Latin American Business Environment: The Effects of the COVID-19 Pandemic

LATIN AMERICAN BUSINESS ENVIRONMENT

2021 REPORT

LATAM.U FL . EDU

LATIN AMERICAN BUSINESS ENVIRONMENT 2021 REPORT

Effects of the COVID-19 pandemic

Center for Latin American Studies University of Florida Pilar Useche Timothy E. McLendon Trent Blare Brian Gendreau March 2021

MASTER OF ARTS IN LATIN AMERICAN STUDIES The Center for Latin American Studies is uniquely poised to help students achieve their educational and career goals with a Master of Arts in Latin American Studies (MALAS) degree. With over 160 experts on the region, the Center is recognized today as one of the top-ranked centers internationally and has been continuously designated as a National Resource Center by the U.S. Department of Education since 1961.

LATIN AMERICAN BUSINESS ENVIRONMENT PROGRAM The Latin American Business Environment (LABE) specialization is for MALAS students with a keen interest in Latin America who seek to acquire the analytical skills for careers in business, non-government organizations, and government. The program also serves the general public and business community through speaking engagements and publications, including the annual Latin American Business Environment report.

The contents of this report were developed under a National Resource Center grant from the U.S. Department of Education. Those contents, however, do not necessarily represent the policy of the U.S. Department of Education, and you should not assume endorsement by the Federal Government.

PREFACE nd

This is the 22 edition of the Latin American Business Environment Report (LABER). The Report includes a review of the business, investment and legal environments in all of the Latin American states, including Cuba, and Haiti. As in past years the goal of the Report is to provide an accessible, balanced evaluation of the economic, social, political, policy and legal developments that affect the region’s business and investment climate.

LABER is a publication of the Latin American Business Environment Program (LABEP) in the Center for Latin American Studies in collaboration with the Center for Governmental Responsibility (CGR) in the Levin College of Law at the University of Florida. Through graduate degree concentrations, courses and study abroad opportunities, LABEP (http://www.latam.ufl.edu/research--training/latin-americanbusiness-environment) draws on the diverse expertise and considerable resources of the University to prepare students for careers related to Latin American business. It also organizes conferences, supports the publication of scholarly research and provides professional consulting services.

CGR is a legal and public policy research institute at the Levin College of Law with research programs and grant projects in environmental law, social policy, international trade law, and democracy and governance. CGR provides academic and clinical instruction for law students, and public extension and information services through conferences and publications. CGR (http://www.law.ufl.edu/academics/centers/cgr) has a long history of collaborative work throughout Latin America, in Haiti, Europe and Africa.

Alexandra Melendez, Juan Manuel Montealegre, Michael McKenna and Treethep Srisa-nga helped with economic research, while Zi Jin Peter Chan and Jordan Grana assisted with background research for the legal environment section. We thank them for their valuable assistance, but we alone are responsible for the content and analysis.

Pilar Useche, Associate Professor, Center for Latin American Studies and Department of Food and Resource Economics, University of Florida useche@ufl.edu Trent Blare Assistant Professor, Food and Resource Economics University of Florida tblare@ufl.edu

Timothy E. McLendon, Center for Governmental Responsibility Levin College of Law University of Florida mclendon@law.ufl.edu Brian Gendreau Richardson Faculty Fellow Clinical Professor of Finance Warrington College of Business University of Florida bgendreau@ufl.edu

* Electronic versions of previous reports can be accessed at http://www.latam.ufl.edu/researchtraining/la-business-environment/publications. The report may be cited without permission, but users are asked to acknowledge the source.

CONTENTS

PREFACE ABBREVIATIONS AND DEFINITIONS EXECUTIVE SUMMARY

1

REGIONAL MAP

3

REGIONAL OVERVIEW

4

COUNTRY PROFILES NAFTA II REGION Mexico

23

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

26 28 31 33 36

BRAZIL AND THE SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

38 41 45 47 49

CENTRAL AMERICA AND THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

51 52 54 56 58 59 61 62 64

ABBREVIATIONS AND DEFINITIONS

ALBA:

Alianza Bolivariana para los Pueblos de Nuestra América (Bolivarian Alliance for the Peoples of our Americas), an organization founded by Cuba and Venezuela in 2004 to foster regional economic, political, and social integration. Its member states, which are socialist or populist in orientation, are Antigua and Barbuda, Bolivia, Cuba, Dominica, Grenada, Nicaragua, Saint Kitts and Nevis, Saint Lucia, Saint Vincent, and Venezuela.

Latin America:

The states in the Americas in which romance languages are spoken. This definition includes the Caribbean nations of Cuba, the Dominican Republic, and Haiti.

LA-7:

The seven largest countries in Latin America by GDP, in 2019 PPP prices. These are, in order of size, Brazil, Mexico, Argentina, Colombia, Chile, Peru, and Venezuela.

LAC:

Latin America and the Caribbean.

Mercosur:

(Mercosul in Portuguese) A customs union and trading bloc of countries established in 1991 to promote free trade. Its full members are Argentina, Brazil, Paraguay, and Uruguay. Venezuela’s membership was suspended on December 1, 2016.

Pacific Alliance:

A trade bloc founded in 2011 with the goal of promoting economic integration and free trade with a “clear orientation toward Asia.” Its members are Chile, Colombia, Mexico,and Peru. Costa Rica, Ecuador, and Panama are in the process of becoming members. Its governments tend to be centrist and market-oriented.

USMCA:

A free trade agreement between the United States, Mexico, and Canada which has been passed by legislatures and signed into law in the United States and Mexico and is underconsideration by Canada’s parliament. Also known as NAFTA II, it replaces the North America Free Trade Agreement that came into force in 1994.

Sources for the data, forecasts, and rankings used in this publication are listed in the footnotes to Tables 1 through 13.

2021 LATIN AMERICAN BUSINESS ENVIRONMENT REPORT Effects of the COVID-19 pandemic Pilar Useche, Timothy E. McLendon, Trent Blare and Brian Gendreau

EXECUTIVE SUMMARY Latin America’s economic outlook has significantly worsened since the beginning of 2020, when a modest pickup growth was expected for the year (1.3 percent from 0.3 in 2019) on the back of increased consumption and investment demand. As the global economy slipped into an unprecedented pandemic-related recession, the structural weaknesses of Latin American economies contributed to fueling the sharp economic crisis generated by lockdowns, border closures, and social distancing measures implemented in every country. Toward the end of the first quarter of 2020, global production activities, consumption, and investment had declined sharply. Latin America has not fared well, and the consensus is that its recovery will take longer and will be more painful than that of other emerging regions in the world. The year 2021 will be dominated by the efforts to dispense vaccines, restore economic activity, and close expanding fiscal gaps.

We classify the region’s 20 economies according to the overall character of their business environments. The table below further indicates if the yearly performance has improved (▲), deteriorated (▼), no significant change (=) or uncertain (?). When the environment deteriorated and growth was negative, we use a red triangle. In 2020, the business climate deteriorated in all countries in the region, thus, we indicate the magnitude of this decline by the number of triangles, where more triangles denote a larger decline. The table shows that several countries in the region were in a recession in 2019 (Mexico, Bolivia, Venezuela, Argentina, Nicaragua).

These countries are expected to recover more slowly than the average in the region. The outlook for 2021 remains, on balance, slightly more optimistic, though the risk of more peaks of the pandemic, slow growth among the region’s trading partners, continued weakness in commodity markets and political instability remain risks.

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LATIN AMERICAN BUSINESS ENVIRONMENT

USMCA Region Mexico Andean South America Bolivia Colombia Ecuador Peru Venezuela Brazil and Southern Cone Argentina Brazil Chile Paraguay Uruguay Central America and Caribbean Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

Environment 2019 2020

Outlook 2021

▼

▼▼

▲

▼

▼▼

▲

▲ ▲ ▲

▼▼ ▼▼

▲ ▲ ▲▲

▼▼▼

▼▼▼ ▼▼▼

▼

▼▼▼

▲

▲ ▼ ▼

▼ ▼▼

▲

▲ ▲ ▲

▼

▼ ▼

=

▼

▲

▼ ▲ ▼

▼▼ ▼▼

▲

▼▼ ▼

▼ =

n.a. ▼▼

▼

▼▼ ▼▼▼

=

▲

▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲▲

Notes: Red triangle(s) = Annual growth was negative; Black triangle ▼= growth less than previous year but still positive, One triangle = Annual GDP decline/increase was (or is expected to be) less than or equal to 5%, Two triangles = GDP decline/increase between 5 and 10%, three triangles = GDP decline/increase larger than 10%.

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OVERVIEW ECONOMIC AND POLITICAL OUTLOOK When the COVID-19 crisis hit Latin America, the region was already underperforming. A prolonged period of low economic growth and high unemployment followed the 2008 financial crisis. The negative economic impact of the crisis was exacerbated by an abrupt decline in commodity prices in the summer of 2014, which contributed to a regional reversal of the declining trend in poverty rates after that year (Figure 1). The commodity boom that had taken place between 2003 and 2013 was largely fueled by an increase in China’s demand for commodities, rather than by improvements in physical and human capital investment or by increases in factor productivity. In fact, investment was negative during the 2011-2019 period, reflecting the worst performance of this metric since the lost decade of the 1980s. This accelerated the declining labor productivity in the region compared to the rest of the world (Table 1). In a declining economic environment and with dwindling revenue windfalls from commodities, many governments implemented hard-hitting austerity measures that catalyzed social unrest and protests in 2018 and 2019.

Beyond poor economic conditions, surveys pointed to an erosion of public satisfaction with the quality of democracy. Sources of the social discontent included politicized judicial systems, high levels of corruption, crime, and social inequality that have left vast segments of the population with limited access to health, education, and social safety net programs.

Before the pandemic, civil unrest had erupted in Nicaragua, Haiti, Ecuador, Bolivia, Chile, and Colombia.

Figure 1. Latin America confronts the COVID-19 crisis with poor socioeconomic indicators

Source: GDP: World Bank Data & EIU, Youth Unemployment and Poverty OECD-ECLAC, Panorama Social de America Latina. 2020 Poverty Estimate: U.N., Unemployment: ILO.

Table 1. Investment and labor were already at their lowest levels

Time Period 1991-2000 2001-2010 2011-2019

Gross Fixed Capital Formation 3.0% 4.8% -0.9%

Labor Productivity (Rest of the world=100) 155.9 125.3 102

Source: GFCF: ECLAC; Labor Productivity: OECD Latin American Economic Outlook 2020 (simple average of 17 LAC countries covered by The Conference Board-Total Economy Database, averaged over the time period)

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It was against this backdrop that the coronavirus pandemic swept through the region, precipitating an unprecedented recession (with an estimated average 2020 GDP contraction in the range of 7.2 to 8.1% GDP) due to lockdowns and spillovers from the rest of the world. A positive correlation between the severity of the pandemic and the magnitude of the GDP contraction can be seen in Figure 2. The largest and more densely populated countries in the region have had the largest number of per-million deaths. In spite of comprehensive lockdowns that initially slowed infection rates in Argentina, Chile, Peru, and Colombia, by the third quarter of 2020, the situation had worsened. Figure 2 shows that the toll the disease has taken and its impact on the region economies is far from uniform. The economies that suffered the most in 2020 were Venezuela, Panama, and Peru, contracting about 30%, 12.6%, and 11.9%, respectively. Analysts expect permanent GDP losses for most countries.

Latin America has so far experienced the largest pandemic impact of any emerging region in the world (Table 2.1.). High levels of labor informality, lack of social protection, and limited health infrastructure strongly contributed to the direct, public health impact of the pandemic. An additional internal factor affecting the region’s performance is the significant shift of its employment structure during the past decades from agriculture and manufacturing to trade, transport, communications, and business services (from 24.6% employment share in 1981 to about 40% in 2018), all contact-intensive sectors affected by lockdown measures. Earlier in the year, analysts were projecting a partial recovery in the region, forecasting a GDP expansion for 2021 between 3.7 and 4.2 percent, but this may change if the pandemic continues to escalate (Table 2.2.). While inflation declined in 2020 due to the demand shock, regional inflation has increased, primarily driven by price pressures

in South American countries (a notable exception is Colombia), and is expected to continue to rise in line with economic recovery.

While the approval of several vaccines across the world should allow for the partial control of the spread of the coronavirus, the timing and effectiveness of the rollout in Latin America is expected to be slow and full of uncertainty.

Figure 2. Estimated 2020 GDP Contraction (%) by Covid-19 Total Deaths per 100K

Sources: GDP Contraction: Estimates from Consensus Economics, Jan.2021; COVID-19 Deaths: Johns Hopkins University (https://coronavirus.jhu.edu/data/mortality; accessed Feb 2, 2021). Notes: Venezuela’s drop in GDP was estimated at 26.6%. Cuba was excluded because data were unavailable. Analysts suggest that testing and recording of infections and deaths may be heavily underestimated in countries that have faced the crisis with denial (Brazil, Mexico, Nicaragua). COVID death rates in Honduras, El Salvador, and Nicaragua may be underestimated given the impact of Hurricanes Eta and Iota on these countries and their surveillance systems in 2020.

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Table 2.1. Growth outlook in Latin America and other emerging market regions (percent) Latin America EM-Asia EM-EU EM-Middle East Sub-Saharan Africa

2019 0.2 5.5 2.1 1.4 3.2

2020e 2021f -8.1 3.7 -1.7 8 -4.6 3.9 -4.1 3 -3 3.1

Source: IMF, World Economic Outlook: A Long and Difficult Ascent (October 2020) Notes: % Change in Real GDP Relative to Previous Year; Baseline Forecasts for 2020 and 2021.

Table 2.2. Economic outlook for the LA-7 economies 2019 2020e 2021f Real GDP, %change -3.2 -9.1 4.2 Inflation, % ex.

Venezuela

Current account, $ bill.

1451.8

393.2

221.6

11.6

8.4

10.6

-82.0

1.0

-32.0

United States. External sectors that largely rely on services for their exports (in Colombia, Mexico, Peru) suffered disproportionately relative to other countries’ external sectors with similar rates of infections (Figure 3.3.).

According to ECLAC, the value of trade in travel, services, and mining and oil suffered the most, exports contracting by 53, 30, and 25%, and imports by 55%, 26%, and 36% from January to June, respectively.

By the end of 2020, a faster economic recovery in China than in other regions of the world had spiked the demand for commodities from Latin America, such as iron ore, copper, and soybeans. The prices for these commodities fully recovered to pre-pandemic levels and, in some cases, exceeded those levels (Figure 3.4.). Oil prices, which have experienced the most extreme decline and weakest recovery, are still significantly below pre-pandemic levels in Q1 of 2021, which is affecting oil exporters like Brazil, Mexico, Venezuela, Colombia, and Ecuador. The latter three, which are more heavily dependent on oil, have been affected the most.

Source: Consensus Economics (for the seven largest economies in the region).

Forecasts are as of January 20, 2021.

Figure 3.1. Trade (as a percent of GDP) (2018)

EXTERNAL SHOCKS AND RECOVERING SECTORS The collapse in external demand stemming from the pandemic and the decline in commodity prices affected Latin American countries in different ways. Economies with a larger share of trade (as a percent of GDP) and high exposure to Chinese demand (Figures 3.1., 3.2.), such as Chile and Peru, experienced a severe decline in exports at the beginning of the pandemic. Countries with closer external ties to the United States, such as Mexico, Colombia, Ecuador, and those in Central America, experienced a severe decline in their exports later as the pandemic spread to the

Source: EIU, UF.

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Figure 3.2. Exports to the United States and China (%, 2018) (% of total; 2018)

Source: IMF, Direction of Trade Statistics. EIU.

Figure 3.3. Exports relying on services were hit the hardest; first half of 2020 (Y-o-y percent change in export values)

Source: UF with data from IMF, Western Hemisphere Regional Outlook.

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Figure 3.4. Non-oil commodity prices have a positive trend (Index: January 1, 2020 =100)

Source: UF calculations with data from IMF, WEO.

Overall, both exports and imports showed some recovery after June 2020; however, the improvement was much stronger for exports, whose volume had almost fully recovered by August (y-o-y; Figure 4.1.). This represents a positive development in a region that has traditionally used exports as a way out of economic crises. In this sense, countries that export metals and food to China (e.g., Brazil, Chile, Panama, Uruguay) are expected to benefit the most. However, if China’s import demand from Latin America, which is mostly commodities, remains stronger than that from the United States, which has a significantly larger proportion of manufactured products, the region’s export basket will be at risk of an intensified reprimarization.

At the same time, with continued uncertainty on the duration of the pandemic and the success of vaccines, high prices of gold and silver will benefit large producers such as Brazil, Bolivia, Mexico, and Peru. Stable food prices, meanwhile, will reduce the uncertainty surrounding possible export downturns in countries like Chile and Guatemala. An expected increase in infrastructure spending in China and possibly the United States will help maintain and could even increase the prices of industrial metals (for example, metals involved in the production of electric vehicles and batteries). Another positive factor for the region’s recovery outlook is the quick recovery of remittances to Mexico and Central American countries (Figure 4.2.), where payments from family members abroad have traditionally contributed to economic resilience.

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Figure 4.1. Export volumes recovering faster than imports (USD bill, Values 2010, seasonally adjusted)

Source: UF with data from IMF-WRHO & World Trade Monitor.

Figure 4.2. Remittance flows mostly recovered quickly (Index: December 2019 =100)

Source: UF with data from IMF-WRHO.

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FISCAL AND DEBT POSITIONS HAVE DETERIORATED SUBSTANTIALLY Extended lockdowns in many countries in the region and the slow relaxation of measures in others have not only led to a contraction in their real economies, but also a decline in tax revenues. There is a real need for increased public expenditures in the health sector and for measures to protect workers and business owners from unemployment and business closures. Multilateral financial institutions together with the world's wealthiest countries have provided substantial financial support to countries in the region (Figure 5). As long as interest rates remain low, countries that entered the crisis with ample fiscal space, such as Chile and Peru, will be better placed to sustain higher levels of debt than other countries that may be at risk of a sovereign default. In fact, Argentina and Ecuador had to default on their payments in 2020, although they have reached debtrestructuring agreements with some of their creditors. Venezuela is in sovereign default, with an estimated public debt of 630% of GDP (excluded from the figure).

While countries like Brazil, Costa Rica, El Salvador, and Uruguay all have elevated debt levels, the Bank of America estimates that Chile, Argentina, Brazil, and Mexico in particular will need the largest fiscal consolidations in 2021. High levels of debt in these countries lead to concerns about fiscal solvency and about the vulnerability of public finances to shifting market sentiments. The latter, in turn, may manifest in interest rate hikes on sovereign bonds and/or downgrading by rating agencies. Debt can also have negative long-term consequences if a large proportion of government revenues has to be used to cover interest payments and is diverted from productive social and economic investments.

Thus, increases in interest rates can deter future economic growth and crowd out investment.

Credit rating agencies will be putting pressure on countries to implement fiscal reforms, or make serious commitments to implement them, in the coming years.

Figure 5. Public debt (% GDP) increased sharply and sovereign ratings declined for highly indebted countries

Notes: Dotted lines denote countries with a credit rating of BBB- or lower.

Sources: Public debt, EIU; credit ratings: S&P’s Global ratings.

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INCREASED POLITICAL RISK The year 2021 is likely to be the year when some of the longer-term social and political consequences of the crisis start to surface.

While the coronavirus pandemic brought the 2018-2019 public protests to a halt, social discontent may resurface and lead to calls for political change and economic policy reform.

Governments will have to balance external pressures to increase taxes and reduce spending despite pressures to restore collapsed public health and education systems and interrupted value chains. Governments will also have to address demands to transform the very foundations of the development model in the region to cope with increases in unemployment to high levels, to combat rising poverty and inequality, to boost productivity, and to strengthen institutions and achieve higher levels of inclusion and well-being. The pressure for reform will occur in a year of high electoral activity (Table 3). In 2021, general elections will take place in Chile, Ecuador, Honduras, Nicaragua, and Peru, as well as scheduled mid-term polls in Mexico and Argentina. It will also be a pre-electoral year for upcoming general elections in Brazil and Costa Rica, and presidential elections in Colombia in 2022. The negative socioeconomic effects of the pandemic may turn voter sentiment against incumbent politicians, yet a perceived positive management of the pandemic could work to their advantage. Countries with no electoral release and with the need to withdraw fiscal stimulus may face increased risk of social unrest. In addition, even under relaxed social distancing and partial or short lockdowns, the recovery in activity will be slow and uneven across the region, and heavily influenced by external demand and financial conditions.

Table 3. 2021-2022 calendar of electoral events Date

Country

Electoral Event

7-Feb-21

Ecuador

General election

28-Feb-21

El Salvador

Mid-term legislative

11-Apr-21

Peru

General election

Chile

Regional elections, constituent assembly election

Ecuador

Second-round presidential election

Peru

Second-round presidential election (if needed)

6-Jun-21

Mexico

Mid-term (legislative, provincial and municipal)

24-Oct-21

Argentina

Mid-term legislative

7-Nov-21

Nicaragua

General election

21-Nov-21

Chile

General election

27-Nov-21

Honduras

General election

19-Dec-21

Chile

Second-round presidential election (if needed)

6-Feb-22

Costa Rica

General election

29-May-22

Colombia

Presidential election

2-Oct-22

Brazil

General election

11-Apr-21 11-Apr-21

Jun 21

Source: Economic Intelligence Unit.

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BUSINESS CLIMATE While economists often focus on the ease of doing business as a key component of the efficiency with which labor and capital are combined to produce output, the recent pandemic-related crisis has highlighted that a much broader set of conditions are necessary for well-functioning supply chains, predictable and reliable business deliveries, and sustained and long-term growth. Beyond economic, legal and political considerations examined elsewhere in this report, institutional and technological features of a country such as its intensity of local competition or its investment in human capital and innovation, all contribute to a favorable and dynamic business climate.

The Global Innovation Index (GII), published

by INSEAD, Cornell University, and the World Intellectual Property Organization (an agency of the United Nations) tracks over 90 indicators of business and innovation environment in 131 economies each year (Table 4). Latin America tends to lag behind other regions according to this index, with 13 out of 17 countries ranked in the bottom half in 2020. The average ranking of the Latin American countries in the index is 81.35 out of 131 (down from 77 in 2017 and 80 in 2018). This year 9 out of 17 countries moved down in the rankings, compared to 7 countries that moved up. The largest declines occurred in Uruguay, Peru, and Argentina. For the two-year period since 2018, though, the largest declines were for Uruguay, Chile, Paraguay, and Colombia.

Despite its decline, Chile continues to be the highest ranked country in the region.

Compared to other countries with the same income level, Chile is recognized for its market sophistication, access to credit, low tariff rates and market capitalization. The GII, however, shows the need to improve in the areas of education (pupil-teacher ratio in secondary schools, tertiary inbound mobility), R&D (researcher FTEs, expenditure on R&D, global

R&D companies), knowledge of workers, and creative outputs. Central America was the region with more countries moving up in the rankings, El Salvador advanced the most, showing particularly favorable indicators (relative to countries in the same income category) associated with regulatory quality, offer of formal training to workers, intellectual property payments and receipts, tariff rates, intense local competition, environmental performance, and online creativity.

Different rankings between the Global Innovation Index and the World Bank Doing Business Indicator (GII and DBI in Table 4) reflect the broader set of institutional aspects considered in the former, versus the narrower emphasis on lowering barriers to the creation of a business (in terms of lower monetary and time cost), in the latter. One issue that makes the DBI rankings somewhat ambiguous is that a lower amount of time or lower payments required to open a business, in some countries, may reflect institutional weakness rather than the strength of the business environment. For example, key indicators in the DBI Score are the number of tax payments and the tax rate. In terms of tax payments, the US ranked worse than Mexico, Ecuador, Argentina, Brazil, Chile, CR, Dominican Republic, El Salvador and Guatemala in 2020, while the best countries in terms of low tax rates included Ecuador, Paraguay and Guatemala. However, the DBI ranking provides a useful comparison benchmark for the GII, a broader and more forward-looking metric. Looking more closely at the GII components (see country by country cases at the end of the document) sheds light on longer-term factors that contribute to sustain business innovation.

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Table 4. Global Innovation Index and Doing Business rankings GII Ranking

Change

Country 2020 2019 2018 2019-20 ↓ 1 Chile 54 51 47 ↑ 2 Mexico 55 56 56 ↓ 3 Costa Rica 56 55 54 ↑ 4 Brazil 62 66 64 ↓ 5 Colombia 68 67 63 ↓ 6 Uruguay 69 62 62 ↑ 7 Panama 73 75 70 ↓ 8 Peru 76 69 71 ↓ 9 Argentina 80 73 80 10 Dominican Re ↓ 90 87 87 ↑ 11 El Salvador 92 108 104 ↓ 12 Paraguay 97 95 89 13 Ecuador 99 99 97 = ↑ 14 Honduras 103 104 105 ↑ 15 Bolivia 105 110 117 ↑ 16 Guatemala 106 107 102 17 Nicaragua n/a 120 n/a n/a USA China

3 14

3 14

6 17

= =

Doing Business Rank 2020 Country 1 Chile 2 Mexico 3 Colombia 4 Costa Rica 5 Peru 6 Panama 7 El Salvador 8 Guatemala 9 Uruguay 10 Dominican Rep 11 Brazil 12 Paraguay 13 Argentina 14 Ecuador 15 Honduras 16 Nicaragua 17 Bolivia 18 Haiti (not in GII) 19 Venezuela (n.i. GII)

Sources: GII Ranking: Cornell University, INSEAD, World Intellectual Property Organization 2021; Doing Business, World Bank, 2020.

In addition to the innovation rankings, the Organization for Economic Co-operation and Development (OECD) provides a forwardlooking perspective on the business climate through three different indicators. First, the business confidence indicator is used to monitor output growth and to anticipate turning points in economic activity. It provides information on future developments, based upon opinion surveys on developments in production, orders, and stocks of finished goods in the industry sector. It points to an optimistic outlook on business in Brazil and Chile, and a more pessimistic one in Mexico (Figure 6.1). Second, consumer confidence is measured to provide an indication of future developments of household consumption and savings, based upon stated expected financial situation, and perception of the general economic situation, unemployment, and

capability of savings. The indicator is below 100 for Mexico, Colombia, Brazil, and Chile, signaling a general decline in consumers’ confidence about the future economic situation, as a consequence of which they are more prone to save and less inclined to spend money on major purchases in the next 12 months (Figure 6.2). Third, the composite leading indicator measures economic factors that anticipate the ups and downs in the business cycle, such as borders and inventory changes, financial market variables (share prices, business confidence), and trends in key sectors and trading partners for smaller countries. This indicator is designed to provide early signals of turning points in business cycles, showing fluctuation of the economic activity around its long-term potential level, normalized to a value of 100. This index projects continued growth for Chile and Brazil that will last until at least the end of 2021 (Figure 6.3).

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Figure 6.1. Business expectations are high in Brazil and Chile, Mexico is still lagging (OECD Composite Leading Indicator for Chile, Brazil, and Mexico)*

* Numbers above 100 suggest an increased confidence in near future business performance, and numbers below 100 indicate pessimism toward future performance.

Figure 6.2. Consumer confidence is low, the lowest level is in Chile (OECD Consumer Confidence Index for Chile, Brazil, Colombia, and Mexico)*

* Values below 100 indicate a pessimistic attitude toward future developments in the economy, possibly resulting in a tendency to save more and consume less.

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Figure 6.3. Chile and Brazil are projected to keep growing until at least the end of 2021 (OECD Composite Leading Indicator for Chile, Brazil, and Mexico)

FINANCE AND INVESTMENT IN LATIN AMERICA Global uncertainty in the first quarter of 2020 led to large portfolio reallocations away from emerging markets, with abrupt increases in Latin American sovereign spreads over U.S. Treasuries and steep falls in currencies and equity prices (Figures 7.1., 7.2.). This hit local currency bond markets particularly hard and forced central banks to intervene in order to reduce volatility. Sovereign bonds were issued, first in local currency and, then, in hard currency in international markets. The latter strategy was particularly used by investmentgrade sovereigns such as Colombia, Chile, Mexico, Panama, Peru, and Uruguay.

The appetite for these bonds proved to be high at reasonable yields, thanks to the Federal Reserve’s continued cuts in interest rates that had started in August of 2019. In March 2020, the U.S. rates were reduced to near zero levels and, later, forward guidance was provided that

they would remain low. This made relatively higher yields on Latin American bonds more attractive and encouraged capital inflows back into the region. Resumed purchases of massive amounts of securities by the Fed also contributed to stabilize markets and increase global risk appetite. By December, Latin America and the Caribbean sovereigns had sold $67.8 billion of international bonds in 2020, a 46% increase relative to all of 2019. Analysts expect the total in 2020 to beat the record $70.3 billion from 2016.

The enhanced access to bond markets for Latin American countries has eased immediate pressures for reform and fiscal consolidation.

However, larger shares of foreign currencydenominated debt will only increase the vulnerability to sudden changes in investor sentiment, while excessive dependence on foreign capital will constrain the set of monetary or fiscal mechanisms that can be used to stimulate the economy. These factors are taken into account in credit ratings for the

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Latin American and Caribbean region, which continue to decline since their historical peak in 2014 and are below other emerging market ratings (Table 5.1.). In 2020, the S&P lowered its long-term foreign currency ratings for Argentina, Bolivia, Costa Rica, Ecuador, Mexico, and Peru, and revised the outlooks to negative for Brazil, Chile, Colombia, Dominican Republic, and Jamaica. No single country in the region has a positive outlook and Venezuela is currently in selective default.

Meanwhile, financial conditions within Latin America have become easier. Decades of discipline by most central banks in the region have paid off, as increased national savings, higher foreign reserves, and lowered inflation before the pandemic enabled most countries to deepen the reduction in policy rates that began in 2019 (Table 5.2.). The latter contributed to increased liquidity, helping enterprises and saving millions of jobs. Lower exchange rates have also helped. Most of the largest countries in the region allowed their currencies to depreciate after the collapse in commodity prices in 2014-15. By the end of 2019, exchange rates had stabilized at competitive levels, yet they dropped even further in 2020 due to pandemic-related capital flight.

currencies and realize greater growth, when measured in dollars, which is perceived as important for multinationals operating in the region.

Treasury yield curves, a barometer of market expectations about future interest rates, have been nearly flat for several years, meaning the market had been pricing in low interest rates for years to come. In recent weeks, however, medium- and long-term interest rates have come off their lows, and the Treasury yield curve has steepened (Figure 7.3.). The higher interest rates and expectations of even higher rates doubtless reflect the market’s view that the $1.9 trillion stimulus package proposed by the Biden administration and passed in Congress will lead to higher growth, greater demands on credit markets, and higher inflation. In recent weeks, the “10-year breakeven”, a measure of expected inflation over the next 10 years calculated as the difference between yields on nominal 10-year Treasuries and on Treasury Inflation-Protected Securities, has risen to 2.19%. A little less than a year ago it was just 0.55%.

Lower exchange rates bode well for the competitiveness of the region’s external sector in 2021, particularly for countries with a great deal of access to quickly recovering Asian markets. These, however, are likely to contribute to pushing prices up in the long run and, combined with sustained low interest rates, increase inflationary pressures. Countries where interest rates were kept low (Brazil, Colombia, Peru, Chile, and Argentina all had negative interest rates during 2020) are at risk of even higher pressure toward depreciation of their currencies. Countries that attract foreign capital will, to the contrary, strengthen their

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Figure 7.1. Most Latin American currencies deteriorated

Source: Bloomberg

Figure 7.2. Sovereign and corporate spreads soared and stayed higher than pre-pandemic levels

Source: IMF

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Figure 7.3. Treasury yields have risen and the yield curve has steepened

Table 5.1. Credit ratings Issuer

Rating

Outlook

Mexico ANDEAN SOUTH AMERICA* Bolivia

BBB

Stable

B+

Stable

Colombia

BBB-

Negative

Ecuador Peru Venezuela BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay CENTRAL AMERICA & DR Costa Rica Dominican Rep. El Salvador Guatemala Honduras Nicaragua Panama

BBBB+ SD

Stable Stable NM

CCC+ BBA+ BB BBB

Stable Stable Negative Stable Stable

B BBBBBBBBBBB

Negative Negative Stable Stable Stable Stable Stable

INVESTMENT OUTLOOK

Source: Standard & Poors’ Global Ratings, 2020.

SD=selective default; NM=not meaningful.

Table 5.2. Central banks continued cutting interest rates Argentina Brazil Mexico Chile Colombia Peru

Leliq SELIC O/N Repo rate Disc. Rate Repo rate Reference

28-Feb-19 28-Feb-20 50.13% 40.00% 6.50% 4.25% 8.25% 7.00% 3.00% 1.75% 4.25% 4.25% 2.75% 2.25%

Latest Date change 38.00% 17-Nov-20 2.00% 6-Aug-20 4.00% 12-Feb-21 0.50% 31-Mar-20 1.75% 25-Sep-20 0.25% 16-Apr-20

Among the world’s stock markets, Latin America’s fared the worst in the first quarter of 2020 as it became clear the pandemic would be severe. The MSCI Latin America total return index fell 46% in value. However, the region’s stock markets proceeded to rise by 59% during the rest of the year, outpacing the rest of the world’s markets by a wide margin. Unlike many stock markets in the developed world, Latin America’s markets have yet to rise back to their pre-pandemic levels — markets that fall by 46% have to rise by 92% to get back to their previous level. But because stock prices are relatively low in Latin America, valuations in those markets are also low, putting them in a good position to benefit from the historical tendency of low-valuation markets eventually to outperform relative to frothier markets. The region’s markets stand to benefit as well if earnings growth in 2021 is substantially stronger than in the developed markets and in the emerging markets as a whole, as the consensus expects for Latin America’s markets (Table 6.1.). The strong expected earnings growth seems to reflect, at least in part, the recent improvement in the terms of trade for

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several countries in the region. Argentina, Brazil, Chile, and Peru have seen their terms of trade — the ratio of their export prices to their import prices — rise sharply. Historically, stock markets of countries whose terms of trade are improving tend to outperform other markets.

This rosy outlook for Latin America’s stock markets needs to be tempered by the effect higher interest rates, especially in the United States, can have on investors’ perceptions of relative returns and risks. Latin America’s stock markets may not seem quite as attractive once yields on risk-free U.S. Treasuries become higher, as the market currently expects (see the previous section). Latin America’s bonds, however, are likely to be less affected by higher yields in the developed world. Most of the region’s bonds held by investors are denominated in U.S. dollars and trade at a yield spread over U.S. Treasuries. A rise in U.S.

interest rates is unlikely to affect those spreads.

Moreover, the higher yields available on Latin American bonds means they have a lower duration than U.S. bonds of the same maturity, which means they will suffer a more modest decline in price if U.S. interest rates do rise.

Given that Latin America’s stock markets have been more volatile than other markets, betas in those markets have risen. Beta measures the sensitivity of a stock or market to movements in broader markets, such as global markets.

Higher betas usually signal higher risk, and therefore a higher cost of equity. Estimates of the cost of equity from two models, however, suggest that the cost of equity remains low by historical standards in Latin America. In large part, this is because perceptions of country risk, as measured by the yields or returns on sovereign bonds, remain low (Table 6.2.).

Table 6.1. Valuations and earnings growth estimates February 2021

Sources: The forecast P/E ratios and earnings growth estimates are consensus figures reported in Heckman Global Advisors Emerging Markets Equity Allocator, February 9, 2021.

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Table 6.2. Estimated cost of equity, five major Latin American markets February 2021

Source: The sovereign yield is on 10-year government USD bonds. Betas are calculated using U.S. dollar returns against returns on the MSCI All-Country World Index. The Damodaran model is described in Damodaran (2013); the Two-factor model is developed in Abuaf (1997). Both models use information from the sovereign bond market to estimate the country risk premium in each country’s cost of equity. An equity market risk premium of 5.6% was used in both models; it is the GDP-weighted average of the market risk premia of the G-10 developed countries reported in the survey by Fernandez (2020).

LEGAL ENVIRONMENT During 2020, the fight against COVID-19 has been the most prominent legal and political event. The public health crisis overshadowed corruption until scandals involving government procurement of medical equipment as part of the COVID-19 response restored the issue to center stage. Perceptions regarding the rule of law in the region are measured by the World

Justice Project (Figure 8) through an index that weighs the absence of corruption, constraints on government power, order and security, respect for fundamental rights, effective regulatory enforcement, civil and criminal justice, and government openness. This index suggests that countries such as Chile, Costa Rica and Uruguay are particularly better off compared to other countries in the region.

Worse performers are Venezuela, Bolivia, Nicaragua, and Honduras.

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Figure 8. World Justice Project, Rule of Law Index Overall Score 2020

LABER countries reach for legal and policy tools to combat COVID-19 mitigate impacts.

As the virus expanded globally in March 2020, countries acted by imposing measures to slow the spread that were unprecedented in peacetime. These included the closure of external borders, limitations on internal travel, lockdowns and quarantines, non-essential business closures, and high unemployment. As discussed elsewhere, governments took extraordinary measures to mitigate the economic harm, providing loans and direct relief to impacted citizens and businesses, suspending evictions, imposing rent controls, and limiting the ability of employers to dismiss employees. Schools ceased operation in large part. Beginning in May and June, many countries tried reopening their economies, only to suspend them a few months later with the renewed waves of infections and the spread of variants.

Governments in Bolivia, Dominican Republic, and Haiti took advantage of the virus to delay scheduled elections. Chile likewise postponed its plebiscite on a new constitution. During the course of 2020, a distinction emerged between some LABER countries where the central executive pushed for maximum controls to combat the virus and other countries where presidents were less willing to push closures.

Thus, in Argentina, Ecuador, El Salvador, Paraguay, and Peru, central governments drove a strong response that involved a strict lockdown. In Brazil and Colombia, and to some extent in Mexico, the central governments were reluctant to impose lockdowns and quarantines, partly due to economic concerns and skepticism about the virus. In this latter group of countries, local governments led the push for stronger controls.

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Constitutional crises pit the executive against legislatures and judiciaries. In several countries, the COVID-19 virus gave cover for power grabs by presidents. In El Salvador, the legislature initially gave President Bukele broad emergency powers to institute lockdowns and border restrictions.

However, when the legislature refused to renew this authority, the president acted on his own despite court rulings that the acts were unconstitutional. In Haiti, President Moïse ruled by decree after the expiration of parliament’s term of office in January 2020.

President Moïse continued in office after his own term expired in January 2021. In Bolivia, the transitional government of President Áñez was criticized for postponing that country’s presidential elections far beyond the 90 days foreseen in the Bolivian constitution. In Ecuador, the constitutional court in January 2021 invalidated President Moreno’s third announcement of a state of emergency, holding that he had exceeded his constitutional authority. The impeachment of President Vizcarro has only prolonged Peru’s institutional crisis by pitting governmental branches against each other.

Corruption investigations remain prominent. The past year witnessed several high-profile investigations of corrupt officials.

The fight against the COVID-19 virus brought numerous opportunities for corruption as governments sought to purchase medical equipment such as ventilators and masks. In Brazil, governors in the states of Rio de Janeiro and Pará were implicated in fraudulent contracts, while the Bolivian health minister was arrested for the purchase of ventilators at inflated prices. In Panama, the vice president and a presidential adviser resigned over a similar scandal with ventilators. In Colombia, the agriculture minister and several governors under investigation for similar irregularities. In

Paraguay, the head of the national aviation authority and the president of the state oil firm resigned over scandals involving procurement of facemasks and other health equipment.

Traditional corruption concerns continue to be a problem. The trial of a former minister implicated in the Odebrecht scandal played a part in the defeat of Dominican President Medina. Former Colombian President Uribe resigned his seat in the Senate to avoid the jurisdiction of the Colombian Supreme Court, which was investigating him for obstruction of justice. In Mexico, President López Obrador is pushing for a constitutional referendum to allow prosecution of former presidents implicated in corruption. In Brazil, while the family of President Bolsonaro is being investigated for corrupt activities, the government has announced the termination of the anti-corruption unit that led the “Car Wash” investigations.

A new administration in the United States brings changes in immigration policy. The ravages of the disease and the resulting border closures reduced immigration pressures. The Biden administration overturned Donald Trump’s termination of temporary protected status, which allowed immigrants from El Salvador, Haiti, Honduras, and Nicaragua to remain and work in the United States. The Biden administration also ended the Asylum Cooperation Agreements with El Salvador, Guatemala, and Honduras (which had required any migrants moving through these countries to apply for asylum in the U.S. while they remained in the countries) and announced new immigration agreements with Mexico.

Within the United States, the Biden administration promises to push for legislation that would allow illegal immigrants within the country, including the “dreamers” to regularize

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their status and seek citizenship. Other prominent changes include the termination of the wall being constructed on the border between the United States and Mexico, and the suspension by U.S. authorities of almost all deportations of illegal immigrants.

However, with the promise of looser immigration rules in the United States and the economic hardships caused by the COVID-19 virus and recent hurricanes in Central America, large groups of migrants have once more begun to move north. While the United States, Mexico, and Guatemala have successfully halted some of the groups moving upward from Honduras, illegal immigration across the U.S. border will remain a challenge to the Biden administration and its relations with its southern neighbors.

Meanwhile, Colombian President Duque made a big gesture to legalize the status of Venezuelan refugees in that country. Some 1.7 million refugees will gain protected status for a ten-year period, allowing them to work and access social services, including health services.

Abortion remains controversial. While the Argentine Congress has approved a law making abortion legal in the first 14 weeks of pregnancy, in other countries, abortion restrictions in other countries remain intact. In Guatemala, the interior minister resigned after appearing to support the American NGO Planned Parenthood’s operation in that country as Guatemalan President Giammattei reaffirmed his country’s strict anti-abortion policy. In March, the Colombian Constitutional Court dismissed cases, leaving that country’s restrictive legislation intact. In August, the Mexican Supreme Court reversed a Veracruz court ruling that would have decriminalized abortion in that state.

USMCA REGION (previously, NAFTA)

MEXICO Mexico entered the pandemic in a recession and the lockdown only exacerbated these economic difficulties. It had the fourth worst economic growth in 2020, with a contraction of 9.0% after being just one of five Latin American countries to also contract in 2019.

With growth that is average for the region in 2021, Mexico is expected to underperform, not returning to its pre-pandemic levels of income until 2024, according to the Economist Intelligence Unit. While other countries throughout the region and world increased their public debts to prop up their economies, President Andrés Manuel López Obrador, fearful of Mexico’s sovereign debt crises in the 1990s and 1980s, refused to finance policies to support the economy.

Mexico’s integration into the U.S. market in recent decades is likely to provide it with some cushion as the U.S. economy recovers more quickly, especially for its export sector (including agricultural products, components for the automobile industry, and electronics).

While the Mexican government completely shut down its economy in late March through May of 2020 to control the COVID-19 outbreak, President López Obrador declared that exporters were essential businesses, ensuring that the supply chain to major U.S. manufacturers would not be disrupted.

Although agricultural exports took a big hit, especially for avocados and citrus, when the border was first closed between the Mexico and the United States, trade of agricultural goods has since returned to near pre-pandemic levels. However, the inability of the Mexican government to control violent gangs, especially in central Mexico and along the border, has made the country a less attractive investment

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for businesses due to the high cost of security to secure the integrity of their property and the safety of their employees.

2020. With the surge in COVID-19 cases in late 2020, the U.S. government has recommended that its citizens refrain from traveling to Mexico. Tourism will continue to take a hit until widespread distribution of the vaccine occurs, but Mexico’s policy of fewer restrictions will attract more international visitors.

The regions of Mexico heavily dependent on the tourism trade have been hit hard. In fact, the Mexican national statistics office (INEGI) estimated that the number of international tourists fell by 66.6% from July 2019 to July

Mexico: economic indicators Real GDP, % change Consumer prices, % Dec/Dec Public sector balance, % of GDP Merchandise trade ($ bil) Exports Imports Current account balance, % of GDP International reserves ($ bil) External debt ($ bil) % of exports Public debt, % of GDP

Avg. 2014-18 2.5 4.2 -2.3 402.5 413.6 -2.0 170 437 109 53.0

2019 -0.3 3.5 -1.6

2020e -9.0 3.4 -4.9

2021f 3.9 3.3 -3.9

461 455 -0.3 183 470 102 47

383 376 1.2 201 480 125 58

427 425 -0.1 198 503 118 47

Major exports 2019 Manufactured goods Oil Agricultural products

% of total 89.2 5.4 3.9

Major imports 2019 Intermediate goods Consumer goods Capital goods

% of total 77.4 13.4 9.2

Leading markets 2019 US Canada China Germany

% of total 80.5 3.1 1.5 1.5

Leading suppliers 2019 US China Japan Germany

% of total 47.9 19.3 4.2 4.1

Source: The Economist Intelligence Unit 2021

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GLOBAL INNOVATION INDEX Strengths: Mexico is particularly strong in building human capital, research, and creative output. It has the world’s largest share of creative goods exports, the eight highest share of high-tech technology exports and tenth highest share of high and medium-high manufacturing. The country also rates high in trade rules and online governmental services.

Weaknesses: Mexico rates particularly low in governmental stability and the rule of law, raking 104th and 106th in each area, respectively. While the country has many successful industries, the investment environment remains challenging, raking 113th in investments.

Global Innovation Score (0-100)

70.0

60.6

60.0

53.3

50.0 40.0

33.6

30.0

27.9

20.0 10.0 0.0

Mexico

Latin America

China

U.S.A.

2020

LEGAL ENVIRONMENT USMCA takes effect on July 1, 2020. With the March ratification by Canada’s parliament, the new trade deal replacing the 1994 North American Free Trade Agreement (NAFTA) took effect in a period when the COVID-19 virus had created unprecedented interruptions in business, reducing trade and transport between the three countries of Canada, Mexico, and the United States. President Biden’s nominee for trade representative, Katherine

Tai, helped draft the labor provisions of the new agreement, and the new administration will likely push enforcement of these provisions against Mexico.

Mexico amends national law complicating activities of foreign law enforcement. The December 2020 reforms will increase regulation of foreign law enforcement officials operating in Mexico, including the U.S. Drug Enforcement Administration and the FBI. The reform will allow temporary posting of foreign agents to share any information they receive with the Mexican government and will require any Mexican officials who meet with foreign agents to inform the secretary of foreign relations about the content of those meetings.

Under the reform, foreign agents will be liable for prosecution for any crimes they may commit while in Mexico. There are concerns that the new law will inhibit the legitimate investigative actions of U.S. agents in Mexico.

U.S. authorities arrest and mysteriously release former Mexican defense minister. In October 2020, General Salvador Cienfuegos Zepeda was arrested in California on charges of money laundering and conspiracy to import and distribute drugs in collusion with the Mexican cartel H-2. In November 2020, in response to Mexican protests, the U.S. Department of Justice dropped the charges and released the general on foreign policy grounds.

In January 2021, the Mexican Attorney General announced that no charges would be pursued against General Cienfuegos.

Constitutional amendment allows prosecution of former presidents. The new amendment, approved by Congress and a majority of Mexican states, will allow presidents to be charged with any crime committed during their presidency. The change came as former president Enrique Peña Nieto

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has been implicated in several corruption scandals, including the Odebrecht scandal.

Another amendment still under consideration would allow members of Congress to be prosecuted for any crimes committed during their term of office.

New energy policy may undermine earlier reforms. In May 2020, the energy ministry adopted new regulations that, while intended to promote reliable energy, seem also to curtail the use of renewable energy in Mexico. The regulations also target private generators and restore the role of the state in the transmission and distribution of electricity.

Decree confirms military role in law enforcement, ports. Under a presidential decree issued in May 2020, the armed forces will operate alongside the newly established national guard through 2024 to promote security. Another decree transferred control of Mexico's ports to the navy.

ANDEAN SOUTH AMERICA BOLIVIA Bolivia’s prolonged period of high GDPgrowth (above 4%) ended in 2019, coinciding with a political crisis and social unrest, which led to the resignation of Evo Morales.

Following the end of the commodities boom in 2014, the country relied on public spending and domestic credit to maintain strong growth.

International reserves also dwindled during this period as they were used to prop up an overvalued currency. Thus, the country entered the pandemic with a moderately high level of public debt and reduced macroeconomic buffers.

The country’s GDP contracted about 8.1% in 2020 due to the pandemic, with the

construction, transport, and mining sectors being hit the hardest. Coupled with pandemicrelated restrictions, this contributed to an increase in the unemployment rate from about 5% to 13% in 2020, providing a pessimistic outlook on consumption in 2021. While trade had collapsed in March 2020, the second part of the year brought an upsurge in agricultural exports (particularly soya and meat), which paired with a slower pace of import recovery, contributed to a recorded modest deficit in the trade account in 2020 (0.2% of GDP according to the EIU) Natural gas exports to main trade partners, Argentina and Brazil, however, are not expected to recover in 2021, and an already overvalued exchange rate may contribute to rising import expenses that outpace export revenues, widening the trade deficit in 2021. A small price increase in natural gas and some exported minerals will be beneficial.

On November 8, 2020, Luis Arce of the Movimiento al Socialismo party took office and promised to maintain lose fiscal policies to support the economic recovery from a state-led perspective. It is anticipated that the already large fiscal gap will increase (to more than 70% of GDP), the expansionary monetary policy will continue, and financing costs will remain high in 2021. Mr. Arce is expected to delay unpopular reforms to 2022 and re-focus the natural-gas industry to satisfy internal market demand. External financing options will remain limited and financing costs high, especially in light of Bolivia’s central bank decision to return an IMF loan of about $350 million to the IMF (some analysts cited ideological reasons, while others emphasized the new administration’s desire to avoid unnecessary saddling the economy with debt).

In addition to short- and medium-term fiscal and monetary reforms (managed devaluation of currency), analysts point to investments in

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infrastructure, competitive labor, diversification of the narrow export base away from mineral resources (natural gas alone

accounts for about 20% of total tax revenue), justice reform, and better security measures as key factors to improve the business climate.

Bolivia: economic indicators Real GDP, % change Consumer prices, % Dec/Dec Public sector balance, % of GDP Merchandise trade ($ bil) Exports Imports

Avg. 2014-18 4.6 3.3 -4.1

Current account balance, % of GDP International reserves ($ bil) External debt ($ bil) % of exports Public debt, % of GDP

2019 -2.2 1.5 -8.3

2020e -8.1 3.3 -12.3

2021f 4.7 3.8 -9.5

9.1 9.0

8.8 9.1

8.1 9.0

7.9 9.3

-4.2 7.0 11.2 123 46

-3.30 6.4 14.4 164 56

-2.60 5.2 16 197 58.8

-3.50 4.1 17.5 220 74.1

Major exports 2019 Petroleum Gas Gold Zinc Ore Soybean Meal & Oil

% of total 29.5 23.0 10.5 10.2

Major imports 2019 Machinery Vehicles/Transport Chemical prod.

Metals

% of total 22.1 17.2 11.8 10.8

Leading markets 2019 Argentina Brazil UAE India

% of total 15.5 15.4 11.8 9.9

Leading suppliers 2019 Brazil Chile China Peru

% of total 21.5 15.4 13.0 10.8

Source: The Observatory of Economic Complexity

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GLOBAL INNOVATION INDEX Strengths: Bolivia has been successfully increasing its market share in the knowledge economy, especially in its share of knowledge workers in the economy. It ranks 17th in the number of firms providing formal training for its workers. Bolivia also has done particularly well in microcredit. It has the second highest rate of microcredit to GDP in the world.

Global Innovation Score (0-100)

Weaknesses: Bolivia ranks rather low in its political stability at 123rd, and its overall regulatory environment at 131st, including the rule of law at 127th. It has a particularly poor infrastructure raking at 123rd in the world.

70.0 60.0

53.3

60.6

50.0 40.0 30.0

22.4

26.5

27.9

Andes

Latin America

20.0 10.0 0.0

Bolivia

China

U.S.A.

2020

simple majority to approve presidential appointments and promotions in the military and police.

Court cancels arrest warrant for former president Evo Morales. The move followed the elections, allowing the former president to return to Bolivia without fear of arrest. The ruling does not affect other court decisions that make him unable to run for election to the senate or for president.

President Arce rejoins ALBA bloc. The president participated in a virtual summit of the organization of left-leaning Latin American countries in December 2020. The interim government had left the organization in 2019.

Bolivia reinstates visa requirements for U.S. and Israeli citizens. In 2019, the interim government had abolished the visa requirement, seeking to promote tourism and investment. In January 2021, President Arce announced that visas are again required for visitors from the United States and Israel. The president noted that neither of the other countries had made the visa exemption reciprocal.

LEGAL ENVIRONMENT New government adopts wealth tax. In December 2020, the Congress adopted a new tax of between 1.4% and 2.4% on the country’s 150 wealthiest citizens. Originally proposed as a temporary measure to deal with the COVID19 crisis, the final version of the law makes the tax permanent. The law targets citizens with assets greater than US$4.3 million.

MAS-controlled Congress eliminates twothirds majority for key decisions. In December 2020, the outgoing Congress, which will lose its two-thirds majority by the ruling MAS party, adopted rules providing for a

COLOMBIA The country’s economic contraction in 2020, about average for the Latin America region (7.1%), represented the country’s worst GDP contraction in decades. While expectations for recovery are slightly above average, structural weaknesses and high levels of debt could complicate the landscape. After the fiscal deficit and the public debt escalated in 2020 to almost 9% and 74% of GDP respectively, the country is seeking to reassure investors and protect its investment-grade rating, especially given that a large proportion of public debt is owed to foreigners. The borrowing costs have

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been higher for Colombia than those of similarly rated countries in the region. For example, when it issued dollar-denominated notes maturing in 7 to 10 years, the yields were between 2.5 and 2.77%; almost 0.5 % higher than notes issued by similarly rated countries.

A negative outlook on Bolivia’s credit rating

by Standard & Poors reflects fiscal solvency concerns.

President Ivan Duque, of the right-wing Centro Democratico, has announced plans to sell stakes in government-owned utilities and to send a fiscal bill to congress that will increase the value added tax. This taxation mechanism, deemed regressive by some analysts, could add to the bureaucratic burdens for small businesses and to social tensions. The bond market is sensitive to social unrest and polarized politics, problems that could reappear in 2021. Existing social tensions have been aggravated by an unprecedented inflow of

Venezuelan migrants and by rising violence in rural areas after a flawed implementation of peace agreement-related programs.

Because oil, coal, and metals (over 60%) heavily dominate Colombia’s exports, demand and prices of these commodities will play an important role on the speed of the country’s recovery, particularly because exports generate a large share of the foreign earnings and fiscal revenue. While oil prices are expected to recover in 2021, the narrow export base of the country makes it highly vulnerable to price shocks. In addition, its current account deficit has been persistently among the highest in the region. Recovery is expected to be largely dependent on domestic demand increases, driven by large investments in transportation and rural infrastructure, digital technology, and renewable energies. In addition, strengthened inflows of remittances are expected in 2021.

Colombia: economic indicators Avg. 2013-18

2019

2020e

2021f

Real GDP, % change

2.7

3.3

-7.1

5.0

Consumer prices, %YoY

4.7

3.8

1.4

2.4

Fiscal balance, % of GDP

-3.2

-2.5

-7.7

-5.0

Exports

42.8

42.4

32

39.6

Imports

50.1

50.8

40.9

47.5

Current account balance, % of GDP

-3.2

-4.2

-4.0

-3.9

International reserves ($ bil)

45.2

52.6

54.9

55.3

35

138.7

148.7

152.9

82

327

465

386

49

54

74

73

Merchandise trade ($ mil)

External debt ($ bil) % of exports Public debt, % of GDP

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Major exports 2019 Petroleum & petroleum products Coal Coffee

% of total

Major imports 2019

% of total

40.7 14.4 5.8

Intermediate goods Capital goods Consumer goods

44.9 31.3 23.8

% of Leading markets 2019 total Leading suppliers 2019 US 31.1 US China 11.6 China Panama 6.0 Mexico Ecuador 4.9 Brazil Source: The Economist Intelligence Unit 2021

% of total 25.4 20.8 7.4 6.0

GLOBAL INNOVATION INDEX

LEGAL ENVIRONMENT

Strengths: Colombia receives particularly high marks for the quality of its infrastructure, especially ICT infrastructure and efforts at ecological sustainability, with the world’s tenth lowest GDP to unit of energy use. It also has received distinction in its level of market sophistication, including the tenth easiest country to obtain credit.

Former president Álvaro Uribe targeted in witness tampering case. In August 2020, the Supreme Court placed him under house arrest while considering allegations that the expresident pressured former paramilitary members to alter damaging testimony against him concerning his ties to their organizations during Colombia’s period of guerrilla conflict.

This move prompted Mr. Uribe to resign his senate seat. As a result, the Supreme Court lost jurisdiction of the case, which was transferred to a municipal court in Bogota. Although the investigation will continue, a trial judge released the former president from house arrest.

Global Innovation Score (0-100)

Weaknesses: The country rates particularly low in the quality of its education and expenditures in research. It has the 107th lowest pupil-toteacher ratio and percentage of youth attending post-secondary institutions. It also has received low ratings for its political stability.

70.0 60.0

53.3

60.6

50.0 40.0 30.0

30.8

26.5

27.9

Andes

Latin America

20.0 10.0 0.0

Colombia

2020

China

U.S.A.

Supreme Court condemns police brutality during protests, issues new protocol on use of force by the state. In September 2020, the Supreme Court had found the police acted with systematic violence against demonstrators during protests in September, which left 9 dead and more than 60 injured. The court called for legislation to prevent police from targeting protestors, including restrictions on weaponry available to police. In January 2021, the government issued a protocol governing use of

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force in controlling protestors, noting that force must be a last resort. The government rejected opposition demands for abolishing the riot police unit due to recent cases of police brutality, and called for better training for police.

Colombia's Avianca files for bankruptcy in United States. In May 2020, under pressure of travel bans imposed as a result of the COVID19 virus, Colombia's Avianca Holdings SA filed for Chapter 11 bankruptcy in the Southern District of New York. The airline said it would be unable to meet upcoming bond payments. In September, a Colombian court blocked an attempt by the government to provide an emergency loan to Avianca of US$370 million, finding no adequate safeguards for the funds.

U.S. military training role causes controversy. In July 2020, a Colombian court ordered the suspension of training operations by the U.S. Army's Security Force Assistance Brigade as part of the support for anti-drug trafficking operations in the country. The court held that the visit violated the constitutional requirement that the senate approve foreign military operations. The court ultimately lifted the suspension, but the event prompted an attempted vote of no confidence in the defense minister, Carlos Holmes Trujillo.

Colombia adopts law creating interoperable electronic health records system. In January 2020, Congress enacted a law, which will ultimately allow medical providers to access online health records and health documents for each citizen. All medical providers will be required to input and manage health data for patients on an interoperable platform established by the ministry of health by 2025.

The law guarantees that citizens will be able to view their own records and prohibits the disclosure by health care providers or

administrators of any patient information without authorization.

ECUADOR Ecuador entered 2020 in a state of political and economic instability following President Lenin Moreno’s cut in fuel and other subsidies as part of the International Monetary Fund’s condition to receive bailout loans. The economic challenges were exacerbated by the pandemic.

Real GDP contracted by 8.6% and, similar to other countries in the region, the public and external debts escalated. Unlike many countries in the southern cone of South America, Ecuador’s external sector did not benefit much from China’s early recovery since the United States remains its major trade partner (30.2% of exports in 2018). Other countries in Latin America that are still largely affected by the pandemic (Peru, Chile, Colombia, and Argentina) purchased another 20% of Ecuador’s exports (Observatory of Economic Complexity, 2018). Thus, the current account in Ecuador remained negative; especially as oil prices did not recuperate at the same pace as other commodities (crude and refined petroleum represented about 40% of exports value in 2018). As Ecuador uses the US dollar as its currency, its ability to implement currency devaluations to make its products more competitive on the world market is limited. Ecuador’s high terms of trade make its exports relatively expensive, contributing to larger trade deficits.

A polarized political scene challenges policymaking in Ecuador where presidential candidates competing in the April 2021 election offer starkly different visions for the country. Andrés Arauz, a pupil of Rafael Correa, would roll back some of the recent liberalizing reforms, while Guillermo Lasso (center-right) would speed up the process of fiscal consolidation and market opening. This

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situation could translate into a negative shock to business investment and generate capital outflows. However, as external demand, oil prices, and mining exports recover, Ecuador could end 2021 with a trade surplus. In

addition, recent debt restructuring will mean lower interest payments and a lower primary income deficit for the coming years.

Ecuador: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

1.3

0.1

-8.6

3.4

Consumer prices, %YoY

1.7

-0.1

-0.3

2.0

-4.8

-0.1

-2.0

-0.1

Exports

20.9

22.8

18.1

19.2

Imports

21.0

21.7

17.6

18.6

-0.2

-0.1

-2.0

-0.1

International reserves ($ bil)

2.5

2.9

2.4

3.3

External debt ($ bil)

35

51

57

59

167

224

316

306

39

53

66

69.1

Public sector balance, % of GDP Merchandise trade ($ mil)

Current account balance, % of GDP

% of exports Public debt, % of GDP

Major exports 2019

% of total

Major imports 2019

% of total

Oil & oil products Shrimp

38.9 17.4

Raw materials Capital goods

30.8 23.8

Banana & plantain

14.8

Fuel & lubricants

21.1

Canned fish

5.5

Consumption goods

18.4

Leading markets 2019 US China Panama Chile

% of total 30.0 13.0 8.6 6.7

Leading suppliers 2019 US China Colombia Panama

% of total 23.3 16.5 8.3 7.1

Source: The Economist Intelligence Unit 2021

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GLOBAL INNOVATION INDEX Strengths: Ecuador receives high marks in several educational measures, which includes having the second highest percentage of firms that provide trainings. It has been successful becoming ecological sustainable. Ecuador also ranks second in the world in microfinancing as a percentage of GDP, providing small enterprises with the need access to credit.

Weaknesses: Ecuador’s biggest challenge continues to be improving its governance and political stability. The country received a particularly low score in the ease of doing business. It also falls behind other middleincome countries in its population access to information and communication technology access and use.

Global Innovation Score (0-100)

70.0

60.6

60.0

during the protests, which forced President Moreno to flee the capital for Guayaquil.

Courts affirm bribery conviction of former president Correa, exclusion from election. In August 2020, an appeals court upheld the conviction and eight-year prison sentence of former president Rafael Correa for bribery. The cassation court upheld the conviction in September. The former president who lives in Belgium is disqualified from running for president or other elected office as a result of the conviction.

Constitutional court allows presidential cuts to higher education. In September 2020, the constitutional court ruled that the president acted within his authority when he imposed nearly US$ 100 million in cuts to the higher education budget as part of economic tightening as oil prices crashed in early 2020.

53.3

50.0

PERU

40.0 30.0

24.1

26.5

27.9

20.0 10.0 0.0

Ecuador

Andes

Latin China America 2020

U.S.A.

Interior minister impeached for response to violent 2019 protests. In November 2019, notwithstanding the strong support of President Moreno, the national assembly voted to impeach interior minister Maria Paula Romo over the response by security forces to violent protests that erupted in October 2019. At least 11 people died and hundreds were injured, while thousands of protestors were detained

Peru suffered the third worse decline in 2020, following Venezuela and Panama, in spite of having had one of the highest rates of GDP expansion in Latin America over the past decade. The country is expected to bounce back quickly with by far the highest expected growth rate in the region in 2021 (9.8%). Peru has been hailed over the last decade for its adherence to its fiscal and monetary policy goals, resulting in budget surpluses, positive trade balances, and a stable currency. In addition to its long prominence in the supply of copper and gold mines, it has become a worldwide leader in the export of high value agricultural crops such as blueberries, asparagus, mangos, avocados, and artichokes, providing products during the winter months in northern markets. At the beginning of the pandemic and lockdown in March 2020, Peru’s government received recognition as an example of prudence in implementing an early

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lockdown and because of its earlier fiscal prudence was able to provide financial support to Peruvian businesses and citizens.

Even with all these precautions, the country was still particularly hard hit by the pandemic, demonstrating the large level of informal labor engaged in the services (most contact intensive) sector, as well as the lack of investment in Peru’s healthcare sector.

Shuttered industries throughout the world halted demand for Peruvian minerals and trade disruptions were particularly difficult for Peru’s agricultural sector whose perishable

crops could not easily be held in storage until the transportation routes reopened. The challenges from the fallout of the pandemic were compounded by political instability, following nationwide protests, the impeachment and removal of the then President, and the installation of two more interim Presidents during the second half of 2020. This political instability will continue throughout much of 2021, with presidential and congressional elections being held in April and a new government installed in late July. This will limit investments by businesses.

Peru: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

3.2

2.2

-11.9

9.8

Consumer prices, %YoY

2.9

1.9

1.8

2.0

Fiscal balance, % of GDP

-2.3

-1.9

-8.9

-6.9

Exports

41.1

47.7

38.5

44.8

Imports

38.8

41.1

33.6

38.5

Current account balance, % of GDP

-3.4

-1.40

-1.10

-0.30

International reserves ($ bil)

59.7

68.0

67.0

67.0

68

64

72

78

165

135

186

173

24

27

36

39

Merchandise trade ($ mil)

External debt ($ bil) % of exports Public debt, % of GDP

Major exports 2019

% of total

Major imports 2019

% of total

Copper Gold

29.1 17.8

Intermediate goods Capital goods

46.5 29.9

Fishmeal

4.0

Consumer goods

21.1

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Leading markets 2019 China US Canada Switzerland

% of total 27.1 11.9 5.2 4.7

Leading suppliers 2019 China US Brazil Mexico

% of total 27.0 22.1 6.2 4.7

Source: The Economist Intelligence Unit 2021

GLOBAL INNOVATION INDEX Strengths: Peru received comparatively high rates in several ratings. Overall, Peru was recognized for its advancements in tertiary education and trainings offered by businesses.

It also was recognized for its market sophistication in its friendly trade regulations, ranking seventh in the world for its low tariff rates and tied with Ecuador for the second highest rate of microfinancing.

Weaknesses: Even though the country was recognized for its higher education, Peru lagged behind its peers in investment in research and development, venture capital investment, and information technology access and use.

Global Innovation Score (0-100)

70.0 60.0

53.3

60.6

50.0 40.0 30.0

28.8

26.5

27.9

Peru

Andes

Latin America

20.0 10.0 0.0

China

U.S.A.

2020

LEGAL ENVIRONMENT Controversial agro-export law repealed and replaced. Massive protests by farmworkers over wages and labor conditions forced the

repeal of the agriculture promotion law in December 2020. The law, dating back to 2011, had been extended for ten years in January 2020. Farmworkers demanded an improvement in their wages, which the law had set at US$11 per day. The law provided preferential taxes for agribusiness, including a lower corporate income tax rate of 15% rather than 29.5%, and a 20% depreciation rate for irrigation investments (as opposed to the standard 10% depreciation rate). In December 2020, Congress reenacted the law restoring the tax benefits to agribusiness but provided for a phase-out of the beneficial corporate income tax rate for the largest producers by 2028. The new law also raised farmworker wages to $14 per day and banned the outsourcing of labor services.

Constitutional Court rejects challenge to President Vizcarra’s impeachment. In November 2020, the constitutional court ruled that the former president’s challenge to his impeachment was inadmissible. The president had claimed Congress acted improperly when it impeached him on charges of “permanent moral incapacity.” The president faces allegations of corruption dating from his time as a regional governor.

U.S. courts reject suit against mining company for actions in Peru. Peruvian farmers brought suit in the United States against Newmont Mining Company, claiming damages and abuse by the company in an attempt to force the farmers off their land.

Newmont is a majority owner of a Peruvian

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mining company, Minera Yanacocha. In March 2020, a district court dismissed the suit, saying that Peru was an adequate forum to hear claims, notwithstanding corruption within the Peruvian judiciary. In December 2020, the Third Circuit Court of Appeals upheld the dismissal, finding that the farmers had not conclusively demonstrated Peru’s inability to hear and decide the case.

Former president Toledo's extradition more likely, Keiko Fujimori released from pretrial detention. In September 2020, a federal court in California rejected former president Alejandro Toledo's attempt to deny his extradition to Peru to face charges of corruption. In January 2020, a court returned opposition leader Keiko Fujimori to prison while her links to the Odebrecht corruption scandal are investigated. However, in May 2020, she was again released from prison due to concerns that she might contract the COVID-19 virus while detained.

Inter-American Court of Human Rights finds Peru liable for the torture and rape of a transgender woman while in prison. In April 2020, the human rights court ruled in the case, Azul Rojas Marín v. Peru. In the case,

dating from 2008, the court found that Peru imprisoned her arbitrarily and, while in prison, allowed police to torture and rape her. The case marks the first time a transgender person has been awarded damages by the human rights court for human rights abuses while in police detention.

Police protection law extends legal immunity to police. A March 2020 law amended the penal code to grant immunity to police and soldiers from criminal liability for death or injury caused while performing their duties.

The law drew widespread criticism from human rights groups.

VENEZUELA The country continues its economic freefall with the largest contraction in 2020 at 26.6%.

This GDP contraction, in fact, is estimated to be less severe than the one in 2019. It will continue to be plagued by an extremely large debt burden and hyperinflation in 2021 with the expectation of a small GDP growth for the first time since 2013.

Venezuela: economic indicators Avg. 2014-18

2019

2020e

2021f

-11.6

-28.8

-26.6

3.3

26,289

19,906

6,500

6,500

-9.3

-20.9

-25.5

-17.4

Exports

41.4

24.2

12.0

13.4

Imports

24.4

9.7

8.7

11.6

Current account balance, % of GDP

0.4

8.4

-4.1

-4.1

International reserves ($ bil)

3.1

n/a

n/a

n/a

External debt ($ bil)

156

168

170

173

376

695

1420

1290

33

267

586

464

Real GDP, % change Consumer prices, %YoY Fiscal balance, % of GDP Merchandise trade ($ mil)

% of exports Public debt, % of GDP

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Major exports 2019

% of total

Major imports 2019

% of total

Petroleum

88.7

Intermediate goods

56.5

Other

11.3

Capital goods

24.2

Consumer goods

19.3

Leading suppliers 2019 China US Brazil Mexico

% of total 31.7 19.0 8.0 7.7

Leading markets 2019 India China US UAE

% of total 34.4 22.1 11.5 11.3

Source: The Economist Intelligence Unit 2021 LEGAL ENVIRONMENT As National Assembly’s term ends, interim president Guaidó’s star fades. The opposition boycotted December 2020 elections leading to a victory by parties linked to President Maduro.

The regime won some 69% in an election with a 31a31% voter turnout. The Supreme Court rejected a motion by the outgoing National Assembly to extend its term. A group of outgoing assembly members installed themselves as a competing parliamentary body, and interim president Juan Guaidó announced that he would continue as the country’s legitimate leader. However, it is uncertain how many nations will continue to recognize his authority. In January 2021, the European Union stated that it no longer recognizes Mr. Guaidó as head of state because he is no longer head of the National Assembly.

Courts restrict ability of opposition to compete in elections. The boycott was a result of a decision by the Venezuelan Supreme

Court and electoral courts to appoint an election commission without the assembly’s involvement. The court also removed the leadership of several opposition parties and installed persons friendly to the regime in their place.

U.S. Justice Department indicts President Maduro for narco-terrorism. In March 2020, the U.S. Justice Department took the very rare action of indicting a foreign head of state, accusing him of heading a cocaine trafficking enterprise. Prosecutors say that he worked with the Colombian FARC guerrilla organization, which the United States has designated as a terrorist group, to export drugs. The U.S. State Department announced the indictments of Mr. Maduro and 31 other current or former officials.

International Court of Justice assumes jurisdiction over territorial dispute with Guyana. In December 2020, the ICJ ruled that it has jurisdiction over a boundary dispute between Venezuela and Guyana. Venezuela,

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which refused to participate in the hearing, claims some 40% of the Guyanese territory in a dispute dating back to the 1890s.

U.S. judge rules for Citgo bondholders. A federal judge in the U.S. state of Delaware upheld claims by Crystallex against Citgo for nonpayment of US$1 billion owed by PDVSA, which owns Citgo. In January 2020, the judge announced the appointment of a special master to oversee the sale of Citgo. Other creditors are also pursuing claims against the oil company, one of Venezuela’s few remaining assets. In January 2020, the U.S. Treasury Department extended until July a rule that bars transactions relating to the oil company as part of U.S. sanctions against Venezuela.

BRAZIL & SOUTHERN CONE ARGENTINA After two years of economic contraction in 2018 and 2019, Argentina had the fourth largest economic decline in Latin America in 2020, with an estimated 10.5% contraction.

Argentina is still struggling to contain the COVID-19 outbreak, though a waning of the pandemic should boost growth in 2021. The consensus envisages that Argentina’s GDP will expand by 5.3% in 2021 — making it one of the fastest growing economies in the region.

The growth spurt, however, is unlikely to last unless the government is able to stabilize inflation. Price controls and weak demand managed to limit the rise in the CPI to 41.2% in 2020, down from 53.8% in 2019. But the government continues to finance a large portion of its deficit, forecasted to amount to 5.1% of GDP 2021, with money creation — a recipe for further inflation.

The government’s current approach to policymaking is best described as heterodox. It is a mixture of capital controls, price controls, export taxes, and wealth taxes, tempered by subsidies and special bonuses to pensioners — all familiar to Argentines from previous Peronist governments. After defaulting on its sovereign debt in May of 2020 (Argentina’s ninth default), the government reached a restructuring agreement with holders of $65 billion in foreign currency-denominated debt in August. The agreement, which covered 35 bonds, obtained 99% creditor participation.

However, Argentina has still not recovered full access to international capital markets, making it hard for the government to finance its large fiscal deficit without resorting to money creation, and resulting in higher capital costs for domestic firms.

Argentina is negotiating with the IMF on an Extended Fund Facility (EFF) — a stabilization plan that is all but certain to involve monetary and fiscal restrictions. The consensus among economists is that Argentina, with support from the IMF, will succeed in reducing its fiscal deficit to manageable levels. The Argentine public, however, is not optimistic; consumer confidence is down 12% from prepandemic levels.

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Argentina: economic indicators Avg. 201418

2019

2020e

2021f

Real GDP, % change

-0.3

-2.1

-10.5

5.3

Consumer prices, %YoY

32.4

53.8

41.2

44.5

Public sector balance, % of GDP

-4.9

-3.8

-8.7

-5.1

Exports

60.7

65.1

57.4

61.6

Imports

62.8

49.1

40.4

45.6

Current account balance, % of GDP

-2.8

-0.90

1.70

1.20

International reserves ($ bil)

37.9

46.80

50.60

52.50

External debt ($ bil)

207

279

267

280

341

429

464

454

59

90

113

116

Merchandise trade ($ mil)

% of exports Public debt, % of GDP

Major exports 2019 Processed Agricultural Products

% of total

Major imports 2019

% of total

88.7

Intermediate goods

34.9

Manufactures Primary

11.3 26.9

Capital goods Fuels

17.3 12.9

Fuel and energy

6.8

Consumer goods

9.1

Leading markets 2019 Brazil China US

% of total 34.4 22.1 11.5

Leading suppliers 2019 China US Brazil

% of total 20.7 18.8 12.7

Source: The Economist Intelligence Unit 2021 GLOBAL INNOVATION INDEX Strengths: Argentina has been recognized for its quality education at both the primary and tertiary levels, and its investment in research and development when compared to its peers.

This investment in education and research has paid off in acknowledgment of its number of scientific publications, creative outputs, and intellectual property.

Weaknesses: Argentina is challenged to improve its regulatory environment and market participation. It has particularly low levels on investing, ranking 123rd in the world, and access to credit, ranking 121st out of 131 countries included in the analysis.

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Global Innovation Score (0-100)

70.0

60.6

60.0

53.3

50.0 40.0 30.0

28.3

29.8

27.9

20.0 10.0 0.0

Argentina Southern Latin Cone America

China

U.S.A.

2020

LEGAL ENVIRONMENT Wealth tax passed to support social net during economic crisis. In December 2020, the Argentine Congress adopted a one-time tax of between 2% and 3.5% on any individual or corporation that has over US$ 2.5 million in assets. Although the proponents argue it is a necessary measure to help the government pay for the social and economic crisis caused by the COVID-19 pandemic, businesses believe that the tax will increase the burden on an already struggling business sector. Opposition politicians argue that the tax is “confiscatory” and violates the Argentine Constitution’s prohibition on double taxation.

In the face of police protests, president reapportions distribution of taxes to provinces. Attempting to assuage police protests in the province of Buenos Aires, President Fernández issued a decree that amends the law governing how tax revenues collected by the federal government are apportioned to the provinces. One effect of this will be to reduce the amount previously received by the City of Buenos Aires by 1%, with the amount redirected to the surrounding province. The City of Buenos Aires has

challenged the law, claiming that only congress can legislate on federal tax matters.

Telework law promulgated. In July 2020, Congress adopted a law to regulate the new practice of working from home. The law requires that such work be voluntary and done during agreed upon business hours. The law is intended to allow for flexible working arrangements.

Presidential decree declares mobile phone, internet, and cable TV series to be public services. The August 2020 decree amends the Information and Communication Technology Law and declares that these information and communication technology services are essential and strategic services. The decree suspended any increase in prices for these services through December 31, 2020. The prices will be subject to regulation by a national communications agency. The decree provides that the right of internet access is part of an individual's right to freedom of expression.

Government seizes agro-exporter Vicentin, then abruptly reverses course. In June 2020, President Fernández announced that the state was taking over the agricultural firm Vicentin SAIC and that the company would be nationalized. The firm had filed for bankruptcy, and the president claimed the measure was necessary to preserve 5,000 jobs, to ensure food security, and to avoid disruption in the country’s agricultural export market. After a judge held that the president would not be allowed to remove the company’s directors, the president reversed his decision, noting that it was impossible to determine the company's liabilities.

Controversial decree removes judges investigating Vice President Cristina Fernández de Kirchner prompting dispute

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with Supreme Court. In September 2020, decrees ratified a senate decision to transfer three federal judges who had been investigating the Vice President and former president on multiple counts of corruption. In return, the Supreme Court allowed a special direct appeal by the three judges, which blocked the transfers. In a related event, the federal cassation court rejected arguments by the Vice President against allowing the criminal case to continue. A subsequent decision by the court allowed the testimony of whistleblowers as evidence against the Vice President.

Argentina authorizes cultivation of marijuana for medical use, sale in pharmacies. A December 2020 decree expands a 2017 law that allowed the medical use of cannabis oils but prohibited the cultivation of the plant by individuals.

Shareholder suit continues in New York over nationalization of YPF. In June 2020, a federal court in New York rejected a motion by Argentina to transfer litigation to Argentina.

The motion argued that Argentina was a more convenient forum for the litigation. The suit by the energy company, Petersen Energía Inversora, seeks compensation for shares it held in the state energy company, YPF. In 2012, Argentina nationalized 51% of the shares in YPF, all from Spain’s Repsol, but refused to buy out other shareholders.

BRAZIL Brazil entered the pandemic while still trying to recover from the economic slump it had been in for several years. Following its anemic growth of just over 1% from 2017 to 2019 and

in spite of a substantial fiscal stimulus in 2020, Brazil is still expected to underperform — with expected growth of 3.4% in 2021, slightly less than the rest of Latin America. The economy is burdened by a very high public debt, which reached an estimated 96% of GDP in 2020 due to the pandemic-related fiscal and monetary stimulus measures. In addition, moderate concern exists about the possibility that the government could abandon spending cap rules in 2021 as a result of political pressure in a preelectoral year.

Fiscal policy is expected to tighten, and public sector reforms are expected to take place under Jair Bolsonaro’s leadership, after the election of congressional leaders who are aligned with his (right-wing) political views. The currency will likely recover some of the 2020 losses but remain volatile. On the upside, Brazil has a relatively low external debt to GDP ratio (36.4%, EIU 2020), a moderate current account deficit, and sizable levels of international reserves (about 20% of GDP in 2020), which ameliorate external vulnerabilities. In addition, with large and deep domestic markets, the sizable stimulus provided could go a long way in contributing to a comparatively faster recovery. The faster than expected rollout of vaccines will also benefit domestic markets.

Main risks for 2021 are political tension and risk in the face of upcoming elections – especially after leftist former president Lula was cleared by a legal ruling to run in the October 2022 presidential election--, loss of government credibility with respect to tax simplification, budget management and administrative reforms, as well as restricted access to credit. An added risk is the recent resurgence of COVID-19 cases in March 2021 due to a new and highly contagious variant.

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Brazil: economic indicators Avg. 2014-18

2019

2020e

2021f

-0.8

1.1

-4.6

3.4

6.0

4.3

2.0

2.9

-7.3

-2.8

0.3

0.0

Exports

211.2

225.8

208.8

219.9

Imports

176.7

185.0

155.6

168.4

-2.1

12.1

12

12.5

358.3

357.0

357

357

549

569

555

572

260

252

266

260

77

76

96

98

Real GDP, % change Consumer prices, %YoY Public sector balance, % of GDP Merchandise trade ($ mil)

Current account balance, % of GDP International reserves ($ bil) External debt ($ bil) % of exports Public debt, % of GDP

Major exports 2019 Primary products Manufactured Semi-manufactured

% of total 52.8 34.6 12.6

Major imports 2019 Intermed. products Consumption goods Fuels & lubricants Capital goods

% of total 60.2 14.0 11.7 14.2

Leading markets 2019 China US Netherlands Argentina

% of total 27.6 13.1 4.4 4.2

Leading suppliers 2019 China US Netherlands Argentina

% of total 21.1 18.2 6.3 6.1

Source: The Economist Intelligence Unit 2021 intellectual property payments as a percentage of GDP.

GLOBAL INNOVATION INDEX Strengths: Brazil has been successful in strengthening its human capital, particularly in research and development, ranking twelfth highest in expenditure as a percentage of GDP on education. These rankings complement its noticeably high knowledge absorption, scientific publications, and intellectual property. Brazil received the eleventh highest

Weaknesses: Areas where Brazil needs improvement include the ease of starting a business where it ranks 106th for its investment in infrastructure and tariff rates. While many of its neighbors have rated relatively well in the provision of credit, Brazil ranks 105th in the world.

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Global Innovation Score (0-100)

70.0 60.0

53.3

60.6

50.0 40.0

31.9

30.0

29.8

27.9

20.0 10.0 0.0

Brazil

Southern Latin Cone America

China

U.S.A.

2020

LEGAL ENVIRONMENT New general data protection law takes effect. In August 2020, Brazil’s new data privacy law became effective after the senate rejected a presidential decree that would have deferred the effective date. The law defines personal and sensitive personal data that are subject to heighted protections. The law applies to public and private holders of data, whether online or offline. The law will apply to any foreign company having at least one branch in Brazil or offering services inside Brazil and collecting data in Brazil. Under the law, processing of personal data may only occur: 1) with written consent; 2) to comply with legal or regulatory obligations; 3) for public administration purposes; 4) for research (with anonymization whenever possible); 4) by mutual contract; 5) in judicial and administrative proceedings; 6) for protection of life, safety, and health under certain circumstances; and 7) for credit protection, as provided by law. Controllers are required to notify the data protection authority about any data breaches within a reasonable timeframe.

The law will be administered by a new data protection authority. The enforcement mechanisms and penalties provided by the new law will take effect in August 2021.

Corruption remains a hot issue, along with doubts about the will to combat it. The Lava Jato anti-corruption investigations ended in January 2021, and cases will be handed over to other units. In its last year, the task remained active, bringing new bribery charges against former president Luiz Inácio Lula da Silva and money laundering charges against Antonio Palocci, a former minister. President Bolsonaro’s family has also attracted the attention of investigators. The President’s son, Flávio, a senator, was charged in November 2020 with embezzlement and money laundering over the way he ran his parliamentary office while serving as a deputy in the state legislature in Rio de Janeiro. The first lady was also implicated in the probe against her son. Prosecutors charged the state governors of Rio and Pará with corruption related to public contracting. Some of the corruption allegations involved procurement of medical supplies to combat the CoVid19 pandemic.

Mining company ordered to pay US$7 billion as compensation for 2019 dam collapse. The collapse of the dam killed more than 280 people when mud buried the city of Brumadinho. The dam had been constructed to hold water from an iron mine. As prosecutors investigated the event, it became clear that the owners, the Brazilian mining giant, Vale, had been warned repeatedly that the dam was unsafe. Prosecutors found evidence that safety reports had been fabricated for this dam and several others constructed by Vale. Vale’s chief executive and several other officials were charged with homicide. The deal did not affect the homicide and corruption charges brought against the company and its executives. Under the deal, Vale will pay US$7 billion to the state of Minas Gerais, pay support for the citizens of Brumadinho for four years, and will restore the

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environment in areas damaged by the flood of contaminated water and sludge.

part of Europeans are likely to stall any progress for the foreseeable future.

Volkswagen agrees to pay US$6.4 million in compensation for its part in atrocities committed by Brazil’s military dictatorship.

In September 2020, Volkswagen agreed with state and federal prosecutors related to its role in human rights abuses and other atrocities committed during the military dictatorship from 1964 to 1985. The company admitted to allegations that its security office collaborated with the secret police to identify members of the leftist opposition and union leaders, many of whom were later detained and tortured.

Under Brazil’s amnesty law adopted after the return to civilian rule, no individual has yet been convicted for human rights abuses under the military regime. However, Brazil’s National Truth Commission, appointed to investigate crimes committed under the dictatorship, identified some 120 companies that had collaborated with the regime in human rights abuses. The Volkswagen deal is the first such agreement with any of these companies.

Supreme Court confirms concurrent authority of federal, state and municipal governments in fight against COVID-19. In the face of President Bolsonaro's reluctance to impose harsh lockdowns or mandatory quarantines to combat the pandemic, state and local governments began acting. The court rejected a claim that recent emergency legislation made the federal government the sole authority to set rules for isolation, quarantine, mobility restrictions, and essential activities. Rather, the court upheld a lower court determination that this authority is vested in the state and municipal governments as well as the federal government. The result was to affirm the quarantine, lockdown, social distancing, and other public health measures adopted by the states.

EU suspends ratification of Mercosur deal over environmental concerns. News of fires and deforestation in the Amazon has cause European leaders to baulk at ratifying the historic 2019 agreement between the two trading blocs. All EU member states must ratify the agreement, and governments in Germany, France, the Netherlands, and Ireland have blocked movement on the agreement unless the EU receives additional environmental guarantees. If approved, the deal would remove tariffs and other trade barriers on more than 90% of goods traded between the European Union and Mercosur. President Bolsonaro rejects any claim that the agreement will lead to increased deforestation in the Amazon region. However, suspicions on the

Brazil and U.S. announce protocol to 2011 agreement on trade and economic cooperation. In October 2020, Brazil and the United States agreed on a supplemental protocol to the 2011 agreement. The protocol adds three annexes to the current agreement.

The first annex, which deals with trade facilitation and customs, is intended to streamline customs and tariffs information by providing advance rulings on customs treatment and a single window for traders to submit required information. A second annex on good regulatory practices addresses greater transparency in regulatory procedures. The third annex obligates each country to adopt anti-corruption measures. The protocol does not need the approval of the U.S. Congress, but will need approval by the Brazilian Congress to take effect.

Amazon council created, soldiers deployed to protect Amazon. In January 2020, President

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Bolsonaro announced the creation of a new Amazon Council and an interagency environmental task force headed by Vice President Hamilton Mourão. The new coordinating council was authorized by 2019 legislation. The government deployed nearly four thousand soldiers to the Amazon region in May 2020 to help curb illegal deforestation and logging. Critics said that the military deployment was not effective, and that the goal was to sideline IBAMA, Brazil's environmental agency. In January 2021, the Vice President announced that the military deployment would end by May.

CHILE While no country in Latin America came out unscathed from the economic downturn caused by the COVID-19 pandemic, Chile had a relatively mild contraction of 6%, but it is expected to have one of the third largest growth rates at 5% as it returns to traditional place as an economic driver of LATAM. It also has one of the smallest public debts to GDP ratios and, similarly to Peru, Brazil, and Argentina, benefits from having China as the main buyer

of its exports (particularly copper, as Chile is the world’s largest producer and exporter of this commodity).

Chile’s strong macroeconomic and institutional framework has earned it the best sovereign credit rating in the region (A+). However, rating agencies have lowered its outlook from stable to negative, given the potential for policy uncertainty related to political unrest since 2019, as well as the drafting of a new constitution that will take place after the election of a new Constitutional Convention in April 2021. Investors’ expectations are dependent on the work of the Convention and its ability to appease social grievances that led to the unrest in 2019 without encroaching on the country’s competitiveness under a now more complex economic situation than in 2019.

Chile’s performance in securing and dispensing vaccines to its citizens will be another important factor for investors. Meanwhile, the Chilean peso may face headwinds in 2021 due to political instability, but it is expected to stabilize in the long run under expectations of strong exports growth and high inward foreign direct investment.

Chile: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

2.2

1.1

-6.0

5.0

Consumer prices, %YoY

3.3

3.0

2.4

2.9

Fiscal balance, % of GDP

-1.0

-2.7

-9.4

-5.5

Exports

68.4

69.9

64.8

70.9

Imports

63.2

65.7

54.1

61.6

Current account balance, % of GDP

-2.1

-3.8

-1.6

-2.9

International reserves ($ bil)

38.5

40.7

40.7

40.7

External debt ($ bil)

139

198

221

224

203

234

255

264

20

28

36

40

Merchandise trade ($ mil)

% of exports Public debt, % of GDP 45 | P a g e

Major exports 2018 Copper Fresh fruit Salmon & trout Cellulose

% of total 47.9 7.6 6.3 5.7

Major imports 2018 Intermed. goods Consumer goods Capital goods

% of total 48.7 29.6 20.2

Leading markets 2018 China US Japan South Korea

% of total 33.4 13.9 9.2 5.7

Leading suppliers 2018 China US Brazil Argentina

% of total 23.0 18.5 8.9 4.4

Source: The Economist Intelligence Unit 2021

Strengths: Chile was recognized for its level of market sophistication, especially its access to credit. It was listed as the fifth in terms of lowest tariff rates and fifteenth in market capitalization. Compared to most of Latin America, Chile has a strong regulatory environment, ranking sixth in the percent of its population enrolled in a tertiary institution and eighth in firms providing formal training.

Weaknesses: Although many Chileans attend post-secondary schools, the country still lagged in building basic human capital. It had a high pupil to teacher ratio of 18.4, falling behind its peers in investments in research and development, knowledge diffusion, and creative outputs. Like several other Latin American countries, it has low information and communication access and usage.

LEGAL ENVIRONMENT Chileans vote to replace Pinochet-era constitution. After the plebiscite was twice

Global Innovation Score (0100)

70.0

GLOBAL INNOVATION INDEX

53.3

60.0

60.6

50.0 40.0 30.0

33.9

29.8

27.9

20.0 10.0 0.0

Chile Southern Latin Cone America

China

U.S.A.

2020

postponed as a result of COVID-19, nearly 79% of Chilean voters chose to abolish the current constitution which dates from 1988.

The voters rejected an option that would have allowed legislators to be part of the process of drafting a new constitution, choosing instead to have a 155-member convention of elected citizens write the new constitution. The government first promised the plebiscite after widespread protests in October 2019. The convention will submit a draft constitution to voters in 2022.

46 | P a g e

Congress allows pension withdrawals in face of economic hardship. First in July, and again in December 2020, Congress voted to allow Chilean citizens to withdraw up to 10% from the pension funds reserved for them.

Congress votes to impose term limits. In July 2020, Congress adopted a law limiting the reelection of senators, deputies, and regionally and locally elected officials. Under the law, senators will be allowed one re-election, and the other officials will be allowed two consecutive re-elections. The move was a partial response to the 2019 protests calling for changes to Chile's political system.

Environmental court orders gold mine to close. In September 2020, the environmental court issued a final order closing the Pascua Lama mining project owned by the Canadian company, Barrick Gold. The ruling upheld a 2018 agency order shutting down the mine.

The court also imposed a US$9 million fine on the Canadian company for violating environmental regulations, especially for the discharge of acidic waters into the Estrecho River. The mine first opened in 2009, but construction was suspended in 2013 after indigenous groups brought a lawsuit.

Latam files Chapter 11 bankruptcy in United States. In May 2020, Latin America's largest air carrier, Latam Airlines Group SA, filed for bankruptcy in New York. The Chilean airline faced huge losses in the face of COVID19 flight restrictions, resulting in a 95% reduction of its passenger flights. Latam’s affiliates in Argentina, Brazil, and Paraguay were not part of the bankruptcy case.

Court overturns decision that ex-president Eduardo Frei was murdered. In January 2021, an appeals court overturned a 2019 court decision that Eduardo Frei, president from

1964 to 1970, was murdered while in hospital in 1982. The trial court had ruled the expresident was poisoned in hospital by agents of Chilean dictator, former president Augusto Pinochet. That decision followed a fifteen-year investigation of his death. The appeals court said the evidence did not suggest that his death resulted from the culpable acts of anyone. The appeals cleared the six people convicted of acting to cause the ex-president's death.

PARAGUAY Paraguay had one of the smallest declines in GDP in the region in 2020. It fell by 2.1% with growth expected to return to its pre-pandemic levels in 2021 or 2022, contingent upon an expected third peak of COVID-19 this year.

The government is planning an economic recovery through targeted increases in spending in education, health and infrastructure investment. Inflation will likely increase, accordingly, but remain controlled within the 2-6% target range set by the Paraguayan Central Bank. However, the government of Mario Abdo Benitez is expected to display fiscal prudence and monetary policy is expected to remain accommodative. Although public indebtedness will rise this year, Paraguay’s overall debt is much lower than the average level in the region and its international reserves are enough to mitigate currency risks.

The main economic risks and vulnerabilities this year involve political uncertainty about the government’s ability to pass its agenda in the legislature, renewed actions by a guerrilla movement, weather shocks (drought) that may affect the narrow-based export sector (heavily focused on soybean and soybean products), capital market volatility and a new spike in COVID-19 cases under a slow vaccine rollout.

Paraguay’s dependence on petroleum imports also increases the country’s vulnerability.

47 | P a g e

Paraguay: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

4.2

0.2

-2.1

3.9

Consumer prices, % Dec/Dec

3.8

2.8

3.0

3.3

Current account balance, % of GDP

1.1

-1.0

-0.7

0.0

Total external debt ($ bil)

16

16.4

18.7

19.5

131

132

185

159

19

24

31

31

% of exports Public debt, % of GDP

Major exports 2019

% of total

Major imports 2019

% of total

Soybean products

34.2

Electronics

17.5

(Hydro) Electricity

20.1

Automobiles

3.8

Animal products Corn

15.1 5.4

Agricultural inputs Petroleum

3.7 3.5

Leading markets 2019 Brazil Argentina Chile Russia

% of total 32.4 22.4 8.0 7.8

Leading suppliers 2019 Brazil US China Argentina

% of total 23.7 21.8 17.0 10.1

Source: The Observatory of Economic Complexity 2021

GLOBAL INNOVATION INDEX Strengths: Paraguay ranked high in relation to its peers in general infrastructure and its ecological sustainability. It ranked 18th in energy output per capita and was successful in producing creative outputs. Paraguay ranked sixth in trademarks by GDP and ninth in the provision of microfinance as a percentage of GDP.

Weaknesses: Paraguay is challenged with weak institutions, poor information and communications technologies access and use, and low exports. It ranked 123rd out of 131 countries included in the index for information and technology exports and 129th for information and technology services imports. It also received low scores in its educational system, with a 108th ranking, and a very low ranking of 124th in the production of scientific articles and 125th in university/industry research collaborations.

48 | P a g e

Global Innovation Score (0-100)

70.0 60.0

53.3

60.6

50.0 40.0 24.1

30.0

29.8

27.9

URUGUAY

20.0 10.0 0.0

companies or foundations, or individuals or companies that operate under public concessions. Contributions from unions are prohibited, as are anonymous contributions.

Paraguay Southern Latin Cone America

China

U.S.A.

2020

New law allows for simplified corporations.

A new Paraguayan law creates the simplified shares company, which can be incorporated using a single shareholder, registered within 72 hours. The law retains limited liability for shareholders and allows for quick conversion into more traditional corporate structures. The simplified shares company law is intended to foster business creation.

Paraguay strengthens campaign finance laws. In February 2020, Paraguay adopted changes to its campaign finance law. The changes include creation of a supervision unit within the electoral court to oversee elections, and stricter reporting requirements for candidates and parties. The law forbids contributions from foreign governments,

With a lower GDP contraction compared to the regional average, Uruguay is expected to have a relatively speedy economic recovery. This will be largely driven by robust growth of its exports (mainly agricultural and purchased by China), as well as large construction and infrastructure projects. While most of Latin America has managed to keep its inflation low at around the 2% target over the last decade, Uruguay stands out with inflation rates over 6%. It was particularly high in 2020 at 9.5%.

Unemployment numbers may also be higher than expected this year due to COVID-19related given restrictions in Uruguay’s tourism sector. Regardless of these weaknesses, Uruguay’s low levels of corruption and strong political culture contribute to a low country risk qualification and relatively high for the region credit rating. In addition, Uruguay’s government in the head of Luis Lacalle Pou, secured a significant number of vaccines early on, which should cover 75% of the population.

Uruguay: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

1.9

0.2

-4.8

3.7

Consumer prices, % Dec/Dec

8.1

8.8

9.5

7.5

-0.8

N/A

N/A

N/A

8

42.6

43.8

45.5

% of exports

70

355

345

340

Public debt, % of GDP

42

74

89

89

Current account balance, % of GDP Total external debt ($ bil)

49 | P a g e

Major exports 2019

% of total

Major imports 2019

% of total

Animal products

34.1

Chemical products

17.8

Paper goods Soybeans Rice

20.1 7.4 4.2

Petroleum Machinery Transportation goods

17.0 15.9 8.2

Leading markets 2019 China Brazil Netherlands US

% of total 28.9 12.3 5.3 5.3

Leading suppliers 2019 Brazil China US Argentina

% of total 25.1 14.8 11.4 10.5

Source: The Observatory of Economic Complexity 2021 GLOBAL INNOVATION INDEX

Weaknesses: The country received low rankings overall in its strengthening of human capital, especially the funding of secondary education, the quality of its tertiary education, and investment in research in development.

Lack of investment in human capital and research has manifested itself in low scores in relation to its peers for knowledge workers, innovation linkages between the public and private sectors, knowledge absorption, and knowledge creation. The country also needs to improve its general infrastructure and its market sophistication.

70.0

Global Innovation Score (0-100)

Strengths: Unlike much of the rest of Latin America, Uruguay scored well for the country’s political environment, particularly its political and operational stability. It also received high scores for its information and communication technology infrastructure. It ranked eleventh for foreign direct investment net outflows as a percentage of GDP, thirteenth for firms that offer formal training, fifteenth for cultural and creative services exports as percentage of total trade, and eighteenth for information technology imports as a percentage of trade.

60.0

53.3

60.6

50.0 40.0 30.0

30.8

29.8

27.9

20.0 10.0 0.0

Uruguay Southern Latin Cone America

China

U.S.A.

2020

Uruguay makes it easier for foreigners to obtain tax residency. A presidential decree effective in July 2020 provided tax residency in Uruguay for foreigners who live at least 60 days in the country and purchase real estate valued at an equivalent of US$ 400,000 or invest a set amount in businesses creating at least 15 full-time jobs. Previously, foreigners needed to spend at least 183 days in the country and invest a significantly higher amount.

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New law promotes telemedicine. Amidst the COVID-19 virus, Congress enacted a law to provide for and regulate the electronic provision of medical services. One goal behind the change was to reduce in-person services that congest hospitals and clinics.

CENTRAL AMERICA & THE CARIBBEAN COSTA RICA While Costa Rica has been a standout in Central America due to its dynamic economy and political stability, it did not fare any differently than the rest of Central America in

the impact of the pandemic on its economy in 2020 with GDP falling by 5.2% and expected recovery in 2021 of 3.0%. Considering that, according to the OECD, tourism accounted for 46% of Costa Rica’s services exports and around 37% of total exports in 2017, the country was fortunate to have not suffered any more from the pandemic, with tourism virtually halted. Like the rest of Central America, Costa Rica is more heavily dependent on exports to the United States than from China or the rest of Asia. So, its recovery is expected to be lower than those countries with closer ties to China.

In the long run, Costa Rica’s economy looks healthy, as it makes major investments in hightech industries with continued investment in the country’s secondary and technical education.

Costa Rica: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

3.5

2.1

-5.2

3.0

Consumer prices, % Dec/Dec

1.9

2.1

0.8

0.9

-3.6

-2.4

-4.5

-4.1

24

29.8

31.7

33.8

238

257

291

294

45

74

87

93

Current account balance, % of GDP Total external debt ($ bil) % of exports Public debt, % of GDP

Major exports 2019

% of total

Major imports 2019

% of total

Medical supplies

28.7

Machinery

5.8

Bananas

8.7

Pharmaceuticals

5.3

Pineapples

8.5

Petroleum

5.0

Processed food

5.4

Transportation goods

4.8

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Leading markets 2019 US Belgium Netherlands Guatemala

% of total 42.4 6.3 6.1 5.2

Leading suppliers 2019 US China Mexico Guatemala

% of total 38.6 13.2 6.8 2.5

Source: The Economist Intelligence Unit 2021 GLOBAL INNOVATION INDEX Strengths: Costa Rica ranks highly in several factors of its education system with complementary higher rates of knowledge absorption and diffusion. It spends the sixth most as a percentage of its GDP on education and has the highest level of cultural and creative service exports, sixth highest in terms of ICT services exports, and seventh highest in intellectual property as a percentage of total trade.

Weaknesses: Even though Costa Rica scored well in various areas of its educational system, it graduates a smaller percentage of STEM degrees than its peers. It also has a cumbersome business environment and ranked particularly low in investment at fourth to last place in the world.

Global Innovation Score (0-100)

70.0 53.3

CUBA

50.0 33.5 26.3

30.0

27.9

20.0 10.0 0.0

Law limits right to strike. In February 2020, in response to widespread strikes in 2018, including those by public sector unions, Costa Rica adopted a law prohibiting strikes by socalled essential workers, including health workers, first responders, and transport workers. For other workers, the law distinguishes legal strikes relating to pay or working conditions from illegal strikes, including those for political reasons.

60.6

60.0

40.0

Minister resigns in scandal over misuse of confidential data. In May 2020, minister of the presidency, Víctor Morales, amidst amid investigations over the creation of a data analysis unit with access to sensitive data about citizens, but with very limited oversight, claimed the new agency had been intended as a guide in the formation of public policy.

Costa Rica

C.A. & Latin Carribean America 2020

China

U.S.A.

Cuba’s anemic economy suffered heavily from the pandemic. Its small private sector, about 13% of the country’s labor force, is very dependent on the tourism industry according to the Economics Intelligence Unit. The decline in tourism was a large factor in the country’s decline of 8.3% of GDP in 2020. Two recent policy changes leading greater economic liberalization will reverberate throughout the economy in 2021 and will likely boost its economic recovery. First, expanding the

52 | P a g e

number of professions that are permitted in the private sector from 127 to almost 2,000 will allow those who lost jobs in the tourism sector to move into other industries and allow artisanal businesses to expand. Second, the unification of Cuba’s dual currency system into a single currency system should remove some distortions in the economy, improve its competitiveness in international markets, and facilitate the distribution of goods. It will be a painful adjustment as it will likely lead to the closure of many state-owned businesses that received an inherent subsidy in the dual currency system.

The big question that will likely have the greatest impact on Cuba’s economic fortunes is what approach the newly installed Biden administration takes toward the island. If Biden reverses Trump’s policies, relaxes travel restrictions, opens greater opportunities for U.S. businesses to invest in Cuba, and adjusts the trade embargo, could transform the economic reality in Cuba. Much of the U.S. policy may well depend on Cuba’s efforts to further open its economy and its treatment of those expressing growing discontent with the current Cuban regime.

Cuba: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

2.0

0.5

-8.3

2.4

Consumer prices, %YoY

5.8

5.7

3.8

6.5

-6.3

-6.3

-9.5

-5.5

Exports

3.4

2.0

2.2

2.2

Imports

11.4

11.0

9.2

9.8

2.3

1.4

0.2

0.2

11.7

10.0

N/A

N/A

30

29

29

28

52

59

59

Public sector balance, % of GDP Merchandise trade ($ mil)

Current account balance, % of GDP International reserves ($ bil) External debt ($ bil) % of exports

199

Public debt, % of GDP

44

Major exports 2019 Nickel

% of total 27.2

Major imports 2019 Petroleum

% of total 28.4

Pharmaceuticals

14.9

Machinery

25.3

Petroleum productos Sugar products

7.4 6.7

Food Chemicals

20.0 14.0

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Leading markets 2019 Canada Venezuela China Spain

% of total 19.3 16.9 16.7 6.6

Leading suppliers 2019 Venezuela China Spain Mexico

% of total 22.9 13.4 10.5 4.5

Source: The Economist Intelligence Unit 2021 LEGAL ENVIRONMENT Changes to U.S. sanctions will be consideredby new administration. In 2020, the Trump administration continued its tightening of sanctions against Cuba. In August 2020, the U.S. State Department and Transportation Department announced the suspension of all private charter flights to Cuba After having banned all commercial flights to all Cuban cities except Havana in October 2019.

In January 2021, days before the change in U.S. administration, the U.S. State Department relisted Cuba as a state sponsor of terrorism, after the Obama Administration had removed it from this list in 2015. The U.S. authorities cited Cuban support for Venezuela and the harboring of numerous fugitives from U.S. justice as justification for the change.

The incoming Biden Administration has announced a review of U.S. policy with regard to Cuba, including sanctions policy.

Cuba eliminates dual currency system. In January 2021, Cuban authorities announced this important currency reform, eliminating the Cuban Convertible Peso, which was introduced in 1991. As part of the reform, the government will phase out subsidies in an attempt to limit bankruptcies and unemployment. State salaries and pensions will rise some 500%.

State responds to San Isidro Movement with flexibility, then repression. A wave of protests and demonstrations against the imprisonment of popular Cuban artists and musicians included protests against restrictions on political speech. The protests took their name from the Havana neighborhood in which they began. The state and members of the movement initially reached some agreement that the state would no longer harass independent artists, and secured a review of the criminal cases against some of the artists.

However, perhaps fearing the popularity of the movement, the police raided the headquarters of the movement in late November, detaining some of its activists. President Diaz-Carnel has denounced the movement as a tool of the United States.

Tax on dollar transactions and other trade barriers eliminated. In July 2020, the Cuban government eliminated the 10% tax on all dollar transactions, and announced that nonstate enterprises would be allowed to import and export goods. However, state-owned enterprises would need to be employed as intermediaries.

DOMINICAN REBUBLIC Even though the Dominican Republic took a big hit from the economic downturn in 2020, with a GDP contraction of 6.4%, it is expected to bounce back rather quickly in 2021, returning to pre-pandemic growth rates. Even

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though the Dominican Republic is heavily dependent on tourism, the country enacted large stimulus packages in 2020 and early 2021 that have helped buoy the economy. The country’s heavy dependence on exports to the United States also ties its growth to the slower economic growth of its primary trade partner.

The election of the pro-business president, Luis

Abinader, in August 2020, could lead to reforms that encourage foreign and domestic investment. In particular, he has vowed to streamline bureaucratic processes and regulations and encourage investments in and expansion of mining.

Dominican Republic: economic indicators Real GDP, % change Consumer prices, % Dec/Dec Current account balance, % of GDP Total external debt ($ bil) Public debt, % of GDP

Avg. 2014-18 6.5 2.2

2019 5.1 1.8

2020e -6.4 3.3

2021f 4.9 4.0

-1.6 29.3 47

-2.4 35.5 52

-4.5 41.1 62

-4.1 43.5 63.0

Major exports 2019 Gold Medical equipment Textiles Rolled Tobacco

% of total 16.0 15.2 9.8 8.3

Major imports 2019 Machines Petroleum Food products Automobiles

% of total 17.4 15.9 8.6 6.2

Leading markets 2019 US Switzerland Canada India

% of total 53.8 7.7 4.9 4.6

Leading suppliers 2019 US China Brazil Spain

% of total 49.6 13.4 3.8 3.7

Source: The Observatory of Economic Complexity 2021

GLOBAL INNOVATION INDEX Strengths: The Dominican Republic rated highly in its infrastructure, especially for ecological sustainability. It has the ninth highest GDP to unit of energy use, and is relatively well placed in enrollment in tertiary education, microfinance loans, and creative goods exports.

Weaknesses: The Dominican Republic received particularly low ratings in its educational system for student reading, math, and science scores; number of, graduates in science and engineering; investment in research and development; and rankings of its universities. The country also lagged in access to information and communication technology, and computer software spending.

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Global Innovation Score (0-100)

70.0 60.0

53.3

60.6

the Australian rules were reasonable measures intended to protect public health.

50.0 40.0 30.0

25.1

EL SALVADOR

27.9

26.3

20.0 10.0 0.0

Dominican C.A. & Latin Republic Carribean America

China

U.S.A.

2020

Corruption trial of public officials resumes during election season. In September 2020, the trial resumed for six public officials accused of receiving bribes totaling some US$ 92 million from the Brazilian construction firm, Odebrecht. Among those accused are three former senators and Victor Díaz Rúa, a former public works minister.

WTO appellate body rejects appeal over rules requiring plain packaging of tobacco.

In June 2020, the appellate body of the World Trade Organization released opinions upholding Australia’s rules requiring that tobacco products be sold in plain packages with health warnings. The appeals body rejected claims by the Dominican Republic and Honduras that these were trade restrictive regulations and that they infringed upon trademark rights. The appellate body found that

El Salvador’s economy is heavily dependent on the United States as its major trading partner, a source of remittances, and its currency, as based on the U.S. dollar. Because of this close relationship, El Salvador’s recovery from the recession is closely tied to that of the United States. With El Salvador experiencing one of the largest economic declines in Latin America in 2020 with its GDP contracting at 8.5% and low economic recovery, its real GDP is not expected to recover to its 2019 levels until 2023. Indeed, the recession would have been even deeper and recovery slower if the government did not enact a modest stimulus package. Much of these growth expectations will depend on how quickly the country can vaccinate its population, and its expatriates in the U.S. start sending remittances. The election of President Nayib Bukele’s Nuevas Ideas party to control a super majority of the national assembly will allow him to enact fiscal and pension reforms to rein in the country’s unattainably large debt.

El Salvador: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

2.3

2.4

-8.5

4.0

Consumer prices, % Dec/Dec

0.6

0.1

0.2

1.1

-3.5

-2.1

-4.9

-4.5

Total external debt ($ bil)

16

16.6

18.6

19.4

Public debt, % of GDP

65

73

92

94

Current account balance, % of GDP

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Major exports 2019 Non-traditional goods Textiles Coffee Sugar

% of total 67.8 15.6 2.7 1.6

Major imports 2019 Intermediate goods Consumer goods Capital goods Textiles

% of total 27.5 23.7 19.1 16.2

Leading markets 2019 US Guatemala Honduras Nicaragua

% of total 42.2 16.0 15.9 6.7

Leading suppliers 2019 US China Guatemala Mexico

% of total 30.6 14.4 10.6 8.0

Source: The Economist Intelligence Unit 2021

Strengths: El Salvador received high ranks in relation to its peers in several areas, including ecological sustainability, trade, knowledge absorption, and diffusion. It ranked twelfth for firms offering formal education, and regulatory quality.

Weakness: The country is particularly weak in education, including pupil- to- teacher ratios and quality of its universities. This weakness in the educational system translates to the worst scores for knowledge creation in the countries included in the index, along with ranking 128th in scientific articles and 125th out of 131 countries in university industry research collaboration and patents.

Global Innovation Score (0-100)

GLOBAL INNOVATION INDEX

70.0 60.0

53.3

60.6

50.0 40.0 30.0

24.9

26.3

27.9

20.0 10.0 0.0

El Salvador C.A. & Latin Carribean America

China

U.S.A.

2020

President Bukele repeatedly defies courts in responding to COVID-19. The president ignored findings by the Supreme Court that his mandatory 30-day detention of people violating his lockdown orders was unconstitutional. He again ignored the court in his decrees providing for reopening the economy. The court had demanded the legislature’s involvement.

President appoints commission to propose constitutional reform. In 2020, President Bukele appointed a commission to advise the legislature about reforming the constitution.

The commission will be headed by Vice

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President Félix Ulloa. Among the proposals under consideration are an extension of the presidential term to six years and the possibility of recall referenda, as well as a route for citizens to propose legislation.

GUATEMALA Economically, Guatemala has come out of the pandemic the least scathed in Central America.

Its economy shrank by only 2.6% in 2020, the lowest rate in Latin America, and is expected to grow at a respectable rate of 3.8% in 2021.

Guatemala actually looks to be achieving the coveted V shaped recovery. This economic rebound is credited to the influx of remittances from migrants in the United States, growth in exports, and the government’s stimulus package, which is reflected in the growth of public debt. Total exports, with particularly strong performance of agricultural products, grew by 5% in 2020. Future expansion will depend greatly on the rate of the U.S. recovery, Guatemala’s main trading partner, and the completion of the vaccination program.

Guatemala: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

3.5

3.8

-2.6

3.8

Consumer prices, % Dec/Dec

3.6

3.7

2.1

2.1

Current account balance, % of GDP

0.3

2.5

2.5

5.0

Total external debt ($ bil)

21

26.6

30.2

33.3

Public debt, % of GDP

24

35

41

42

Major exports 2019 Bananas Sugar Coffee Spices

% of total 9.8 6.0 5.9 5.5

Major imports 2019 Machinery Petroleum Foodstuff Metals

% of total 15.8 13.7 8.1 7.4

Leading markets 2019 US El Salvador Honduras Mexico

% of total 33.3 11.7 8.4 4.9

Leading suppliers 2019 US China Mexico El Salvador

% of total 35.6 12.3 11.3 5.1

Source: The Observatory of Economic Complexity 2021

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GLOBAL INNOVATION INDEX

liquidation of NGOs found in violation of its provisions.

Strengths: Guatemala scores highly in knowledge absorption, the creation of intangible assets such as trademarks, and trade and market competition. The country ranks 14th in easiest country to obtain credit and 9th in terms of firms offering training.

Dispute between constitutional court and supreme court threatens judicial independence. After the constitutional court issued rulings suspending the selection of Supreme Court judges, which were intended to remove candidates suspected of corruption, the Supreme Court lifted the immunity of two judges of the constitutional court, accusing them of corruption, and referring the case to congress. The Inter-American Commission on Human Rights and many other observers found that the Supreme Court’s actions interfering with the constitutional court threatened the rule of law in the country.

Weaknesses: Guatemala rates particularly weak in the quality of its political and regulations, educational system, infrastructure, and knowledge and technology output. Guatemala ranked third to last at 129th in its overall infrastructure and 129th in its production of scientific articles.

Global Innovation Score (0-100)

70.0 60.0

53.3

60.6

50.0

HAITI

40.0 30.0

22.4

26.3

27.9

20.0 10.0 0.0

2020

Constitutional court invalidates new NGO law. In March 2020, the constitutional court struck down as unconstitutional a controversial law that allowed the government increased supervisory authority over non-governmental organizations (NGO) active in the country. The law had required NGOs to register with the state and report all donations, and provided for

The Haitian economy entered the pandemic in recession in 2019. Nonetheless, it did not fair any worse than the rest of Latin America because it implemented a stimulus program. Its GDP contracted by 3.5%. Due to the softness of its economy, the country is expected to have one of the slowest recoveries in the region.

Haiti has also failed to get its stubbornly high rates of inflation under control. It has the third highest inflation rate in the region, after Venezuela and Argentina, at around 20%. Of particular concern for Haiti’s economic viability is the continued political uncertainty over the refusal of President Jovenel Moïse to step down from office. He claims that he has another year in power while the opposition believes that his term ended in February 2021.

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Haiti: economic indicators Avg. 2014-18

2019

2020e

2021f

1.9

-1.7

-3.5

2.0

Consumer prices, % Dec/Dec

12.6

18.7

22.9

16.5

Current account balance, % of GDP

-5.6

2.2

10.4

1.0

2

2.2

2.6

2.9

31

37

N/A

N/A

Real GDP, % change

Total external debt ($ bil) Public debt, % of GDP

Major exports 2019 Textiles Seafood

% of total 84.2 4.6

Major imports 2019 Textiles Petroleum

% of total 15.3 11.4

Chemical products Metals

4.6 1.6

Rice Palm oil

8.9 3.5

Leading markets 2019 US Canada Mexico India

% of total 81.3 6.8 1.8 1.2

Leading suppliers 2019 US China Turkey Indonesia

% of total 38.7 22.3 5.3 3.9

Source: The Observatory of Economic Complexity 2021

President Möise calls for new constitution, subsequent elections. President Möise has ruled by decree since his Parliament term expired last year. In January 2020, the president appointed a commission to propose a new constitution to be approved by referendum, and the electoral commission set dates for legislative and presidential elections this year, with the first round in September and run-off elections set for November.

expands the definition of “terrorist act” and imposes sentences of 30–50 years for violators.

The two decrees come amidst a worsening security situation in the country. Human rights groups fear that the decrees will be misused while doing nothing to correct the culture of impunity for police and other officials who misuse their authority.

President’s public security decrees raise fears. In November 2020, President Möise issued one decree that creates a national intelligence agency, and another decree that

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HONDURAS Honduras had the most challenging 2020 of any country in Latin America. Not only did it face the challenges from the fallout from the COVID-19 pandemic, but it also suffered severe damage from two hurricanes. The country experienced a decline of 12.1% in economic activity in November and annual GDP decline of 7.8% in 2020. Following the hurricanes, every sector of the economy saw declines except for the communication sector.

The industries that saw particularly large declines included hotels and restaurants (30.3%), construction (25.8%), agriculture (20.0%), mining (19.9%), and transportation (18.4%). While its neighbors could count on agricultural exports to alleviate some of the economic pain, the hurricanes destroyed many of the crops in Honduras. The country’s economy is not expected to recover to its prepandemic level until 2024. A major concern for Honduras and its neighbors is the impact of the deep economic downturn and slow recovery on poverty and migration pressures.

Honduras: economic indicators Avg. 2014-18

2019

2020e

2021f

Real GDP, % change

1.6

2.7

-7.8

5.1

Consumer prices, % Dec/Dec

4.1

4.4

3.3

3.7

-4.1

-1.4

-2.2

-2.8

8

9.8

11.5

12.5

39

51

55

59

Current account balance, % of GDP Total external debt ($ bil) Public debt, % of GDP

Major exports 2019 Textiles Coffee Machinery Seafood

% of total 47.8 11.8 5.3 3.1

Major imports 2019 Textiles Machinery Petroleum Chemicals

% of total 20.8 14.7 12.6 10.9

Leading markets 2019 US El Salvador Guatemala Nicaragua

% of total 53.2 8.0 5.3 4.8

Leading suppliers 2019 US China Guatemala El Salvador

% of total 42.2 10.1 8.4 8.0

Source: The Observatory of Economic Complexity 2021

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GLOBAL INNOVATION INDEX Strengths: Honduras received a high rating in comparison to its peers in its education system, ranking 14th for the amount it spends on education, and 19th in firms that offer formal training. It also was rated highly for its ICT services imports, net foreign direct investment, and the ease of obtaining credit.

Global Innovation Score (0-100)

Weaknesses: Honduras received a poor score in its rule of law and business environment, ranking 123rd out of 131 countries. The country also received a low rating for its expenditures on research and development, ranking 127th in knowledge creation for the few patents and scientific articles that were created in Honduras.

70.0 60.0

53.3

60.6

50.0 40.0 30.0

23.0

26.3

27.9

20.0 10.0 0.0

Honduras C.A. & Latin Carribean America

China

U.S.A.

2020

Appeals court exonerates officials accused of corruption by former OAS Commission. In August 2020, an appeals court exonerated some 22 defendants indicted for corruption by the former OAS-sponsored Mission to Support the Fight Against Corruption & Impunity in Honduras (MACCIH) in 2018. Among those released were a former vice president, several

legislators, and the former husband of President Hernández’s sister. The attorney general announced he will appeal the court’s decision.

New criminal code takes effect. A new criminal code took effect in July 2020. The code included new crimes such as insider trading. However, critics noted that the code reduced sanctions for crimes involving corruption, including bribery, embezzlement, and obstruction of justice. Human rights groups also claimed that new crimes for criminal assembly and terrorism would target peaceful protestors and violate constitutional rights.

NICARAGUA Nicaragua’s economy entered 2020, following two consecutive years of contractions due to the uprisings against President Daniel Ortega’s authority in 2018. Like Honduras, Nicaragua suffered heavy damages from two hurricanes in 2020, which further deflated expectations for economic growth. Nicaragua’s economy is not expected to grow in 2021 and predicted not to return to its pre-pandemic level until at least 2025. With Nicaragua ramping up government spending to offset the effects of the years of recession, the growing budget deficits with the debt should reach 72% of GDP in 2021, after averaging just 32% of GDP from 2014 to 2018.

The country will likely face challenges in reining in public spending. As the country continues to face political uncertainty and sanctions from the United States, there are few expectations for Nicaragua to meet its full potential in the near future.

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Nicaragua: economic indicators Avg. 2014-18 Real GDP, % change 3.0 Consumer prices, % Dec/Dec 4.3 Current account balance, % of GD -5.5 Total external debt ($ bil) 11 Public debt, % of GDP 32

2019 -3.9 5.4 6.0 11.7 57

2020e -5.6 4.4 8.4 12.0 67

2021f 0.0 4.0 4.2 12.8 72

Major exports 2019 Textiles Gold Beef Coffee

% of total 28.7 11.2 10.1 8.5

Major imports 2019 Textiles Machinery Petroleum Chemicals

% of total 19.3 13.5 13.3 11.7

Leading markets 2019 US El Salvador Mexico Honduras

% of total 60.4 5.4 5.3 4.4

Leading suppliers 2019 US Mexico China Guatemala

% of total 27.1 12.0 10.7 8.6

Source: The Observatory of Economic Complexity 2021

Global Innovation Score (0-100)

GLOBAL INNOVATION INDEX 70.0 54.82

60.0

61.73

50.0 40.0 30.0

22.6

27.7

30.1

20.0 10.0 0.0

Nicaragua C.A. & Latin Carribean America

China

U.S.A.

2019

New law targets organizations receiving foreign money. A law adopted in October 2020 will require citizens working for foreign governments, companies, and foundations to register with the interior ministry as “foreign

agents”. Those registering will then need to report monthly income and spending, and provide prior notice before spending foreign funds “Foreign agents” are then barred from financing candidates or political parties and from running for election themselves. The law exempts humanitarian and religious organizations, as well as retirees and citizens receiving money from relatives abroad.

New cybercrime law threatens media. The special cybercrimes law adopted in October 2020 has been denounced as a threat to freedom of the press. The law includes imprisonment for anyone spreading false information that produces alarm or fear, or information that could jeopardize economic stability or public order. Journalists fear the law will criminalize their work.

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PANAMA Panama’s open economy, highly dependent on the service sector, including revenue from transportation in the Panama Canal, suffered greatly from the strict measures put in place by the government to control the lockdown. Only Venezuela’s economy contracted more than that It faced the second largest GDP contraction in Latin America after Venezuela with a sharp decline of 12.6%. Even though the economy is to grow in 2021, the impact from this deep recession will be long term due to a

slow return to consumer spending and business investments. In fact, domestic consumption is not expected to return to pre-pandemic levels until after 2025. Of particular concern is the tourism industry, which will likely take many years to return to its pre-pandemic levels if it does. As businesses question their reliance on long global supply chains and face growing pressure from national governments to localize production, global trade is unlikely to return to pre-pandemic levels for several years, depressing one of Panama’s traditional engines of economic growth.

Panama: economic indicators Real GDP, % change Consumer prices, %YoY Public sector balance, % of GDP Merchandise trade ($ mil) Exports Imports Current account balance, % of GDP International reserves ($ bil) External debt ($ bil) % of exports Public debt, % of GDP

Avg. 2014-18 5.0 0.7 -2.4

2019 3.0 -0.4 -1.7

2020e -12.6 -1.2 -7.4

2021f 6.7 0.9 -5.5

13.0 23.0 -8.0 3.0 56 340 20

14.8 21.6 -5.2 2.0 47 316 47

13.7 15.4 -0.1 3.5 65 474 65

14.1 19.3 -4.8 3.6 68 484 68

Major exports 2019 Petroleum Transportation Machinery Bananas

% of total 17.0 11.8 9.2 7.1

Major imports 2019 Transportation Petroleum Machinery Chemicals

% of total 29.8 27.5 13.5 8.14

Leading markets 2019 Ecuador Guatemala China US

% of total 19.7 13.5 8.3 6.2

Leading suppliers 2019 China US Japan Colombia

% of total 20.8 18.8 15.9 6.2

Source: The Observatory of Economic Complexity 2021

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extradited from the United States in 2018, was acquitted in a 2019 trial.

GLOBAL INNOVATION INDEX Strengths: Panama scored high for its general infrastructure. In fact, it ranked seventh in producing the most GDP per unit of energy and twelfth in gross capital formation as percentage of GDP. The country also received high marks for its production of creative goods and services.

Global Innovation Score (0-100)

Weaknesses: Panama is challenged in the need to improve its political and regulatory institutions, its investment in human capital in education and research, and access to information and communications technology.

These weaknessesweakness likely have influenced Panama’s low ranking in knowledge workers, innovation linkages, knowledge absorption, knowledge creation, and knowledge impact. It ranked 127th in knowledge absorption.

70.0 60.0

53.3

60.6

US judge rejects libel suit against Netflix by Panamanian firm. In January 2021, a federal judge rejected a libel suit brought by Mossack Fonseca against Netflix over the film “The Laundromat”. Mossack Fonseca is the law firm at the heart of the 2016 Panama Papers financial scandal. Despite the film containing some fictionalization, the court ruled that this was acceptable under U.S. free speech protections.

Supreme Court recognizes indigenous land rights. In a case involving the Naso tribe in northwestern Panama, the Supreme Court ruled that the state was obliged to respect collective rights of indigenous peoples to their traditional lands. The court based this on the Panamanian constitution and on international law. The court emphasized the role of indigenous peoples in protection of the country’s environment and biodiversity.

50.0 40.0 30.0

29.0

26.3

27.9

20.0 10.0 0.0

Panama

C.A. & Latin Carribean America

China

U.S.A.

2020

Court orders new trial of former president Ricardo Martinelli. In November 2020, a Panamanian appeals court ordered the former president to face retrial on charges of spying on rival politicians. The president, who was

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SELECTED SOURCES MONITORED FOR 2021 LABER Agencia EFE (www.efe.com) América Economía (http://www.americaeconomia.com/) BBC Mundo.com (http://news.bbc.co.uk/hi/spanish/news/) Bloomberg.com: Latin America (http://www.bloomberg.com/news/regions/latinamerica.html) Business News Americas (http://www.bnamericas.com/) Brazil Focus: Weekly Report (Subscriptions available at fleischer@aol.com.br) Buenos Aires Herald (www.buenosairesherald.com/) Business Law Magazine (www.businesslaw-magazine.com/) Christian Science Monitor (http://www.csmonistor.com) Consensus Economics (http://www.consensuseconomics.com) Council on Hemispheric Affairs Report (http://www.coha.org/) Economist Intelligence Unit (http://www.eiu.com/) The Economist (http://www.economist.com) Finance & Development (http://www.imf.org/external/pubs/ft/fandd/2015/12/index.htm) Financial Times (http://www.ft.com) Global Arbitration News (http://globalarbitrationnews.com/) Global Tax News (http://www.tax-news.com) The Guardian (www.theguardian.com) Infolatam (http://www.infolatam.com) Insurance Journal (http://www.insurancejournal.com) International Business Times (http://www.ibtimes.com) Investment Arbitration Reporter (http://www.iareporter.com) Journal of Commerce (http://www.joc.com) Jurist (http://jurist.org)

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Latin American Newspapers accessible through Latin American Network Information Center at: http://www1.lanic.utexas.edu/la/region/news/ Latin America Advisor (Subscriptions available at: mailto:freetrial@thedialogue.org) Latin American Caribbean & Central America Report (http://www.latinnews.com) Latin American Andean Group Report (http://www.latinnews.com) Latin American Brazil & Southern Cone Report (http://www.latinnews.com ) Latin American Herald-Tribune (http://laht.com/) Latin American Mexican & NAFTA Report (http://www.latinnews.com) Latin American Monitor (http://www.latinamericamonitor.com/) Latin Correspondent (http://latincorrespondent.com) Latinobarometro (http://www.latinobarometro.org) Los Angeles Times (http://www.latimes.com) Mercopress (http://en.mercopress.com) Miami Herald (http://www.herald.com) Mondaq Regional Business Briefing (http://www.mondaq.com) Mining.com National Law Review (http://www.natlawreview.com) The New York Times (http://www.nytimes.com/) PanAm Post (http://panampost.com) Reuters SUR1810 (www.sur1810.com) Tico Times (http://www.ticotimes.net) The Wall Street Journal (www.wsj.com) World IP Review (www.worldipreview.com/)

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PRIMARY DATA SOURCES International Monetary Fund (http://www.imf.org/) UN Economic Commission for Latin America and the Caribbean (ECLAC) (http://www.cepal.org/default.asp?idioma=IN) World Bank (www.worldbank.org) SOURCES CITED Niso Abuaf, “The International Cost of Capital: The Empirical Evidence”, Salomon Brothers (June 1997).

Aswath Damodaran, “Country Risk and Company Exposure: Theory and Practice", Journal of Applied Finance (Fall/Winter 2003).

Pablo Fernandez, Mar Martinez, and Isabel Fernández Acín, "Market Risk Premium and RiskFree Rate Used for 69 Countries in 2020: A Survey", Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3560869

World Bank, Doing Business 2020. Washington, D.C. (2020).

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TABLES APPENDIX Table 1

GROSS DOMESTIC PRODUCT Annual Growth Rates

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021f

-4.7

5.1

3.7

3.6

1.4

2.8

3.3

2.9

2.1

-0.3

-9.0

3.9

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

4.1 4.3 3.5 1.5 -1.5

5.2 7.4 7.9 3.2 4.2

5.1 3.9 5.6 -4.4 5.6

6.8 4.6 4.9 6.4 1.3

5.5 4.7 3.8 7.2 -3.9

4.9 3.0 0.1 1.6 -6.2

4.3 2.1 -1.2 1.8 -17.0

4.2 1.4 2.4 0.9 -15.7

4.2 2.6 1.4 4.6 -15.0

-2.2 3.3 0.1 2.2 -28.8

-8.1 -7.1 -8.6 -11.9 -26.6

4.7 5.0 3.4 9.8 3.3

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

10.1 7.5 5.8 11.1 7.8

6.0 4.0 6.1 4.2 5.2

-1.0 1.9 5.3 -0.5 3.5

2.4 3.0 4.0 8.4 4.6

-2.5 0.5 1.8 4.9 3.2

2.7 -3.5 2.3 3.1 0.4

-2.1 -3.3 1.7 4.3 1.7

2.7 1.1 1.3 5.0 2.6

-2.5 1.1 4.0 3.7 1.6

-2.1 1.1 1.1 0.2 0.2

-10.5 -4.6 -6.0 -2.1 -4.8

5.3 3.4 5.0 3.9 3.7

CENTRAL AMERICA & THE CARIBBEAN 5.0 Costa Rica 2.4 Cuba 8.3 Dominican Republic 2.1 El Salvador 2.9 Guatemala Haiti -5.5 -5.5 Honduras 4.4 Nicaragua 5.8 Panama

4.3 2.7 3.1 3.8 4.2 5.5 5.5 6.3 11.3

4.8 2.8 2.7 2.8 3.0 2.9 2.9 6.5 9.8

2.3 2.5 4.9 2.2 3.7 4.2 4.2 4.9 6.9

3.5 0.8 7.1 1.7 4.2 2.8 2.8 4.8 5.1

3.6 4.3 6.9 2.4 4.1 1.2 1.2 4.8 5.7

4.2 0.4 6.7 2.5 3.1 1.4 1.5 4.6 5.0

3.4 1.7 4.7 2.3 2.8 1.0 1.2 4.7 5.3

2.6 2.3 7.0 2.5 3.1 3.0 1.5 -3.8 3.7

2.1 0.6 5.1 2.4 3.8

-5.2 -8.3 -6.4 -8.5 -2.6

3.0 2.4 4.9 4 3.8

2.7 -3.9 3.0

-7.8 -5.6 -12.6

5.1 0.0 6.7

NAFTA REGION Mexico

SOURCE: Economic Commission for Latin America and the Caribbean Forecasts are from Consensus Economics, Inc., except Cuba and Haiti, which are from the Economist Intelligence Unit.

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ANNUAL INFLATION 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021f

4.4

1.9

3.6

4.0

4.1

2.1

3.4

6.8

4.8

3.6

3.4

3.3

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

7.2 3.2 3.3 2.1 27.4

6.0 3.1 4.7 4.0 24.0

4.5 2.4 4.2 2.6 19.5

6.5 1.9 2.7 2.9 56.2

5.2 3.7 3.7 3.2 68.5

3.0 6.8 3.4 4.4 181

4.0 5.7 1.1 3.2 274

2.7 1.5 4.2 3.1 -0.2 0.3 1.4 2.2 863 130,060

1.5 3.8 -0.1 1.9

3.3 1.4 -0.3 1.8 6,500

3.8 2.4 2 2 6,500

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

10.9 5.9 3.0 7.2 6.9

9.5 5.4 3.5 4.2 7.4

10.8 5.8 1.5 4.0 7.5

10.9 5.9 2.6 3.7 8.5

23.9 6.4 4.6 4.2 8.3

27.5 10.7 4.4 3.1 9.4

38.5 6.3 2.7 3.9 8.1

25.0 2.9 2.3 4.5 6.6

47.1 3.7 2.6 3.2 8.0

53.8 4.3 3.0 2.8 8.8

36.141 2.0 2.4 3.0 9.5

45.7 2.9 2.9 3.3 7.5

5.8 4.0 6.3 2.1 5.4 6.2 6.5 9.1 4.9

3.5 5.3 7.5 5.1 5.7 7.8 5.0 6.1 5.2

4.5 6.5 3.9 0.8 3.4 7.6 5.4 1.6 4.6

3.7 7.3 3.9 0.8 4.4 3.4 4.9 5.4 3.7

5.1 7.6 1.6 0.5 2.9 6.4 5.8 6.4 1.0

-0.8 4.2 2.3 1.0 3.1 12.5 2.4 2.9 0.3

0.8 4.7 1.7 -0.9 4.2 14.3 3.3 3.1 1.5

2.6 7.3 4.2 2.0 5.7 13.3 4.7 5.8 0.5

2.0 5.3 1.2 0.4 2.3 16.5 4.2 3.4 0.2

2.1 5.7 1.8 0.1 3.7 17.3 4.4 5.4 -0.4

0.8 3.8 3.3 0.2 2.1 22.4 3.3 4.4 -0.8

0.9 6.5 4 1.1 2.1 23.8 3.7 4 0.2

NAFTA REGION Mexico

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba1 Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

19,906

SOURCE: Economic Commission for Latin America and the Caribbean; IMF Forecasts are from Consensus Economics, Inc. and IMF, except Cuba and Haiti, which are from the Economist Intelligence Unit.

1 History is from the Economist Intelligence Unit.

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Table 3

EXPORTS, IMPORTS, AND CURRENT ACCOUNT BALANCE 1 (Billions of Dollars)

Exports NAFTA REGION Mexico

2018 Imports

Exports

C/Account 2

2019 Imports

C/Acct 2

Exports

2020e Imports

C/Acct 2

Exports

2021f Imports

C/Acct 2

479.4

503.964

-25.3397

492.709

496.105

-4.364

436.5

415.5

27.9585

398.893

473.1

24.9

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru

10.4 53.0 24.3 56.1

12.7 68.9 25.6 51.7

-2.0 -13.1 -1.5 -3.8

9.8 46.8 24.9 55.2

12.3 70.9 24.9 51.8

-2.4 -13.8 -0.1 -3.5

6.5 32.8 20.0 39.8

6.8 42.1 17.1 34.2

-1.4 -11.9 1.5 -0.2

7.6 36.0 21.9 48.2

7.9 46.4 20.1 39.9

-1.7 -13.3 1.5 -0.2

Venezuela3

48.6

53.2

9.2

33.8

20.8

3.7

8.7

5.4

-0.6

8.8

5.3

-0.5

75.2 280.5 85.2 14.2 17.2

85.5 272.9 85.6 13.9 13.6

-27.0 -41.5 -10.6 0.2 -0.3

77.2 264.8 79.5 13.4 16.5

67.5 269.4 80.6 12.9 13.2

-4.0 -50.7 -10.9 -0.6 -0.6

56.7 221.9 71.2 11.3 11.5

37.5 -165.2 54.3 10.1 8.6

8.8 -10.8 4.1 351m 0.3

60.7 233.9 78.6 12.2 10.5

41.5 -185.2 63.8 11.5 8.0

6.7 -20.4 -0.7 -264m 0.0

20.3 14.5 20.1 7.5 14.3 1.9 10.0 6.0 27.3

20.1 12.6 24.4 12.6 22.8 5.7 14.3 8.3 28.6

-2.0 -27.0 2.5 -1.2 0.7 -0.7 -1.0 0.1 -5.1

20.9 14.2 20.5 8.0 13.8 1.7 9.9 5.9 29.9

19.9 12.9 24.4 12.9 22.3 5.3 14.5 6.1 26.3

-1.4 -4.0 1.5 -0.6 0.7 -0.2 -0.9 0.3 -5.1

11.3 2.2 9.9 3.8 9.7 1.2 7.0 4.8 13.7

14.1 9.2 16.5 9.3 16.1 3.8 -10.0 5.3 15.4

-1.9 0.2 2.2 -0.9 2.1 0.3 -0.1 1.2 -0.1

11.4 2.2 11.2 4.1 10.2 0.9 7.3 5.1 14.1

15.2 9.8 19 9.8 17.4 3.3 -10.0 5.8 19.3

-2.6 0.2 -2.5 -0.6 1.9 0.5 -0.7 1.2 -2.5

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama SOURCE:

2019 Economic Survey of Latin America and the Caribbean and UF estimates.

1

Exports and imports are of goods and services; current account is the balance of exports of goods, services, primary and secondary income, and the capital account.

2

Consensus Economics, January 2020; m=million.

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Table 4

TERMS OF TRADE 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019¹

2020e

2021f

97.0

104.3

111.4

107.4

107.3

101.8

88.0

82.7

86.379

88.441

89.267

85.3

86.5

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

95.2 143.3 45.2 148.2 201.2

100.0 157.1 51.8 179.4 411.2

118.1 182.9 57.1 193.5 425.4

112.3 183.1 56.4 188.0 370.0

100.4 182.1 57.8 176.8 276.7

95.1 178.6 60.2 167.3 149.8

76.9 156.7 49.5 155.8 127.4

66.5 145.9 52.2 155.3 145.5

76.9 147.3 51.2 167.0 68.2

82.9 159.4 51.1 166.3 83

80.7 157.0 49.6 163.5 159.4

n/a 133.3 46.5 178.8 135.5

n/a 142.4 46.8 172.5 182.8

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

132.369 138.5 181.9 100.0 100.5

132.4 160.6 221.2 100.0 100.0

132.4 173.2 225.2 102.4 102.4

132.4 163.1 209.3 103.4 106.3

132.4 159.8 202.9 102.8 108.1

132.4 154.3 198.7 103.3 112.3

132.4 137.4 193.0 95.5 114.5

132.4 141.5 200.8 94.6 117.6

132.4 149.7 221.2 91.5 117.1

132.4 146.6 215.9 91.2 111.4

132.4 147.5 214.1 89.7 112.1

132.4 149.0 234.9

132.4 154.2 232.9

88.4 n/a 103.8 97.2 100.5 103.4 97.3 98.3 101.9

92.7 n/a 100.0 94.5 100.0 100.0 100.0 100.0 100.0

91.1 n/a 94.7 92.5 99.1 83.0 108.4 106.6 97.8

92.7 n/a 93.8 91.0 93.7 86.0 94.6 106.5 98.2

93.3 n/a 60.7 88.4 91.8 80.6 88.6 98.2 97.7

94.9 n/a 60.5 81.9 92.3 83.1 90.4 100.1 99.7

101.0 n/a 69.5 88.2 97.2 87.4 84.6 113.3 97.1

104.4 n/a 73.3 90.2 105.0 86.4 87.4 115.1 94.1

101.9 n/a 66.5 87.3 99.5 86.9 84.7 110.3 92.0

99.1 n/a 54.2 82.6 95.2 82.8 79.2 103.4 90.7

100.1 n/a 56.2 79.7 94.0 82 77.7 106.8 90.8

110.9 n/a

102.2 n/a 46.2 84.0 n/a n/a n/a n/a n/a

NAFTA REGION Mexico

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

50.2

86.3 n/a n/a n/a n/a n/a

SOURCE: ECLAC 2020 Economic Survey of Latin America and the Caribbean

72 | P a g e

Table 5

NET FOREIGN DIRECT INVESTMENT (Billions of Dollars) 2010 2011 2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021f

8.3

12.9

12.3

-1.0

33.7

24.6

25.1

29.8

28.8

26.4

23.3

11.7

18.17

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

0.4 4.5 0.3 6.0 -3.6

0.7 0.9 0.2 8.0 -0.9

0.9 6.2 0.6 7.3 6.1

1.1 15.6 0.6 11.9 1.7

1.8 8.6 0.7 9.3 1.9

0.7 12.3 0.8 2.8 -3.4

0.6 7.5 1.3 8.1 0.4

0.2 9.3 0.8 5.6 0.0

0.6 10.1 0.6 6.4 -2.3

344.0 6.2 1.4 6.5 0.2

n/a 11.09 1.0 8.0 0.3

n/a 8.26 0.6 2.7 0.5

n/a 9.26 0.76 6.39 0.5

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

3.3 36.0 6.6 0.1 1.5

10.4 55.6 6.6 0.5 2.3

9.4 86.4 3.9 0.6 2.5

14.3 90.5 9.7 0.7 2.2

8.9 59.6 10.9 0.2 2.8

3.1 67.1 10.9 0.4 2.5

10.9 57.2 5.1 0.3 0.8

1.5 58.7 5.1 0.4 -1.1

10.4 50.9 0.7 0.5 -2.2

10.1 74.3 4.1 0.5 -0.6

5.12 47.4 3.5 n/a n/a

2.63 68.8 0.8 n/a n/a

5.52 57.81 1.6 n/a n/a

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

1.3 n/a 2.2 0.4 0.6 0.1 0.5 0.5 1.3

1.6 n/a 2.0 -0.2 0.8 0.2 1.0 0.5 2.4

2.3 n/a 2.3 0.2 1.0 0.1 1.0 0.9 3.0

1.8 n/a 3.1 0.5 1.2 0.2 0.9 0.7 3.3

2.4 n/a 2.0 0.2 1.3 0.2 1.0 0.7 3.6

2.8 n/a 2.2 0.3 1.3 0.1 1.3 0.8 4.1

2.5 n/a 2.2 0.4 1.1 0.1 1.0 0.9 4.0

2.1 n/a 2.4 0.3 1.1 0.1 0.9 0.8 4.7

2.6 n/a 3.6 0.9 1.0 0.4 1.0 0.7 4.6

2.1 n/a 2.5 0.8 0.8 0.1 1.1 0.3 5.4

2.5 0.8 3.0 -0.1 n/a n/a n/a n/a n/a

1.66 0.6 1.47 0.0 n/a n/a n/a n/a n/a

2.01 0.7 2.45 -0.1 n/a n/a n/a n/a n/a

NAFTA REGION Mexico

2009

SOURCE:

ECLAC 2020 Economic Survey of Latin America and the Caribbean

73 | P a g e

Table 6

TOTAL GROSS EXTERNAL DEBT ¹ 2010

(Millions of Dollars) 2011 2012 2013

2014

2015

2016

2017

246

292

349

406

442

427

423

442

2019¹ 2020e 2021f *total external debt stock 453 470 482 503

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezeula

6 64 15 45 117

6 76 16 62 136

7 79 16 64 152

8 93 19 68 155

9 105 25 68 162

10 115 28 67 161

11 122 35 70 153

13 127 41 68 149

13 135 45 67 155

14 139 51 64 168

16 149 57 72 170

18 153 59 78 173

BRAZIL & SOUTHERN CONE Argentina Brazil

127 352

143 404

140 441

150 484

153 557

177 543

189 543

236 543

281 558

279 569

267 555

280 572

Chile 2 Paraguay

87 16

101 16

123 16

136 16

152 16

161 16

167 16

182 16

184 16

198 16

221 19

224 20

Uruguay2

18.4

18.3

36.1

37.8

40.9

43.3

40.0

41.2

42

43

44

46

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba3 Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

8.2 29.0 13.5 11.5 15.0 1.0 4.0 7.0 -

10.3 30.0 15.1 12.7 16.3 0.8 4.4 -

14.3 29.0 22.1 13.5 15.4 1.2 5.1 -

17.1 29.0 24.0 14.1 17.5 1.6 6.8 -

19.7 30.0 26.3 15.2 19.5 2.0 7.3 -

23.6 30.0 26.7 15.6 20.4 2.1 7.6 -

25.6 30.0 28.3 16.6 21.5 2.2 7.6 89.0

25.6 30.0 31.2 17.2 23.0 2.2 8.8 92.0

28 30 34 17 22 2 10

30 29 36 17 27

32 29 41 19 30

34 28 44 19 33

10 12 102

12 12 99

13 13 112

NAFTA REGION Mexico

2018

98

SOURCE:

World Bank International Debt Statistics 2020; Forecasts are from the University of Florida. 1 Includes public and private debt, long-term and short-term debt, and debt to IMF; 2 ECLAC; 3 Economist Intelligence Unit.

74 | P a g e

Table 7

TOTAL GROSS EXTERNAL DEBT TO EXPORTS (in percent)

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021f

71.2

73.2

83.2

94.1

97.7

97.9

97.3

92.3

86.1

86.5

100.1

92.9

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezeula

80 125 69 109 165

66 108 59 99 138

53 104 56 84 149

62 123 63 111 165

63 145 79 122 204

99 206 118 139 399

132 233 158 152 557

135 212 166 147 459

126 199 161 118 469

147 210 175 109 1,002

246 298 216 106 2,363

230 269 197 143 1,918

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

150 139 99 144 165

141 127 99 118 136

144 150 126 130 222

162 164 142 110 194

181 203 164 119 214

243 237 207 138 266

254 233 216 128 253

301 195 212 113 224

338 192 200 111 245

324 197 228 122 259

389 206 247 165 381

358 198 221 160 433

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

61 172 82 136 135 91 55 207 267

69 148 81 133 124 57 49 189 245

89 136 113 134 118 83 53 188 226

103 136 116 134 133 97 77 208 258

113 143 119 140 136 116 78 188 281

131 166 119 138 144 116 80 203 347

131 173 118 143 154 134 82 206 343

126 165 123 139 157 133 87 189 365

131 158 125 133 156 113 96 196 360

133 175 130 130 193 155 98 194 342

162 209 206 157 311 193 164 182 721

158 194 185 153 326 171 199 700

NAFTA Mexico

SOURCE: World Bank International Debt Statistics 2020; University of Florida forecasts.

75 | P a g e

Table 8

NONFINANCIAL PUBLIC DEBT AS PERCENTAGE OF GDP 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020e 1

2021f3

42.0

42.9

42.7

45.9

48.9

52.8

56.8

54.1

53.6

47.1

58.3

57.5

ANDEAN SOUTH AMERICA Bolivia

37.6

35.3

35.4

36.1

37.6

40.9

46.5

51.3

53.9

56.3

70.9

74.1

Colombia

36.6

35.8

34.0

37.6

43.3

50.4

49.8

49.5

52.2

54.4

73.7

72.9

Ecuador

17.7

16.8

17.5

20.0

27.1

33.8

43.2

44.6

45.8

53.4

65.5

69.1

25.3

23.0

21.2

20.0

20.6

24.1

24.5

25.4

26.2

26.8

36.2

39.2

Venezuela

29.0

25.1

27.5

32.9

28.5

31.7

31.1

35.5

38.3

266.5

585.8

463.6

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

43.5 63.1 8.6 12.0 44.3

38.9 61.2 11.1 10.2 44.7

40.4 62.2 11.9 12.5 54.1

43.5 60.2 12.7 13.2 54.3

44.7 62.3 15.0 15.6 55.5

52.6 72.6 17.3 18.6 62.9

53.1 78.3 21.0 19.4 61.4

57.1 84.1 23.5 19.8 60.7

86.1 87.9 25.6 21.5 63.5

90.2 75.8 27.9 23.7 73.7

112.5 96.1 35.7 30.8 88.5

116 97.9 40.1 31.3 88.8

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba3 Dominican Republic El Salvador Guatemala Haiti 3 Honduras Nicaragua Panama

28.3 41.7 37.3 57.7 24.1 7.2 23.6 30.3 39.5

29.8 42.6 39.1 57.0 23.7 11.8 25.2 28.8 36.9

34.2 39.8 42.3 61.5 24.3 16.1 29.8 27.9 35.3

35.8 37.8 46.7 60.9 24.6 21.5 37.7 28.8 34.4

38.4 37.1 44.9 63.0 24.3 26.3 37.5 28.7 36.5

40.9 34.8 44.7 64.3 24.2 30.3 37.4 28.9 37.4

44.9 32.7 46.6 65.5 24.0 33.7 38.4 30.9 37.3

48.6 30.9 48.9 67.3 23.8 31.0 39.2 33.9 37.5

53.5 29.9 50.5 67.1 24.7 33.3 40.2 37.2 39.5

73.9 51.9 52.2 73.3 34.6 36.5 51.4 56.6 46.8

86.6 59.3 61.7 92.2 40.7 36.5 55.3 66.5 65.0

92.8 59 63 94.1 41.5 58.5 71.8 68.2

NAFTA REGION Mexico

Peru 2

SOURCES: IMF unless otherwise noted.

1UF forecasts, except for Cuba and Haiti.

2ECLAC. In default as of 2017 3Economist Intelligence Unit.

76 | P a g e

Table 9

FISCAL BALANCE

(as percentage of GDP) Primary Balance

Overall Balance

2015

2016

2017

2018

2019

2020

-1.2

-0.1

1.4

0.6

1.1

0.1

ANDEAN SOUTH AMERICA Bolivia2 Colombia Ecuador Peru Venezuela

-3.6 -1.2 -4.6 -0.9 -18.3

-2.8 0.2 -5.8 -1.3 -23.2

-4.4 -0.1 -2.3 -1.8 -19.0

-5.2 -0.1 -0.7 -1.0 -21.5

-6.6 0.1 -0.1 -0.2 -8.3

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

-2.7 0.2 -1.5 -0.9 -0.5

-4.2 -1.5 -2.0 -0.5 -1.0

-3.8 -2.6 -2.0 -0.5 -0.3

-2.3 -1.1 -0.8 -0.6 0.7

CENTRAL AMERICA & THE CARIBBEAN 3 Costa Rica Cuba4 Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

-3.0 n/a 2.3 -0.9 -0.1 0.3 -0.5 0.3 -2.0

-2.4 n/a -0.6 -0.2 0.4 0.9 -0.3 0.4 -2.1

-3.0 n/a -0.5 0.7 0.1 0.7 0.0 0.5 -1.4

-2.3 n/a 0.4 0.9 -0.3 -2.4 0.9 -0.9 -1.1

NAFTA Mexico

2021f

2015

2016

2017

2018

2019e

2020

2021f

-0.4

-2.2

-2.8

-2.5

-2.6

-2.3

-3.1

-3.4

-6.0 -4.4 -6.3 -24.2

-2.5 -1.4 -4.9 -18.8

-4.5 -3.4 -6.0 -1.9 -20.4

-3.4 -2.3 -7.3 -2.3 -24.3

-5.0 -2.7 -4.5 -3.0 -20.1

-5.2 -2.6 -3.1 -2.3 -23.3

-5.3 -2.4 -2.8 -1.6 -28.0

-8.8 -7.0 -8.0 -24.2

-5.4 -3.0 -6.4 -18.8

-0.4 -0.8 -2.1 -0.6 0.3

-6.6 -11.6 -7.2

-4.0 -3.2 -5.7

-4.7 -8.3 -2.1 -1.3 -2.8

-5.8 -7.5 -2.7 -1.1 -3.7

-5.9 -8.9 -2.8 -1.1 -3.0

-5.0 -6.8 -1.7 -1.3 -2.0

-3.8 -5.8 -2.8 -1.7 -2.7

-8.6 -15.8 -7.9

-5.4 -7.3 -6.9

-2.7 n/a 0.6 0.6 -1.0 n/a 1.4 -0.9 -0.2

-3.9 n/a -5.0 -5.8

-2.1 n/a -1.7 -3.5

-5.7 -6.0 0.0 -3.6 -1.5 0.1 -3.1 -0.6 -2.3

-5.2 -6.8 -3.1 -3.1 -1.1 0.6 -2.8 -0.6 -1.8

-6.1 -8.5 -3.1 -2.5 -1.3 0.4 -2.8 -0.6 -1.9

-5.8 -8.3 -2.2 -2.7 -1.8 -2.7 -2.7 -2.0 -2.9

-6.9 -6.3 -2.2 -3.1 -2.1 -4.6 -2.6 1.1 -1.7

-9.4 -9.5 -7.9 -10.1

-8.0 -5.5 -4.5 -8.0

SOURCES: ECLAC. Figures are for nonfinancial public sector unless otherwise noted.

2IMF

3 4

forecast

Central government balance Public sector balance

77 | P a g e

Table 10

CURRENCY & EXCHANGE RATES Currency 1

Exchange Regime 2 Exchange Rate Arrangement Exchange Rate Anchor

NAFTA REGION Mexico

Peso

Free floating

Inflation target

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezeula

Boliviano Peso US Dollar Sol Bolívar

Stabilized arrangement Floating No separate legal tender Floating Other managed arrangement

Monetary aggregate target Inflation target U.S. Dollar Inflation target U.S. Dollar

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

Peso Real Peso Guaraní Peso

Floating Floating Floating Floating Floating

Crawl-like arrangement Dual exchange rate Crawl-like arrangement No separate legal tender Floating Managed arrangement Crawling peg Crawling peg No separate legal tender

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Colón Cuba4 Cuban Peso - CUC Dominican Republic Peso El Salvador US Dollar Guatemala Quetzal Haiti 4 Gourde Honduras Lempira Nicaragua Córdoba Panama Balboa

Dollar Exchange Rates Dec-19

Dec-20

2021f

% Change 19/20

% Change 20/21

18.88

20.1

20.8

-6.1%

-3.4%

6.91 3,282 USD 3.31 46,563

6.91 3,438 USD 3.59 1,176,046

6.91 3,720 USD 3.70 8,861,119

0.0% -4.5% 0.0% -7.8% -96.0%

0.0% -7.6% 0.0% -3.0% -86.7%

Other Inflation target Inflation target Inflation target Inflation target

59.87 4.02 752.0 6,474 37.1

81.5 5.20 750.0 7,029 42.4

112.19 5.10 761.0 7,118 43.0

-26.5% -22.6% 0.3% -7.9% -12.5%

-27.4% 2.0% -1.4% -1.3% -1.4%

Other U.S. Dollar Inflation target U.S. Dollar Inflation target Other U.S. Dollar U.S. Dollar U.S. Dollar

573 1.00 53.26 USD 7.70 96.90 24.64 33.83 USD

604 1.00 58.2 USD 7.82 66.90 24.22 34.9 USD

607 1.00 59.7 USD 7.70 85.00 24.00 35.80 USD

-5.2% 0.0% -8.5% 0.0% -1.5% 44.8% 1.7% -3.1% 0.0%

-0.5% 0.0% -2.5% 0.0% 1.6% -21.3% 0.9% -2.5% 0.0%

SOURCE: 1 The Economist Intelligence Unit 2 IMF 2017 Annual Report on Exchange Arrangements and Exchange Restrictions 3 Consensus Economics, Inc. forecasts. Interpolated from forecasts for Jan 2021.

4Economist Intelligence Unit forecasts.

78 | P a g e

Table 11

COUNTRY RISK

NAFTA REGION Mexico

Country Risk S&P Rating Outlook

Mean Score

Institutional

Assessment Scores Economic External

Budget

Debt

Monetary

BBB

Stable

3.3

3

5

2

3

4

3

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezeula

B+ BBBBBBB+ SD

Stable Negative Stable Stable NM

3.9 4.3 3.8 5.7 2.8 6.0

4.3 5 3 6 3 6

4.5 5 4 5 4 6

4.3 4 6 6▼ 3 6

3.7 6 3 5▼ 2 6

2.7 2 4 4▼ 2 6

4.0 4 3 6 3 6

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

CCC+ BBA+ BB BBB

Stable Stable Negative Stable Stable

3.9 5.6 4.3 2.5 3.8 3.7

4.0 6 4 2 5 3

4.4 5 5 4 5 3

3.5 6 2▲ 4 2 2

4.0 6 6▼ 2 3 5

3.6 5 5 1 3 4

3.8 6▼ 3 2 5 5

Negative NR Negative Stable Stable NR Stable Stable Stable

4.5 4.8 n/a 4.4 5.3 4.2 n/a 4.2 5.2 3.4

4.4 4 n/a 5 5 4 n/a 5 5 3

4.4 4

4.4 5

4.6 6

4.6 6

4.7 4

3 5 6

5 5 3

5 5 4

6▼ 6 4

4 6 4

5 6 2

2 6 5

5 5 2

4 3 4▼

4 6 5

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama

B NR BBBBBNR BBBBBB

Notes: Scores from 1 to 6 (1 = best); * = Excl. Venezuela; ▼Deterioration since June 2020; ▲Improvement since June 2020; SD=selective default; NM=not meaningful.

SOURCE: Standard and Poor’s Global Ratings 2020.

79 | P a g e

Table 12

LEGAL ENVIRONMENT

Rank 2019

Corruption Perception² Rank 2020

Economic Freedom³ Rank 2019

89 27↓

25↓ 124↑

17↓ 67↓

82↑ 58

3 55

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

11↑ 38 30↑ 33 0

124 92↑ 92↑ 94↑ 176↓

175↓ 45↑ 158↑ 51↓ 179

20 61↑ 40↑ 55 10↑

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

37↓ 48↑ 83 31↓ 75↑

78↓ 94↑ 25↑ 137 21

149↓ 144↑ 15↑ 80↑ 40↑

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama Puerto Rico

70↑ 43↑ 42↑ 24↑ 14↑ 17↑ 15↓ 10↓ 50↓ 72↓

42↑ 63↓ 137 104↑ 149↓ 170↓ 157↓ 159↑ 111↓ n/a

ASIA China (for comparison)

45↓

78↑

Rule of Law¹ NAFTA United States (for comparison) Mexico

Property Global Rights⁴ Innovation⁵ Percentile Rank Rank 2020

Rank 2020

Civil Liberties8 Score

n/a 27

25 72

8.5 5.9

105 68 99 76 n/a

n/a 24.3 7.7 8.3 45.6

94 46 69 57 143

5.9 7.9 6.5 7.4 2.7

51↓ 57 70↑ 45↑ 68↓

80 62 54 97 69

4.6 19.3 3.7 6.6 9.3

48 49 17 67 15

7.9 7.9 8.8 7.1 9.7

68↓ 178 95↓ 90↓ 73↑ 153↓ 93 115↓ 55↓ n/a

67↑ 20↓ 56↑ 42↑ 46↑ 16↑ 49↑ 34 59 n/a

56 n/a 90 92 106 n/a 103 109↓ 73 n/a

11.2 n/a 9 19.7 15.3 13 37.6 3.5 11.6 16.5

18 140 63 77 97 106 88 120 40 n/a

9.7 2.9 7.1 6.2 5.9 5.6 5.9 4.1 7.7 n/a

103↓

61↑

14

n/a

151

Homicide Rate⁶ 2020

Democracy7

80 | P a g e 1.2

Table 12 – Sources SOURCE & NOTES

↑↓ Up or down indicate, respectively, an improvement or a worsening of the environment from that reported in the 2020 LABER. The absence of an arrow indicates "no change" from the previous year.

1 As measured by the World Bank's Governance Indicators: 1966-2019 <www.worldbank.org>. The percentages measure the extent to which agents have confidence in and abide by the rules of society, including perceptions of the incidence of crime, the effectiveness and predictability of the judiciary, and the enforceability of contracts 2 As measured by Transparency International, Corruption Perceptions Index 2020 <www.transparency.org>. Focuses on corruption in the public sector and defines corruption as the abuse of public office for private gain. The scores used in the index range from 10 (country perceived as virtually corruption-free) to almost 0 (country perceived as almost totally corrupt). The country ranks measure the corruption level in 180 countries as perceived by business people, risk analysts, investigative journalists and the general public.

3 As measured by the Heritage Foundation's 2019 Index of Economic Freedom. Scores are based on a 1 to 100 scale, 1 being an economic environment that is least conducive to economic freedom, 100 being the most conducive. Countries are also ranked in order of economic freedom, 1 being the most free.

4 As measured by the Heritage Foundation's 2019 Index of Economic Freedom. The percentages measure the degree to which a country’s laws protect private property rights and the degree to which its government enforces those laws. I00% indicates that private property is guaranteed by the government, 0% indicates that private property is outlawed.

5 As measured by the Global Innovation Index 2020, produced by the World Intellectual Property Organization <http://www.wipo.int>. This ranking is based on a total of 131 countries and is determined by measuring two sub-indices of Innovation Input (consisting of 5 pillars addressing institutions, human capital, infrastructure, market sophistication, and business sophistication) and Innovation Output (consisting of 2 pillars addressing knowledge/technology and creative outputs).

6 Insight Crime, 2021. Homicide rates per 100,000 inhabitants 2020.

7 Economist Intelligence Unit 2021, Democracy Index 2020.

8 As measured by EIU, Democracy Index 2020. Examines degree to which civil liberties are respected in a country, including freedom of speech and press, freedom of protest, restrictions on print or internet media, freedom of religion, freedom to petition government, independence of judiciary, use of torture, protection of private property, basic security, and citizen perceptions of whether government protects these freedoms.

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Table 13 SOCIAL ENVIRONMENT Population¹ (Millions)

Avg. Pop. Growth¹ %

Literacy Rate¹ (% age 15+)

GDP Per Capita² (PPP $US)

GDP (P/C) Growth %³

Income Inequality⁴ (GINI Index)

HDI Unemployment Population (World Rank)⁵ Rate 2017⁷ in Poverty⁶ % 2020 %

Internet Penetration⁸

NAFTA REGION Mexico

126

1.09

94.9

18,273

0.7

51.8

74

11.7

3.4

59.5

ANDEAN SOUTH AMERICA Bolivia Colombia Ecuador Peru Venezuela

11.3 48.2 16.5 31.3 31.7

1.48 0.97 1.25 0.94 1.21

92.5 94.7 94.4 94.2 97.1

7,560 14,473 11,587 13,434 n/a

2.6 0.9 1.5 1.3 n/a

47.3 52.5 47.6 44.7 38.1

107 83 86 79 113

13.5 13.5 10.4 9.0 33.1

4.0 9.3 4.6 7.7 21.2

39.7 58.1 54.1 45.5 60.0

BRAZIL & SOUTHERN CONE Argentina Brazil Chile Paraguay Uruguay

44.7 208.8 17.9 7.0 3.4

0.89 0.71 0.75 1.17 0.27

99.1 92.0 96.9 94.7 98.6

20,785 15,484 24,635 13,082 22,562

1.9 0.2 0.7 3.5 2.3

42.1 51.7 48.2 49.3 42.6

46 84 43 103 55

4.5 9.2 2.9 8.8 1.9

8.4 12.8 6.7 5.7 7.4

70.2 59.7 66.0 51.3 66.4

5.0 11.1 10.3 6.2 16.6 10.8 9.2 6.1 3.8 3.3

1.13 -0.27 0.99 0.25 1.72 1.31 1.56 0.97 1.24 -1.70

97.8 99.8 93.8 88.1 81.5 60.7 89.0 82.8 95.0 93.3

17,074 12,355 16,030 8,006 8,150 1,815 4,986 5,842 24,469 38,867

2.2 n/a 3.4 1.9 0.9 -0.1 3.3 3.7 3.7 n/a

50.6 n/a 47.7 42.6 50.6 n/a 52.5 51.5 50.2 n/a

62 70 88 124 127 170 132 128 57 n/a

4.5 n/a 9.4 10 36.9 n/a 36.5 16.1 7.5 n/a

8.1 n/a 5.4 6.9 n/a n/a 5.6 6.1 6.0 12.5

66.0 38.8 61.3 29.0 34.5 12.2 30.0 24.6 54.0 80.3

CENTRAL AMERICA & THE CARIBBEAN Costa Rica Cuba Dominican Republic El Salvador Guatemala Haiti Honduras Nicaragua Panama Puerto Rico

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Table 13 - Sources SOURCE & NOTES 1 The CIA World Factbook, February 2019: For Literacy Rate, Data refer to percentage of population aged 15 or older who can, with understanding, both read and write a short simple statement on their everyday life 2 World Bank, February 2019: GDP per capita (Purchasing Power Parity in $U.S.). 1 PPP dollar has the same purchasing power in the domestic economy as 1 U.S. dollar has in the U.S. economy.

3 CEPAL, Economic Survey of Latin American & the Caribbean 2018.

4 IMF Regional Economic Outlook, May 2018: The Gini index measures inequality over the entire distribution of income or consumption.

A value of 0 represents perfect equality, and a value of 100 perfect inequality 5 UNDP, Human Development Statistical Update 2020:The Human Development Index (HDI) measures a country's achievements in three aspects of human development: longevity (life expectancy at birth), knowledge (combination of literacy rate and enrollment ratio), and a decent standard of living (GDP per capita - PPP in $U.S.). HDI rank is based on a total of 169 countries.

6 IMF Regional Economic Outlook, May 2018.

7 IMF Regional Economic Outlook, May 2018.

8 CIA World Factbook, February 2019: Data refer to number of users who access the internet.

9 Economist Intelligence Unit, February 2019

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