Latin America’s left: more bark than bite (mostly) 
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Latin America’s left: more bark than bite (mostly) 

Latin America’s new left-leaning presidents have promised a lot, but will they be able to deliver?

Even before COVID hit Latin America, social discontent was apparent (Mexico’s 2018 election, 2019 protests in Chile and Ecuador), but the pandemic led to worsening inequality, catalyzing further mass protests (Colombia 2021) and political change during a heavy election cycle from 2021-2022. New left-wing leaders throughout the region were elected on populist platforms with promises of additional expenditure, progressive reforms, and most of all – change.

 

But changes implemented by Latin America’s left-wing leaders this time around will be more limited compared to the early 2000’s when we saw presidents with strong mandates like Chavez, Morales, and Correa nationalize companies and make draconian changes to constitutions and institutions. This time, many presidents are left-wing, but legislatures are not, which presents both opportunities and challenges. By taking the time to thoroughly understand the political dynamics within the region, we are able to identify countries where fundamentals are more or less likely to be impacted by this shift to the left.

 

Country
President
Ruling Party/ideology
Term

Brazil

Luiz Inácio Lula da Silva
Worker’s Party/left
Jan. 2023-Dec. 2026

Chile

Gabriel Boric
Social Convergence/left
Mar. 2022-Mar. 2026

Colombia

Gustavo Petro
Historic Pact/left
Aug. 2022-Aug. 2026

Mexico

Andrés Manuel López Obrador
Morena/left
Dec. 2018-Nov. 2024

Peru

Dina Boluarte
Independent (formerly Free Peru)/survival mode (formerly left)
Dec. 2022-July. 2026*

*Earlier elections possible

Overall, as we start off 2023, liquidity and solvency metrics in major Latin American countries are in relatively decent shape; government debt is sustainable, external imbalances will likely improve as growth slows; fiscal and monetary policymaking is fairly orthodox. When assessing political risk in the region, the goal is to understand to what extent politics could lead to a deterioration in fundamentals. In this vein, the composition of Congress helps signal the ease with which populist presidents can deliver their (often costly) campaign promises. The conclusion: this time around, it will be difficult – but not impossible – to fulfill market unfriendly campaign promises, but this also means that social tension will remain high.

 

In Peru, where fundamentals remain strong, a fragmented Congress and continued political uncertainty will limit the focus on major policy changes. In Chile, the process of re-drafting the constitution has moved at a glacial pace, with a draft constitution backed by President Boric being broadly rejected in a referendum nearly three years after the protests that started the process. In Mexico, President López Obrador lost his two-thirds majority in Congress in the midterms, thereby limiting his ability to secure passage of market unfriendly reforms that require a constitutional change. In Colombia, arguably the Latin American country with the greatest amount of political noise this year, we are already seeing President Petro’s coalition crack, meaning that his costly reform agenda is unlikely to pass with flying colors. And finally in Brazil, the only major country in the region with a former president at the helm, the jury is out, and we are cautious. Early on, President Lula da Silva mustered up enough support in Congress to markedly increase extra-cap spending, effectively eschewing the spending cap rule, while also openly threatening to change the inflation target and taking a more interventionist stance toward state-owned enterprises.

 

In short, with Brazil as the key exception, Latin America’s new left will find it challenging to make sweeping changes, as checks and balances mean that the bite from these new leaders will likely be less painful than the bark this time around.

3 March 2023
Sarah Glendon
Sarah Glendon
Senior Research Analyst, Emerging Markets Debt Team
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Latin America’s left: more bark than bite (mostly) 

1 Barron’s. Emerging Market Debt Is Hot. Further Gains Could Be Harder to Find. Craig Mellow, 28 January 2023

2 Financial Times, Investors pour money into emerging markets at near-record rate. Jonathan Wheatley, 26 January 2023.

3 Bloomberg, JPMorgan, as of 30 January 2023.

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The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

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Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

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