South America

January 2016

In 2016 we expect a number of political and economic changes in South America, from the implementation of new policies by the recently-elected government in Argentina and new legislature in Venezuela, to upcoming general elections in Peru and an important municipal election in Brazil.  In addition to the political changes in the region many countries are facing severe economic problems, most notably Brazil, Venezuela and Argentina.  Amidst the potential for political turmoil and economic difficulties however there is also hope – Colombia may finish negotiating with the Farc rebels this year thereby putting an end to a fifty-two year long conflict. 


On April 10, 2016 Peru will hold its general election.  Keiko Fujimori, leader of the right-leaning Popular Force (Fuerza Popular) party and daughter of ex-president Alberto Fujimori (who is currently incarcerated for corruption and human rights abuses), is the clear leader in the polls.  She is running against two other candidates and, if she does not win 50 percent of the votes in the first round, is widely expected to win the runoff in June.  Ms. Fujimori lost the 2011 presidential election to current President Ollanta Humala; however, his party’s candidate Daniel Urresti is currently polling at 3 percent.  After the 2011 election economic growth continued in Peru but slowed noticeably as compared with the previous decade. This, along with wide public perceptions of insecurity, could explain why the voters are ready for a new party, albeit one whose leader has a familiar name.  Ms. Fujimori’s win would also fit with the wider regional narrative of center-right and right leaning parties turning back the populist “pink” electoral tide which swept Latin America in the 2000’s. 


Brazil’s important municipal elections in October will be a critical indicator of how much President Dilma Rousseff’s Workers Party (PT) has suffered due to the sharp economic downturn and ongoing corruption scandals.  In 2015, the Brazilian economy shrunk by over seven percent, officially entered a recession, and all three major credit rating agencies downgraded Brazilian bonds to “junk” status. The economy is expected to contract further in 2016.  The government is also distracted by the impeachment proceedings which were brought against President Rousseff in early December 2015.  Even though President Rousseff’s approval rating is at 12 percent she is expected to remain in power because it is unlikely that two-thirds of both the Senate and the Chamber of Deputies will impeach.  Nevertheless, the President is seriously weakened and her governing coalition with the PMDB (Brazilian Democratic Movement Party) is shaky. The election may surprise but it is thought that the PT will lose a number of municipalities and that the government will fail to pass meaningful economic reforms in 2016 due to these distractions. 


In Argentina, the brand-new Macri government began its aggressive reform program the day after taking office.  Since December 10th, the President has implemented policies to enable Argentina to restructure its economy and re-enter the international economic and political realms.  For example, the peso now floats freely and tariffs on most agricultural products have been lifted; two measures of which economists deemed critical for reviving Argentina’s sagging economy.  The new administration will also need to tackle the countries rising inflation, at 30 percent, and fiscal deficit.  As part of normalizing its relations with the rest of the world Argentina has also reentered negotiations with the “holdouts” in New York- they are expected to meet in February.  The new economic minister, Alfonso Prat-Gay, promptly overhauled Argentina’s statistics agency after taking office and replaced senior officials who had been censured by the IMF under the Kirchner’s for providing unreliable numbers and is working to reestablish Argentina’s relationship with the IMF.  Though the Macri administration is off to a running start, the country’s economic difficulties will remain challenging for the foreseeable future.


Though Brazil and Argentina have economic struggles to surmount in 2016, Venezuela, 2015’s worst-performing economy, faces an even tougher outlook.  The countries expansive and mismanaged social programs, and rampant corruption, could only be sustained with oil at $120/ barrel or above; last week it hit $27/barrel.  Due to price controls there are widespread shortages of basic goods and inflation is estimated to be above 114 percent; the actual rate of inflation is unknown since official figures are not made public.  The IMF has said that unchecked inflation could rise to 720 percent in 2016. Consequently, it is unsurprising that President Maduro has an approval rating barely above 20 percent.  In the December parliamentary elections the opposition Democratic Unity Alliance (MUD) won two-thirds of the seats- something which has not occurred since 1999.  The new Parliament took its seats on January 15th and President Maduro has already begun stonewalling its attempts to pass legislation. The day after the Assembly started Maduro passed an “economic emergency” decree granting himself greater powers over Venezuela’s economy.  Unless the Parliament stands up to Maduro the economic situation will worsen before it improves. 


The Colombian peace process has led to cautious optimism.  Under President Juan Manuel Santos the nation has taken concrete steps to end the decades-long conflict with the Farc rebel group. In recent weeks both the government and Farc leaders have asked the UN for a mission to monitor the end of the conflict and subsequent ceasefire.  A final peace deal could be reached as early as March 2016 thereby ending the longest armed conflict in the Western Hemisphere.  This will be an exciting year in South America filled with electoral and economic drama, and hopefully the end of a war which has killed over 220,000 people and displaced over 5.7 million.  This should not be ignored, nor should the economic and political gains which have been made throughout the region since the “Lost Decade” of the 1980’s, regardless of the current climate.