Summit of the Americas overshadowed by Lava Jato

The Summit of the Americas, which kicks off in Peru this week, will have as its central theme 'Democratic Governability in the Face of Corruption.'

Few could have guessed 18 months ago just how appropriate that motto would be.

Since the last Summit of the Americas held in 2015 in Panama, the Odebrecht scandal, known as Lava Jato in its home country Brazil, has rocked the region, embroiling government leaders and business moguls alike, forcing countries to cancel or suspend tens of billions of dollars in infrastructure concessions and slashing several percentage points off regional economic growth.

As a result, various high-ranking officials have been either jailed or are facing prosecution in countries from Brazil and Argentina to Peru, Ecuador and Panama. Peru's President Pedro Pablo Kuczynski was ousted weeks before the summit, raising doubts as to whether the event would be held at all.

The summit, scheduled to take place in Lima from April 13-14, gathers leaders and other officials from the 35 member nations of the Organization of American States (OAS) to discuss issues including regional infrastructure and trade initiatives and the fight against money laundering and organized crime.

Odebrecht, which in December 2016 admitted to paying hundreds of millions of dollars in bribes to secure contracts across the continent, operated dozens of major infrastructure concessions awarded in 10 Latin American countries over the course of decades. That has made tackling corruption in the region even more urgent.

While judiciaries in the US and Brazil have been cooperating more freely with other countries in the region on the Lava Jato case, analysts and government officials alike admit much more needs to be done to halt the flow of everything from illicit funds, weapons and drugs to illegally-extracted gold and tropical hardwood across borders.

Corruption in the region has reduced investment by 5% and increased the cost of doing business by 10%, according to NGO Transparency International. At the same time, global tax evasion, embezzlement, bribes, money laundering and smuggling keeps US$1tn/y from entering government coffers.

"We're preparing a document of the commitments that can be freely adopted by the member states to reinforce governability against corruption," said Canada's Ambassador to Peru, Gwyneth Kutz. "It's an obligation of democratic governments to improve legislation to block these practices and reinforce the citizens' stance against this problem."

INFRASTRUCTURE

Lima, which in recent years has hosted the World Economic Forum, the UN Climate Change Conference (COP), the IMF-World Bank general assembly and the APEC summit, also stands to bring in US$80mn as a result of the arrival of at least 6,000 visitors for the summit, according to the national tourism chamber (Canatur).

Adding to the opportunity to do business, the OAS is also hosting a CEO Summit which will tackle specific business issues common to regional members, a two-day event to be attended by 750 general managers from 30 countries and a dozen government leaders.

Regional challenges include sustainable use of water during the era of global warming, with Latin America - which could add 125Mha of arable land - contributing 16% of the world's food and agricultural exports, including more than 50% of soybean, sugar and banana exports.

Latin America also lags in terms of global value chains and workforce training at a time when sales of intermediate goods make up 60% of global trade, while automation and technological innovation are expected to have an impact on 1.1bn workers.

Meanwhile, regional infrastructure initiatives that have stalled in recent years include the bi-oceanic railway, oil and gas pipelines and power grids, as governments and companies have been stymied by legal, technical and financing issues.

Average Latin American investment in infrastructure from 1992-2013 ran at the equivalent of 2.4% of GDP, compared to a global average of 4-8.5%, according to the OAS. The region will have to invest 5% of GDP, or an additional US$150bn/y, over the next three decades, to close the gap.

And due to a young and fast-growing population, regional electricity demand is expected to nearly double by 2040, while the hydrocarbons industry will have to invest US$550bn through 2030 to maintain current levels, according to the organization.

"It's not a good time to look at infrastructure with so many of the region's largest construction companies caught up in Lava Jato," said Fernando Rospigliosi, a political analyst and former interior minister. "There are also major differences between the governments."

The difficulty of continuity in policies is underscored by the fact the region may see up to nine countries change government over the next two years, as Costa Rica, Paraguay, Colombia, Venezuela, Mexico and Brazil all hold elections this year, followed by Argentina, Bolivia and Uruguay in 2019.

And while the summit was first devised in 1994 as a means of creating the Free Trade Area of the Americas (ALCA in Spanish), the region remains split amongst a series of other initiatives, including Unasur, Mercosur, the Pacific Alliance, the Andean Community and ALBA, while Mexico, Peru and Chile have also joined the Asia-Pacific Economic Forum (APEC).

The summit comes at a time when the region has become increasingly divided by both political shifts and border tensions. Both Peru and Bolivia have taken Chile to the International Court of Justice in the Hague over border issues in recent years, while the humanitarian crisis in Venezuela has flooded neighboring Colombia with half a million refugees.

VENEZUELA

While the organizers excluded Venezuelan President Nicolás Maduro for unilaterally bringing forward general elections this month amidst accusations of fraud and human rights abuses, the summit will also study ways to channel humanitarian aid including food and medicine to Venezuela, something the Maduro regime has blocked until now.

The Venezuelan crisis has become more acute since 2014 due to slumping prices of crude oil, which accounts for 95% of the country's export revenue, forcing 2mn residents to emigrate. Venezuela, a member of OPEC which holds the world's highest crude oil reserves, has seen oil production dwindle to an estimated 1.9Mbbl/d from levels of over 3Mbbl/d in 1997.

Maduro, a former bus driver, rose to power as an ally of former President Hugo Chávez, who began his socialist revolution in 1999. Maduro succeeded Chávez upon his death in 2013. The Venezuelan presidential term lasts seven years.

"It's a country that has ignored the constitution and human rights," said Ernesto Velit, an international analyst. "There is repression, abuse and political prisoners, which is worrying and a bad example for the region."