LatAm Weekly – Sept 30 – Oct 4

Brazil – The Senate strikes back The Senate was not supposed to significantly alter the pension bill. In fact, this pension bill was supposed to be on the road to approval by this time. Instead, the savings in the bill (approved by the House) were watered down by the senate to BR$800 bn over 10-years (down from BR$870 bn). While these changes were unexpected, their true cost is more political than fiscal. Savings of BR$800 bn are way more than consensus estimates of between BR$500-700 bn mentioned at the beginning of the approval process in the House. Chile – another strong economic release…BCCh might be unable to cut 50 bps Chile’s monthly-GDP proxy, the Economic Activity index, surpassed market expectations for August expanding at a strong 3.7% YoY growth rate (versus the market’s 2.6% expectation). In fact, the index, excluding mining, reported a healthy 3.5% YoY rebound. he camara market was pricing-in a rate cut of 50 bps. However, this seeming improved economy will make it difficult for the BCCh to lower the policy rate by an additional 50 bps on top of the 100 bps of cuts delivered this year. We had penciled-in a 25 bp rate cut by the October 23rd meeting, but even a cut of this size seems too aggressive given the improvement in key economic indicators. Colombia – Could authorities intervene? Considering roller-coaster US equities markets and the drop in oil prices, the COP has been resilient. LatAm FX depreciation has come as the risk of US economic weakness increases. In risk-off periods, global investors tend to punish the COP because of Colombia’s wide current account deficit (currently above 4.0% of GDP). However, the fiscal front is a concern, particularly as the finance ministry fails to give more details on the sale of stock needed to make the 2020 fiscal deficit (2.2% of GDP) credible. Peru – The current situation, how we got here, what is next, impact to markets Current situation: Last week President Martín Vizcarra dissolved congress because the later insisted on questionably electing a member to the Constitutional Tribunal. Vizcarra also called for new congressional elections. After congress was dissolved, congress voted to suspend Vizcarra for one year while VP Mercedes Araoz resigned days after she was sworn in as President .