022. Exports jumped 19.4% y-o-y to USD48.5mn led by higher exports of beverages and tobacco (81.9% y-o-y), manufactured goods (69.4 y-o-y) and chemicals (26.8% y-o-y), which compensated for the fall in mineral fuels exports (-8.2% y-o-y). On the other hand, imports increased 10% y-o-y to USD188.4mn, explained by the rises in machinery and transport equipment (43.7% y-o-y), chemicals (11.7% y-o-y), manufactured goods (10% y-o-y) and food imports (4.7% y-o-y).


Fitch downgrades Bolivia to B- from B and revises the Rating Outlook to Negative from Stable

Fitch downgraded Bolivia´s Long-Term Foreign-Currency and Local-Currency Issuer Default Ratings to “B-“ from “B” and revised the Rating Outlook to Negative from Stable. In a statement, the rating agency said that the downgrade “reflects the depletion of its external liquidity buffers, which, in light of a de facto currency peg, has greatly heightened near-term uncertainty and risks to macroeconomic stability”. In addition, Fitch commented that the negative outlook reflects major uncertainty on the authorities´ ability to manage this situation. Amidst this fragile external position, Fitch stressed the need for clear definitions and policies to be put in place quickly. The rating agency also noted there are several  multilateral loans pending legislative approval, but there are no concrete prospects for a larger-scale and multi-year package of financial support from official creditors, particularly given stark policy disagreement with the IMF. “These policies and financing uncertainties raise risks of disorderly adjustments and/or unorthodox measures to manage FX supply and demand”, it added. On the other hand, Fitch warned about Bolivia´s fiscal imbalances, as falling gas production continues to weigh on revenues, and current spending continues to rise, namely on the back of costly fuel subsidies. Finally, it said that, despite external bonds amounting to 5% of GDP (USD2bn), Bolivia´s capacity and willingness to pay them could be put into question if international reserves continue to decline. 

Mining Minister Fernando Villavicencio dismisses resignation rumours

The Mining Ministry confirmed Fernando Villavicencio will continue to head the institution, ruling out rumours of his resignation. The ministry´s statements came after local newspaper “El Deber” reported Mr Villavicencio had decided to resign from his post due to pressures over the approval of the “gold bill”. As a reminder, the initiative seeks to allow the central bank to buy gold produced in the country to strengthen its international reserves and to streamline processes to monetise gold held in international reserves.


The pension reform draft redirects funds to the public system 

The government shared a draft of the pension reform with the media yesterday.  Colombia’s government is proposing to redirect the pension contributions of millions of workers away from private managers and into the public system, while setting up a fund intended to neutralise the impact this would have on the local bond market. Under the new proposal, the pension system would be divided into four schemes, namely a solidarity scheme, a semi-contributory scheme, a contributory scheme and a voluntary saving scheme. The solidarity scheme would benefit people that did not contribute to the pension system, c2.5mn, with a subsidy of COP223k (cUSD47) per month. The semi-contributory scheme would provide supplementary payments to people whose contributions did not surpass the minimum threshold of a minimum wage per month required to secure a pension under the contributory scheme. Under the contributory scheme,  contributions from workers earning more than one minimum wage and less than three minimum wages would automatically be paid into the public system. Workers could still pay into private funds with contributions that exceed that amount. It should be noted that just 10% of workers earn more than three minimum wages.  Currently, all workers can choose whether to enrol in the public or private systems. Under the contributory regime, pension payments at retirement would be a combination of the payments from the public pension fund (Colpensiones) and earnings from the savings capitalised through private pension funds. It should be noted that according to Article 18 of the draft bill, private pension funds would not lose the administration of past contributions made by people that earned more than one minimum wage. Nevertheless, the portion of savings generated from contributions of up to three minimum wages would be administered by the Colpensiones once the retirement age is reached. Also, it is worth highlighting that Article 64 of the draft bill states that pension fund administrators must invest resources under the conditions established by the national government, in order to guarantee the stability of the system. In this sense, the national government would be able to determine the type of eligible assets and their weights according to the different risk profiles. Currently, almost a third of private pension funds are invested in Colombian sovereign bonds, the other third is placed in foreign equities, and the remainder is allocated to several other investment alternatives.

President Gustavo Petro urges pension funds to repatriate savings held abroad

President Gustavo Petro asked pension fund managers to bring their savings back to Colombia. “Given the collapse of international markets, I ask managers of private pension funds to bring their savings back into the country”, Mr Petro wrote on his Twitter account. In this sense, he noted that 55% of pension funds’ savings are held abroad. As a reminder, the government announced it would submit the pension reform to Congress on 22 March, delaying the proposal by 6 days from what was previously scheduled.

Government makes concession to obtain traditional parties’ support to health reform

Representatives of the Conservative party (PCC) and the “Partido de la U” (PUG) met with President Petro on 13 March, and reached an agreement on the health reform, according to daily Portfolio. The aforementioned parties account altogether for 23% of the seats in the Chamber of Representatives and the Senate, respectively. President Petro agreed to make some modifications to the original reform proposal submitted by Health Minister Carolina Corcho. In the first place, the reform would not eliminate private health providers, known locally as EPS, which was one of the most controversial modifications of the original proposal. Nevertheless, the  coverage of EPS would be reduced, as “they would not receive public resources”, according to PUG President Dilian Francisca Toro. Additionally, users will retain their right to choose their health providers, instead of being assigned a provider based on their location. On the other hand, the proposals aimed at increasing primary attention would remain as in the original draft. It is worth mentioning that no representative of the Liberal party (PLC), which was also drafting an alternative proposal together with the PCC and PUG, participated in the negotiations with President Petro. Therefore, the PLC would have to review the changes. Support from the PLC would be key to pass the reform, as the party holds  17.6% and 13% of the seats in the Chamber of Representatives and the Senate respectively. 


Airports operator Aerodom (AERDOS) reports strong growth in February 2023, although decelerating vs. January figures

Vinci reported February 2023 airport traffic of its network. Aerdom’s passenger traffic increased 21% y-o-y, decelerating from +27% y-o-y in January and was 13% above pre-pandemic February 2019. In terms of commercial movement (air traffic management), Aerodom was up 17% y-o-y, also decelerating from +21% y-o-y, and 9% above January 2019. For reference, Aerodom had closed 2022 with passenger traffic 5.8% above 2019 and commercial movement at -0.3% vs. 2019.


IMF Staff requests further monetary tightening to lower inflation

On 13 March, the Guatemalan IMF Staff concluded its visit to the country for the 2023 Article IV Consultation. In its concluding statement, the staff noted that Guatemala’s prudent macroeconomic policies -reflected in low fiscal deficits, low debt-to-GDP ratio, a stable FX, and large international reserves- allowed the economy to remain resilient last year, despite an unfavourable global context. With potential at 3.5%, the IMF estimates growth at 4% in 2022 and foresees a deceleration to 3.4% this year. We have a more pessimistic view on this front with growth at 2.9% in 2023. On the other hand, the IMF stressed that inflationary pressures remain high and pose challenges on the horizon. Thus, the multilateral suggested tightening the monetary stance further and reversing the still widely accommodative stance in the economy. Overall, the IMF said that the economic outlook is expected to remain broadly positive, although risks are tilted to the downside and mainly related to Guatemala’s exposure to the US economy and its strong reliance on remittances. 


Remittances growth resumes moderating trend 

Remittances growth decelerated in February to 8.0% y-o-y, below the rapid rate observed in January (16.5% y-o-y), and also lower than the pace of advance recorded in 4Q22 (10.9% y-o-y). Despite its recent volatility, the rate of expansion of these external inflows seems to be converging, faster than expected, toward its long-term average before COVID-19 (8.2%, 2010-2019), although potential positive structural changes caused by the pandemic must be always considered. From a shorter temporal perspective, a further weakening in remittances would sensibly affect growth expectations, as well as the projected path for the external disequilibrium, as our baseline scenario incorporates a deceleration to 10.9% in 2023, after increasing 17.8% in 2022.  

Key political and economic actors reject tax reform bill 

The National Party issued a public letter on Tuesday warning about the potential adverse effects on employment of the tax reform announced by the government. Specifically, the second political force in Congress (43 legislators versus 49 of the ruling party Liberty and Refoundation) indicated that the bill would negatively affect investment, national production, private property and legal security. The missive also condemned the attempt to tax remittances and eliminate banking secrecy, among other implications of the reform proposal. Also on Tuesday, different business representatives criticised the bill and condemned the hate speech and the accusations of tax evasion made by the Director of the Tax Administration, Marlon Ochoa, against the private sector. Finally, Secretary of Economic Development Pedro Barquero reiterated its opposition to the reform being proposed, and stated that he “supports democratic socialism, not the autocratic one that radicals want to impose”.


Finance Minister Alexander shows optimism about exiting the FATF grey list, but time is running out

Economics and Finance Minister Héctor Alexander showed confidence that Panama would fully address the commitments made with the Financial Action Task Force (FATF) in order to exit the so-called grey list of the global watchdog. Alexander reiterated that the country would accomplish this year the two remaining tasks of its action plan (out of a total of 15). It is important to recall that all timelines for the plan already expired in January 2021, and that the FATF strongly urged national authorities, last February,  “to swiftly complete its action plan by June 2023 or the FATF will consider calling on its members and urging all jurisdictions to apply enhanced due diligence to business relations and transactions with Panama”. 


Activity expands 4.5% y-o-y boosted by agriculture and power generation

The monthly economic activity index (IMAEP) increased 4.5% y-o-y in January, reversing the 0.4% y-o-y fall recorded in December. In a press release, the central bank (BCP) reported that the annual increase was driven by agriculture, livestock, power generation, and services. On the other hand, the weak performance in manufacturing and construction muffled the overall increase. Finally, excluding agriculture and hydropower generation, the IMAEP fell 0.6% y-o-y in January, paring the decline compared to December´s reading (-2.9% y-o-y).


Congress rejects, once again, early election bill 

The congressional constitutional commission rejected, one more time, the bill to hold early elections in December 2023. A 12:9 majority voted against the proposal, with the request of including a referendum on the need of a Constituent Assembly being one of the main arguments to bring down the initiative. As a result, the issue failed to reach the Plenary of Congress and the likelihood of an electoral solution to the underlying –in our view, temporarily subdued– political and institutional crisis, decreased, at least for now. 

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BancTrust & Co. Research & Strategy Team.