Written By: Darren Morris – Corporate Finance
Five of Latin America’s six largest economies will be choosing new presidents over the next 15 months. With such a substantial potential for fundamental change across the region, emerging-market analysts are wringing their hands at some of the candidates garnering substantial leads in their respective races. Anti-establishment waves seem to be giving credence to populist candidates in Mexico and Brazil—the region’s largest economies—and a divisive peace deal with the FARC (Revolutionary Armed Forces of Colombia) seems to be distracting much of the Colombian field of candidates. Meanwhile, internal party bickering seems to be splitting the ticket in Paraguay. Contrast this with Costa Rica and Chile, which seem on track to maintain their characteristic stability.
But neither of these two can counterbalance the unprecedented handovers in Cuba and Venezuela—which is currently slogging through daily anti-government protests. Overall, the region is expected to pull out of its recent slump and return to growth through 2017 and 2018. Reports from the financial sector and international monitors, such as the International Monetary Fund (IMF), expect the recovery to pick up speed as international conditions improve over the medium-term. Banner agricultural crops, recovering oil and mineral prices, and increased consumer confidence are all contributing to the region’s recovery. But the prospective candidates are still not set in stone, and a long time stands between now and when the dust settles in the region.
Brazil, the region’s largest economy, has struggled with a corruption scandal that has rocked the political establishment. Following the impeachment of former President Dilma Rousseff, interim President Michel Temer has worked to pull the country out of its historic recession. But Temer was implicated in the Odebrecht and Petrobras scandal, and has only recently been found not guilty following his recent trial. Temer has publicly stated that he won’t be seeking re-election, leaving the seat open to two front-runners: former President Luiz Inácio Lula da Silva (Lula) and environmental activist-turned politician Marina Silva (no relation). Lula was recently found guilty on corruption charges and is appealing the verdict, but if found guilty will be unable to run. Runoff simulations suggest Silva will take victory in October 2018, but her party will likely have to form a coalition with one of the larger parties to pass legislation. With many in the National Congress falling victim to the sweeping corruption investigations, it is likely that the political uncertainty will bleed into 2018.
Pushing back against hostilities from US President Donald Trump has propelled populist candidate Andrés Manuel López Obrador to the front of the pack in Mexico’s elections. The left-leaning candidate has capitalized on widespread discontent with the government and sentiment that President Enrique Peña Nieto has largely been a failure in the country. López Obrador has railed against the government and has stated he would repeal many of the reforms implemented by the Peña Nieto government. Moreover, he is expected to take a hardline stance against President Trump and push back on any concessions expected during the renegotiation of NAFTA (North American Free Trade Agreement). Viewing this as a threat, the current government is looking to snap up a deal before year’s end to ensure that the new deal is completed before López Obrador takes office. This haste has prompted many analysts to believe that the new NAFTA deal will emerge relatively unscathed, with a few minor tweaks.
Colombia is currently grappling with a FARC peace deal that government opposition—led by former President Álvaro Uribe—is looking to dismantle. Current President Juan Manuel Santos secured the peace deal in his most recent months, and he is currently looking to finalize a peace deal with the country’s second paramilitary group, the ELN (National Liberation Army). However, the growing crisis in Venezuela may flood Colombia with political refugees that could strain the country’s social services. With 30 candidates in the field, the election is still too far out to predict, but the recovering economy seems set to rebound in 2017, giving investors reason for joy.
Chile’s public discontent with current President Michelle Bachelet means that former President Sebastián Piñera will breeze into victory this coming November. The former businessman is expected to implement various market-friendly policies to restore the country’s stellar credit ratings. While copper prices are recovering, he’s expected to substantially diversify the economy to bolster the country from commodity price shocks.
The ongoing saga in Venezuela has created an ever-present crisis as government and opposition clash both in the legislature and in the streets. While current President Nicolás Maduro lacks the support to win a decisive victory, two of the three opposition candidates are unable to run—Leopoldo López is currently in jail, and Henrique Capriles is barred from running for 13 years. The third candidate, Henry Ramos Allup, is a divisive character in his party, and he may not garner the support necessary in the MUD (Mesa de la Unidad Democrática) coalition to win next December. This split in the opposition may give Maduro the opportunity he needs to stay in power, practically assuring that instability will continue to plague Venezuela.
As Cuban President Raúl Castro prepares to step down, the heir apparent—Vice President Miguel Díaz Canel—should take office in February 2018. While he has stated that he would like to reform the state-run media and Internet access, his long-time party membership suggests that he will be a relative continuation of the decades-long Castro regime. With US President Trump reversing the rapprochement started by his predecessor, President Barack Obama, little is expected to change for the island nation.
Amidst the melee, Paraguay and Costa Rica both seem set for characteristically stable hand-offs of power and steady growth. Paraguay’s man to beat, Mario Abdo Benítez, seems as if he will retain much of the ruling administration and govern along the same path that his predecessor, Horacio Cartes, has laid out for the country. In Costa Rica, the election is Álvarez Desanti’s to lose. While he plans to reform the country in many ways, his silence on Costa Rica’s fiscal conditions and tax collection have many wringing their hands about the fate of the country’s dwindling foreign reserves.