Regional Political Risk: Growth And Elections In Focus

BMI View: P olitical risk will remain elevated in Latin America over the next 12 months . S lowing economic activity will see social tensions rise in some of the region's largest economies, while a busy electoral calendar increases uncertainty related to policy trajectories. The latter risk is particularly acute in Central America, where third-party candidates are making strong presidential bids in Honduras and El Salvador.

A combination of shifting growth dynamics, which will see economic activity slow significantly in several of Latin America's largest economies, and a number of key elections has the potential to significantly alter the political landscape in the region in the next 12 to 14 months. Our view for weaker economic activity and currency depreciation in many major Latin American economies , due in part to our view for a multi-year slowdown in China, means that we expect governments to increasingly disappoint citizens who have become accustomed to fast growth, rising incomes and cheaper imports. As such, we believe that the signs of fraying social fabric in the region seen in recent months, in the form of major protests in Brazil, Chile , and Peru are sign s of things to come , helping to complicate re-election bids for some incumbents in the region, and potentially leading to greater political turnover in the coming years ( see 'EM Turbulence To Continue As Policymaking Becomes Increasingly Difficult', June 21 ).

I ndeed, i n Chile , large scale protests over education reform have been tied to the country's still - significant income inequality and the perception that the government has not adequately distributed the gains of the country's fast growth in recent years. These issues echo those in Peru, and we believe they are only likely to be exacerbated by a further slowdown in growth in the coming years. Meanwhile, i n Brazil, an isolated protest over a bus tariff hike ballooned into a widespread protest movement in June , which encompass ed a range of issues including the poor quality of public services, misdirected government spending, rising living costs, and corruption. Moreover, should progress on legislative reforms stall in the coming months, we could tensions flare up once again , particularly in advance of the FIFA World Cup in June 2014 , causing us to downgrade the 'social stability' subcomponent of our Short-Term Political Risk Rating for the country once again ( see 'Public Unrest: Assessing The Policy Implications', June 20 ) .

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This article is tagged to:
Sector: Country Risk
Geography: Latin America, Brazil, Chile, Colombia, Honduras, Mexico, Peru, El Salvador

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