Mercado Libre and the future of e-commerce in Latin America

Everyone knows of Amazon’s astonishing ascension to global e-commerce domination. However, few know of a similar company following Amazon’s footsteps: Mercado Libre. Founded in Argentina, in 1999, the company has expanded from being an online marketplace for e-commerce and online auctions to the biggest listed company in Latin America with a market capitalization of $96.741 billion (as of February 16, 2021). Now, the company operates in 6 different segments: Marketplace, Logistics Solutions, Credits, SaaS Stares & ERP, Fintech Services, and Advertisement.

The company has seen incredible growth over the past three years. In 2018 it racked $1.439 billion in total revenue, in 2019 $2.296 billion, and in 2020 $3.973 billion. That is an average YoY growth of 66.3%. Not only that, but the company has almost tripled its assets during the course of those 3 years by expanding its logistic infrastructure to be able to keep up with its growing momentum.

Undoubtedly, Mercado Libre has been benefited from the several lockdowns put in place in Latin America due to the coronavirus in 2020. Lockdowns have induced a radical increase in the number of people buying online inside the region: from 5% of total transactions to an expected 10% after 2020. Yet, Latin America still presents ample growth potential in terms of e-commerce since, in the US, UK, and China, the share of the total transactions in the economy represented by e-commerce reaches at least 30%. Moreover, Mercado Libre is well-positioned to take advantage of the industry since it controls 28% of the whole Latin American e-commerce market, according to Morgan Stanley.

Another key factor in the growth of Mercado Libre has been its fintech division. In 2020 alone, Mercado Pago, its online payments service, grew 143%. In 2020, 35.58% of Mercado Libre’s revenue came from its Fintech services. This is down from 41.74% in 2018 and 41.37% in 2019 due to the exponential increase in the use of the e-commerce platform but it shows that the company can grow through many different revenue segments. The percentage of commerce revenue to total revenue is similar to that of Amazon with 75.66% in 2019 and 76.15% in 2020 while, for Mercado Libre, it stood at 58.63% in 2019 and 64.42% in 2020.

With respect to their geographical positioning, Mercado Libre’s main source of revenue comes from Brazil, Argentina, and Mexico with 55.2%, 24.7%, and 14.5% of total revenues respectively. It has lowered its exposure to Brazil from 63.6% in 2019 while increasing overall exposure in all other countries. This follows CEO Mr. Galperín’s statement that “[Mercado Libre] aspires to be the leading player in all Latin America, not just in the largest markets.” However, this aspiration will be heavily contested in some countries, such as Chile and Peru, where e-commerce is dominated by Yapo and Falabella, two Chilean enterprises.

Taking into account its stock price performance, Mercado Libre has been on a tear. Its stock price rose 1,925.91% over 5 years, 163.94% over 1 year ,and 15.81% YTD (as of February 16). This may be compared to Amazon’s 525.89% over 5 years, 52.77% over 1 year, and 0.14% YTD (all as of February 16).

As part of its overall diversification strategy, Mercado Libre has not only opened Mercado Pago, as previously mentioned, but has developed its own credit subsidiary, Mercado Crédito, and also a logistic branch, Mercado Envíos. This diversification strategy is extremely effective in facilitating online transactions and gives the company a competitive edge, somewhat similar to Alibaba’s flabbergasting expansion and diversification of services in the Chinese mainland.

Although Mercado Libre faces strong competition ahead, being rivaled by Amazon, OLX, Linio, and AliExpress (Alibaba’s Brazilian subsidiary), the economic outlook remains positive. In part, this positive outlook is due to Latin America’s consumption trends and the warm welcoming of disruptive technologies and platforms (as Mercado Libre). The continent has a growing middle-class with strong tendencies towards material consumption, something that will surely benefit Mercado Libre’s growth.

Still, the consolidation and growth of Mercado Libre in Latin America are quite dependent on a series of obstacles and factors. Three main factors may limit Mercado Libre’s growth potential in the region: connectivity, payment methods, and lack of trust in online payments. Greater connectivity, represented by access to 3G or 4G networks and the availability of smartphones, is an essential factor that may limit or propel Mercado Libre’s market penetration. The long-term trend certainly shows that connectivity is constantly growing in the region, yet, many Latin Americans are still marginalized from existing networks. Second, Latin American’s access to diverse payment methods should also be considered since it is a precondition for integration to e-commerce platforms. Lack of trust in online payments is another issue, as Latin Americans still lack confidence in online payments as fraudsters are widespread: according to UNCTAD, this is the greatest barrier to consumption in the region.

All said, Mercado Libre seems well directed towards consolidating its leading position in the Latin American e-commerce industry and disrupting Amazon’s global hegemony in the sector.

Muxes: The Third Gender

Oaxaca is a state in Southern Mexico widely known for its colonial cities, indigenous culture, and breathtaking landscapes. More than one million tourists visit the state every year to explore its colorful streets, its ancient ruins, its magical beaches, and its delightful cuisine. It is one of the most beautiful states in Mexico and it is home to the “muxes”.

In the own words of a muxe, a muxe is “any person who was born a man but does not act masculine. There’s men, there’s women and there’s something in between.” In Juchitán, their hometown, it is commonly known that there are three sexes: male, female, and muxe. Muxes are part of the Zapotec culture, a culture centered around femininity and fertility, and have been acknowledged in their communities since prehispanic times. They are respected and celebrated and are able to freely express themselves. There are some who identify as women and play feminine roles in society, while there are others who simply were born men and are attracted to men.

Muxes play a key role both in the economy and in society. There are some traditionally defined occupations, such as embroidery and craftmaking, that have been widely adopted by muxes. However, they are free to pursue any vocation they want. Muxes are known to be in charge of the preparations for local celebrations, such as baptisms, quinceñeras, and weddings. Additionally, they also have an important role in religious ceremonies. Not only do they have their own affiliation inside the catholic church, but they are honoured by religious figures of the community.

Every November muxes are celebrated in the Vela de las Intrépidas (Vigil of the Intrepids). This annual ceremony brings together the entire community of Juchitán and combines old traditions and religion with contemporary festivities. The vigil begins with a mass at the local church followed by a procession around through town. All kinds of muxes can be seen parading; some wearing traditional long skirts and elegant hairdos, while others simply wearing a traditional shirt embroidered with colorful flowers. But what muxes look forward to the most is the party that takes place after the procession. Men, women, muxes, and children are hosted by the year’s “La Mayordomo”, and all celebrate together.

In a country with one of the highest crime rates against the LGBT community, the muxes are a true inspiration. They are proof that even prehispanic cultures can foster an environment of acceptance and tolerance, and that human beings can live labeless and freely express themselves. The muxes know and understand the inspiration they can provide to others and are using their power and rising fame for the better. The muxes’ culture and traditions show the world how simple gender fluidity can be and are a beacon of hope for a community that is endlessly fighting for equality.

Eta's Destructive Path Through Central America

With record numbers, 2020 has been by far the most active hurricane season in history. The most recent storm, Eta, initially struck Nicaragua on the morning of November 3, continuing its path through Honduras, Guatemala, and parts of Mexico. Currently, the storm has downgraded to a tropical storm. However, when Eta initially hit Central America, it was classified as a category four hurricane. The damages caused by the hurricane, including severe floodings and collapses, have affected Central America as a whole and have left hundreds without a home.

In Honduras, at least 11 people, mostly children, have died. In Guatemala, two people lost their lives, while the president predicts this number will increase. Additionally, 25 homes that hosted at least 50 have flooded.

In Panama, local authorities have recovered five people who were dragged along the intensified rivers, whileseveral others have been reported missing. In Nicaragua, two men were trapped under a mine after a landslide. Moreover, all-over Central America, hundreds, if not thousands, have had to evacuate their homes, losing everything.

Relief efforts all along the region have begun to occur, but the problem is far from over. The slow-moving nature of the hurricane continues to threaten with increased rainfall, keeping local authorities alert. It will take days, if not weeks, to truly realize the impact of this disaster on the countries who were already struggling both socially and economically due to the coronavirus pandemic.

As an association concerned about Latin America’s socioeconomic issues, we believe it is essential to raise awareness about what is happening. The news regarding hurricane Eta have not been widely spread and are being overshadowed by other pressing issues worldwide. We have included a list of links to donate to different non-profit organizations currently working towards aiding the victims of the storm.

Where to donate:

Operación Frijol: https://www.gofundme.com/f/brhn7u-operacion-eta?utm_source=customer&utm_campaign=p_cp+share-sheet&utm_medium=copy_link_all

Ruth Paz foundation: https://www.gofundme.com/f/r66vjb-hurricane-eta-disaster-relief-for-honduras?utm_medium=copy_link&utm_source=customer&utm_campaign=p_lico+share-sheet

Food for the poor: https://secure.foodforthepoor.org/site/Donation2?df_id=49235&49235.donation=form1&_ga=2.28599356.1204635337.1605277024-521492423.1605277024

Global Giving: https://www.globalgiving.org/projects/hurricane-eta-relief-fund/

Nicaraguan Red Cross: https://cruzrojanicaraguense.org/campaigns/operacion-humanitaria-huracan-eta/donate/

part II: A Never ending debate: nationalizations in latin america

This article is the second of the series discussing nationalizations in Latin America. The series analyzes the impact expropriations have on the region’s economies and ultimately its citizens. It also dives into past and present examples to fully depict and hold a grasp on the subject.

In Argentina, the land of never ending controversy, a nationalization managed to permeate the incessant Covid-19 headlines. The nationalization of Vicentin S.A.I.C., an Argentinian grain exporter, has re-flared up debate about the nature of expropriations throughout Latin America.

In the specific case of Vicentin, many legal barriers were broken. The company was in Chapter 11 bankruptcy, where the debtor proposes a plan of reorganization to keep its business alive and pay creditors over time, since March. This bankruptcy process was being overseen by Judge Lorenzini. The federal government ignored Lorenzini’s position and inserted their own directors in Vicentin through a national decree, a clear violation of the principle of separation of powers. In addition, according to the Argentine Constitution, expropriations have to pass through a process in which Congress has to declare the company a public utility, file for reparations, and in case of no accord, a trial to determine the extent of these reparations. In short, Congress has to be the one that initiates nationalization processes, which the Executive also jumped over.

However, there is a law which allows for the temporary occupation of a company. Introduced by Argentina’s dictator Videla in 1977, this law allows for occupation in case of unprecedented scenarios, like a global pandemic or sketchy loans. To use the pretext of an extraordinary scenario to temporarily occupy the company until Congress approves the official expropriation, the government shielded itself by stating that Vicentin was critical for national “food sovereignty”. They based this “national” logic on the assumption that the bankruptcy of Vicentin would lead to the dismantling of its assets by competing multinational companies located in the country, namely Dreyfuss, Cargill, ADM, and Cofco. The statement on “food sovereignty” is largely controversial, as the only food that Vicentin produces for local sale is vegetable oil.

Besides legal chaos, there are also conflicts within the financial side. Vicentin has an ample source of funding, with one of the main creditors being the National Bank of Argentina, Banco Nación. Out of a total debt of almost 100 billion pesos (1.4 billion dollars at the official exchange rate on June 29th), the loans from Banco Nación represented around 18% or 18.1 billion pesos (258.1 million dollars at the official exchange rate on June 29th). In fact, according to Aldo Leiva, a national legislator, 20% of Banco Nación’s loans were given to Vicentin. According to Leiva, this high percentage of the loan portfolio was due to the close relation between the company and the government at that time, stating it donated large sums of money for the political campaign of ex-president Macri. Javier González Fraga, the former Director of Banco Nación, has been accused and charged for surpassing the limits the National Bank can give to a single entity. These financial inconsistencies will be left to the judicial system to sort out, which as we have seen above, lack credibility or can even be jumped over.

Furthermore, Lorenzini, the judge who was in charge of Chapter 11 bankruptcy of the company, declared the national decree for the temporary occupation of the Vicentin as ‘irrelevant’. In the same judicial ruling, he stated himself “incompetent” to determine the constitutionality of the decree, thus passing this decision to the Chamber of Appeals. Most importantly, in the same ruling, he reinstated the board of directors of the company and allocated the government-placed controllers as overseers of Vicentin. This ruling is a step towards the principle of separation of powers that all democracies advocate for, and it helps gain credibility in a judicial system which is believed to be “politicized”.

More recently, the governor of Santa Fe, the province where Vicentin operates, presented a plan to intervene in the company while at the same time maintaining Lorenzini and the Chapter 11 bankruptcy process. The governor Perotti was trying to amend the legal problems caused by the President’s national decree. However, Lorenzini decided to open this plan as a separate judicial proceeding, hence maintaining the priority of the bankruptcy process and his previous judicial ruling.

If we are to interpret President Alberto Fernandez words at face value, then “there is no other path than to expropriate” after judge Lorenzini disapproved Perotti’s plan. This will only mean a long and politically contested road to the nationalization of Vicentin. However, another path could have been chosen, one that first-world countries have not backed down from doing recently: bailouts. For example, the 9 billion euro bailout of Lufthansa by the German government, or the massive US CARES Act of which there was a 50 billion dollar bailout for airlines. If Vicentin is as important to national food sovereignty as they claim, then a bailout would quickly resolve the financial stress the firm is going through.

In reality, the motivation for the expropriation may lie in a different dilemma altogether, the need for US dollars. Soybean meal, soybean oil, and soybeans accounted for 22.34% of Argentine exports in 2018, accounting for a total of 13.61 billion dollars. Vicentin is not the only one in financial stress, Argentina itself is in the midst of a restructuring deal with the IMF and private creditors for its unsustainable dollar-denominated debt. As it stands, Vicentin is the dollar printing machine the Argentine government needs, and it is up for grabs.

Excluding the underlying motivations, the financial and judicial atrocities that have been committed relating to only one company show the potential magnitude of hidden things that may lie beneath the curtain. The missteps in the financial, judicial, and even the political handling of this case are even more detrimental to a country which was already in an economic crisis since the currency crises of 2018 and 2019 and has not even seen the worst of this pandemic. They have a severe effect on the credibility and confidence in the country and its government, and can be harmful for future foreign investments.

A Never Ending Debate: Nationalizations in Latin America

This article is the first of a series discussing nationalizations in Latin America. The series analyzes the impact expropriations have on the region’s economies and citizens. It also dives into past and present examples to fully depict and hold a grasp on the subject.

There is a long-lived relationship between nationalizations and Latin American economies. This issue is best explained by the Inter-American Development Bank’s course “Curso la Realidad Fiscal: Módulo 6: Privatizaciones y Nacionalizaciones”.

The module shows that there have been cycles of privatization and nationalizations since the 1870s. “Privatizations took place between the 1870s through the 1920s until nationalizations occurred during the 1930s, possibly as a reaction to the Great Depression. After World War II, another wave of privatizations took place which was later reversed by populist regimes during the 1960s/1970s.” Even more recently, “It is not a coincidence that the privatizations that started at the end of the 1980s have paved way for the nationalizations of the 2000s.” According to the course, privatizations and nationalizations are more common in natural resources and public services industries, in countries with greater income inequality and deficient public institutions.

The module further shows that privatized companies are more efficient with respect to their performance, measured in net profit and operating profit percentage. “After privatization, there was a median 14% increase in net profit percentage and a median 12% increase in operating profit percentage,” throughout the region. According to the source, these improvements are due to weak economic incentives in nationalized companies because of no pressure from shareholders, the market, or even creditors as any loss can be covered by subsidies from the state. In addition, the module states that there are also managerial and political reasons for the lack of efficiency. A great example of this is PDVSA, the Venezuelan national petroleum company, which produced 3.5 million barrels per day in 1998 which fell to 2.1 million barrels per day in 2009, after the Venezuelan government nationalized it.

The course also depicts the impact of privatizations on labor. It states that staff reduction varied depending on the industry. For example, in Argentina, railways and ports discharges amounted to 81% of the workforce while in telecommunications only 3%. Urban labor was reduced by 2% because of this, however privatizations in Bolivia only represented a 0.1% reduction of the urban labor. The source reasons that “many of these firings were compensated by heightened productivity which leads to expansions of the companies and more hirings.” It asserts that between 80% and 90% of the discharged people from privatized companies in Argentina were reemployed inside the same industries within four years. This percentage falls to between 45% and 50% in Mexico but within one year of the staff reduction. “In Latin America, 54% of the privatized companies expanded their workforce later on, and 21% rehired previously discharged labor.” The module also references the wage level and labor conditions product of privatizations and nationalizations. It states “nationalized companies increase wages because of their policy of redistribution”, however it also mentions that the privatization of companies also leads to increases in wages. This is seen in Entel and in the Buenos Aires water concession in Argentina with a 45% increase, an average 76% increase in wages in a variety of privatized companies in Mexico, and an average 25% increase in privatized manufacturing companies in Colombia. Nonetheless, these wage increases lead to decline in labor conditions, specifically not allowing workers to participate in labor unions. On a side note, it declares “the workers fired due to the privatization received large compensations. Even though they were costly, the companies benefited in the long-run.”

The source also dives into the social aspects of both privatizations and nationalizations. It states, “the most important social effects occur from the expansion and improvement of the services provided.” For example, In Argentina, the privatization of aqueducts in the 1990s improved the sewage and running water systems in slums, which even saved them money compared to ordering water from a tank trunk. Another example the module provides is the improvement of the electrical grid and telephone coverage in Peru after privatization. It states that these developments “improved salaries and increased leisure time which in turn increases general well-being in the specific expanded areas”. In addition, “it is important to note that privatizations free up government spending which was directed toward public, loss-making companies, and can be redistributed among society.” However, this redistribution of government income was essentially lost in the webs of corruption. On a side note, the course states “These social improvements due to privatizations depend on the level of government regulation. If there is lack of competition and no regulation, the companies rack up all the benefits.”

There is sufficient evidence that privatizations generally improve quality of life in Latin America in the long-run, however they are mainly seen as damaging by the majority of the population. It is in this difference between truths and beliefs where populist regimes lay their foundations and have been ultimately successful to reach power. However, if Latin America is to leave its problems and finally improve the well-being of its citizens, there is a dire need to stop adopting short-term solutions and start reasoning in the long run.

Pandemic Global Oil Markets and its biggest victim in the region, Venezuela.

After years of despotic Chavism, Venezuela seems to have hit rock bottom.

With a crippled economy submerged in political and social chaos, under the tyrannical rule of Maduro, Venezuela was in no need of further problems. However, following April’s oil crash, oil rich Venezuela is on the brink of collapse.

The coronavirus pandemic has extended its death grip over the oil industry, pushing oil dependent countries and producers into the abyss.

Demand and supply side dynamics have catalyzed the crude oil crisis. As stated by the International Energy Agency (IEA), the expected demand drop in April, caused by world-wide lockdowns, amounted to 29 mbd (million barrels per day) . Meanwhile, the escalation of a price war throughout March, among the three world’s largest producers (Saudi Arabia, Russia and the United States), witnessed Saudi efforts to pump production by 12.3 mbd and slash export prices. Experts assert the Saudis attempted to lower global crude oil prices to bankrupt high-cost oil producers.

Consequently, last April 9th, the Organization of the Petroleum Exporting Countries (OPEC) brokered a deal to establish a 10mbd production reduction by member countries, with greater cuts coming from OPEC+ nations. However, with building inventories and unresponsive demand, oil prices crashed on April 20th, with May WTI futures reaching a record -$36 a barrel.

Almost a month after the tragic price crash, oil demand remains low and volatility has flooded global markets. What is foreseeable in Venezuela’s future?

Venezuela’s economy crawled into 2020 with substantial struggles. With a public deficit surpassing 10% of GDP, international reserves in all-time lows, heightened tensions with Western democracies and the lowest oil production output since 1945, the country is trapped in the perfect storm.

Once a prosperous economy, memories of relative economic stability have vanished with the autocratic rule of Chavism. Boasting the biggest proven oil reserves in the world, Venezuela’s natural resource endowments are enviable. However, throughout its history, the country has never succeeded in capitalizing resource endowment to development and progress. Instead, it has evolved into a corrupt petrostate, that has an unimaginable dependency on worldwide crude oil prices.

As of 2016, crude oil accounts for approximately 96% of Venezuelan exports and 60% of government revenues. Undoubtedly, the recent oil price crash and prevailing price volatility, represent a hard blow to Venezuela’s economy. With a crude oil production cost ranging from $18 to $24 per barrel, current oil prices bring no tangible gain for Venezuela. Hence, Venezuelan export revenues are expected to contract to $8bn, from $25bn in 2019, as estimated by Ecoanalítica, a Venezuelan consultancy.

With no signs of oil demand picking up briefly, Venezuela’s economic outlook is disastrous. The most profound implications arising from the current crisis are political. With a growing opposition base in his inner and outer circles, President Maduro will struggle to maintain power in the long run if he fails to cohere his sphere of influence. The oil crash, if long-lasting, might be a powder keg for Maduro’s government, which has very few economic solutions left. With sky-rocketed inflation, severe price controls and good shortages, protests have mounted up in several regions during April. Although demonstrations have been unable to overthrow or thoroughly damage Maduro’s oppressive apparatus in the past, the further aggravation of the current crisis would be the ultimate time-bomb.

However, Juan Guaidó, recognized by foreign democracies as Venezuela’s legitimate President, has failed to seize the moment. He has held no rallies during the outbreak and his influence is said to be weakening inside his own coalition. Nevertheless, if Maduro’s regime fails to perform through ongoing hardship, Guaido could have his golden moment.

All in all, Chavism’s long-time friends, Russia and China, might not be there this time. Although Venezuela is a geopolitical keystone for the Sino-Russian bloc, the current global economic weather could prevent them from aiding Maduro’s regime. Even before the coronavirus outbreak, Rosneft, a Russian oil giant, had announced the cease of all operations and exit from the Venezuelan market. Although unclear, some experts argue this decision will reduce the Kremlin’s influence in the country. China, cradle of the coronavirus, now stands in recovery mode and Venezuela is not its immediate priority, certainly less due to its current struggle to collect loan payments from its Belt and Road Initiative in the region.

Although oil is not the only player in this political game, it is the most important. Crude oil prices will unfortunately incite further economic trouble in Venezuela and are determinant in the post-pandemic socio-political dynamic. With WTI spot prices currently finding resistance at around $25 per barrel, future price directions remain unclear. Fundamentally, there are various price determinants. To the demand side, the state of consumer activity worldwide, determined by the rigidness of national lockdowns, is crucial. With China, Europe and the US leading the path to openness, demand is thought to pick up gradually. However, this analysis is totally dependent on the possibility of an infection rebound. The effectiveness and possibility of further OPEC cuts, alongside the registered levels of inventory build-up, are supply side price movers. Many experts argue all-time lows have been reached and a bull market is on the way, but, this all depends on how the previously mentioned factors react.

Even though the pandemic could soon dissipate, this possibility is very improbable, and oil prices will most probably remain low in the short and medium run. The short-term impact of low oil prices might be Venezuelan’s worst nightmare, but it could be the saviour they have all been looking for.

UN DÍA SIN NOSOTRAS

On February 10^th, Mexico woke up to the dreadful news that Fátima, a 25-year-old woman, had been brutally assasinated by her husband. Only five days later on February 15^th, Ingrid, a 7-year-old girl, was found in a plastic bag with signs of torture and rape. Unfortunately, Fátima and Ingrid are only two of the ten women and girls that die everyday due to intentional assaults, but they were the straw that broke the camel’s back. The accumulated femicides, the violence against women, and the president’s disregard towards the subject had feminist groups outraged, and decided it was time to take action.

An initiave initially proposed by a feminist group called “Las Brujas del Mar” (The Witches of the Sea) began to circulate in the media, and little by little it reached thousands, something the group would have never imagined. The initiative asked women across the country to, stay home, and stay silent. To not show up to work or school, to not go to the supermarket, to not post on social media nor answer texts. This with the purpose of showing the country what “A day without us” would look like. Countless companies, workplaces, schools, and universities took on the initiative, encouraging all female workers, teachers, and students to stay home, without risking their jobs or academics.

The initiative took place on March 9^th, the day after International Women’s Day, where thousands took the streets raising their voice against gender violence and fighting for equal rights. After a day full of commotion and rebellion, where women all over the world were undoubtedly heard, Mexico City woke up to an unusual silence. Traffic was lighter, metro stations were emptier, and office hallways were quiteter. Their absence could not go unnoticed. Going beyond empty and silent streets, it is estimated that this national strike, unprecedented in Mexican history, had economic repercusions of up to 290 million dollars. This standstill completely paralized the productive and commercial activities of the country, demonstrating the key role that women play not only in society, but in the economy as well.

The down part of the story is that neither the desolated streets nor the economic impact of this strike had an effect on the president of the country. During his daily press conference on March 9^th, he did not tackle the events, and continued on with his agenda. His only concern towards the subject was the fact that the political right manipulated the strike, and only wishes to see his government fail, and continued with the sale of raffle tickets for his presidential plane. But this national strike showed this is a citizen initiative, and that it is only the beginning of a transformation of masculinity in Mexico.

IMF in South america and the Caribbean

The relationship between the International Monetary Fund and South America and the Caribbean has always been complicated and its reputation within the continent seems to be perpetually polarized. The Fund´s interventions in the form of lending towards ill-economies have a common denominator that also serves as the main target for the heavy criticism it receives: conditioning its aid to strong austerity measures and balance of payments adjustment policies. Critics accuse these curtail-spending policies of exacerbating the economic decline and further deteriorate social welfare rather than healing them.

The economic performance of the continent and the Caribbean stagnated in 2019 and its GDP per capita steady decline dates back to 2014. The efforts for recovering from this economic debacle have featured the IMF as a rather protagonist figure due to its latest interventions in crisis-hit countries. The reactions caused by recent agreements have varied from social unrest to political regimes alterations and its results are truly unpredictable. Three specific cases last year showcase the severe responses the IMF interventions had and a possible blueprint for a bigger chance of success for future IMF programmes and recovering countries.

Ecuador

After nearly doubling the public spending percentage of GDP from the mid 1990s to the mid 2010s, enabled by historic oil prices, low international interest rates and a depreciated dollar, the country entered a deep fiscal deficit and resorted to currency printing from the non-autonomous central bank and restrained aggregate demand in an effort to cover its liabilities. As a dollarized economy, Ecuador is particularly vulnerable to external shocks and the economy is highly volatile, so, when oil prices decayed and with public finances under such stress, the crisis was magnified.

In March 2019 a $4.2bn IMF programme was agreed with the Fund asking the government to turn the fiscal deficit into a surplus, shrink its debt and double its foreign reserves by 2022. To comply with the programme, the government launched economic reforms that included the dramatic cease of fuel subsidies, present in the country since the 1970s. Such reform was pursued to save $1.3bn rather than raising the VAT and distort local demand. Unions, transport workers and indigenous groups immediately organized protests against the decision, which lasted 11 days and caused 2500 injuries and tenths of casualties. The administration was forced to scratch its reforms and pursue negotiations with the main protesting associations, a move that left it with very limited options in order to fulfill the programme while also avoiding widespread social unrest.

Fiscal and labor reforms have been severely watered down and even so, congress, where the government only occupies a third of all seats, have shown reluctance to approve. General elections are scheduled for 2021 and it is highly unlikely that Mr. Moreno´s party candidate, if one is presented, would make a significant impact, due to the low popularity levels that he and his party endure; jeopardizing the continuation of the current IMF programme as the main political figures expected to run for the presidency have openly criticized the economic reforms in compliance with the Fund.

Argentina

In 2018 a record breaking $57bn bailout plan was agreed with former President Mauricio Macri’s administration and the IMF in an attempt to help the Argentine economy out of its deep recession, currency collapse and debt crisis.

Mr. Macri´s moderate and paced economic reforms were widely considered underwhelming, the country´s delayed economic gratification and the agreement with the Fund during his tenure were decisive factors for his defeat in his reelection attempt to the benefit of his leftwing adversary, Mr. Fernandez. Alberto Fernandez, now Argentina’s President, campaigned expansionary policies in contrast to those of austerity and a delayed and depleted repayment of debt.

There is uncertainty regarding how Mr. Fernandez policies are compatible with those of the historic IMF programme and its sustainability. Surprisingly, despite the announcement that fiscal deficit will not be reduced in the next couple of years, cooperative talks have been conducted between government and IMF officials resulting in the Fund's support of a major haircut of private creditors´ debt.

The IMF sponsoring a cut on private debt while admitting the economic and political infeasibility of the measures needed to prevent it, is a win for Mr. Fernandez and the Fund itself. The institution´s biggest programme ever is extremely vulnerable and the Fund needs to resort to uncharacteristic compromises to keep it alive, while Mr. Fernandez´s challenge to balance his investment-led plan to end the crisis with heavy taxation on the country's most profitable industries requires all the possible help, including a vital endorsement from the IMF for credibility while his support is fresh.

Jamaica

In 2012 Jamaica was one of the most indebted countries in the world due to decades of recessive economic performance, stagnant income growth and fiscal insolvency. After 16 failed IMF programmes since its independence, the most recent in 2010, the possibilities of obtaining a bailout and a new accord were pessimistic, to say the least.

It took a year of intense negotiations, on which Jamaica survived mostly on international aid and money printing by the Central Bank, and pressure from high rank US congressmen for the IMF to agree to a new $2bn bailout programme. The austerity conditions imposed dwarfed those presented even to Greece.

Jamaica finalized at the end of last year its IMF programme with a new economic reality to marvel about: the unemployment rate is at an all-time low, public debt to GDP ratio plunged dramatically, the fiscal coffers have broadened and foreign exchange reserves multiplied. Economic growth forecasts for 2020 predicts to double those of previous years that stagnated at 1% due to the austerity measures. Infrastructure investment and loans by China in addition to growth in industries like tourism and export goods also played an important part in this success.

However, more impressive than the results are the particular initiatives implemented by Jamaica in order to improve the programme´s resilience, as their effectiveness might prove to be a cornerstone for the success of future IMF interventions in the continent. The programme endured rather seamlessly two administrations with opposite ideologies, an extremely rare achievement that was made possible by the flexibility of IMF officials when negotiating new fiscal reforms with the newly elected government in 2016.

Moreover, the Economic Programme Oversight Committee was founded. It was a public-private body composed by representatives of local businesses, banks, opposition, labor unions, government officials and civil society. Its role was to monitor in a detailed manner the reforms and negotiations of the programme. It was the first time that an IMF agreement and its policies were being supervised by a locally inclusive entity. Members of the opposition and labor unionists were promoting the policies and informing them to the society in local gatherings which made it much more feasible to break through the reform fatigue, unlike the cases in Ecuador and Argentina.

The continuous impasses that Ecuador and Argentina have faced would have put an end to their IMF programmes a few years ago when inflexibility was one of the adjectives that were intrinsically associated with the Fund. Supporting private debt cuts and accepting short-term fiscal deficits are also very rare stances; perhaps knowledge from their vast failed experiences in the continent and its most recent success in Jamaica have revamped the IMF awareness of the importance of protecting social welfare as the ultimate goal in crisis-hit countries. Being open to constant revision of targets, deadlines and assessing the feasibility and consequences of the policies it promotes, have shown to be vital to the effectiveness of the programmes.

It is ironic that the accord that the Fund was most reluctant to agree in Jamaica can give them the most meaningful feedback. The presence of an inclusive body reviewing the steps of the programme, where all social groups are heard and actively participating in the planning and negotiations, is the role model and only way that the chances of a successful cooperation from all parties can be maximized.

This has to be the direction that the IMF should follow in Ecuador and Argentina for the programmes´ success and the countries’ recovery; as many other nations in the continent will need its aid in upcoming years.

Chinese influence in latin america

The People´s Republic of China (PRC) has massively expanded its influence in Latin America and the Caribbean (LAC) over the past decade. From Mexico to Argentina, China has consolidated itself as a leading trade partner and a source of investment, helping financing Latin American governments and companies. With the signing of several bilateral partnership agreements with most of the region's countries, the PRC is positioning itself as a key regional actor and consolidating its economic and geopolitical interests. Since 2005, China has poured over $141 billion in loans into the Latin American and Caribbean (LAC) regions, with 90 percent of such loans being directed to four countries: Venezuela, Brazil, Ecuador and Argentina.

The increasing influence of the PRC is a result of reduced engagement by the U.S. in the region. The PRC is changing the balance of power: as the US regional influence decreased, the Chinese have seized momentum and strategically engaged in the economic and foreign policy matters of the region. Economic engagement through trade deals, foreign aid, political incentives and many other mechanisms are helping the PRC establish a homogenous sphere of influence over one the region.

China’s system of state-led economic development has positioned its economy as a major power and has lifted over 800 million people out of poverty, so, Latin American countries are easily attracted by a desire to achieve similar outcomes. LAC countries are rapidly joining the China-led Asian Infrastructure Investment Bank (AIIB) and the Chinese Belt and Road Initiative (BRI).

Through Beijing’s loans, Chinese corporations are building dams and hydroelectric power plants in the Patagonia and the Amazon, laying thousands of kilometers of rail track to reduce freight transportations costs and connect rural populations in Venezuela, Peru and Brazil. China’s development banks are even financing a nuclear energy plant in Argentina.

Most scholars agree that Chinese engagement in the region has both geopolitical and economic incentives. For instance, economically, the PRC has considerably expanded its exports to the region, through a range of sectors: from manufactures to highly sophisticated products in technological sectors. At the same time, Latin American countries have also increased their exports of primary products and commodities to China, generating intradependence among all parties. China continues to be the most important export market for South America and remains second to the United States for exports from the LAC region overall. The trade with the PRC has started to move LAC countries away from their manufacturing industries and back to a large reliance on export-oriented primary goods sector.

Nevertheless, the gap between the potential and the reality of infrastructure cooperation is relevant. Firstly, state-to-state lending models can create potentially unsustainable sovereign debt burdens. For example, the debt-based “development” relations with Venezuela or the Odebrecht scandal, represent how the real potential for corruption can undermine infrastructure agreements and propel greater problematics. Secondly, the fact that the most liberal economies have joined the BRI (Chile, Costa Rica, Panama, and Peru), indicates that from a regional point of view, countries are shifting their approach to economic and political growth.

A Democratic Resignation or Coup?

The former President of Bolivia, Evo Morales, has resigned on November 10th, 2019. The events leading up to the resignation are concrete, the interpretations are varied. Given Latin America's political polarization, two opposing perceptions always arise and open controversy. In contrast to other parts of the world, Latin American politics never seem to reach a consensus between differing political views.

The Facts

In 2006, Evo Morales became the first President of Bolivia of indigenous origin, in a country with “over 60% of the population considered of indigenous origins” (Shoaei). He quickly became an icon for the indigenous people, and through reforms, sought to eliminate the class-based differences prevailing in the social structure of a polarized country. One of these reforms was the drafting of a new Constitution making Bolivia a “Plurinational State”. The Constitution’s main achievements were to eradicate racism by imposing incarceration for previously non-incarcerable crimes and to unify the national judicial system with the latent values of the indigenous communities. However, the Constitution proposed by Morales himself set the limit to a maximum of two presidential terms, thus limiting his tenure.

Economically, Morales wasn’t as radical as other socialist governments in Latin America in completely nationalizing industries. Take Venezuela as an example, Chavez fired 19,000 employees of the state-owned, monopolized, petroleum company and hired employees loyal to his political views with disregard to their technical expertise. In contrast, Morales re-nationalized the Bolivian petroleum company, Yacimientos Petroleros Fiscales Bolivianos (YPFB), which currently is a joint venture between the state and private companies, maintaining the technical skills of the employees needed to sustain a company in a demanding industry. Additionally, Morales increased subsidies and invested in infrastructure to support his social program of eliminating the class differences in the country.

Morales ran for a third term in 2014, against the limits of the Constitution, with the premise that since the Constitution was enacted in 2009, his first term didn’t fully count under the new Constitution. He won the votes of more than 60% of the country in these elections, thus demonstrating his political and economic policies were still supported. In 2016, Bolivia gathered to vote for a referendum to allow Morales to have no limits on his terms in office. He lost the vote 51% to 49%, marking the first electoral loss of the President. This loss was in part due to a corruption scandal, which surfaced days before the referendum, that not only demonstrated corruption at high levels of the government but also the nubilous judicial system which was used as a political tool of the government against opposition. As the 2019 elections waned closer, Morales found a workaround, his supporter-filled Constitutional Court declared that not allowing him to run for the election breached human rights.

The turning point transpired in the 2019 elections. As the results were being released, and the opposition was celebrating a clear trend toward a second-round runoff, the results stopped being released. The day later, a victory for Morales was claimed with a small margin to avoid the second-round runoff. Many other proofs of electoral fraud emerged, including: a high number of invalid votes, inexplicable revisions to vote counts, and precincts where the turnout was 100%. These investigations were carried out by the Organization of American States (OAS). Following this audit, protestors reinforced with a portion of the police forces filled the streets, demanding a new election and the resignation of Morales. Morales’s call for a new election wasn’t sufficient, and as the protests increased and the days went by, Williams Kaliman, Commander of Bolivia’s Armed Forces, urged Morales to step down. Morales resigned that same day, blaming it was a coup against him, stating: “My sin is being a unionist, of indigenous origin, and a coca farmer.”

Following the resignation, Morales flew to Mexico where the socialist President Andrés Manuel Lopez Obrador offered him political asylum. In conclusion, Bolivia is in a void of power. Due to the resignation of the Vice-President, the President of the Senate, and the President of the Lower House, the order of succession of the Constitution has no effect. In addition, it isn’t a coup by definition either, considering that the military hasn’t taken control of the country. Recently, Jeanine Añez, a conservative Christian has assumed the interim presidency of the Senate, and thus the interim presidency of Bolivia. Even though the Constitutional Court has said she was the next in line for the presidency, Morales’s supporters have shown their discontent through protests of their own.

Mixed Interpretations

With the facts laid out, we can dive into the two different perspectives. One side of the spectrum argues that Morales’s resignation is a democratic one. Supported by the arguments that he shouldn’t have even run for a 3rd or 4th term under the Constitution, by the evidence of electoral fraud, and by the cases of corruption and manipulation of justice. The other position argues it is a coup. By reasoning that Morales won the elections or would have won even in a second-round runoff, that his postulation for re-election was validated by the Constitutional Court and by the presentation of the opposition candidate to the elections, and that the coup was manned by police and the public declaration of a high-end military official.

The lack of consensus between two views and their fierce aggressiveness against one another is the reason Bolivia is in a void of power, with people of both sides dying in the streets. This isn’t a matter of one nation. Following the resignation, other Latin American countries have taken a stance on the issue. For example, Morales wasn’t granted permission to land and refuel in Peru on his way to his political asylum in Mexico, due to political differences.

The current events in Bolivia, Chile and many other countries throughout the continent put on an enduring display on the intricacies of politics in Latin America.

Politics and corruption have historically held a love affair. This vile romance is largely present in Latin America, a region permanently involved in corruption scandals. Corruption does not only infringe constitutionality, but substantially inhibits economic and social development. It is time to tear this love affair apart.

Although most Latin American economies have experienced economic growth in the last few decades, endemic bureaucratic corruption persists. Ranging from local scandals to the release of the Panama Papers, or the multinational Odebrecht case, every Latin American country has suffered from it. It seems as if even the incorruptible is corrupt.

However, what is most worrying, is that the economic potential of Latin America, a region blessed with natural resources and sources of growth, is being limited by the dishonesty of its politicians and public functionaries. Rather than only criticizing the intrinsic unethicality of corrupt practices, this text seeks to unveil the profound impact of corruption in the economy.

In perspective, governmental corruption cost Brazil 2.3% of its GDP in 2010, while it reached a figure of three billion USD in 2018, in neighbouring Peru (Llorente & Cuenca). These figures might not be alarming to all. However, when one realizes that all funds misled due to corrupt practices could instead be allocated in social programs and governmental policies in order to bring about societal well-being, we understand this love affair should be a problem for us all.

Analogous to an evil octopus, corruption spreads its tentacles throughout the economy, and tugs it down. In the public sector, corruption causes a loss of efficiency in public investment. As Tanzi and Davoodi, authors of “Corruption, Public Investment and Growth” (IMF), argue, corruption is related to higher public investment, lower government revenues, lower expenditures on operations and maintenance, and lower quality of public infrastructure. Indeed, corruption might raise government spending, but rather than doing so for the population’s interest, such spending enlarges politicians’ own pockets. Just recall Cristina Fernández de Kirchner, Argentina’s former President, and the renowned Notebook scandal, which revealed a complex, but romantic, net of bribery associating illegal practices between government officials and private companies.

Moreover, corruption also marks a downturn in private investment. Undoubtedly, firms and individuals are less prone towards investing in corrupt environments. Firstly, because most decent entities, either firms or individuals, hold ethical values that would stop them from engaging in corrupt practices. Secondly, as corruption promotes fear rather than attractiveness among potential investors: why would someone risk it, where danger is afloat?

Throughout Latin America’s history, in uncountable scenarios, arbitrarily imposed measures have damaged once-confident investors. Several of the expropriations performed under the Agrarian Reforms, enacted in Bolivia, Cuba, Guatemala, and other regional countries during the twentieth century, exemplify scenarios where public corruption motivated the abuse of power and the wrongful redistribution of land among the political class, all which threatened investors. Initially intending to redistribute land among the working class and increasing agricultural productivity, corruption partially led to the failure of the Agrarian Reforms: with land, in many cases, being distributed amongst the leading juntas. Turmoil and uncertainty disincentivize investment.

Nonetheless, love is omnipresent, making political corruption a global phenomenon. Corruption has no ideology and should not be placed on the political spectrum. All forms of government -from democracies to dictatorships - are, or have been, stricken by corrupt Cupid. Some political systems might ease the propagation and survival of corruption in government, but corruption has neither flag nor identity.

Politicians should serve the common good and should embrace morality and values. Above all, public functionaries should profess honesty and transparency, while rejecting the ever existing temptation of corrupting or being corrupted. Politicians carry the burden of cutting the snake’s head, and putting an end to love.

Leading the fight against corruption is not an easy task. Corruption is mutable and repellent, it constantly escapes justice. Most nations are embarking reforms to tackle corruption, but few are successful. Instead of looking at our corrupt past, let's build an incorruptible future. One of the genuine tasks of new generations is that of preventing corruption, abstaining from coquetry, and -hopefully- calling victory against it.

Politics has no space for corruption, we shall hope this love affair comes to an end!

COngress dissolved: peru's constitutional crisis

The Dissolution

Martín Vizcarra, initially Peru’s vice president, rightfully replaced elected President Pedro Pablo Kuzcinsky in March 2018 after the latter was forced to resign under corruption charges. Ever since assuming the presidency, President Vizcarra faced blatant opposition orchestrated by the Fujimoristas, the dominant party in Congress.

Following a second vote of no-confidence, Peruvian President Martin Vizcarra announced the dissolution of Peru’s Congress. Vizcarra’s decision of abolishing Congress has received both wild hails and opposition. Although some claim Vizcarra’s decision as unconstitutional and undemocratic, the majority (85% - Ipsos) of Peruvians have warmly welcomed his initiative.

According to Peru’s constitution, the executive branch of government may legitimately dissolve Congress given a second vote of no-confidence. In September 2017, under Kuzcinsky’s presidential term, the first no-confidence vote occurred. Subsequently, in May 2019, President Vizcarra enacted a constitutional process envisioning a second motion of no-confidence towards Congress if the congressional body hampered government efforts to fight corruption. Four months later, in September 2019, due to the prevalence of corruption within Parliament, Vizcarra called for a second vote of no-confidence stating that “the democracy of our nation [Peru] is at risk”. As a consequence, the president took the decision of dissolving Congress seeking to "end this stage of political entrapment that has prevented Peru from growing at the pace of its possibilities". Following the dissolution, he issued a decree calling for legislative elections on 26 January 2020.

The Aftermath

What is most unclear is what will follow this parliamentary interregnum, as Peru’s constitutional crisis will surely alter its politics. A prime consequence after the dissolution surely relates to upcoming parliamentary elections and which parties will obtain majorities. Possibly, Vizcarra might have to face Fujimoristas in another period of cohabitation, unless elections produce a surprising result that shock Peru’s polarized politics.

Furthermore, Peru’s stable economy might face trouble ahead. A decay in foreign investment and government spending are expected to follow this tough political period. Most projections available affirm that Peru’s economy will suffer a downturn: with reports predicting a reduction of approximately one percent in expected GDP growth for 2019 (from 3.1% to 2.3% - Scotiabank). However, Peru’s strong macroeconomic bases and institutions will surely preserve economic stability in both the short and long term.

Democracy

Fear goes beyond any political or economic repercussions. Great uncertainty and speculation have risen from this political crisis, with one query echoing in the streets: is Peru’s government still a democracy? To some, Vizcarra trampled democracy and has settled a dictatorship, even being alluded to Alberto Fujimori’s regime and coup d’etat in the nineties. However, while Fujimori dissolved congress illegitimately by neglecting constitutional procedures, Vizcarra did so under law. Moreover, after Vizcarra decided and announced the dissolution of Congress, he appointed - following constitutional bases - a Permanent Commission headed by Pedro Olaechea, elected President of Congress. This measure maintains the legislative power operative and emphasizes the still existing separation of powers every democracy needs.

If, as in the moment, Peru’s constitution and democracy remain untouched, the country’s future is certainly not dark. In times of regional crises, Peru might prove it stands safe.

ONCE AGAIN: ARGENTINA IS IN TROUBLE

Is it the beginning, or just a continuation?

Argentina has fallen yet again in another economic crisis. The causes are many and dispersed throughout time. To fully understand, we have to date back to 2015 when President Mauricio Macri assumed office after a 15 year tenure of Peronists, a left-wing political party in Argentina. The annual inflation at the time was around 25.9%. According to the International Monetary Fund, the net debt of the government was around 6% of the country's GDP. And according to various sources, the unemployment rate was 6.6%, while public employment was 18% of the whole labor market with salaries taking up 12% of the national GDP. Macri took over as a market-friendly president who would eliminate currency controls, help bring foreign investments to the country and cut the unsustainable government spending. However, he didn’t immediately cut the unviable fiscal deficit, but decided to gradually postpone structural reforms to avoid an abrupt social backlash.

For a while, it bode well for the government, however, timing didn’t help the country. Just as the government was cutting energy subsidies in 2018, taking a weight off the fiscal deficit’s shoulders, the world macroeconomy seemed to play against emerging markets. The combination of hikes in the Fed rates, a stronger United States dollar, and the start of the US-China trade war started crippling emerging market currencies as investment fled to safe havens. The Turkish Lira and the Argentine Peso currencies were the hardest hit. It’s important to understand that when a currency depreciates in an emerging market economy like Argentina’s, inflation follows suit. This is due to the fact that the contracts of exportation and importation with the rest of the world are made contrived in dollars or other currencies that follow the dollar.

The Bailout

In June 2018, the Argentine government received a $50bn bailout from the International Monetary Fund to cope with a starting crisis. However, the bailout had its restrictions, among them was a multi-year plan to reduce the budget deficit and an order to let the peso float freely. The latter was the most damaging to the economy. The peso depreciated 110% from April to September, where they received $7bn more and this time, the authority to defend the peso by raising interest rates and selling dollars in the market with only some restrictions. According to the IMF’s data, Argentina’s bailout represents almost 90% of the IMF’s Stand-By Arrangements as of September 30, 2019. This is a huge portion, taking into account the risk of an emerging market economy, especially as the agreement was enacted one year before elections. This risky investment has convinced more than a few people that the decision was purely political. Some believe that the underlying reason is to support President Macri and avoid at all costs the return of the populist Peronism, in particular with the political situation in Venezuela, part of the region.

The Elections

The economic situation certainly didn’t improve while candidates were getting ready for the 2019 election, another source of uncertainty and turmoil in an already fragile economy. Primary elections were held the 11th of August, while the actual defining elections are going to be held on October 27th. In the primaries, the leftist candidate Alberto Fernandez with the ex-president Cristina Fernandez as his vice-president won with 47.66% over President Macri’s 32.09%. This administered a blow to markets since the majority of the polls preceding the elections showed Alberto Fernandez only winning by a margin of 2-5%. That night the peso started again with its depreciation. On the Monday following the elections, Macri hosted a press conference with his vice-presidential candidate Miguel Ángel Pichetto blaming the overnight depreciation on the electoral results and thus the people, for voting a left-wing, populist candidate. The peso depreciated 25% that day, known as Black Monday by some journalists.

In total, from April 2018 to the highest point in August 2019, the peso depreciated by 200%. Inflation followed suit, and according to INDEC (the governmental agency of statistics), it was 4% in August, amounting to 54.5% the 12 months prior. To cope with the runaway inflation and worsening social conditions, President Macri enacted emergency measures like eliminating taxes on the basic basket of goods, raising the minimum wage, and freezing gasoline prices to name a few.

What’s Next

The primary elections of August, created more problems than expected. The hefty difference created a sort of void of power similar to the lame duck period in the US: an elected president who has to wait to win another, almost certain election, and an acting president who doesn’t have any authority since it is almost certain that he is gone by December. In the middle of this political confusion, the IMF still had to authorize a payment of $5.4bn that were part of the original bailout from the prior year. To add to the chaos, at that time, the IMF was changing director from the exit of Christine Lagarde to the ECB, and only had interim managing director David Lipton.

As the days until the October 27th elections wane, the acting government set currency controls and enacted plans to restructure part of the debt. Meanwhile, the front-runner Alberto Fernandez declared that Argentina is in a “virtual, hidden default”, providing more uncertainty to markets and the currency. The electoral campaigns and economic crisis continue their route towards October 27, where at least some level of certainty will be achieved in the midst of the political and economic chaos that ensues the country.

The Economic Council for Latin America and the Caribbean has placed Nicaragua on the list of Latin American countries whose GDP is expected to decrease by 5%. Additionally, Nicaragua’s import volume is only expected to increase by 1.8% throughout the remainder of 2019. The economic consequences of Nicaragua’s political turmoil has also put the country at risk of a significant rise in unemployment. According to a report released by the Nicaraguan Association for Social and Economic Development, around 49,000 to 61,000 employees are expected to lose their jobs throughout the remainder of the year. But the most shocking statistic is that around 1.90 to 1.95 million Nicaraguans are expected to live under 1.76 dollars daily or less due to the country’s worsening socio-economic condition.

Besides Nicaragua’s concerning macroeconomic data, the country’s economy has had to bear the weight of the sanctions imposed by the United States on Daniel Ortega’s government. These series of sanctions were part of a piece of legislation known as the “Nica Act”, which was signed by President Donald Trump this past December. The “Nica Act” gives president Trump the power to impose sanctions on any of Daniel Ortega’s government officials. More so, this relatively new piece of legislation also bans Nicaragua from receiving any type of loan or grant from international organizations, such as the World Bank or the Inter-American Development Bank.

In addition to the sanctions’ efficiency in weakening Daniel Ortega’s government, Nicaragua’s economy has taken a toll. As stated by the Nicaraguan Association for Social and Economic Development, the “Nica Act” is expected to reduce the amount of cash invested in vulnerable economic sectors such as construction. Furthermore, the sanctions are also expected to affect the country’s declining consumption and rising unemployment.

Based on the economic data and Nicaragua’s political situation, it is evident that the current socio-economic condition of Nicaragua’s businesses, consumers, and families is alarming. As the country’s economic activity continues to decline, it is rather clear that a compromise must be reached between the government and the people. This agreement must halt the violence imposed by Daniel Ortega’s regime, and ensure the establishment of a democratically-elected government. A compromise like the aforementioned will not fix the economy immediately, but it will pave the way for the reconstruction of Nicaragua’s economy and the people’s social and economic well-being.

A socio-political and economic crisis has been ensuing in Venezuela since President Hugo Chavez took power, and has continued throughout President Nicolas Maduro’s (Chavez’s successor) regime. The government's military repression of Venezuela’s protesters accompanied with the aggravating macroeconomic circumstances like hyperinflation have taken a heavy toll on Venezuelan people. Below are some of the most important and alarming problems that have caused Venezuela's economic and social crises.

A Plunge in Venezuela’s Oil Exports

Between the years 2014 and 2016, the price of crude oil dropped from $ 115 per barrel to about $ 35 per barrel according to the World Economic Forum. But what does this have to do with Venezuela? Well for starters, crude oil constituted most of Venezuela’s oil revenues. Moreover, since the 90s these revenues were used to support social welfare and healthcare programs for the poor. However, when the price of oil plunged between 2014 and 2016, oil production in the country declined drastically. This in turn led to a fall in the country’s GDP as most of Venezuela’s exports relied on petroleum based products. Furthermore, the situation is becoming increasingly worrying as the amount of oil barrels produced per day keeps falling. In fact according to the London- based firm, IHS Markit, Venezuela’s oil production could fall below 500,000 barrels per day by 2020. You may be asking yourself what the Venezuelan government did to face this crisis. The answer to your inquiry can be summarized in one word: hyperinflation.

Hyperinflation: A “Solution” to the Oil Crisis

As the price of crude oil plunged, president Nicolas Maduro knew that the Venezuelan government could not solely rely on the oil industry. Hence, in order to continue to finance the government’s social welfare programs, Venezuela’s Central Bank decided to start printing new money. The consequences of this action , however, have had disastrous effects on the country’s economy.In fact according to the International Monetary Fund, Venezuela’s hyperinflation rate went from 9.02 percent to 10 million percent since 2018 . Consequently, a large part of the people’s disposable income has been completely wiped out. This has led to a sudden rise the country’s crimes- specifically robberies-, which have placed Venezuela in the list of Latin America’s most violent countries.

What does the future hold?

Besides Venezuela’s grave economic situation, Maduro’s regime has been sanctioned by the government of the United States. The series of sanctions placed on the South American nation attempt to freeze Venezuelan government assets in the United States and ban American companies from doing business with two of the main Venezuelan oil companies. These series of sanctions are expected to worsen Venezuela’s economy and its people’s well being in the long run. So what does the future hold for Venezuela? Well, as long as president Maduro and his government refuse to step down, the Venezuelan people will continue to live in a state of economic and social agony. Which might get even worse if the United States or any other government decides to apply new sanctions on Venezuela. If, however, Venezuela’s government becomes responsive to dialogue, then we could see a solution brought forward through diplomatic negotiation. But for now, the country’s future economic, political, and social situation is uncertain under Maduro’s regime.