1. NS4540 Winter Term 2017 Decline of Populism
Rabobank, Latin America: Turning the Populist page October 6, 2016

2. Overview
Commodity boom of the past decade 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, political risk and discontent began to increase
Only Argentina, Guatemala, and Guyana have experienced a decrease in political risk in 2016
Improvement in Argentina driven by election that put an end to Kirchnerism and its erratic, highly interventionist and economically unsustainable policies
The deterioration in political risk has been more pronounced in South America where commodities play a more important role.
Political risk – when human decisions not always technically driven change the direction of policy and the operating environment of firms

3. Political Risk Increasing

4. Transition from Populism I
a turbulent time that has led
To a general shift to the right in election results – Venezuela, Argentina, and Peru, and
A move away from populism in policy – Brazil, Argentina
Period has also been marred with corruption scandals in Brazil and Guatemala that toppled regimes and led to early elections
Numerous corruption allegations seem to be related to a down turn in the economic cycle
Having less benefits to distribute and less power to share, incumbents lose influence and other parties are able to take action against them
The allocations have fueled discontent with current governments and as only a few countries held elections there is now a higher risk of protest.

5. Risk of Protests Increasing

6. Transition from Populism II
In the past 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 – 9 had to step down.
Many of these were related to corruption
Today economic performance also a factor
In 2015 purchasing power eroded by high unemployment and high inflation in many countries
Four countries where both these indicators have deteriorated three witnessed political change in 2016 – Brazil (president impeached) and in Peru and Venezuela the opposition won the elections
Two countries with extremely high inflation in 2015 (Argentina and Venezuela witnessed political change

7. Purchasing Power Indicators

8. Transition From Populism III
Considering the level and/or increase in inflation, the sharp erosion of purchasing power in 2015 and 2016 could lead to higher dissatisfaction next year in:
Argentina
Suriname and
Venezuela
To a lesser extent in:
Colombia,
El Salvador,
Guatemala,
Nicaragua, and
Paraguay

9. Transitions From Populism
However in countries where there has been recent electoral and political change like Argentina and Guatemala, governments are benefitting from a popular mandate for change
In some countries dissatisfaction may be expressed at the ballot box since Argentina, Chile and Ecuador holding elections in 2017
In Argentina the government needs to show some improvement by then
In Chile and Ecuador, the economic deterioration in recent years is likely to boost the opposition

10. Assessment
On a more positive note, most vulnerable countries likely to see their economic situation improve in 2017 and that should reduce 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 content
All and all however the current levels of political risk are likely to linger for a while.

11. Looking Forward to 2017
Economic growth should be somewhat accelerating over the region except for Ecuador and Venezuela
Countries in Central America are growing at a steady rate These countries have room for credit expansion and monetary easing
Southern part of continent still bearing pain of lower commodity prices – three groups
Countries such as Chile, Colombia, Peru, Paraguay and Uruguay are still enjoying positive growth rates
At other extreme are unsuitable populist policies in the past have pushed Ecuador and Venezuela into deep recessions
In the middle Brazil, Argentina and Suriname where situation remain challenging and all will have to under go significant macroeconomic adjustments

12. Selected Indicators

13. Debt Statistics