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Latin America: turning the populist page

Economic Report


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  • Developments in the past year indicate political risk has increased and Latin Americans are more likely to protest
  • 2016 has been a tumultuous year, characterised by a shift to the right in election results and away from populism in policy and numerous corruption scandals
  • We have also seen the early departure of two presidents on the continent, in Brazil and Guatemala. As the factors that in the past used to trigger early departures of presidents are prevalent on the continent, we could see more demands for political change in the region
  • The higher level of discontent seems to be related to the deterioration of purchasing power in recent years, particularly in South American countries
  • We see current political and social risk levels lingering for a while, as purchasing power indicators will either get worse before they get better or only a mild improvement is forecast

Higher political risk

In our previous Latin America study dated roughly a year ago, we concluded that the commodity bonanza of the past decade had enabled governments to pursue more populist policies that in turn propped up the approval ratings of incumbents. As the commodity cycle came to an end in 2011, we expected political risk and discontent to increase in the near future. According to the political risk indicator in figure 1 this trend has indeed materialised, and political risk has risen to some extent in many countries. Only Argentina, Guatemala and Guyana have experienced a decrease in political risk in the past year. The improvement in Argentina was driven by an unexpected opposition election victory that put an end to Kirchnerism and its erratic, highly interventionist and economically unsustainable policies. The significant deterioration of the political situation in Brazil is related to a gigantic corruption scandal, the Lava Jato (see below).

The link with commodity prices has also been reinforced by developments in the past year, since the deterioration in political risk has been more pronounced in South American countries where commodities play a more important role. In concrete terms, it has been a tumultuous year that has led to a general shift to the right in election results (Venezuela, Argentina and Peru) and away from populism in policy (e.g. Brazil, Argentina). The year was also marred with corruption scandals like the gigantic Lava Jato in Brazil, that led to numerous arrests among the business elite and indirectly the impeachment of the president, or the illegal customs scheme in Guatemala that toppled the government and led to early elections. And, let us not forget, the corruption scandal involving former Argentinian president Christina Kirchner, which is actually boosting the popularity of the government that took over in December 2015. Even the country with the best reputation on the continent was not left unaffected, as Chilean president Bachelet and her family have also faced corruption allegations.

Figure 1: Political risk has increased
Figure 1: Political risk has increasedSource: IHS
Figure 2: Risk of protests edged higher
Figure 2: Risk of protests edged higherSource: IHS

The numerous corruption allegations seem to be related to a downturn in the economic cycle. Having less benefits to distribute and less power to share, incumbents lose influence and other parties get emboldened to take action against them. The allegations have fuelled discontent with current governments and, as only few countries held elections, there is now a higher risk of protest (Figure 2). 

Old habits die hard?

In the past, corruption scandals and protests have played an important role in triggering political change. Latin America has a remarkable history in removing presidents from office before the end of their terms. Between 1987 and 2003, 16 presidents had their term in office challenged and nine of them had to step down prematurely in the end (25% of the presidents elected). This has damaged political stability. Hochstetler (2006) has analysed this period and concludes that a combination of three factors led to the presidents’ term in office being challenged: implementation of neoliberal policies, involvement in scandals and a minority government in the congress.

Ultimately, such challenges led to a premature departure of the president from office, when reinforced either by street protests or public support from civil bodies (e.g. the legislature). It is notable that many of these factors played a role in the early departure of the presidents in Brazil and Guatemala this year. The continent features many minority governments, and the end of the commodity boom has forced some of these governments to introduce painful and highly unpopular reforms, especially in South America. As the factors that have led to early presidential departures in the past are more prevalent on the continent, we expect the need for political change to become more pressing, especially since the risk of protest has been picking up as well. However, greater political stability in the past 13 years should have allowed the young democratic institutions to mature. And this should in turn reduce the likelihood of disruptive events taking place in the future.

"It’s the economy, stupid"

The rising dissatisfaction on the continent also originates from economic developments. In 2015, purchasing power was eroded by higher unemployment and high inflation in many countries (Table 1). It is remarkable to note that of the four countries in which both these indicators have deteriorated, three witnessed political change in 2016: in Brazil the president was impeached, and in Peru and Venezuela the opposition won the elections. In addition, the two countries with extremely high inflation in 2015, Argentina (27%) and Venezuela (121%), witnessed political change. Thus the deterioration of purchasing power seems to have a lagged effect on political dynamics.

Table 1: Purchasing power-related economic indicators
Table 1: Purchasing power-related economic indicatorsSource: Macrobond, IMF
Note: a positive value indicates a deterioration of the indicator over the stated period

Looking forward, considering the level and/or the development of inflation, the sharp erosion of purchasing power in 2015 and 2016 (estimates) could lead to higher dissatisfaction next year in Argentina, Suriname and Venezuela, and to a lesser extent in Colombia, El Salvador, Guatemala, Nicaragua and Paraguay. High and rising unemployment is an issue in Brazil and Colombia. However, in countries where there has been recent electoral political change, like Argentina and Guatemala, governments are benefiting from a popular mandate for change and are enjoying a honeymoon period. This also applies to some extent in Brazil, but here the impeachment of President Rousseff has also increased discontent with the new government among parts of the population. In some countries dissatisfaction may be expressed at the ballot box, since Argentina, Chile and Ecuador are holding elections next year. In Argentina, the government needs to show some economic improvement by then. In Chile and Ecuador, the economic deterioration of recent years is likely to boost the opposition in both countries, though it remains to be seen whether this will be enough to trigger change.

On a more positive note, most vulnerable countries will see their economic situation improve next year, and that should reduce the pockets of dissatisfaction in the longer term. This could happen more quickly in Central America, as the low levels of inflation and unemployment in 2016 could be reflected in less discontent in the coming year. All in all, the current levels of political and social risk are likely to linger for a while.


Hochstetler K. (2006), Rethinking presidentialism: Challenges and Presidential Falls in South America, Comparative Politics Vol. 38, No , p 401-418

Abbreviations for sources: IMF: International Monetary Fund

Abbreviations used for countries: AR: Argentina, BZ: Belize, BO: Bolivia, BR: Brazil, CL: Chile, CO: Colombia, CR: Costa Rica, EC: Ecuador, SV: El Salvador, GT: Guatemala, GY: Guyana, HN: Honduras, MX: Mexico, NI: Nicaragua, PA: Panama, PY: Paraguay, PE: Peru, SR: Suriname, UY: Uruguay, VE: Venezuela

To the Regional study Latin America: changing course overview page

Alexandra Dumitru
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO

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