Emerging Political Dynamics In Latin America

Shifting economic growth dynamics and a number of key elections have the potential to significantly change the political landscape in Latin America over the next 12 to 14 months. In a feature article published in Business Monitor Online this week, we highlight some of the major trends:

1) Shifting growth dynamics. Given that we expect slower real GDP growth in China to result in currency depreciation and weaker economic activity in a number of major Latin economies, the ruptures in the social fabric of several countries seen in recent months will persist over the next few years. In particular, we see potential for further unrest in Brazil, should the promised reform drive fail to gain traction in the coming months. In fact, while President Dilma Rousseff remains the frontrunner ahead of presidential elections next October, she could find the campaign far more challenging than expected. Meanwhile, Chile and Peru are likely to see tensions continue to rise on the back of concerns that the wealth from their mining boom has not been adequately distributed.

2) Despite more favourable economic outlooks for Mexico and Colombia, they will not be immune to political risk in the next few years. Colombia could experience further labour unrest, which has disrupted economic output in recent months. This, combined with little progress on talks with left-wing insurgent group FARC, means that President Juan Manuel Santos' re-election next year is increasingly in doubt. Meanwhile, we believe that the Mexican government will face continued push-back related to its ongoing reform drive.

3) Political risk will remain elevated in Argentina and Venezuela. We anticipate that a setback for Argentina's ruling Frente Para la Victoria party in mid-term elections to be held later this month would increase the potential for the more moderate wing of the Peronist coalition to gain prominence. In Venezuela, a sputtering economy, and widespread shortages of US dollars and staple goods, will keep political risk at elevated levels.

4) Third-party candidates are keeping some elections in Central America too close to call, meaning that policy uncertainty will persist in the coming months. Moreover, we see scope for hotly-contested presidential contests in Honduras and El Salvador to cause social tensions to move higher, increasing the risks of election-related violence.

As always, subscribers can read our full political, economic, financial market, and industry coverage of Latin America on Business Monitor Online.