The document discusses Pedro Pablo Kuczynski assuming the presidency of Peru and the economic priorities he faces. Economists at an event say Kuczynski should focus on infrastructure projects to sustain growth, and reducing Peru's large informal job sector to expand the tax base. While infrastructure spending has political support, labor reforms to formalize jobs may prove difficult despite high informality. The IMF forecasts 4% growth for Peru in 2016-2017 if Kuczynski addresses these challenges.

1. LATIN AMERICA ADVISOR
www.thedialogue.org Thursday, July 28, 2016
A DAILY PUBLICATION OF THE DIALOGUE
COPYRIGHT © 2016, INTER-AMERICAN DIALOGUE PAGE 1
BOARD OF ADVISORS
Diego Arria
Director, Columbus Group
Devry Boughner Vorwerk
Senior Policy Advisor
Akin Gump Strauss Hauer & Feld, LLP
Joyce Chang
Global Head of Research,
JPMorgan Chase & Co.
W. Bowman Cutter
Former Partner,
E.M. Warburg Pincus
Dirk Donath
Senior Partner,
Catterton Aimara
Marlene Fernández
Corporate Vice President for
Government Relations,
Arcos Dorados
Peter Hakim
President Emeritus,
Inter-American Dialogue
Donna Hrinak
President, Boeing Latin America
Jon Huenemann
Vice President, U.S. & Int’l Affairs,
Philip Morris International
James R. Jones
Chairman, ManattJones
Global Strategies
Craig A. Kelly
Director, Americas International
Gov’t Relations, Exxon Mobil
John Maisto
Director, U.S. Education
Finance Group
Nicolás Mariscal
Chairman,
Grupo Marhnos
Thomas F. McLarty III
Chairman,
McLarty Associates
Carlos Paz-Soldan
Partner,
DTB Associates, LLP
Beatrice Rangel
Director,
AMLA Consulting LLC
José Antonio Ríos
Chief Executive Officer,
Vadium Technology Inc.
Gustavo Roosen
Chairman of the Board,
Envases Venezolanos
Andrés Rozental
President, Rozental &
Asociados and Senior
Policy Advisor, Chatham House
Shelly Shetty
Head, Latin America
Sovereign Ratings, Fitch Inc.
Roberto Sifon-Arevalo
Managing Director, Americas
Sovereign & Public Finance Ratings,
Standard & Poor’s
FEATURED Q&A
IN FOCUS
PPK Should Focus
on Infrastructure,
Labor Formality:
Economists
Pedro Pablo Kuczynski, who is
to be sworn in today as Peru’s
president, will need to focus on in-
frastructure and labor formality in
order to sustain the country’s eco-
nomic growth, economists said at
the Inter-American Dialogue.
Page 3
BUSINESS
Brazil Drives
Santander’s
Q2 Profit
The Spanish bank’s Brazil unit saw
a 20 percent increase in profit, off-
setting losses in Britain due to the
“Brexit” vote. Santander reported
1.28 billion euros ($1.4 billion) in
profit for the quarter.
Page 2
POLITICAL
Protesters Take to
Streets in Caracas
Hundreds of protesters marched
in downtown Caracas to demand
that Venezuela’s electoral author-
ity allow a referendum to recall
President Nicolás Maduro.
Page 2
Is Cashless
Technology Taking
Hold in Mexico?
Maduro // File Photo: Venezuelan
Government.
Continued on page 2
Q
Mexico’s government in June launched its National Policy for
Financial Inclusion, which includes a push for the develop-
ment of financial infrastructure and the better use of techno-
logical innovation in financial services. To what extent are
Mexican consumers embracing new technologies and reducing their use
of cash? To what extent have past efforts to boost financial inclusion
succeeded in Mexico, and where have they fallen short? How much “dis-
ruption” could we expect to see in Mexico’s financial services industry in
the years ahead, and how will that affect traditional bank operations?
A
Manuel Orozco, director, and Laura Porras, associate, of the
Migration, Remittances and Development Program at the
Inter-American Dialogue: “Mexico has progressed success-
fully to promote financial access through several means. It
has modernized access to financial institutions through the creation of
BANSEFI, legislated corresponding banking to expand availability of ser-
vices, supported the creation of products that respond to customer needs
(including the ‘cuenta de expediente simplificado’), and strengthened the
use of new technologies through this policy. As a result, financial access
has increased by more than 10 percent, from 28 percent in 2002 to 40 per-
cent in 2015. The policy on new technologies and mobile banking could
place Mexico at the forefront of a small group of Latin American coun-
tries. A quick start on this effort is important, since many decisions have
to be made and will likely take time. From a financial inclusion perspec-
tive, increasing services for a limited group is only part of the answer.
TODAY’S NEWS
Mexico’s National Policy for Financial Inclusion has development of financial technology as
one of its aims. // File Photo: HLundgaard via Creative Commons.

2. LATIN AMERICA ADVISOR
COPYRIGHT © 2016, INTER-AMERICAN DIALOGUE PAGE 2
Thursday, July 28, 2016
NEWS BRIEFS
Retail Division Helps Fuel
Femsa’s Quarterly Results
Mexican beverage bottler and retailer Fomento
Económico Mexicano, or Femsa, on Wednesday
said the company’s second-quarter net profit
had risen by more than 25 percent compared to
the same period a year prior, aided in part by its
fast-growing retail division, Reuters reported.
Femsa said the net majority income was up
25.9 percent to $267 million in the period
from April to June. The retail division of the
company opened a net of 263 Oxxo conve-
nience stores during the period. Retail revenue
increased by 12.6 percent, and Oxxo same-
store sales grew by more than 5 percent.
BHP Billiton to Record
$1 Billion Provision for
Brazil Mine Failure
Multinational mining company BHP Billiton
said Wednesday that it will take a provision of
between $1.1 billion and $1.3 billion because
of the deadly failure of a Brazilian iron-ore
mine that it jointly owns with Vale, The Wall
Street Journal reported. Vale separately said it
recorded a $1.2 billion provision. The failure of
the flood of the Bento Rodrigues dam resulted
in 19 deaths and pollution to more than 400
miles of rivers.
Chile’s Largest-
Ever Power Auction
Results in 84 Bids
Chile’s largest-ever electricity supply contracts
auction attracted 84 bids on Wednesday, a
spokeswoman from the National Electricity
Commission said, adding the auction could
result in lower electricity prices, Bloomberg
News reported. “Competition is good news be-
cause it means we can reach our objective of
lowering electricity costs for Chilean families
and businesses by 20 to 25 percent by 2020,”
said National Electricity Commission Executive
Secretary Andrés Romero.
POLITICAL NEWS
Protesters Take to
Streets in Caracas to
Demand Referendum
Hundreds of Venezuelan protesters on
Wednesday again called for a referendum to
recall President Nicolás Maduro, accusing
the National Electoral Commission, or CNE, of
stalling the process, The Wall Street Journal
reported. Demonstrators gathered near the
center of Caracas, but were blocked by riot
police from marching on election officials’
offices. Protesters demanded that the electoral
council approve the signatures gathered by
opposition leaders and set a date for the recall
referendum. Critics of Maduro’s government
hope that removing him from office will help
mitigate chronic shortages of basic goods as
well as triple-digit inflation. The head of the
CNE, Tibisay Lucena, said Tuesday that street
violence would only serve to suspend the refer-
endum process. She also said the CNE would
decide on Monday whether the opposition had
met the requirements to trigger a plebiscite, six
days after the original deadline that had been
set to validate the signatures on the petition.
[Editor’s note: See related Q&A in Monday’s
Advisor.]
BUSINESS NEWS
Brazil Drives Q2
Profit for Santander
Santander on Wednesday reported 1.28 billion
euros ($1.4 billion) in net profit for the second
quarter, slightly beating analysts’ estimates,
as the Spanish bank’s profits in Brazil fueled
gains, Reuters reported. The bank reported a
worse-than-expected result in the United King-
dom because of its vote to leave the European
Union, but a 20 percent profit increase in Brazil
was seen as a sign of a recovery in Latin Amer-
ica’s largest economy, the wire service report-
ed. Also on Wednesday, Sérgio Rial, the CEO
of Santander’s Brazil operation, said the unit
will likely bid for Citigroup’s local subsidiary.
In February, Citi announced it would exit retail
banking in Brazil, Argentina and Colombia.
Working to promote adequate and broad
adoption, however, is key. For example,
correspondent relationships are not deep
enough to promote inclusion. Only six of 84
correspondent banking relationships in place
right now allow customers to open accounts,
while 69 of them offer the ability to pay for
an existing credit. Moreover, owning a bank
account is only the first step to financial
inclusion, whereas keeping and maintaining
funds in the account is the centerpiece of
inclusion. Currently, 50 percent of those who
close their accounts do so because they
believe they do not need them for payroll
deposits. This shows that there is a need for
financial education to encourage customers
to maintain an account and build assets. In
this sense, technology is only instrumental,
but education remains foundational.”
A
Ruth Goodwin-Groen, man-
aging director of The Better
Than Cash Alliance: “Mexico
showed strong progress on
financial inclusion ahead of the recent
launch of its National Policy for Financial
Inclusion. Between 2012 and 2015, financial
inclusion grew more than 20 percent from
35 percent of the adult population to 44
percent according to the National Financial
FEATURED Q&A / Continued from page 1
Continued on page 4
Rial // File Photo: LinkedIn.

3. LATIN AMERICA ADVISOR
COPYRIGHT © 2016, INTER-AMERICAN DIALOGUE PAGE 3
Thursday, July 28, 2016
ECONOMIC NEWS
Brazil Planning
Changes to Gas
Sector Regulations
Brazil’s Mines and Energy Ministry is holding
meetings with natural gas producers and
distributors to develop plans to unveil new
proposals and directives by Sept. 30 that would
change the country’s regulatory regime for
the sector, Platts reported Wednesday. The
changes would ostensibly increase compe-
tition and boost investment in the sector.
“We want gas to grow,” said Márcio Félix, the
secretary for oil and natural gas at the ministry.
“A large country like Brazil, which is the size
of a continent, also needs a large natural gas
industry.” The changes are part of a broader
movement to transform Brazil’s oil and gas
industry, spurred in part by the drop in global
oil prices and the massive corruption scandal
at state-run oil company Petrobras. However,
the crisis has brought some opportunities for
the sector, which has long been dominated by
the oil giant. “The crisis brings opportunities to
overcome challenges and to ease a transition
into a new model for the natural gas sector,”
said Jorge Camargo, president of the Brazilian
Petroleum Institute. Petrobras has been im-
plementing a divestment program in response
to the crises, leaving the door open for private
companies to enter the market. However, the
transition to a more-open natural gas market
would have to be gradual, in order to ensure the
stability of Brazil’s market, said Jorge Celestino
Ramos, Petrobras’ director for natural gas and
refining. He added that Petrobras would remain
a dominant player in defining the new regulato-
ry regime for the resource.
Kuczynski Should Focus on Infrastructure,
Labor Formality: Economists
By Jen Wagman
WASHINGTON—Pedro Pablo Kuczynski,
who takes office today as Peru’s president,
will need to focus on infrastructure and
reducing the number of people working in
the informal sector in order to sustain the
country’s economic growth, Luis Oganes, the
global head of emerging markets research
at JPMorgan Chase, said Wednesday
during an event at
the Inter-American
Dialogue.
In an Ipsos Apoyo
poll published July
19, 87 percent of re-
spondents expressed
optimism that
Kuczynski, popularly
known as PPK, would
be able to overcome
potential blocking
from opposition in
Congress to advance delayed infrastructure
projects.
“It’s a key source of growth,” Oganes, a Peru
native, said about Kuczynski’s infrastructure
plans, which include expanding the airport
and subway system in Lima, developing
the airport in Cuzco and improving road
conditions throughout the country. One
of Kuczynski’s highest priority projects is
expanding access to clean water and sanita-
tion nationally.
Oganes said infrastructure spending seems
realistic and that political consensus on
the issue will foster collaboration between
the ruling and opposition parties that were
at odds in one of the closest presidential
elections anywhere in recent memory.
Some skeptics have questioned how strong
Kuczynski’s popularity will remain into his
tenure, but it’s unlikely the opposition-led
Congress will become obstructionist,
Oganes said.
However, Kuczynski’s campaign promises
of labor reform could prove challenging,
Marcello Estevão, the
mission chief for Peru
at the International Mon-
etary Fund, said at the
event. Some 70 percent
of Peru’s workforce is
informal, leading to job
insecurity for workers
and a smaller tax base
than the government
would otherwise have.
“It’s expensive to hire and
fire” in Peru, Oganes not-
ed, in explaining why small
and medium-sized businesses are hesitant
to employ people formally.
Public opinion remains pessimistic on labor
reforms that aim to change that, with the
Apoyo survey finding that only 8 percent of
respondents feel that Kuczynski can reduce
informality.
That said, very large mining projects that
had been contemplated in the past remain
in limbo, as a consequence of low com-
modities prices and local opposition from
communities over environmental risks and
other objections, both speakers agreed.
JPMorgan and the IMF forecast Peru’s
growth at approximately 4 percent this year,
with a slightly better outlook for 2017.
IN FOCUS
Oganes // Photo: Ben Raderstorf, Inter-American
Dialogue.
A large country like
Brazil ... also needs
a large natural
gas industry.”
— Márcio Félix

4. LATIN AMERICA ADVISOR
COPYRIGHT © 2016, INTER-AMERICAN DIALOGUE PAGE 4
Thursday, July 28, 2016
FEATURED Q&A / Continued from page 2
Inclusion Survey (ENIF). Importantly, women
today have greater access to financial
services, especially in rural areas. The
new policy recognizes that there is a huge
opportunity for technological innovation to
drive financial inclusion—nearly 75 percent
of adults own a cellphone—and also a need
to expand financial infrastructure to reach
those who are still excluded. This backdrop
of success but even greater ambition is
why Mexico’s government is getting such a
bright spotlight. To implement this visionary
policy, Mexico’s traditional banks, together
with mobile network operators and financial
innovators, will need to come to the table
with policymakers, regulators and other
stakeholders to help the country overcome
the barriers to inclusion and reduce the use
of cash. Actions to promote the use of elec-
tronic payments are needed to address the
limited ability to pay, get paid or send money
digitally. Additionally, it will take multi-sector
partnerships to ensure that digital financial
services are affordable, safe, reliable, conve-
nient and responsible so that Mexicans trust
the system enough to adopt it broadly. These
specific challenges and opportunities are
addressed head-on in the new policy and it
is why we, at The Better Than Cash Alliance,
have been championing the government’s vi-
sion in this policy. The future is clearly open
for traditional banks or innovative disrupters,
whomever is willing to collaborate with and
respond to the government’s inspiring priori-
ty of financial and social inclusion.”
A
Gabriela Zapata Alvarez, Mex-
ico-based financial inclusion
specialist: “Like everyone
else, Mexican consumers are
embracing new technologies for a number
of purposes. However, the preference for
cash to conduct financial transactions still
prevails among the majority (92 percent) of
the Mexican adult population, according to
the 2015 National Financial Inclusion Survey
by INEGI & CNBV. Measurable efforts to
boost financial inclusion include regulation
that allows risk-based tiered bank accounts,
which simplifies account opening—an im-
portant move since transactional accounts
are at the centerpiece of access to low-value
payment services. While inroads have been
made in the use of cards and mobile devices
by the banked population, only 44 percent of
Mexican adults have an account; 84 percent
of whom have a debit card, greatly limiting
the number of people who can transact
digitally, according to the survey. Insufficient
or inadequate infrastructure and connectivity
have been key obstacles to the expansion of
financial services, as has been the informali-
ty of the labor force (only 10 percent of busi-
nesses is estimated to be formal), the survey
adds. There is great opportunity in product
design and delivery via digital channels, but
solid rails are needed for these offerings to
ride on sustainably beyond the current fron-
tiers of the limited banked population.”
The Advisor welcomes comments on its Q&A
section. Readers can write editor Gene Kuleta
at gkuleta@thedialogue.org.
LATIN AMERICA ADVISOR
is published every business day by the
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The preference for
cash to conduct
financial transactions
still prevails among
the majority ...
of the Mexican
adult population.”
— Gabriela Zapata Alvarez