/Election Season in Latin America

Election Season in Latin America

From a distance, Latin America shows a tempting array of positive indicators. In most of the region’s economies, the painful slowdown triggered by the 2014 collapse in commodity prices has largely ended. Economic growth across the continent is expected to expand from 1% in 2017 to 2.4% in 2018. Commodity prices have stabilised and consumer demand is picking up.

Latin America is also benefiting from a friendlier external environment, including a renewed thirst for yield in the richest nations, which should drive increased capital inflows. This favourable atmosphere has reduced inflationary pressures and allowed most central banks to slash interest rates, with the notable exception of Mexico.

Increasing demand in the largest markets will provide a boost in the consumer goods, pharmaceuticals and automotive sectors, to name a few. Resource-based opportunities will flourish, from major oil and gas deposits in Guyana to the lithium triangle in Chile, Argentina and Bolivia.

This trend of economic recovery has also been supported by some decreasing geopolitical risks. Investors have heaved a sigh of relief that Donald Trump might not be as disruptive to the region as originally feared, though prudence dictates keeping a highly watchful eye on negotiations between the US, Canada and Mexico over the North American Free Trade Agreement (NAFTA).

Latin America goes to the polls

Still, a full retreat from political risk remains far from assured. Uncertainty will continue to act as a brake on investor enthusiasm. One major driver of uncertainty is public dissatisfaction with mainstream political parties. Across the region, voters feel increasingly disconnected from their representatives. Economic mismanagement, incompetence, corruption – and often a combination of all three – have driven a wedge between the electorate and the elected.

Anti-corruption enforcement trends from Argentina to Mexico have exacerbated hostility towards public officials. In Brazil, no major political party can claim to have benefited from recent corruption scandals; all have been tainted to some degree by the “Car Wash” investigation. The fact that newer parties have failed to gained traction has further compounded the issue. Four major economies head to the polls in 2018, sharing an unusual level of political unpredictability.

Brazil

Leading the pack is Brazil, facing its most unpredictable election cycle in recent history. The two-party race that has characterised most presidential elections over the past two decades is already a distant memory. So far, there is no indication as to what will replace it – other than an unprecedentedly large number of pre-candidates. A wave of corruption scandals has shattered the reputation of all the country’s major political parties, fostering a profound mistrust of political elites and ultimately increasing calls for a populist alternative.

The country will also test new campaign financing rules following the Supreme Court’s 2015 decision to ban corporate donations. Last but not least, while investors are hoping that the new government will lead on implementing austerity measures to rebalance public finances, it is unclear whether such a mandate will be popular among voters. Investors willing to benefit from Brazil’s economic recovery – GDP is expected to grow by 2.4% in 2018 – will have to monitor political risks closely.

Mexico

In Mexico, the populist rhetoric of leftist leader Andrés Manuel López Obrador has made him the frontrunner in most opinion polls ahead of the July 2018 presidential race.

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