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Welcome to the latest edition of Frontier Markets News. As always, I would love to hear from you at dan@frontiermarkets.co with news ideas, feedback and anything else you find interesting.
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Africa
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Angola re-elects president. Incumbent Angolan President João Louenço was declared victor of a contested re-election campaign last week in the weakest showing for his party since the end of Portuguese rule. Lourenço’s party, The Popular Movement for the Liberation of Angola (MPLA), won 51.17% of the vote, compared to 43.95% for the opposition National Union for the Total Independence of Angola (Unita), Voice of America reports.
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President João Lourenço of Angola celebrated his election victory. Photo: Paulo Novais/EPA, via Shutterstock
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The MPLA has ruled Angola since its independence in 1975. Lourenço took power in 2017 as the hand-picked successor to José Eduardo dos Santos, who ruled the country for nearly 38 years.
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The closely contested election suggests young voters are losing faith in the parties that brought an end to white colonial rule, the New York Times reports. Freedom House, a nonprofit that conducts research on democracy, rates Angola as “not free,” citing “systematic repression of political dissent.”
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Ethiopian ceasefire breaks. After months of hesitant optimism brought about by fragile peace, violence erupted again in the northern Tigray region of Ethiopia last week, bringing an end to a five-month ceasefire.
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Fighting began in the northern town of Kobo, as weeks of military buildup on either side of the front line flared to a grim climax. Days later, an Ethiopian government airstrike hit a kindergarten in the Tigrayan capital of Mekelle, killing at least seven people, including several children, UPI reports.
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A school playground damaged during an air strike in Mekelle. Photo: Tigrai TV/ Reuters
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The conflict broke out in November 2020, when Prime Minister and 2019 Nobel Peace Prize winner Abiy Ahmed commanded a military operation in Tigray. The violence quickly escalated to guerilla warfare, with both sides accused of atrocities as government-initiated food shortages choked the Tigrayan population, triggering a humanitarian catastrophe. Close to half of Tigray’s 6 million people are “severely food-insecure,” the UN reports.
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Nigeria threatens domestic airlines. The Nigerian government warned its domestic airlines last week that they face potential closure if they do not repay multi-billion naira debts. The civil aviation authority has accused the airlines of failing to pay back N19 billion, or $7.6 million, in loans, despite surging profits from customer travel, Premium Times Nigeria reports.
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The airlines, which include carriers Air Peace and Ibom Air, will have until September 29th to submit a memorandum of understanding on how they will pay their debts, or face expiration of their licenses. The airlines have called the charges unfair.
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The threatened suspension comes amid broad uncertainty in Nigerian airspace. UAE carrier Emirates put a hold on flights to and from Nigeria beginning in September due to its inability to repatriate funds from the country, CNN reports.
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Libya roiled by fresh conflict. Rival militias clashed in the Libyan capital of Tripoli last week, killing 32 and wounding 159 more, the New York Times reports. The fighting marked the deadliest escalation of conflict in the past two years, inviting the specter of civil war into the politically divided country.
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Two governments claim power in Libya: the United Nations-recognized Prime Minister Abdul Hamid Dbeiba in Tripoli and the rival-controlled Parliament in Benghazi, ruled by military leader Khalifa Hifter. Tensions between factions controlled by Dbeiba and Hifter have intensified in recent months, culminating in last week’s violence. An armed convoy loyal to the Benghazi government was attacked in Tripoli last week, lighting a match beneath the tinderbox of tension.
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Smoke rises following clashes in Tripoli. Photo: Hazem Ahmed/Reuters
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In February, Libya’s Parliament voted to install an interim government and new Prime Minister, but Dbeiba declared the vote illegitimate, vowing to stay in power. No new date for elections has been set.
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Asia
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Sri Lanka secures IMF bail-out. Sri Lanka reached a staff-level agreement with the IMF on Thursday, securing an emergency loan of $3 billion. The bailout is conditional on support from creditor nations including China, India, and Japan, as well as final approval from the IMF board.
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Dollar denominated Sri Lankan sovereign bonds posted record gains after news broke, rising more than 10%, although they remained at less than 35% of face value Bloomberg reports. CSE, Colombo’s primary stock exchange, climbed 5.6% this week, according to FT data, continuing its strongest month since January 2021.
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People queue outside a fuel station. Photo: Devjyot Ghoshal/Reuters
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The economic crisis in Sri Lanka ballooned over the first half of this year, as economic mismanagement bred skyrocketing inflation, dozen-hour blackouts and political instability. In July, President Gotabaya Rajapaksa resigned and fled the country under pressure from thousands of protestors.
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The country is expected to need $30 billion worth of debt restructuring, Reuters reports. The country defaulted on its sovereign debt in May.
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Pakistan gets IMF lifeline as floods wreak economic devastation. Pakistan secured an IMF bailout last week, a temporary salve to what threatened to become a debilitating economic crisis. The IMF will soon resume disbursement of $1.1 billion, invigorating a stalled $7 billion relief package that was signed in 2019. The IMF expects to provide $4 billion to Pakistan this year.
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The need for a bailout became more dire, as monsoon-driven floods coursed through the country, submerging a third of its land and threatening its crop output. The flooding has killed over 1,000 people since mid June, damaged nearly a million homes and forced half a million people to move to relief camps.
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Flash flooding has destroyed thousands of kilometers of roads in Pakistan. Photo: Abdul Majeed/AFP/Getty
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With inflation soaring to 27% in August, the government hopes that the IMF bailout will buy time to lower prices before the country holds elections, which are mandated before the second half of next year, the FT reports. Former Prime Minister Imran Khan, whose popularity has surged since he was ousted in a vote of no confidence in April, and has called for a “soft revolution.”
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The country needs $3 billion to service its debt by the first half of 2023, Bloomberg reports, and foreign reserves dwindled to $7.67 billion prior to the bailout, according to central bank statistics.
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Bangladesh weighs Russian oil. Bangladesh is considering a Russian offer to import discounted fuel oil, Business Standard reports, a potential lifeline for the country to tamp down inflation and fuel prices. Russian state-owned oil company Rosneft proposed a $59 per barrel sale of refined fuel oil to Bangladesh, the Daily Star reports.
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If Bangladesh chooses to accept the offer, officials will have to figure out how to pay for the commodity as Russian banks remain banned from the SWIFT payment processing system and rubles are scarce in Bangladesh.
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Government advisor Tawfiq-e-Elahi Chowdhury announced the move to consider buying Russian Oil
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After offering a fuel subsidy for months, Bangladeshi authorities increased fuel prices by 50% in August, citing rising international costs for refined fuel. Bangladeshi foreign reserves have dropped in the past year, though not as precipitously as other states in the region. Foreign reserves currently sit at $38 billion, compared to $49 billion a year ago.
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Inflation batters Myanmar. Myanmar’s ruling military junta arrested and jailed a former British ambassador and her husband this week, charging them with a violation of immigration law as it continues to crack down on opposition, The Guardian reports. Meanwhile, the country’s inflation rate increased to 17.78% in August, a 15-year high.
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Since the coup, Myanmar’s currency, the kyat, has lost nearly a third of its value, Radio Free Asia reports. While the central bank offers an official rate of 2,100 kyat per dollar, unofficial exchanges trade the currency at 3,100 per dollar, compared to 1,330 kyat per dollar before the coup.
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Prices of staple foods, including rice and cooking oil, have surged. The price of rice has increased by 44% since the coup began, while the price of cooking oil has more than tripled, Nikkei Asia reports. About 40% of people in Myanmar now live below the poverty line, according to the World Bank.
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Solomons suspends docking of foreign military vessels. The Solomon Islands announced a docking ban on all foreign military vessels last week, days after interdicting an American Coast Guard Ship and British Navy vessel from refueling at the country’s ports, Reuters reports.
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Solomon Islands Prime Minister Manasseh Sogavare during the 2021 UN General Assembly. Photo: Eduardo Munoz/Reuters
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While the ban applies to all foreign military ships, the move has raised concerns in the West of growing Chinese influence in the archipelago nation. In April, China and the Solomons signed a security agreement that could allow Chinese military and security forces to enter the island nation. A US delegation that visited after the Chinese agreement was signed announced the intent to open an American embassy in Honiara, the country’s capital.
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On Tuesday, Solomons Prime Minister Manasseh Sogavare issued a statement asking foreign governments to “give us time to review and put in place our new processes before sending further requests for military vessels to enter the country.”
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Middle East
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Lebanese face skyrocketing telecom prices amid worsening inflation. In July, Lebanon’s telecommunications ministry raised cellular prices to keep pace with the country’s estimated 84% annual inflation, according to Johns Hopkins professor Steve Hanke. Since then, cell service costs have risen by over 500% and internet costs have more than doubled, the Washington Post reports.
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With a 74% poverty rate, according to UN estimates, much of Lebanon’s population can no longer afford cell phones, which are essential tools for a host of modern economic tasks.
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Cellphone service is not out of reach for many Lebanese. Photo: Hassan Ammar/AP
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Worsening the crisis, employees at three of the nation’s largest telecom providers went on strike over limited wages last week, causing coverage blackouts in parts of the country. The Lebanese telecoms sector is state-run, and has been accused of mismanagement and corruption for years before the recent price surge.
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Final building in Beirut port collapses two years after explosion. Two years after an ammonium nitrate explosion rocked the Lebanese capital of Beirut, aftershocks are still being felt. The final grain silo standing in Beirut’s port collapsed Tuesday, the Washington Post reported. No injuries were caused, as the government evacuated the area prior to the collapse.
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The silo fell as the city continues to contend with governmental corruption and ineptitude that allowed combustible chemicals to be improperly stored near a residential and commercial district for six years before the 2020 blast. The explosion caused 218 deaths and more than 7,000 injuries, and displaced over 300,000 residents, according to Human Rights Watch.
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The collapsed northern section of the Beirut grain silos seen on August 23rd. Photo: Issam Abdallah/Reuters
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Activists and lawmakers saw the damaged-but-still-standing silo as a reminder urging governmental reform. A July bill sought to classify the silo as a protected heritage site, but parliament never voted on the measure following a heated chamber debate. A Lebanese judicial probe into the causes for the port explosion started in 2020 but has been held up by officials alleging bias or asking for immunity from the investigation.
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The project to expand output at one of the biggest Iraqi fields, with 16 trillion cubic feet of proven reserves, was originally suspended at the end of June after three rocket attacks. The resumption of attacks has halted long-standing plans to double production and create another pipeline to Turkey.
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With critical players pulling out of projects, delays risk costing the Kurdistan Regional Government (KRG) up to $40 million a month in payments to a UAE-based gas group if key project deadlines are not met. Such setbacks would be a major hit to the government, already reeling from an economic crisis, a supreme court decision that decided against regional oil production, and a debt load that has hit $38 billion, according to government officials.
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Iraqi cleric’s retirement sparks deadly violence in Baghdad. In the hours after populist Iraqi Shiite cleric Moqtada al-Sadr announced his retirement from politics this week his supporters stormed the presidential palace in Baghdad, causing skirmishes that left at least 30 dead, Al Jazeera reports. On Tuesday afternoon, al-Sadr released a video calling on his supporters to leave the so-called Green Zone government district in Baghdad.
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Supporters of Iraqi populist leader Muqtada al-Sadr protest at the Green Zone in Baghdad. Photo: Thaier Al-Sudani/Reuters
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The protest marked the latest in a string of violent encounters between Iraqi Shiites seeking to take control of a parliament that has been in deadlock since elections failed to produce a government last October. Al-Sadr’s supporters have stormed parliament on multiple other occasions this summer, staging sit-ins that frequently have turned violent.
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Latin America
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Political crisis pummels Peruvian development after decades of growth. A sustained political crisis and stagnation have finally begun to erode Peru’s status as the fastest growing major economy in Latin America, reports Reuters’ Marcelo Rochabrun. Since 2011, the rapid succession of politicians and corruption scandals had failed to slow an economy boosted by commodity exports to become the fastest growing of major Latin American economies.
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Recent World Bank and IMF forecasts show that this trend has ended, with Colombia overtaking Peru for the top spot as Lima expects to see growth decrease to 2.2% for the year. While the big three ratings firms have yet to downgrade Peru’s debt, multiple research notes have recently concluded that politics poses significant downside risks for the economy as President Pedro Castillo’s government introduced austerity measures to reduce the budget deficit while the central bank pursues a scorched earth approach to inflation.
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A protest earlier this year over soaring food prices in Peru. Photo: Daniel Becerril/Reuters
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Such government moves come as international investors have stepped away from Peru, discouraged by the far-left platform of then-presidential candidate Castillo and a combative congress that has disrupted critical mining and economic policy reforms and triggered highly disruptive protests. Amid a global risk-off sentiment, an inflation crisis and rapidly falling government spending, business confidence has fallen below 2008 levels just as austerity makes private investment critical for Peru’s prospects.
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Argentina dodges crypto winter amid inflation, parallel exchanges. While the sustained fall in cryptocurrencies has wiped out billions in wealth and pushed El Salvador to the brink of default, Argentines are sticking with digital money as a hedge against inflation and a weak currency, the NYT’s Ana Lankes reports. While bitcoin’s fall was nearly twice that of the peso, from $65,000 in 2021 to around $24,000, the history of economic crisis and currency erosion means that many Argentines have more faith in crypto than the peso.
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Cryptocurrency consultants in La Plata, Argentina. Photo Sarah Pabst for the NY Times
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With inflation expected to reach 90% by December, the government repeatedly printed pesos to afford budget deficits, making saving near-impossible for most households. Government moves to try to discourage Argentines from buying dollars to hedge against continued inflation have transformed cryptocurrencies such as ether and bitcoin into natural inflation hedges.
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More than a third of Argentines said they trade cryptocurrencies at least once a month, with a similar figure keeping savings in crypto, according to Morning Consult. Other countries such as Nigeria and Venezuela show how inflation-hedging may be the assets’ best use case, but the nearly 60% of Argentines who believe bitcoin will retain value better than the peso highlights the future for such projects—despite the current “crypto-winter”—amid ever-decreasing trust for governments in emerging markets.
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What we’re reading
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Ghana’s parliament begins anti-corruption probe into Covid expenditure. (The Africa Report)
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Western-style democracy can spark anarchy, Benin president says. (Bloomberg)
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Kenya’s new highway signals shift in China’s lending blitz in Africa. (Nikkei)
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Ethiopia downed plane carrying weapons to TPLF rebels. (Sudan Tribune)
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DR Congo seeks to ‘reclaim history’ with economic reforms. (FT)
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Zambia: In his first year Hichilema stabilized the kwacha, but corrupt officials remain untroubled. (The Africa Report)
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Zambia gets IMF bailout, marking progress for G-20 debt plan. (Bloomberg)
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‘People openly mock them’: Angola’s elite face electoral backlash. (FT)
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Macron seeks to reset France-Algeria ties. (FT)
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Bangladesh tea strike spotlights poorest workers’ inflation plight. (Nikkei)
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Pakistan looks to Russian wheat to make up for flood-hit crops. (WSJ)
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US commits to Afghan asset talks despite frustration with Taliban. (Reuters)
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Philippine sugar ‘crisis’ tests Marcos’ pro-farms push. (Nikkei)
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Thai court suspends PM Prayuth; Prawit made acting PM. (Nikkei)
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Malaysia PM reckons economic risks may spur election this year. (Nikkei)
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China’s ASEAN Silk Road gets slippery as other powers move in. (Nikkei)
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Turkey doubles Russian oil imports, filling EU void. (Reuters)
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UAE reinstates ambassador to Iran after six-year absence. (The Gurdian)
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Official says nearly 10,000 cryptocurrency mining devices seized in Iran. (Radio Free Europe)
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US says it struck bunkers used by Iranian-backed forces in Syria (NYTimes)
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Yemeni southern separatists launch military campaign in Abyan. (Reuters)
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Qatar detains workers protesting late pay before World Cup (AP)
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Serbia to buy electricity from Azerbaijan ‘on favourable terms’. (BalkanInsight)
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Azerbaijani forces take over strategic town linking Armenia with Nagorno-Karabakh. (Radio Free Europe)
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Poland will double military spending as war in Ukraine rages. (Bloomberg)
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The first shipment of Iranian military drones arrives in Russia. (NYT)
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Argentine prosecutor’s office requests 12 years in prison for Cristina Kirchner. (MercoPress)
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Argentina president accused of threatening prosecutor. (AP)
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Paraguay’s exports in seven months reached $5.8b; Mercosur represents 63%. (MercoPress)
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El Salvador ‘stops buying energy’ and starts selling surplus. (BNAmericas)
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Thousands protest in Haiti over crime and inflation. (Reuters)
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Cuban migrants head to US in record numbers. (WSJ)
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Chile’s IMF deal helps stabilize the peso. (ING)
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Brazil consolidates as China’s main supplier of agriculture produce. (MercoPress)
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Lula pushes Brazil-Indonesia-DRC rainforest alliance if elected. (Reuters)
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