Latin Finance - September/October 2009 - 54

Andean Colombia/Ecuador opposition to Colombia’s impending deal with the US to use military installations in the country. It has served as a pretext for Venezuela’s president Hugo Chávez to curb diplomatic ties and ask his countrymen to wean themselves from Colombian goods. Venezuela accounts for around 18% of Colombia’s exports. Last year Colombia exported $6.1 billion to Venezuela, despite problems, and exports in the first five months of this year were $2.2 billion, just 1% below the same period of 2008. Venezuelan exports to Colombia are negligible, hitting just $260 million through May 2009. Analysts are divided about the Chávez threat. Grisanti says it could limit currency access to importers bringing in goods from Colombia, forcing them to use the parallel rate. “This would be like applying a 300% tariff. It is risky, because limiting imports from Colombia could add to inflation by increasing the cost of goods,” he says. It is precisely this aspect that has other analysts maintaining that Chávez will stop at limiting diplomatic ties. In a July report on Colombia-Venezuela relations, Bulltick’s Alberto Bernal forecast that trade would not fall. “Venezuela will not be able to find an alternative supplier for products it desperately needs,” he says. Eduardo Checa, general manager of Ecuador’s Analytica Securities, agrees that Chávez’s posturing is “more rhetoric than reality.” But he adds that if Ecuador joins in, there could be a more serious impact on Colombia. Ecuador has imposed new safeguards on more than 1,300 Colombia products, arguing that devaluation of the Colombian peso made imports cheaper and was hurting Ecuadorian producers. The peso has been appreciating for some time, leading Checa to postulate that the reason is political and not commercial. Colombia exported $1.5 billion to Ecuador in 2008, while importing $740 million. Colombian exports to Ecuador were off by 4.5% in the first quarter, while imports from Ecuador were down 10.2%. “Venezuela and Ecuador represent around one-fifth of Colombia’s exports. Any move to limit imports would hurt Colombia’s economy,” Checa says. LF Spoiling for a Fight U nlike Peru and Colombia, Ecuador is writing the textbook on how not to attract investment. It hopes for money from China, Iran and Venezuela. Ecuadorian president Rafael Correa seems to enjoy a good fight, especially if it involves a foreign oil company. Since first winning office in 2006, changing the constitution and getting re-elected last year, Correa has taken on European and North American oil companies, most recently France’s Perenco. Odebrecht and Hutchinson Whampoa, a Chinese port operator, have also provoked presidential ire and subsequently left Ecuador. The bouts have come in the name of defending Ecuador’s economy and, according to the president, respecting the wishes of an Ecuadorian electorate that voted for socialism. Other high-profile moves in the same vein include defaulting on and buying back 2012 and 2030 global bonds, imposing tariffs and safeguards on imports, pulling out of free-trade negotiations with the US and Europe, and joining the Bolivarian Alternative for the Americas, a Venezuela-led response to globalized trade. Alberto Bernal, analyst at Bulltick, says there are too many warning bells not to be concerned. “It is no secret that the government has become increasingly antagonistic toward investors and there are no signs that this will change,” he says. Eduardo Checa, general manager of Quito-based Analytica Securities, says the latest fight with Perenco, which had operations nationalized July 16 after a long dispute over tax arrears, will prevent major European, US and even LatAm firms considering investment in Ecuador. He adds that the Ecuadorian government is not worried, because it is banking on investment from China, Iran and Venezuela. Interest from miners, particularly junior Canadian firms, is also promising, and Correa is actively courting them. “The government has severely limited its options and is relying on an increase in oil prices and inflows from friendly nations, but this has not happened,” says Checa. Friendly Funds Venezuela has been promising huge investment since Correa’s inauguration, but there is little evidence of it. The main plan is a $12 billion refinery and petrochemical complex in Manabi that would be owned 51% by Petroecuador and 49% by PDVSA. Iran has also offered to spend $1 billion on energy and other infrastructure. China, on the other hand, is solidifying its relationship. It signed a deal in late July to provide Ecuador with a $1 billion two-year loan in exchange for two years’ oil supply. The loan comes with a 7.25% interest rate, which Checa says is higher than what Ecuador could have obtained from multilaterals. The deal boils down to 96,000 barrels daily. The catch for the Chinese is that the oil cannot be re-exported to Ecuador’s local clients, Peru and Chile. “Basically, what you are seeing is a government that has decided to put ideology before the capacity to generate investment flows,” says Checa. “Ecuador is being governed by dogma.” The loan may only be a stop-gap solution to looming problems with cash flow. Ecuador’s exports in the first quarter year were $2.6 billion, down 43.2%, according to the Andean Community. Meanwhile, legislation passed at the end of July makes Correa chairman of the central bank and names the economic policy, finance and production ministers to the board. This renews fears that Ecuador could scrap the US dollar as its currency, causing further instability. --Lucien Chauvin 54 LatinFinance September/October 2009

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009

Latin Finance - September/October 2009
Contents
Investment Banking Survey
Who Said That?
OTPP Investment Strategy
Central Bank Scorecards
Brazil Liability Management
Real Estate Equity Resurrected
Structured Finance Forecasts
Grim Outlook. Reform Required
Banorte Seeks to Grow
Peru Spending Hits a Block
BCP Sees Better Days
Caribbean Investment Report
Sustainable Banking
Legal Services Survey
Parting Shot
Latin Finance - September/October 2009 - Latin Finance - September/October 2009
Latin Finance - September/October 2009 - Cover2
Latin Finance - September/October 2009 - Contents
Latin Finance - September/October 2009 - 2
Latin Finance - September/October 2009 - 3
Latin Finance - September/October 2009 - 4
Latin Finance - September/October 2009 - 5
Latin Finance - September/October 2009 - 6
Latin Finance - September/October 2009 - 7
Latin Finance - September/October 2009 - 8
Latin Finance - September/October 2009 - 9
Latin Finance - September/October 2009 - 10
Latin Finance - September/October 2009 - 11
Latin Finance - September/October 2009 - 12
Latin Finance - September/October 2009 - 13
Latin Finance - September/October 2009 - Investment Banking Survey
Latin Finance - September/October 2009 - Who Said That?
Latin Finance - September/October 2009 - 16
Latin Finance - September/October 2009 - 17
Latin Finance - September/October 2009 - 18
Latin Finance - September/October 2009 - 19
Latin Finance - September/October 2009 - 20
Latin Finance - September/October 2009 - 21
Latin Finance - September/October 2009 - 22
Latin Finance - September/October 2009 - OTPP Investment Strategy
Latin Finance - September/October 2009 - 24
Latin Finance - September/October 2009 - 25
Latin Finance - September/October 2009 - Central Bank Scorecards
Latin Finance - September/October 2009 - 27
Latin Finance - September/October 2009 - 28
Latin Finance - September/October 2009 - Brazil Liability Management
Latin Finance - September/October 2009 - Real Estate Equity Resurrected
Latin Finance - September/October 2009 - 31
Latin Finance - September/October 2009 - 32
Latin Finance - September/October 2009 - 33
Latin Finance - September/October 2009 - 34
Latin Finance - September/October 2009 - 35
Latin Finance - September/October 2009 - 36
Latin Finance - September/October 2009 - Structured Finance Forecasts
Latin Finance - September/October 2009 - 38
Latin Finance - September/October 2009 - Grim Outlook. Reform Required
Latin Finance - September/October 2009 - 40
Latin Finance - September/October 2009 - 41
Latin Finance - September/October 2009 - 42
Latin Finance - September/October 2009 - 43
Latin Finance - September/October 2009 - 44
Latin Finance - September/October 2009 - Banorte Seeks to Grow
Latin Finance - September/October 2009 - Peru Spending Hits a Block
Latin Finance - September/October 2009 - 47
Latin Finance - September/October 2009 - 48
Latin Finance - September/October 2009 - 49
Latin Finance - September/October 2009 - BCP Sees Better Days
Latin Finance - September/October 2009 - 51
Latin Finance - September/October 2009 - 52
Latin Finance - September/October 2009 - 53
Latin Finance - September/October 2009 - 54
Latin Finance - September/October 2009 - Caribbean Investment Report
Latin Finance - September/October 2009 - 56
Latin Finance - September/October 2009 - 57
Latin Finance - September/October 2009 - 58
Latin Finance - September/October 2009 - 59
Latin Finance - September/October 2009 - 60
Latin Finance - September/October 2009 - 61
Latin Finance - September/October 2009 - 62
Latin Finance - September/October 2009 - 63
Latin Finance - September/October 2009 - 64
Latin Finance - September/October 2009 - 65
Latin Finance - September/October 2009 - 66
Latin Finance - September/October 2009 - Sustainable Banking
Latin Finance - September/October 2009 - 68
Latin Finance - September/October 2009 - Legal Services Survey
Latin Finance - September/October 2009 - 70
Latin Finance - September/October 2009 - 71
Latin Finance - September/October 2009 - 72
Latin Finance - September/October 2009 - 73
Latin Finance - September/October 2009 - 74
Latin Finance - September/October 2009 - 75
Latin Finance - September/October 2009 - 76
Latin Finance - September/October 2009 - 77
Latin Finance - September/October 2009 - 78
Latin Finance - September/October 2009 - Parting Shot
Latin Finance - September/October 2009 - 80
Latin Finance - September/October 2009 - Cover3
Latin Finance - September/October 2009 - Cover4
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