/raid1/www/Hosts/bankrupt/TCRLA_Public/180525.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, May 25, 2018, Vol. 19, No. 103
Headlines
B R A Z I L
BRAZIL: Truckers Strike Affects Supplies of Key Goods
BRAZIL: President Liquidates Country's Sovereign Wealth Fund
VISION BANCO: S&P Alters Outlook to Positive & Affirms 'B' ICR
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Haiti Ban Costs Plantain Dealers RD$100MM
G R E N A D A
GRENADA: Unemployment Remains at 23.6% in 2017
M E X I C O
GRUPO AEROMEXICO: Egan-Jones Lowers Sr. Unsec. Debt Ratings to BB-
PERFORADORA ORO NEGRO: Wins Chapter 15 recognition in New York
P E R U
PERU: Economic Growth Slowed More Recently, IMF Says
P U E R T O R I C O
RISE ENTERPRISES: Seeks Access to Cash Collateral Until May 31
SPANISH BROADCASTING: Delays Filing of First Quarter Form 10-Q
V E N E Z U E L A
VENEZUELA: Trump Prohibits Buying of Debts Owed to Country, PDVSA
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B R A Z I L
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BRAZIL: Truckers Strike Affects Supplies of Key Goods
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EFE News reports that Brazilian trucker unions extended their
strike to protest against high fuel prices into a third day,
affecting the supply of key products in several cities.
The strike continued in nearly all of Brazil's 27 states, despite
the fact that President Michel Temer's administration announced a
plan to reduce taxes on fuels to attempt to contain the rise in
prices, according to EFE News.
As reported in the Troubled Company Reporter-Latin America on May
24, 2018, Paulo Trevisani at The Wall Street Journal said that
truck drivers went on strike in Brazil against rising fuel prices
for the second day, threatening the country's sluggish recovery
and pushing its cash-strapped government into a corner.
Truckers complain that the cost of diesel fuel, which represents
about 42% of their costs, is up 16% from a year ago, according to
The Wall Street Journal. They have been blocking highways and
urban traffic across the country, disrupting transportation in a
nation that relies heavily on road transportation, the report
noted.
The national truckers association Abcam said that 200,000 of the
country's nearly 1 million self-employed truck drivers are
demanding that state oil giant Petroleo Brasileiro SA, or
Petrobras, stop letting international oil prices trickle through
to the pump, the report said. They also call for a reduction in
fuel taxes, the report relayed.
As reported in the Troubled Company Reporter-Latin America on
Feb. 28, 2018, Fitch Ratings has downgraded Brazil's Long-Term
Foreign Currency Issuer Default Rating (IDR) to 'BB-' from 'BB'
and revised the Rating Outlook to Stable from Negative.
BRAZIL: President Liquidates Country's Sovereign Wealth Fund
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EFE News reports that Brazilian President Michel Temer has signed
a decree liquidating the Sovereign Fund created in 2008 by then-
head of state Luiz Inacio Lula da Silva, the government said.
The decree was published in the country's official gazette and
states that the value of the fund -- which will be detailed in a
report by the Finance Ministry in the third quarter of 2018 --
will go toward repayment of the foreign debt, which reached BRL3.5
trillion ($1 trillion) in 2017, according to EFE News.
As reported in the Troubled Company Reporter-Latin America on
Feb. 28, 2018, Fitch Ratings has downgraded Brazil's Long-Term
Foreign Currency Issuer Default Rating (IDR) to 'BB-' from 'BB'
and revised the Rating Outlook to Stable from Negative.
VISION BANCO: S&P Alters Outlook to Positive & Affirms 'B' ICR
--------------------------------------------------------------
S&P Global Ratings Services affirmed its 'B' long-term issuer
credit rating on Vision Banco S.A.E.C.A. (Vision). S&P also
revised the outlook to positive from stable.
S&P said, "The rating on Vision reflects our view of its leading
market position and strong expertise in the microfinance segment
in Paraguay; its RAC ratio of 4.7% for the next 12-18 months and
asset quality metrics that are still weaker than those of the
banking system's average, given the bank's exposure to the
microfinance and consumer businesses (middle- and lower-income
borrowers). We also incorporate Vision's diversified and stable
deposit base, thanks to a nationwide branch network, and its
adequate liquidity, with metrics in line with those of other rated
banks in the country. The ratings are the same as the bank's 'b'
stand-alone credit profile (SACP), because we do not incorporate
notching from external support (from neither the government nor
the group)."
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D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Haiti Ban Costs Plantain Dealers RD$100MM
-------------------------------------------------------------
Dominican Today reports that the Jimani (west) Fruit Producers and
Merchants Association say they're losing out on more than 100
million pesos due to the ban imposed by Haiti over two years ago
on local products.
Producers' spokesman Gabino Perez, said some 54 growers in that
town have lost 40 percent of their income due to the ban on the
entry of plantains into Haiti, according to Dominican Today. He
said before the ban they sold as many as 35 containers of
plantains monthly, the report notes.
"We have stopped perceiving big profits," eldia.com.do quoted Mr.
Perez as saying, notes the report.
He said despite that Haiti lifted the ban on some 23 Dominican
products; they have yet to allow plantains, the report notes. "We
appeal to the corresponding authorities to resume commercial
exchanges," he said, the report adds.
As reported in the Troubled Company Reporter-Latin America on
April 23, 2018, S&P Global Ratings affirmed its 'BB-/B' long- and
short-term sovereign credit ratings on the Dominican Republic.
The outlook remains stable.
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G R E N A D A
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GRENADA: Unemployment Remains at 23.6% in 2017
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The IMF staff team visited Grenada during May 2-15 for the 2018
Article IV consultation and held productive discussions with the
Grenadian authorities, business community, and social partners.
Grenada's economy made important strides in recent years,
achieving an impressive debt reduction of 37 percentage points of
GDP since 2013, improving the framework for fiscal policy,
strengthening the financial system, upgrading governance, and
creating a better business environment. The authorities are to be
commended for continued progress in these areas while
collaboratively consulting with social partners. The focus now
should turn toward making growth more broad-based, raising
potential growth, further reducing unemployment, and efficiently
using the hard-earned fiscal space to make the economy more
prosperous and resilient to economic shocks and natural disasters.
Recent Developments and Outlook
1. The Grenadian economy grew by an estimated 41/2 percent in
2017, driven by strong activity in construction, tourism, and
education sectors. Weather-related weaknesses in agriculture have,
however, been a headwind. Unemployment, while falling, remains
high (23.6 percent in 2017). Inflation is low, falling below 1
percent, supported by the peg to the US dollar. The 2017 current
account deficit increased by 3 1/2 percentage points of GDP to 6
3/4 percent of GDP, reflecting rapid import growth. FDI is
estimated at 8 1/2 percent of GDP, driven by tourism and proceeds
from the Citizenship-by-Investment (CBI) program. Bank credit has
recently shown signs of incipient growth as non-performing loans
continue to decrease helped by economic growth and increase in
property prices. In contrast, credit union lending (which now
makes up a quarter of total credit), grew briskly by some 20
percent.
2. The fiscal situation improved further in 2017, with the
government overperforming the targets of the Fiscal Responsibility
Law (FRL). The primary surplus increased to 5 3/4 percent of GDP
(the FRL floor is 3 1/2 percent of GDP) supported by buoyant tax
revenues due to the strong economy, improved tax administration,
and better compliance. Recurrent spending was contained, while
targeted social spending was, appropriately, increased. However, a
shortfall in grant financing and bottlenecks in project execution
combined to keep capital outlays well below budgeted levels.
Public debt fell to 71 percent of GDP at end-2017 (from 82 percent
of GDP in 2016) reflecting the strong fiscal position, the
completion of the final phase of bond restructuring, and the
lowering of interest costs from restructuring some of the
expensive domestic debt. Progress has also been made in addressing
external and domestic arrears, but negotiations with three
bilateral creditors aimed at fully regularizing arrears have yet
to be concluded.
3. Staff's outlook anticipates continued compliance with the FRL
and further progress on supply-side reforms. In 2018 and 2019, the
economy is projected to grow by 3 1/2percent benefiting from
supportive global economic conditions, continued strength in
construction, and a tourism sector that has shown itself to be
competitive within the ECCU. Thereafter, growth is expected to
ease to the long-term potential rate of 2 3/4 percent. Inflation
should edge up in 2018 reflecting recent global energy price
increases, but stabilize at 2 percent in the medium term. The
primary fiscal surplus is expected to remain high in the near
term, supporting rapid debt reduction, although once the public
debt ratio falls below 55 percent of GDP (projected for 2020), the
FRL would allow for a reduction in the surplus. The external
current account deficit is projected to increase to 7 percent of
GDP in 2018 mostly from recent increases in energy costs, but
would decline thereafter as the energy prices moderate.
4. There are two-sided external risks linked to uncertainty about
the growth outlook for advanced economies, potential shifts in
global financial conditions, and CBI inflows. A recently-announced
natural gas discovery could represent a positive impetus if it
proves to be commercially viable. On the other hand, pressures on
correspondent banking relationships could affect financial
intermediation, and natural disasters are an ever-present risk for
Grenada. An adverse court judgment in the Grenlec power company
case could potentially have fiscal implications as could the
realization of fiscal risks from the Petrocaribe arrangement. The
potential implementation of new initiatives on health care and
pensions, the forthcoming cycle of public wage negotiations, and
the availability of financing could all pose downside risks to the
fiscal outlook if not properly managed.
Fiscal policies
5. Maintaining the FRL's rules-based framework is essential to
support policy credibility and economic growth. Compliance with
the FRL has been key to the public debt reduction, strengthening
confidence and building credibility. The Law has also underpinned
advances in accountability and transparency including: the
recently-created fiscal responsibility oversight committee (FROC);
an improved presentation of the 2018 budget; and the publication
of a statement of fiscal risks and a fiscal compliance report.
6. Nonetheless, there is scope to strengthen implementation of the
FRL including by: (i) further clarifying the FRL's remaining
ambiguities and ensuring consistency with other laws; (ii) closely
monitoring the 2018 budget execution to ensure that it conforms to
all FRL rules; and (iii) improving budget implementation, notably
for projects funded by grants.
7. Careful preparation is needed for a responsible transition to
the next phase of the FRL. When the debt falls below the target of
55 percent debt to GDP the FRL, as drafted, envisions a
recalibration of the rule-based parameters that would allow for a
relaxation of the fiscal rules. It would be desirable that any
effort to use that fiscal space be gradual and consistent with the
country's fiscal needs and absorptive capacity. The IMF can
provide technical advice in the coming months to map out options
and trade-offs in recalibrating the rule-based framework.
8. Structural fiscal reforms are essential to support fiscal goals
and to create an environment for more vibrant, job-rich, and
inclusive growth.
The FRL's 9 percent of GDP wage bill ceiling and the forthcoming
cycle of wage negotiations should be underpinned by the
government's 2017-19 Public Sector Management Reform Strategy. The
implementation of that strategy needs to be accelerated.
Broadening the use of, and increasing the reporting of,
quantitative performance targets and output indicators of
ministries would improve transparency and accountability and
encourage efficiency.
Public investment management would benefit from an overhaul,
particularly to address institutional problems in project
implementation (including weaknesses in securing land), improve
project management, and ensure adequate support by technical
(particularly engineering) services and personnel. Establishing
and monitoring of a physical asset registry would facilitate
management of government investments.
Addressing future aging costs, including those that may arise from
new policy initiatives on health care and pensions, and couching
those costs firmly within the existing fiscal framework represents
an important area for future work. The authorities' continued
commitment to the FRL's rules as guiding principles for tackling
such costs is encouraging. However, a comprehensive approach
should be pursued, including addressing the existing imbalances in
the pension system through parametric reforms that have been
identified in recent actuarial reviews.
The targeting of social assistance programs to the poor and
vulnerable could be further enhanced by integrating certain social
assistance programs that are currently outside of the scope of the
core SEED program within the comprehensive targeting system
established for the SEED program, drawing on data from the Grenada
Living Conditions Index.
Continued reforms of State-Owned Enterprises (SOEs) and Statutory
Bodies are needed to further strengthen productivity and
effectiveness and minimize fiscal risks. The inclusion of key
performance indicators in the reporting requirements is
commendable. The second phase of reform -- to review the tariffs
and fees of SOEs to reflect cost recovery and investment needs --
should proceed expeditiously.
Revenue mobilization and administrative efficiency of the Inland
Revenue Division (IRD) and Customs and Excise Division (CED) could
be strengthened by addressing staffing constraints and putting in
place better human resource and risk management, compliance, and
enforcement systems. Reducing the stock of outstanding tax
arrears, aggressively enforcing procedures for their clearance,
and replacing the outdated technologies used by the IRD are key
tasks. The CED should take the lead in identifying priorities and
implementing the WTO's Trade Facilitation Agreement. There is
significant scope to enhance efficiency in customs clearance by
increasing communication with importers and fully deploying the
automated system for customs data.
In line with prior technical advice from the IMF, further revenue
reforms should be centered on the principles of base-broadening,
increasing fairness, and simplifying the tax system. These
principles should also apply in the context of the potential
lowering of the corporate and personal tax rates whose possibility
was announced in the 2018 budget speech.
Improvements in transparency are crucial to underpin efficient and
responsible fiscal policy. For this, it would be essential to (i)
strengthen the FROC's capacity, including in the context of the
envisioned memorandum of understanding between the FROC and the
Ministry of Finance; (ii) better account for public debt and
contingent liabilities (including those from the Petrocaribe
arrangement); and (iii) further improve mechanisms for recording
and saving the proceeds of CBI inflows to address future
contingencies.
9. While Grenada's public debt situation has greatly improved, the
government should step up work to capitalize on these gains.
Priorities include: (i) resolving remaining bilateral debt
arrears; (ii) more actively undertaking asset/liability management
so as to minimize the cost of existing debt; and (iii) continuing
to strictly adhere to the payment schedule for all debts and
contribution payment liabilities.
Financial Sector
10. A sound financial system is key to sustainable growth. There
is scope to upgrade financial oversight, particularly for the
nonbanks, which are under the purview of the local regulator.
While banks (which are supervised at the ECCU level) maintain
relatively solid capital buffers and their non-performing loans
continue to decrease, the rapid lending growth in credit unions
and the situation of insurance companies both warrant close
monitoring with a view to assessing and pre-empting emerging
financial stability risks. Furthermore, the forthcoming new
prudential regulations on provisioning and valuation for banks by
the ECCB and introduction of IFRS9 would pose additional
requirements on the capital of financial institutions.
11. There is need to enhance monitoring and oversight capacity of
the nonbank financial regulator (GARFIN), including by collecting
more granular loan data and undertaking regular stress testing.
The ECCU is taking steps toward the regional harmonization of
regulations of the non-bank financial sector and an acceleration
of this process would help reduce potential financial stability
risks.
12. Ensuring compliance with AML/CFT regulations at all levels is
critical for Grenada's continued stable access to cross-border
payments. While banks in Grenada have not had a meaningful loss of
correspondent banking relationships (CBRs), there are risks that
non-bank financial institutions may lose access to bank payments
systems due to AML/CFT concerns. A proposed legislation to
formalize the annual registration of entities for AML/CFT purposes
will be helpful in capturing risks early.
Supply-Side Reforms
13. While the recent recovery has been a very positive
development, growth has not been sufficiently broad based, being
underpinned mainly by construction activity and tourism. Also,
high unemployment and external deficits indicate that productivity
and competitiveness remain pressing issues. Further improvement in
the business climate and institutional implementation capacity are
needed to boost inclusive growth, employment, and resilience to
shocks along the following dimensions:
Inclusive growth policies. The 2014-18 Growth and Poverty
Reduction Strategy is set to expire and its implementation has
been slower than expected. The strategy should be followed by a
successor medium-term plan that would operationalize progress
toward the long-term 2030 Development Plan. The latter is being
elaborated, drawing on the Sustainable Development Goals. The
plans should provide strategic direction and specific, time-bound
deliverables.
Sectoral policies. There is scope for better capitalizing on
Grenada's comparative advantage in a range of areas:
(i) tourism, by further enhancing its links with other sectors
(medical tourism, agri-tourism, and sports and maritime tourism)
and realizing ongoing efforts to extend new hotel development to
the North;
(ii) agriculture, whose productivity would benefit from better
land use policies, infrastructure, logistics, and enhanced market
access (including to hotels and ports);
(iii) energy: the recent oil and natural gas discovery, if
significant, would require a suitable framework to manage these
resources, while development of renewable energy (particularly
wind, geothermal, and solar) should be accelerated and
incentivized;
(iv) blue economy: the government is encouraged to push ahead with
its blue growth agenda to maximize the significant opportunities
that the ocean offers to support Grenada's structural
transformation.
Competitiveness. Policies should be targeted at raising
productivity, reducing economic costs (notably in energy and
telecommunications sectors), ensuring that growth in nominal wages
in both public and private sectors is appropriately contained, and
maintaining a prudent overall fiscal position (in line with the
FRL).
Business environment. Enhancing corporate governance and
transparency, developing a credit registry, further enhancing
access to finance, and improving property rights and registration,
including in land titling, would catalyze the financing of growth
and development.
Employment. Addressing pronounced skills mismatches in the labor
market requires upgrading education and training programs and
tailoring them to sustainable private sector job creation. There
is a need for (i) increased focus of primary education on weak
mathematics and English scores; (ii) greater priority for
vocational education, as well as efforts to ease the school-to-
work transition; (iii) flexibility in training to better mirror
emerging employment opportunities, including in the rapidly
expanding construction and hotel sectors; and (iv) leveraging the
presence and ongoing expansion of St. George's university.
Climate resilience. Increasing resilience will be key to the
durability of economic growth and development in Grenada. The
authorities should be commended for pro-active leadership on those
issues, including at the Caribbean-wide level. The recent creation
of a new Ministry dedicated to climate resilience, adoption of an
Updated National Climate Change Policy, National Adaptation Plan,
and Integrated Coastal Zone Management Act, and Grenada's planned
participation in the IMF's Climate Change Policy Assessment
initiative will all help solidify the country's international
leadership positions in this area.
The team met with the Prime Minister and Minister of Finance and
Energy, Dr. Keith C. Mitchell; the Minister of Works Hon. Gregory
Bowen; the Minister for the Climate Resilience, the Environment,
Forestry, Fisheries, and Information Hon. Simon Stiell, the
Permanent Secretary of the Ministry of Finance, Ophelia Wells-
Cornwall; other officials, representatives of the private sector,
and labor. A representative from the Eastern Caribbean Central
Bank and the Caribbean Development Bank accompanied the team
during the visit.
We are grateful for the warm welcome extended to us by the
Grenadian authorities and representatives of private sector,
labor, civil society, and financial institutions, and for the very
constructive discussions.
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M E X I C O
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GRUPO AEROMEXICO: Egan-Jones Lowers Sr. Unsec. Debt Ratings to BB-
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Egan-Jones Ratings Company, on May 18, 2018, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Grupo Aeromexico SAB de CV to BB- from BB.
Grupo Aeromexico, S.A.B. de C.V. provides airline services for
passengers and goods in Mexico and internationally. It engages in
charter and maintenance operations. The company has strategic
alliance with SkyTeam. Grupo Aeromexico, S.A.B. de C.V. was
founded in 1934 and is based in Mexico City, Mexico.
PERFORADORA ORO NEGRO: Wins Chapter 15 recognition in New York
--------------------------------------------------------------
Latin Lawyer reports that oil rig lessor Perforadora Oro Negro has
won Chapter 15 recognition of its Mexican insolvency proceedings,
after knocking back a series of creditor objections.
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P E R U
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PERU: Economic Growth Slowed More Recently, IMF Says
----------------------------------------------------
IMF Staff Issues Concluding Statement of the 2018 Article IV
Mission in Peru:
I. Context and Recent Developments
1. Peru has been one of the top performers in Latin America since
the turn of the century, but growth has slowed more recently.
Robust growth helped reduce poverty significantly, inflation has
remained low, the fiscal position has strengthened, dollarization
has declined markedly, and financial deepening has continued. More
recently, the worst floods and landslides in recent history and
fallout from the Lava Jato corruption scandal contributed to a
slowdown in GDP growth to 2.5 percent in 2017.
2. After the resignation of President Kuczynski, the new cabinet
has moved quickly to implement measures and request special
legislative powers from Congress. Fiscal measures include excise
tax hikes, improving tax administration, and streamlining current
expenditures. Law 30737 provides more clarity on civil damages in
corruption cases and sets out rules for asset transfers by
construction companies under investigation or those convicted.
Special powers were requested in six areas: (i) tax policy and
administration; (ii) competitiveness; (iii) post-El Ni§o
reconstruction and closing infrastructure gaps (already granted);
(iv) anti-corruption measures; (v) protection of vulnerable groups
(and preventative measures), and (vi) modernization of the state.
II. Outlook and Risks
3. Growth is expected to rebound to 3.7 percent in 2018, with
inflation converging to the center of the BCRP's target band. GDP
growth of 3.2 percent in the first quarter and high frequency
indicators for April point to a rebound in economic activity this
year. A key driver is public investment rising, while private
investment is also projected to grow after four weak years. The
latter will be supported by easy monetary conditions, and a more
favorable credit and investment climate that typically follows
commodity price improvements. With food price inflation
normalizing throughout the year, headline inflation is expected to
gradually increase toward the center of the central bank target
range.
4. Growth is projected to accelerate to over four percent in 2019,
gradually approaching potential thereafter. Given higher
commodity prices and the government's reform agenda, staff has
increased its estimate of medium-term potential growth to 4
percent from 3 3/4 percent. Strong domestic demand, especially
higher private investment should be the key driver. After a
remarkable adjustment in 2016-17, the current account deficit will
widen somewhat given the impact of stronger import demand,
narrowing the small gap with its current estimated equilibrium
level. Fiscal policy is expected to start a gradual consolidation
in 2019, with the fiscal deficit converging to 1 percent of GDP by
2021, as stipulated by the fiscal rule.
5. Risks are broadly balanced. On the domestic front, key downside
risks include further delays to public investment projects and
PPPs given capacity constraints and the ongoing corruption
investigations. On the external front, more protectionist trade
policies, a slowdown in China, or a more rapid increase in
international interest rates could adversely affect Peru via
weaker growth of exports and tighter financing conditions. Higher
spillovers from commodity prices, as observed in Peru in the past,
present the main source of near-term upside risk. The authorities'
efforts to reduce impediments to investment projects could also
bear fruit earlier than expected.
III. Policy Recommendations
6. In the short term, countercyclical fiscal and monetary policies
remain appropriate while structural reforms are an indispensable
complement. Key challenges include strengthening the tax system,
improving public investment and PPP management, buttressing
macroprudential policies and financial sector oversight, tackling
governance vulnerabilities, and enhancing the pension system's
social protection role.
Monetary Policy
7. The current monetary stance is appropriate and should remain
data dependent. The BCRP has appropriately loosened monetary
conditions in response to weaker than expected growth developments
and declining inflation outturns and expectations. The real policy
rate now stands at just 0.6 percent, significantly below the
BCRP's estimate of the neutral rate (around 1 3/4 percent),
implying substantial monetary stimulus. Under staff's baseline
scenario, this suggests limited scope for additional interest rate
cuts given core inflation and inflation expectations near the mid-
point of the target range (two percent), and a projected narrowing
of the output gap.
8. Credible and agile monetary policy management has been central
to macroeconomic stability in Peru, and the BCRP could consider
further enhancements in the following areas:
Communications. The inflation targeting regime has brought
significant transparency gains. The BCRP could consider
enhancements in the communication of its guidance of the
conditions for future policy rate moves.
Exchange rate flexibility. This remains important and FX
interventions should continue to be limited to disorderly market
conditions. Allowing further two-way exchange rate flexibility
could help stimulate market development and support
dedollarization efforts.
Fiscal Policy
9. Staff supports the planned increase in public investment and
the focus on boosting execution capacity as an immediate priority.
With the economy facing a negative output gap, and significant
reconstruction needs associated with last year's flooding and
landslides, expanding public investment-which has a high
multiplier-remains appropriate. Important steps to improving the
framework for capital expenditure include strengthening long-term
planning and credibility of investment budgeting, better
prioritization, simplifying project monitoring and evaluation, and
increasing execution transparency. Given the key role local
governments play for investment, continuing efforts to build
subnational capacity remains essential. It will also be important
that PPP projects-both ongoing and in the pipeline-continue to
move forward.
10. The authorities' strategy to focus the medium-term
consolidation effort on the revenue side and streamlining current
expenditure is appropriate. In line with the fiscal rule, the
authorities are planning to reduce the deficit to 1 percent of GDP
by 2021. The focus on raising revenue is welcome given Peru's tax
revenues appear low compared to other countries, the existing
infrastructure gaps, and the need to maintain government
expenditure in key social areas. In this regard, the recent
increase in excise taxes is welcome. Higher commodity prices
should also contribute to fiscal consolidation by significantly
boosting revenues. If revenue overperforms, staff would support
increasing public investment further. Finally, there is likely
scope to cut some waste in current expenditure.
11. Staff supports the authorities focus on a tax reform that
simplifies the system, levels the playing field and improves tax
administration. The tax system is complex, with numerous special
regime exemptions, and widespread and overlapping withholding
schemes. Priority should be given to reducing the compliance gaps
(especially in the VAT), moving towards a less fragmented income
tax regime, making personal income taxes more progressive,
rationalizing tax exemptions, and increasing revenues from
property taxes.
Financial Sector Policy
12. As noted in Peru's ongoing Financial Sector Assessment
Program, the banking sector remains sound but it is still
important to continue monitoring a broad set of vulnerabilities.
Stress tests show that the financial sector can withstand even
severe macrofinancial shocks. Nevertheless, pockets of
vulnerability warrant close attention:
Peru's financial sector is highly concentrated, and dominated by
financial conglomerates. Even though the interbank contagion
analysis did not find large risks of either direct exposures
between large banks or indirect risk coming from fire sales
effects, large banks have similar loan portfolios and credit risk
is strongly correlated among banks. As a result, shocks that
trigger common exposures have the potential to become systemic
events, since the banking system is concentrated. To mitigate
these risks, capital surcharges for systemic banks should be
increased in line with the Basel III framework, which the SBS is
currently considering. Furthermore, increasing countercyclical
provisioning in smaller banks would strengthen their capacity to
withstand potential shocks.
Off-balance sheet exposures should continue to be monitored,
although stress tests do not suggest they pose a significant
current risk.
13. Peru's broad toolkit has helped facilitate significant
dedollarization in recent decades, and further measures could help
cement this. To make additional progress, the authorities could
increase risk weights on FX loans along the lines suggested by
recent Basel III guidelines. Regarding FX reserve requirements,
changes should be tied to either the dedollarization process or
addressing adverse macrofinancial shocks.
14. Staff welcomes the authorities' plans to strengthen financial
sector oversight, but notes that further efforts in some specific
areas remain important. There is still a need to remove legal
limitations and enhance the supervisory framework that would
strengthen the SBS's capacity for consolidated supervision of
financial conglomerates. The passing of the pending legislation
migrating the supervision of the saving and credit cooperatives to
the SBS would constitute another important step. Continuing the
process of transitioning to risk-based supervision of the
insurance sector is also important. In addition, the authorities
could improve their macroprudential framework even further,
including by giving enhanced mandates for macroprudential policy
to the BCRP and the SBS, and by implementing a memorandum of
understanding to strengthen coordination.
15. Financial development efforts should focus on expanding
financial access and inclusion, and addressing high concentration.
While progress has been made, overall financial depth in Peru
remains low relative to the region. High concentration could also
indicate a lack of banking competition in some segments. The
authorities should strengthen the legal and institutional
framework to more effectively oversee all aspects of competition,
market conduct, and consumer protection.
16. Regarding financial inclusion, reforming the e-wallet
Billetera Movil (BiM) and approaches to fintech used elsewhere
should be considered. The uptake of BiM is below expectations. It
could benefit from interoperability with bank accounts,
digitization of government payments, and expanded access criteria
for the mobile money platform. Fintech institutions, while
currently limited in scale, could provide new solutions for
financial inclusion. Drawing lessons from regulatory approaches
emerging elsewhere, such as the adoption of regulatory sandboxes
(e.g., see Singapore and the U.K.), would be instrumental to
develop the fintech sector by appropriately supporting innovation
while managing risks.
Structural Reforms
17. A multi-pronged approach is needed to boost potential growth.
Despite some convergence, labor productivity is one-fifth of the
U.S. Staff and the authorities agree on many of the priority areas
to boost productivity and reduce misallocation of resources,
including: education, infrastructure, institutions, and labor
market reform. Removing barriers which limit growth of productive
firms and labor formalization is also important, including
distortions created by tax incentives, burdensome regulation, and
limited access to credit.
18. The Lava Jato scandal has had a major impact on the economy
and the authorities rightly view governance as a priority. Law
30737 should reduce uncertainty in the construction sector, while
requiring conflict of interest statements from public officials
(as envisioned in the special legislative powers) would be a
welcome step to help reduce corruption. In addition, apart from
broadly improving fiscal governance, staff recommends: improving
timely exchange of information and financial intelligence among
anti-corruption agencies; strengthening the asset declaration
system (i.e., verification, beneficial ownership information and
public access); enhancing risk-based AML/CFT supervision and the
reporting system for suspicious transactions; creating a
beneficial ownership registry; and ensuring customer due diligence
for politically exposed persons. Staff stands ready to further
support the authorities in their efforts.
19. While poverty and inequality declined markedly during the
commodity boom, they increased in 2017 and a recalibration of
policies may be warranted. Increasing tax revenues will help
protect needed infrastructure and social spending. Increasing
progressiveness of the personal income tax system will also
enhance redistribution. Given highly concentrated transfers and a
lack of absorptive capacity at the subnational level, it would be
worthwhile re-thinking revenue sharing formulas to reduce
horizontal inequities. Specifically, in addition to natural
resource production, they could better reflect spending needs, for
example population size and poverty levels.
20. The pension system could be reformed to enhance social
protection and reduce inequities, but tradeoffs necessitate public
consultation and careful communication. Given low pension
coverage, the non-contributory pillar (Pension 65) will remain
important, and should be broadened. In the public system,
shortening the minimum 20-year contribution period would allow
more low-income workers to receive a pension. In both these areas,
fiscal costs should be carefully assessed. Several reforms could
help increase replacement ratios in the private system.
Specifically, high pension management fees should be lowered and
excessive flexibility to withdraw lump-sum amounts removed.
Increasing contributions could also be considered, but might
adversely impact labor formality. Given these reforms will still
lead to replacement rates well below OECD levels, it will be
crucial to communicate realistic expectations to the public. Over
the longer term, a larger institutional reform should also be
pursued to better integrate the private and public pillars,
considering tradeoffs between pension adequacy, coverage and
fiscal sustainability.
======================
P U E R T O R I C O
======================
RISE ENTERPRISES: Seeks Access to Cash Collateral Until May 31
--------------------------------------------------------------
Rise Enterprises, S.E., asks the U.S. Bankruptcy Court for the
District of Puerto Rico to authorize its use of the cash
collateral of Banco Popular De Puerto Rico, Inc. until May 31,
2018.
On April 30, 2018 Banco Popular and Rise further agreed to extend
the cash collateral agreement from May 1, 2018 to May 31, 2018,
for which Rise agreed to pay $4,200 as interim adequate payment.
Appearing parties also agreed that Rise will pay: (1) the
outstanding April, 2018's adequate protection payment on or before
May 4, 2018; (2) the overdue balance of interim adequate
compensation payments (i.e. February and March, 2018) on or before
May 31, 2018; and (3) the May, 2018's adequate protection payment
on or before May 31, 2018.
Rise states that use of the cash collateral pursuant to the terms
and conditions set forth above is fair, reasonable, and protects
Banco Popular de Puerto Rico's interests.
A full-text copy of the Joint Cash Collateral Motion is available
at
http://bankrupt.com/misc/prb17-04678-97.pdf
About Rise Enterprises
Rise Enterprises, S.E., sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D.P.R. Case No. 17-04678) on June 30,
2017.
In the petition signed by Ismael Falcon Ortega, partner, the
Debtor estimated assets of less than $1 million and liabilities of
$1 million to $10 million. Judge Mildred Caban Flores presides
over the case. Mary Ann Gandia, Esq., at Gandia- Fabian Law
Office, serves as the Debtor's bankruptcy counsel.
SPANISH BROADCASTING: Delays Filing of First Quarter Form 10-Q
--------------------------------------------------------------
Spanish Broadcasting System, Inc. notified the Securities and
Exchange Commission that it will be delayed in filing its
Quarterly Report on Form 10-Q for the period ended March 31, 2018.
Spanish Broadcasting has not yet filed its Annual Report on Form
10-K for the fiscal year ended Dec. 31, 2017 due to its needing
more time to resolve the accounting treatment and complete the
disclosure requirements regarding certain income tax related
matters. The Company determined that it was necessary and prudent
to delay the filing of the Quarterly Report on Form 10-Q to allow
management to focus on completing the Annual Report. Due to the
competing demands on management, the delay in filing the Form 10-Q
could not be avoided.
The Company currently expects to file the Form 10-Q no later than
the fifth calendar day (or since the fifth calendar day falls on a
Sunday, the next business day after the fifth calendar day)
following the required filing date, as permitted by Rule 12b-25.
About Spanish Broadcasting
Based in Miami, Florida, Spanish Broadcasting System, Inc.
(OTCMKTS:SBSAA) -- http://www.spanishbroadcasting.com/-- is a
Spanish-language media and entertainment company with radio and/or
television stations in the top U.S. Hispanic markets, including
Puerto Rico. The Company's owned and operated radio stations
serve markets representing approximately 35% of the U.S. Hispanic
population, and its television operations serve markets
representing over 3.5 million Hispanic households. The Company
produces and distributes Spanish-language content, including radio
programs, television shows, music and live entertainment through
its radio stations and its television group, MegaTV, which
produces over 70 hours of original programming per week. MegaTV
broadcasts via its owned and operated stations in South Florida,
Houston, and Puerto Rico and through programming and/or
distribution agreements with other stations, as well as various
cable and satellite providers.
Crowe Horwath LLP, in Fort Lauderdale, Florida, issued a "going
concern" qualification on the consolidated financial statements
for the year ended Dec. 31, 2016, stating that the 12.5% Senior
Secured Notes had a maturity date of April 15, 2017. Cash from
operations or the sale of assets was not sufficient to repay the
notes and other short term obligations when they became due, which
resulted in significant liquidity requirements on the Company that
raise substantial doubt about its ability to continue as a going
concern.
As of Sept. 30, 2017, Spanish Broadcasting had $434.5 million in
total assets, $563.7 million in total liabilities and a total
stockholders' deficit of $129.2 million. Spanish Broadcasting
reported a net loss of $16.34 million for the year ended Dec. 31,
2016, compared with a net loss of $26.95 million in 2015.
* * *
In May 2017, S&P Global Ratings withdrew its 'D' corporate credit
rating and issue-level ratings on Spanish Broadcasting System.
"We withdrew the ratings because we were unlikely to raise them
from 'D', based on SBS' ongoing plans to restructure its debt,"
said S&P Global Ratings' credit analyst Scott Zari. S&P had
downgraded SBS to 'D' on April 21, 2017, following the company's
announcement that it didn't repay its $275 million 12.5% senior
secured notes that were due April 15, 2017, as reported by the TCR
on May 25, 2017.
In April 2017, Moody's Investors Service downgraded SBS's
corporate family rating to 'Ca' from 'Caa2'. SBS's 'Ca' corporate
family rating reflects an elevated expected loss rate following
the default under the company's 12.5% senior secured notes due
April 2017.
=================
V E N E Z U E L A
=================
VENEZUELA: Trump Prohibits Buying of Debts Owed to Country, PDVSA
-----------------------------------------------------------------
Toluse Olorunnipa at Bloomberg News reports that President Donald
Trump increased pressure on Venezuela President Nicolas Maduro
with an order prohibiting purchases of debts owed to the
government, including to the crucial state-run oil company
Petroleos de Venezuela SA.
"I have taken action to prevent the Maduro regime from conducting
'fire sales,' liquidating Venezuela's critical assets -- assets
the country will need to rebuild its economy," Trump said in a
news release, according to Bloomberg News. "This money belongs to
the Venezuelan people."
The order covers all transactions involving debts owed to the
Venezuelan government or state-owned enterprises, including
accounts receivable, according to Bloomberg News. It also
prohibits the sale, transfer or pledging of collateral of any
equity interest in which the Venezuelan government has a 50
percent or greater stake, Bloomberg News notes. The order was
posted on the Treasury Department website.
Bloomberg News says that President Trump's decision comes on the
heels of President Maduro's victory in an election boycotted by
the main opposition coalition and scorned by the international
community. The order follows a first wave of restrictions last
year that banned the purchase of new debt from the government,
essentially choking off any potential restructuring with creditors
as a way to apply pressure on President Maduro to release
political prisoners and hold free and fair elections, Bloomberg
News says.
But nations seeking to dislodge the socialist autocrat walk a fine
line, Bloomberg News relays. The country is gripped by
hyperinflation and hunger, teetering on the edge of failed-state
status, Bloomberg News notes. The most powerful sanctions would
be aimed directly at the state oil producer, but the heaviest blow
might land on a population that's already suffering, Bloomberg
News says.
Bloomberg News relays that the order drew the financial net only
slightly tighter. President Trump's action "limits cash
management transactions," said Antonio de la Cruz, Executive
Director at Inter American Trends, a think tank in Washington, and
a former PDVSA planning manager, Bloomberg News notes. The
decision also "curtails its capability to finance itself using its
main U.S. subsidiary, Citgo Petroleum Corporation," he said in a
telephone interview, Bloomberg News says.
Debtor Nation
Since November, Venezuela has skipped past payment deadlines on
nearly $4 billion in bonds, raising concern among creditors about
the $65 billion outstanding from the nation and its state-run
entities. On May 21, trading in Venezuelan debt ground to a halt
as investors and brokers sought clarity on the order, Bloomberg
News notes.
One administration official said the action was intended to stop
the Maduro regime from selling off debts owed to the government
and state-owned enterprises in exchange for immediate cash,
Bloomberg News relays.
Bloomberg News discloses that the order may also prevent President
Maduro's regime from selling off expected debt repayments from its
Petrocaribe program, in which Caribbean and Central American
nations buy oil from PDVSA on an installment plan. Countries in
the program pay only a portion of the cost of Venezuelan oil
upfront and finance the rest over 25 years at low interest rates.
Nicaraguan companies alone, for example, owed Venezuela $3.2
billion under Petrocaribe as of 2016, according to Fitch Ratings,
Bloomberg News relays.
Bloomberg News notes that President Trump administration officials
who spoke on condition of anonymity said the order would close off
avenues of corruption.
"The United States remains committed to the Venezuelan people, who
have suffered immensely under the Maduro regime," President Trump
said in his statement obtained by Bloomberg News. "We call for
the Maduro regime to restore democracy, hold free and fair
elections, release all political prisoners immediately and
unconditionally, and end the repression and economic deprivation
of the Venezuelan people."
As reported in the Troubled Company Reporter-Latin America on
March 19, 2018, Moody's Investors Service downgraded Petroleos de
Venezuela, S.A.(PDVSA)'s ratings to C from Ca. Moody's also
lowered the company's baseline credit assessment (BCA) to c from
ca.
***********
Monday's edition of the TCR-LA delivers a list of indicative
prices for bond issues that reportedly trade well below par.
Prices are obtained by TCR-LA editors from a variety of outside
sources during the prior week we think are reliable. Those
sources may not, however, be complete or accurate. The Monday
Bond Pricing table is compiled on the Friday prior to publication.
Prices reported are not intended to reflect actual trades. Prices
for actual trades are probably different. Our objective is to
share information, not make markets in publicly traded securities.
Nothing in the TCR-LA constitutes an offer or solicitation to buy
or sell any security of any kind. It is likely that some entity
affiliated with a TCR-LA editor holds some position in the
issuers' public debt and equity securities about which we report.
Tuesday's edition of the TCR-LA features a list of companies with
insolvent balance sheets obtained by our editors based on the
latest balance sheets publicly available a day prior to
publication. At first glance, this list may look like the
definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
Submissions about insolvency-related conferences are encouraged.
Send announcements to conferences@bankrupt.com
***********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2018. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
* * * End of Transmission * * *