The last weeks of 2022 and the first weeks of this 2023 have shown how convulsed Latin America is in political terms, faced with a marked polarization in the discourse of leaders, confrontations in the streets and, in some cases, tragic endings.
And while the forecasts for the region anticipate an economic slowdown in most nations, the political and social conflict adds a challenge for the region and makes the scenario it faces more uphill.
Today the country that is going through the most sensitive moments in the region is Peru: since the removal and imprisonment of former President Pedro Castillo, which occurred after the former president tried to close Congress and intervene in judicial institutions, it has sparked protests throughout the country against of the current president, Dina Boluarte, and against both Boluarte and the Peruvian Parliament remaining until 2026.
Although the advance of elections continues its course in Congress, the confrontations at the national level are increasing and to date have left a balance of 53 deaths.
Thousands of people arrive in Lima, the capital of Peru, for a massive march this Thursday, January 19, while the National Police gets ready to protect the largest city in the Andean country and the various critical national assets found in the province.
But the case of Peru is not the only one: in Brazil, the main economy in Latin America, supporters of former President Jair Bolsonaro invaded the National Congress, the Supreme Court and the presidential palace to protest against an alleged fraud in the last elections.
Although Brazilian democracy showed antibodies to repel the attack, a yellow light came on on the horizon.
Bolivia is also experiencing particular moments, where the main opposition candidate and governor of the department of Santa Cruz, Luis Fernando Camacho, was imprisoned by justice after being found guilty of leading an alleged coup against former President Evo Morales in 2019.
Last year Santa Cruz experienced 36 days of unemployment, encouraged by the local government, against the national government’s decision to delay the population and housing census.
This situation caused economic losses to the country, since Santa Cruz is the locomotive of Bolivian activity.
As is perceived, the political and social frictions vary in the Latin American countries but they do not stop sharing some characteristics.
Bloomberg Línea discussed with various experts the challenges that each country assumes and what is expected for economic activity in the face of social upheaval.
PROTESTS IN PERU: IS THE ECONOMY AT RISK?
The confrontations in Peru seem to have no end. With fifty deaths and clashes between civilians and law enforcement, as well as acts against property and key infrastructure at the national level, the Andean country is facing one of the most polarized moments in its republican history.
From the Peruvian business community, various unions have expressed their discomfort in relation to how the protests harm the business climate.
Some Peruvian organizations formed a collective called “Peruvians for peace”, which brought together religious groups, agricultural producers, labor unions, professional associations, regional chambers, micro and small business organizations, and various business associations.
However, despite the efforts to promote dialogue, these groups have not been able to find the necessary consensus to avoid the increase in protests that are particularly concentrated in the south of the country and that this Thursday, January 19, will be felt in Lima.
Various human rights organizations have called for the police repression to cease after the more than 50 deaths that have occurred in the political and social crisis.
In turn, the government of Dina Boluarte has referred to infiltrators who use violence during the marches and has called for an end to acts of vandalism during the marches at the national level.
Even so, and despite the six presidential changes that Peru has faced in the last six years, the Peruvian economy surprises its regional peers for the monetary and fiscal stability that has characterized it in the last two decades.
The country maintains a fiscal deficit of 1.6% of GDP and its economic activity would have grown almost 3% in 2022, while inflation, although it is above the target range, remains below several of its peers in the region.
But the political deterioration generates more and more risks for the outstanding economy of the Andean country.
Paola del Carpio, economist and REDES Research Coordinator, recalls that the risk rating agencies Fitch Ratings and S&P revised the outlook for the Peruvian debt from stable to negative despite the nation’s good financial conditions, as a result of the political chaos and that impacts the country and that could complicate its macroeconomic scenario.
However, the current political and social upheaval would have a greater impact in the short term, which would even be less if the situation can be resolved soon.
Elmer Cuba, former director of the Central Reserve Bank and main partner of Macroconsult, remarked that despite the political clash and crisis, this year Peru is expected to grow more than several of its regional peers; and he stressed that if the conflict is resolved this January “in a good way” 2023 should not look bad for the local economy and its speedy recovery.
“The biggest effect is how this is going to be resolved. The way it is resolved is going to be very important. If the conflict is resolved with social peace and the early elections, it is a good sign; but if the government falls, the message would be harmful because you are demonstrating that through violence you can destabilize the institutions. There, the medium-term effect is stronger in Peru on private investment,” Cuba specified.
For Paola del Carpio, the immediate impact will be seen in the south of the country “which is not negligible” due to its weight on the Peruvian economy.
“There are 17% of the country’s workers and 18% of the GDP accumulates in the southern regions. In addition, there are two key sectors that are the mining sector and tourism, as well as agricultural exports. At the end of the day, everything is affected because if you close a road, there is no way to get to the port of Callao if you need to export. You have losses on several sides”, commented the economist.
Although primary activities such as agriculture and mining have not interrupted their operations despite the protests, tourism, which predominates in the southern regions and supports local economies (especially in provinces such as Cusco), would be significantly affected in what comes from this 2023.
“Receptive tourism, which is the one that moves the wheel the most, which goes far beyond activities on a smaller scale, is not planned from one month to the next and many reservations have been cancelled. We would be talking about a very complex first semester for the tourism sector and hopefully in the second semester we will improve,” said del Carpio.
Cuba agreed that in the short term there will be an impact, especially economic, in the Peruvian cities where there is the greatest conflict, such as Puno, Cusco, Arequipa and even Ica, where commercial circuits have been cut, which could have a significant impact on consumer prices for month of January as well as in economic and commercial activity.
However, the economist considered that these activities “are not important at the national level due to the high concentration of services, goods and industries in Lima, and due to the large mining and agro-export units that have not stopped.”
“Politics and the economy in Peru are very intertwined. They always have been. In years of high growth we have taken advantage of going faster in public policies in areas such as education and health. Now you see the strongest connection with private investment that is low by Peruvian standards. It’s a bit slower start to the year than we expected but it remains to be seen how things pan out. What we see now is an anti-system coalition that is challenging the Peruvian State and how this is resolved will be key,” Cuba pointed out.
BRAZIL: HOW WOULD THE SOCIAL UPHEAVAL AFFECT THE REGION’S LARGEST ECONOMY?
After the presidential elections in Brazil, the country has faced quite convulsive scenarios.
The Brazilian economist Carla Berni, an MBA professor at Fundación Getulio Vargas, reflected on how political confrontation could impact the largest economy in Latin America:
“Investments have, in a simplified way, three origins: public, private and external. All of these agents require long-term planning, considerable amounts of capital, and most importantly, the certainty that there will be no breaches of contract. At this point the legal security of the democratic rule of law comes into play, that is, more important than obtaining benefits on a productive investment in the long term is to have the certainty that your rights will be preserved”.
Based on this analysis, Berni considered that the possibility of a democratic rupture paralyzes all investments, public, private and foreign.
However, as a positive aspect, the economist pointed out:
“After the invasion on Sunday, January 8 in Brasilia and the attempted coup, the financial market opened higher on Monday and remained so until the close. How can we interpret this fact? The rapid reaction of the current government, with the necessary legal framework, the arrests and, above all, the symbolism in the image of the current president walking arm in arm with the minister of the Supreme Court and the governors, paved the way for the certainty that democracy has been strengthened in Brazil”.
Recently, the US consultancy Moody’s highlighted in a report that: “The risk of political and social turbulence increases in Brazil and this increases uncertainty about the business climate.”
A few days ago, Gerardo Esquivel, former deputy governor of the Bank of Mexico (Banxico) and now a teacher and researcher at the Colegio de México, gave an interview to the newspaper El Financiero and attributed the decline in private investment in Mexico to polarization and uncertainty.
For her part, the Chilean academic Alejandra Márquez, a researcher at the Center for Political Analysis (CAP) of the University of Talca, argued that the political crises that some Latin American countries have faced have led to an analysis of the social, political and economic impact, not only in these nations, but at a regional and international level.
“The focus of the authorities has been to safeguard democratic institutions, however, it has been a difficult path considering the widespread discontent, lack of legitimacy in the authorities, and the problems of each country,” she said.
Márquez indicated that America has been seen, therefore, submerged in a political and social chaos that requires certainties.
“As integration and cooperation between countries increase, the problems that afflict some bring effects to others, which is why stability is required. Although, at the regional level, support for democracy has been seen in the nations to a great extent, joint efforts will also depend on the national actions that are taken, since, ultimately, each country has its own challenges.”
ELECTIONS IN LATIN AMERICA DURING 2023: THE PANORAMA
During 2023 there will be elections in nine Latin American countries and in three of them there will be presidential replacement: Guatemala, Paraguay and Argentina.
Precisely in the latter country, mandate changes tend to have an unusual impact on the financial market.
In 2019, when the current president Alberto Fernández took a huge difference in the primary elections, the country suffered the second largest stock market crash in the history of global capitalism.
This cataclysm on the stock market was due to the market’s rejection of Cristina Fernández de Kirchner, former president and current vice president of Alberto Fernández.
However, this year Argentine assets do not stop rising, partly due to an electoral trade: the market has been buying greater political moderation starting next year, either due to a victory of a more pro-market opposition and due to the enormous chances that the ruling party faces the electoral contest with its most moderate candidate.
That is, the current Minister of Economy, Sergio Massa.
However, the country is subject to enormous financial and exchange volatility, as well as phenomenal price increases. Inflation in 2023 closed at 94.8%, one of the highest records in the world.
GOLDMAN SACHS SEES “HIGH” LEVELS OF “POLITICAL NOISE AND UNCERTAINTY” FOR CHILE IN 2023
“In Chile, there will be a second attempt to reform the constitution, a complex and lengthy process that is likely to last all year and is scheduled to conclude with a mandatory plebiscite in December to ratify/reject the proposed new constitution,” wrote in his report, Alberto Ramos, managing director head LatAm Economics of the US bank Goldman Sachs.
The economist also considered that the Andean country will have to face “the debate on fiscal and pension reforms, of great importance, and the outbreaks of public insecurity, should keep political noise and political uncertainty high.”
MOODY’S BELIEVES THAT LATAM GOVERNMENTS WILL HAVE TO MAKE “DIFFICULT” DECISIONS
“Latin America’s political agenda will likely continue to focus on providing assistance to households in the short term in the face of escalating food and energy prices, leaving little fiscal space for public investment,” said in a report, Jaime Reusche, vice president – senior credit officer of the US risk rating agency Moody’s.
“In this context, the effectiveness of social policies will be key when designing social programs to avoid overspending and invest resources in desired social outcomes,” he adds.
In that same report, Moody’s Investors Service pointed out that the outlook for the debt of Latin America and the Caribbean for 2023 is negative, due to the slow economic growth in the region, higher financial costs and the continuous increase in the cost of living, which will lead to to make difficult political decisions in the next 12 months.
THE POLITICAL AND SOCIAL UPHEAVAL IN OTHER COUNTRIES OF THE REGION
Although the cases of Brazil, Peru and Bolivia were the most resonant in recent days, Humans Right Watch highlighted in its latest report many other situations that shed light on the delicate situation that the region is going through in terms of violence and confrontations.
In Mexico, during the administration of President Andrés Manuel López Obrador, violent crime has reached all-time highs.
López Obrador has deepened the failed militarization strategies implemented by his predecessors, replaced civilian police officers with soldiers, and reduced support for ordinary criminal justice prosecutors. Crimes are almost never investigated or brought to trial.
In Colombia, President Gustavo Petro took office in August, in a climate of increasing violence caused by armed groups. They are also concerned about the history of police abuse and the high rates of poverty, especially in indigenous and Afro-descendant communities.
During 2022, new presidents were elected or took office in Brazil, Chile, Colombia, Costa Rica and Honduras.
Some elections were held in a context of political violence and attacks on the independence of electoral institutions, and there were numerous candidates who proposed weakening human rights and democratic guarantees.
In Honduras, the government of President Xiomara Castro suspended some fundamental rights in certain areas of the country with the alleged objective of combating crime, creating the conditions for possible abuses.
The Government took an important step to strengthen the rule of law by signing a memorandum of understanding with the UN for the creation of an international commission against corruption. It will be critical that Supreme Court justices be selected on the basis of merit.
In El Salvador, the heavy-handed measures imposed by the government of President Nayib Bukele in terms of security and the accelerated dismantling of democratic institutions have led to widespread human rights violations by the security forces.
In Cuba, Nicaragua and Venezuela, oppressive regimes commit egregious abuses against critics to silence dissent.
In Guatemala, President Alejandro Giammattei and the Public Ministry have obstructed legal proceedings for acts of corruption and other serious crimes, and have promoted spurious criminal proceedings against judges, prosecutors, and independent journalists.
Ecuador experienced a significant increase in the number of homicides and in violence perpetrated by gangs.
Overcrowding and a lack of state control in prisons have allowed gangs to recruit new members into them and murder more than 400 detainees since 2021.
Assassination attempts in Argentina and Colombia
Both the Vice President of Argentina, Cristina Fernández de Kirchner, and the Vice President of Colombia, Francia Márquez, suffered attacks that could have ended their lives.
The assassination attempt on Cristina Fernández de Kirchner happened on Thursday, September 1, 2022 in the Recoleta neighborhood, Buenos Aires.
The attacker was Fernando André Sabbag Montiel, who pointed a Bersa pistol at the Vice President of the Argentine Nation. The subject fired twice in front of the vice president, but the shots did not fire.
Meanwhile, Márquez denounced a plan to assassinate her on Tuesday, March 10. The attackers left behind an explosive device that was deactivated by their security team.
With information from Bloomberg