Latin America’s aging Cold War warriors reliving their youth, along with a few hard core stone-throwing, turnstile busting, activist avengers and their advocates in the political press are trying to convince the majority that the world is on fire because they are no longer in power.
Over the last two months, political risk has returned to LatAm.
Bolivia’s ex-president Evo Morales was the victim of a coup, his advocates say. He was self-exiled to Mexico after election monitors at the Organization of American States said there was reason to believe Morales rigged the election in his favor. Police joined protesters against him.
Morales has since called for cooler heads to prevail, a wise move, rather than calling for greater resistance.
Jeanine Áñez, a conservative Senator, is now the interim president after at least four of Morales’ next-in-line also fled the coop. U.S. ambassadors are returning to Bolivia after nearly 11 years of not being welcome there. Bolivia’s ties with the Socialists United of Venezuela and the Cuban Communist party have been severed. New elections are supposed to happen by March. This story continues to unfold. It’s ugly.
Meanwhile in Brazil, ex-jailbird president Luiz Inacio Lula da Silva is out of jail thanks to a handful of Supreme Court judges his Workers’ Party appointed during their 13 years in power. They changed a rule allowing for those convicted of a crime in a second appeals court to roam free.
Despite this new ruling only being understandable to a Brazilian constitutional scholar, it appears safe to say that Lula is the only politician in Latin America who, by some legal interpretations, should be in jail but is miraculously free and actively calling for resistance against his country’s government, hoping for it to fail.
Luckily for the sanity of the majority, Lula’s call is falling on deaf ears back home.
There are as many — or more — Brazilians chanting “Lula the Thief” at his rallies as their are labor union members cheering him on. So to help himself, Lula took to the European press last week to market his political wares, with interviews appearing in the British and German press. The narrative was as predictable as ice is cold: he is the victim of political persecution. New president Jair Bolsonaro is a reprobate who should be impeached.
Lula is the new Latin American Hillary, which means his words will garner much international attention for its dramatic anti-Bolsonaro impact, but it will not move the needle on the country’s politics. Brazil is moving on. For Wall Street, Brazil is still an overweight.
Then there is Chile. Student activists have been moved to rebel against a conservative government triggered by a 4% hike on public transportation fees. They’re also angered by the rising cost of education and socioeconomic inequality, they say, to which they have called for a change to the Constitution. They want a bigger government, in hopes for some economic relief.
Chile’s GINI co-efficient index has been falling since the 1990s, which is a good thing. It was 46.6 as of 2017, with a score of 100 meaning total inequality and 0 meaning total equality. At 46.6, that puts Chile’s socioeconomic equality ahead of Brazil, Colombia, and Paraguay. Chile’s GDP per capita began falling in 2013 from a high of $15,716, but has since recovered to $15,828. In essence, Chile’s per capita GDP has not budged in six years.
By comparison, Brazil’s GDP per capita rose heavily in the years governed by the Workers’ Party thanks to the commodity boom, a roaring job market, and greater subsidy programs spurred in large part by corrupt practices and breaches of fiscal responsibility laws.
Brazil GDP per capita went from around $7,400 in 2007 to a high of $13,300 in 2011, Dilma Rousseff’s first year in office. By the time she was impeached, GDP per capita collapsed to $8,827. This collapse is worth pointing out because it is something the left’s advocates ignore, preferring to suggest things are bad because of the current government. Brazil’s GDP per capita is on the rise again, but slowly after two and a half years of economic contraction caused in large part by falling commodity prices.
Chile’s conservative Finance Ministry and Central Bank is believed more than capable at containing any major economic headwinds as a result of the protests. Changes to the Constitution remain risky.
Chile, therefore, is still a powder keg. Activists there could score a win if the government of Sebastian Pinera agrees to radically hike minimum wage (labor union groups want it to go up by 50%), or he moves to revamp public pension laws.
Next door, across the Andes and into Patagonia territory, Argentina re-elected Cristina Kirchner to the Casa Rosada. This time as Vice President to Alberto Fernandez, largely seen as a centrist and Cristina’s former chief of staff.
Fernandez is a member of the Grupo de Puebla, an organization made up of current and former left wing leaders in South America who get together and strategize on how to build a coherent, region-wide narrative against governments they don’t like. This is all these unemployed politicians and minority party representatives know how to do: struggle and fight.
Promoting outrage hasn’t been a winning argument for these people, except in Argentina.
Fernandez recently tried getting Mexico’s president Andres Manuel Lopez Obrador to join the Group, but failed to sell him on it.
Fernandez’s economy is in dire straits. Either the International Monetary Fund extends maturity dates out to at least 2025, or Argentina goes belly up again and capital markets are closed. His electorate voted for economic relief. Here is a case of modern monetary theory (MMT) if there ever was one. Considering how Argentina’s government has failed at everything since the 1990s, they might not be the ideal testing ground for MMT in LatAm.
On Thursday, Uruguay voters changed course after 15 years of left-wing governance and elected Luis Lacalle Pou of the right-wing National Party. Daniel Martinez, candidate for the ruling Broad Front coalition of former president Tabare Vazquez, conceded yesterday during a recount.
The National Party acknowledged Lacalle’s victory in a tweet saying: “Now it’s our turn!” Lacalle, a business-friendly conservative, will take over tiny Uruguay on March 1 along with a coalition of five conservative parties.
The election result signals a significant shift in foreign policy for Uruguay, with Lacalle following Brazil and the U.S. in lambasting the ruling Socialists United of Venezuela leader Nicolas Maduro and recognizing Juan Guaido, National Assembly president, as the highest elected official in that beleaguered country.
The move reverses existing Uruguay policy which recognized Maduro as president. And it isolates Argentina as the only left-leaning government in South America, now trying to avoid bankruptcy.
On December 3, signatory countries of the 1947 Rio Treaty will meet in Bogota to consider regional travel restrictions and visa denials against several dozen Maduro government officials. These are new steps in growing regional efforts against Maduro, something Venezuela sees as setting the table for his ouster in — you guessed it — a military coup not from the U.S., but from Brazil, Colombia, Ecuador and the U.S..
Last week, the State Department official in charge of Venezuela policy, the uber-hawk Elliot Abrams, said Venezuela and Cuba were supporting activism against conservative governments as a means to cause chaos and exhaust conservative support among the apolitical masses.
“It’s clear from the public record that Cuba and Venezuela did a lot of broadcasting, tweeting, speaking in an effort to exacerbate the problems that have existed in…a number of South American countries,” he said in a press conference on Wednesday. “We know of cases where people (Venezuelans/Cubans) were arrested. There was a case in Bolivia with $100,000 in cash – Cubans. So there is evidence beginning to build of an effort by the regimes in Cuba and Venezuela to exacerbate problems in South America.”
Given the success of their economies, and the stale well-being of the average Venezuelan, the market is safely assuming that the guys on their team don’t stand a chance at shifting majority opinion to their side.
If conservative governments like Bolsonaro’s fail to improve the quality of life of the majority during their mandates, then the left can return. Bolsonaro told supporters to ignore the Lula noise when he was released from jail around three weeks ago.
Market participants still see each country’s crisis as different. Investors believe the current governments have their fingers on the pulse — within varying degrees of awareness — in order to keep an angry left from returning to power in the next election cycle, still many years away.
“There is always political risk in Latin America and I think the market does a good job at pricing that in,” says Jan Dehn, head of research for the Ashmore Group, a $95 billion asset manager in London. “The middle class are demanding more of politicians and that’s putting new pressures on governments. The old days of people settling for corrupt or inept leadership…that’s just not palatable anymore.”