Mexican President Pitches Frugal Economic Plan Against Coronavirus, Colombia’s Amazing Race to Build a $1,000 Ventilator, Chile Announces $2 Billion Fund to Benefit Informal Workers Amid Coronavirus Outbreak, and More from Latin America

Other featured stories include: Latin American Banks Rethink Share Buybacks, U.S. Firms Lobby to Continue Working in Mexico Despite COVID-19 Curbs, Ecuador Gives Glimpse Into Coronavirus’ Impact on Latin America, SoftBank to Invest $48 Million in Brazil Pet Products Site Petlove, and Rappi and Arcus Team Up to Create Payments App.

Mexican President Pitches Frugal Economic Plan Against Coronavirus

Last Sunday, President Andrés Manuel López Obrador unveiled his plan to lift the economy out of the coronavirus crisis, vowing to help the poor and create jobs. However, the President’s promise has provoked criticism that his plan falls short of what Mexico really needs.

López Obrador promised that Mexico would create 2 million new jobs in the next nine months, boost small business and housing loans, and vowed to tighten public sector austerity to avoid debt.

In response to the COVID-19 outbreak, governments around the world have announced unprecedented spending pledges to minimize damage to their economies, including a $2 trillion package by Mexico’s top trading partner, the United States.

As reported by The New York Times, Mexico’s leftist leader’s focus is on measures for the “most vulnerable”. The Mexican President said he would use a budget stabilization fund and cash from public trusts to fund plans to shield the poor from a slump.

“This crisis is temporary, transitory…Normality will return soon. We will defeat the coronavirus, we will reactivate the economy,” López Obrador said in a televised speech.

Last week, Lopez Obrador said about $10 billion was available from various rainy day funds, while the finance ministry said "buffers” for the economy included a stabilization fund of about $6.6 billion available from the end of 2019 (Reuters).

AMLO’s speech coincided with growing calls for his government to emulate the United States and European nations with a major stimulus package to fight the recession.

“The mechanisms that AMLO is thinking about are going to be completely insufficient to deal with this type of recession,” said Viri Rios, a Mexican political analyst.

Last week, López Obrador’s former finance minister, Carlos Urzúa, called for Mexico to run a bigger deficit, stating it was “obvious” national governments should significantly increase public deficits in the crisis.

The Mexican government’s latest estimate projects the economy could contract by up to 3.9% in 2020. Lopez Obrador has said he does not agree, however, and instead calls for more optimism on the economy, which was already contracting last year.

Without unprecedented measures, there could be “an economic depression and a deepening of poverty not seen in Mexico in many decades,” a group of economists, policymakers and politicians told Lopez Obrador in a letter urging quick government action (The New York Times).

One signatory, Rolando Cordera, a left-leaning economist at the National Autonomous University of Mexico (UNAM), applauded AMLO’s commitment to helping the poor, but said his initial response to the plan was disappointing.

According to The New York Times, Cordera remains sceptical of how a struggling economy would generate hundreds of thousands of new jobs while the government stuck to its budget goals, and felt not enough was being done to protect workers and companies against a potentially huge blow.

“I didn’t see anything that would allow me to conclude that a change was starting to take shape in the vision and focus of current economic policy,” he told Reuters.

Colombia’s Amazing Race to Build a $1,000 Ventilator

Over the second weekend in March, Mauricio Toro, a mechanical engineer and CEO of Techfit, the Florida branch of a Colombian-owned company that 3D-prints surgical devices, saw a tweet from Singularity University that read, “Wouldn’t it be great to create an open-source ventilator?”

Colombia’s population of 50 million people, including 2 million recently absorbed Venezuelan refugees, was likely to suffer badly from the coronavirus outbreak, as the nation’s public health care system was fragile, and ventilators were in short supply.

With every country in the world bidding for the lifesaving machines to provide oxygen to patients in extreme respiratory distress, Colombia- like the rest of the developing world- was likely to be priced out of the international market.

“These are economies with preexisting conditions. It is very hard for them to get medical equipment,” said Luis Alberto Moreno, president of the Inter-American Development Bank (Vanity Fair).

Toro knew that MIT had posted open-source specs for a ventilator back in 2010, and that his home country of Colombia was in dire trouble. He went directly to WhatsApp, where he proposed the bold project to a group of his colleagues at Techfit’s Medellín headquarters of building an open-source ventilator for Colombia. From there, the effort took on a life of its own. Within the next 24 hours, over 60 people joined the chat, volunteering to help.

The group rapidly expanded beyond Colombia’s tech and biomedical communities to include university faculty, doctors from private labs, and financiers. The majority of these individuals were recruited by Ruta N, the Medellín mayor’s office for tech innovation. Founded in 2009 with the goal of turning Medellín into the Latin American Silicon Valley, Ruta N built a fundraising platform to finance the research.

Ruta N’s involvement in the project signaled that Colombia’s government and ruling oligarchy were behind it, and the “paisas”- the colloquial term for the inhabitants of Colombia’s largest state, Antioquia, and its capital, Medellín- wanted this done. The paisas are the business leaders of Colombia, and decided that their country’s response to the coronavirus would not devolve into the scrambling chaos they had observed in the United States.

As reported by Vanity Fair, Colombia’s infection curve is already flatter than South Korea’s: a testament to the government’s decision to impose restrictions early.

Toro’s plans of building a ventilator also meant creating a supply chain for parts and inventing an entire production line from scratch. They enlisted the Colombian embassies in the U.S., Canada, India, China, and Japan for help sourcing parts that couldn’t be produced domestically.

In honor of the “unique ecosystem” that birthed the project, they branded their venture InnspiraMED—a mash-up of Spanish terms for “innovation,” “inspiration,” and “medicine.”

“It is from Medellín for the world… This effort means we can be recognized for something different than violence. We have changed in the last 20 years,” said Juan Andrés Vásquez, the head of Ruta N.

Invima, Colombia’s FDA, stepped in to ensure compliance with agency rules, but also to clear away unnecessary bureaucratic hurdles. Postobón, the country’s leading soft drink company, quickly donated more than $2 million, while Brinsa, the Morton Salt of Colombia, gave $250,000. Ruta N was only looking for $7 million to underwrite not only the ventilator project, but also an additional three COVID-19 initiatives: to ramp up testing, to develop apps and data tools, and to strengthen hospitals to protect doctors and patients.

Unlike full-feature ventilators (which can be used on both conscious and unconscious patients), the first generation of Colombian machines will work only on those under sedation. Such compromises are necessary, as these devices will hopefully be sold at $1,000 per unit, an enormous cost reduction from the $25,000 Governor Andrew Cuomo recently complained he was being forced to pay per device by the Chinese.

In just two days, Toro formed three ventilator dream teams: one led by his company, one headquartered in the University of Antioquia, and another in a private university, EIA (formerly the Antioquia School of Engineering).

“A little-known fact about Medellín is that it is an important medical and development start-up center… We don’t have any ventilator manufacturing, but we have a very well-trained faculty in mechanical ventilation,” Toro told Vanity Fair.

The three teams decided to build three different kinds of ventilators, in hopes of creating at least one would succeed. Meanwhile, new ways of making valves and gauges also had to be invented.

“Neither Colombia’s nor Medellín’s industries have ever made these components. It’s impressive,” Hernandez said.

Toro’s team is using his company’s expertise in 3D printing to create a simpler, lightweight “field ventilator” that can be transported to remote rural locations, which uses a tube adapted from the overhead oxygen masks on airplanes. The University of Antioquia’s ventilator will be produced by Auteco, the country’s largest motorcycle distributor, as well as a software developer.

Thus far, Toro has described his three-week experience designing the ventilator as “magical… For all the time I’ve been alive, Colombians haven’t been able to agree on anything. But right now we have all agreed we have to make mechanical ventilators,” he said.

iFood Merges with Delivery Hero’s to Challenge Rappi in Colombia

Latin America’s leading legacy food delivery company iFood and Delivery Hero-owned have merged in a bid to take on the food startup Rappi on its home turf.

As reported by Tech Crunch, the price of the transaction was undisclosed, but will result in iFood holding a 51% equity stake in the partnership, while Delivery Hero will hold the remaining 49%.

Domicilios, the Colombian online food ordering startup, raised $47.7 million before it exited to Berlin-headquartered Delivery Hero for an undisclosed price in 2014. Although iFood has operations in Colombia, Mexico and Brazil, it hasn’t achieved the same kind of market penetration outside of its home country— where it serves 147,000+ restaurants registered in more than 1,000 cities.

Photo Courtesy of TechCrunch

                                                   Photo Courtesy of TechCrunch

According to TechCrunch,

“iFood says the combined companies will have the largest geographic presence in Colombia, with more than 12,000 restaurants in more than 30 cities across the country. With the merger, iFood inches closer to overtaking the top-spot in the Colombian market, behind the Bogota-based billion-dollar-valued hometown hero, Rappi.”

Rappi has raised a total of $1.4 billion in funding over eight rounds- including a $1 billion investment from SoftBank in 2019, which marked the largest single investment into a Latin American startup. Despite these capital injections, Rappi was hit with a wave of layoffs in January 2020, cutting 6% of staff, amounting to roughly 300 employees.

Since its launch, Rappi has expanded its delivery portfolio to pharmaceuticals, banking services and furniture, in addition to its original groceries and restaurant delivery services.

TechCrunch reports that investors in the Latin American market speculate that Rappi is burning money as it battles UberEats and Didi (also both heavily backed by SoftBank).

iFood hopes the acquisition will boost business growth for restaurant and delivery partners in the region, in addition to generating more competitive delivery products and services for Colombians. Backed by Movile Group and Just Eat, a leading global hybrid marketplace for online food delivery, iFood prides itself on business intelligence and management solutions, iFood prides itself on business intelligence and management solutions.

“The coronavirus pandemic is expected to hit Brazilian retailers and restaurants hard, as zero-tech restaurants are forced to enable digital delivery to stay in business. In response, iFood announced a $9.8 million fund to help sustain restaurants within its network” (TechCrunch).

Chile Announces $2 Billion Fund to Benefit Informal Workers Amid Coronavirus Outbreak

On Wednesday, Chilean President Sebastián Piñera announced a fresh $2 billion fund to help support the country´s informal workers as the coronavirus outbreak continues to batter the South American nation’s economy.

Chile’s government had previously announced a nearly $12 billion stimulus package- worth nearly 5% of gross domestic product- aimed at saving jobs and protecting Chilean small businesses. These new measures announced by Piñera seek to aid those not covered by the previous package, signaling the deepening crisis in Chile. As reported by The New York Times, the country has already confirmed more than 5,000 cases of the novel coronavirus, among the highest in Latin America.

“Our commitment has been to ensure that this transitory crisis does not turn into a permanent one,” Piñera said in a televised address.

President Piñera said the latest set of “emergency measures” would benefit 2.6 million informal workers who lack unemployment coverage, as much in the informal sector- who depend on crowded streets to hawk their wares and services- had fallen through the cracks of previous aid announcements.

This second phase of stimulus also grants additional benefits to small businesses, including credit lines guaranteed by the state to help bridge the gap while most remain closed during the COVID-19 crisis.

Finance Minister Ignacio Briones, who spoke shortly after Piñera, said the new measures come with a daunting price tag, putting the country’s fiscal deficit at 8% of GDP.

“We have little margin to continue widening the deficit,” Briones said in a televised statement (The New York Times).

Briones also announced several new “belt-tightening measures” to help pay for the added stimulus, stating that the government would suspend all new contracts and salary increases and halt purchases of state vehicles and land.

Latin American Banks Rethink Share Buybacks

Latin American lenders are pausing share buyback and dividend payments, as regulators take steps to mitigate the potential economic fallout from COVID-19 in the region.

According to S&P Global Market Intelligence, as share prices plunged in the wake of the pandemic, highly liquid banks rushed to repurchase stock.

“Since mid-February, outflows from emerging equity markets have been double those seen in 2008. Brazilian equities have been among the hardest hit. In the last month, the 330 listed corporations in the local stock exchange lost roughly $570 billion dollars in market value, a 36.5% drop that wiped out three years of returns.”

Major financial players in Brazil like IRB-Brasil Resseguros SA, Cielo SA, B3 SA - Brasil Bolsa Balcão, in addition to midsize banks Banco Inter SA and Banco BMG SA have all announced new buyback operations in the first quarter.

In Mexico, Banco del Bajío Institución de Banca Múltiple, Grupo Financiero Inbursa SAB de CV and Banco Regional Institución de Banca Múltiple Banregio Grupo Financiero have been among the most active re-purchasers in recent weeks.

Faced with limited visibility on 2020 income flows, banks will likely scale back operations and go into capital preservation mode even with their prices at historical lows, analysts say (S&P Global Market Intelligence).

“It’s not the right time to use capital this way… The main challenge is to protect the cash position. I don’t see how, at this moment, a buyback could be an efficient way of allocating capital (since) they might need those resources in a potential prolonged crisis,” Carlos Daltozo, head equity analyst with Brazilian research firm Eleven Financial, said in an interview.

Some banks have already taken action. Mexico’s Grupo Financiero Banorte, On which announced it would purchase 1% of its outstanding stock on March 12, has put buybacks on hold. S&P Global Market Intelligence reports that it is also likely the bank will cut dividend payments as well, as others already have.

Elsewhere, Grupo de Inversiones Suramericana announced a three-year 300 billion Colombian pesos buyback program in February, but has yet to decide whether or not it will move forward with it. Banco Santander Chile halved its dividend payout ratio in order to increase the bank’s “capacity to support clients during the coronavirus crisis.”

Graphic Courtesy of S&P Global Market Intelligence

                                     Graphic Courtesy of S&P Global Market Intelligence

S&P Global Market Intelligence data shows Latin American banks are sufficiently capitalized to repurchase their shares if they wanted to, but an extensive crisis could leave lenders in a difficult spot. Analysts are expecting an across-the-board rise in delinquencies as borrowers’ income streams shrink amid the economic slowdown.

Regulators have warned banks to exercise caution. Mexican banking and securities regulator CNBV recommended banks suspend dividends, share buybacks and other payments. On April 6, Banco Central do Brasil capped dividend payments to minimum requirements and halted wage hikes for financial institutions until Sept. 30.

Another prominent question is the critical role banks play in keeping their local economies above water. Central banks in Latin America have recently put together stimulus packages to contain the economic damage of the crisis. In the majority of cases, assistance will be channeled through credit, leaving banks at the core of the strategy.

“The government is counting on private banks to carry economic stimulus resources to the end borrower,” Eleven Financial’s Daltozo said.

This assistance, however, will likely bring restrictions on certain capital management tactics along with it.

“We cannot rule out that many of the support programs being announced will come with restrictions on dividend policy and other measures of capital preservation,” Alejandro Garcia, a LatAm financial institution regional group head and managing director with Fitch Ratings, said.

U.S. Firms Lobby to Continue Working in Mexico Despite COVID-19 Curbs

U.S. business lobbies are pressuring Mexico’s government to label certain industries “essential” so that strict health emergency measures aimed at containing the spread of the coronavirus in Mexico don’t halt key operations on both sides of the border. Bound by a 26-year-old trade agreement, value chains and production lines in Mexico and the U.S. are deeply intertwined, and countless parts travel back and forth across the border.

“Essential activities in the United States are still operating, still producing and it’s important that this is standardized for American companies in Mexico so as to not break the value chains,” said Luis Foncerrada, chief economist at the American Chamber of Commerce (AmCham) in Mexico (Reuters).

In late March, Mexico declared a health emergency and issued stricter rules to contain the coronavirus pandemic, including extending the suspension of non-essential activities.

“We’re talking with (Mexican) authorities to explain and argue for the enormous importance of standardization approval … because if not, many production lines and value chains will be interrupted,” Foncerrada added.

As reported by Reuters, AmCham is leading the talks and is in close contact with the U.S. Embassy in Mexico and trade offices in Washington. The Motor & Equipment Manufacturers Association (MEMA), a lobby for U.S. auto parts suppliers, sent a letter to U.S. Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer expressing their “grave” concern about the “negative economic impact” the Mexican restrictions pose.

MEMA argues that production of car parts was not deemed an essential business activity in Mexico and there is no clear process for companies to address potential exclusions.

“Mexico’s action illuminates the need to hold three-party discussions, U.S., Canada, and Mexico, on how the North American motor vehicle and parts manufacturing industry will return to normal operations safely and effectively,” MEMA’s letter said.

Meanwhile, Mexico’s powerful CCE business lobby has asked the government to clear up which companies can, and which cannot, continue operating.

Jonas Murillo, head of Mexico’s canned food chamber, said that while food production is considered an essential activity and those operations will continue, there is concern about being able to produce cans to package that food.

“We’re taking the risk and continuing to produce and if they come and tell us to stop, our understanding is we’re part of the agro-food chain … It’d be easier if they had a list clearing up who can and can’t,” Murillo said.

Ecuador Gives Glimpse Into Coronavirus’ Impact on Latin America

In Guayaquil, Ecuador’s biggest city, a surge in deaths has overwhelmed health care and burial services. The majority of the country’s deaths have occurred in Guayaquil, a port city of three million residents, which became the first major metropolis in the region to see its public services break down.

The calamity that has ensued in Ecuador’s business capital offers an ominous look at how officials’ ability to respond to the coronavirus pandemic in Latin America can be dangerously crippled by inequality, weak public services, and fragile economies that mark much of the region.

“What we’re seeing in Guayaquil is what can happen in most of South America’s large cities, where pockets of cosmopolitan richness coexist with widespread poverty,” said Alexandra Moncada, who directs activities in Ecuador for the international aid organization CARE (The New York Times).

Ecuador, home to 17 million people, has one of the highest official rates of coronavirus infections, and deaths, per capita in Latin America.

According to The New York Times, it remains unclear why the country has been affected so deeply. Some experts believe the virus may have traveled along the country’s deep migratory links with Spain and Italy, then spread as Ecuador lagged in adopting social distancing measures.

Ecuador’s official coronavirus death count rose to 220 on Tuesday, the latest number available, with 182 other cases listed as “probable” but unconfirmed — higher than its larger and more populous neighbors Peru and Colombia. Ecuador’s president, Lenín Moreno, has warned that the real figure is much larger, but figures remain underreported because testing is limited.

Within days, the explosion of mortality overwhelmed the authorities. This surge in deaths in Guayaquil has exposed the pandemic’s potential impact on the poor in developing countries, where access to healthcare and other resources is faulty.

Residents say the price of potatoes, an Ecuadorian staple, has soared in Guayaquil in recent weeks. A dollar used to fetch five pounds of potatoes, but now it buys just one.

In effort to alleviate the economic pain, last week the government began paying informal workers a $60 monthly stipend to stay home: amounting to about a quarter of what an informal worker earns in a month (The New York Times).

The economic pressures faced by Guayaquil’s poor underscore the complex class dynamics pandemic’s ability to overwhelm capacity in Guayaquil so quickly can be seen as a warning sign for the region, said Jarbas Barbosa, assistant director of the World Health Organization’s Americas office.

“We believe everybody at some point will go through widespread community transmission” of the virus, Barbosa said.

Some of the first confirmed infections in Guayaquil were traced back to well-off Ecuadorean students who had been attending school in Spain who had returned back home to their families to escape the outbreak in Europe. According to local authorities, infections spread at high-society weddings last month.

By the time the virus found its way to the slums of Guayaquil, the dynamic had reversed. While affluent Ecuadoreans were able to stock up on provisions and retreat to their homes, residents of poor neighborhoods say many of their neighbors continue to work every day. As many manual workers were forced to defy the government’s stay-at-home orders to make ends meet, they faced an increased risk of contagion.

The New York Times reports that banks turned into high-risk areas once Ecuadoreans, many without bank accounts, showed up in large numbers to retrieve their $60 stipend in cash.

The crisis in Ecuador has been particularly difficult for the approximately 500,000 Venezuelans who have fled their country’s economic collapse. Unlike Ecuadoreans, they’re not eligible for the government’s stimulus payments. Although Ecuador (nominally) has universal health care, many Venezuelans will be the last in line for medical treatment.

SoftBank to Invest $48 Million in Brazil Pet Products Site Petlove

Japan’s SoftBank Group Corp. reached an agreement to invest $48 million in pet products online retailer Petlove, the companies said in a statement on Tuesday.

As reported by The New York Times, this investment will come from SoftBank’s Latin America fund, adding to previous venture capital investments from KasZek Ventures, Monashees and private equity firm Tarpon.

Petlove founder Marcio Waldman said in a statement the investment would help accelerate Petlove’s growth amid higher demand for online services during the social isolation period mandated by Brazilian authorities to limit the spread of the novel coronavirus.

Brazil’s pet market generated 24 billion reais (roughly $4.6 billion USD) in revenue last year, among the three largest in the world, according to Euromonitor data. Online sales represent only 3.8% of total sales of pet supplies in Brazil, whereas in the United States they exceed 18% said SoftBank partner Paulo Passoni in the statement.

Rappi and Arcus Team Up to Create Payments App

Arcus, a US-based fintech, has partnered with Rappi, an on-demand delivery startup, to create a payment app, RappiPay.

Powered by Arcus, RappiPay will offer consumers a way to manage their payments and personal financial health. Rappi users can pay their bills and manage their banking needs from home with RappiPay.

As reported by The Paypers, the mobile app allows consumers to configure recurring bills to be paid automatically, receive instant alerts, schedule payments and others. Backed by Arcus’ technology, RappiPay will enable its users to make payments by credit card, debit or cash.

According to the official press release, RappiPay should become one of the largest payment networks in the region due to the low level of fintech penetration in the market.

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