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The Disenchantment of Latin America: What to expect from the region in 2020?
1. The
disenchantment
of Latin America
What to expect from
the region in 2020?
DECEMBER, 2019
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by Paulo Andreoli*
Disenchantment is not a new word. But never
before has it translated so perfectly the sentiment
of Latin America society today.
Economic growth rates have been lackluster for years, with the prospects for
the coming years not pointing to any improvement. The numbers speak for
themselves: the International Monetary Fund (IMF) and the UN Economic
Commission for Latin America and the Caribbean (ECLAC) projecting, in
July, GDP growth of 0.5% for 2019 and 1.4% for 2020. Forecasts which now
appear overly optimistic.
The region’s capacity to weather external shocks is weaker than just a few years
ago. Today, budget deficits are sharper, current account deficits are higher and
international markets are exhibiting clear signs of instability.
The anti-trade policies implemented by Trump have generated insecurity. The
United States threatened to leave NAFTA and to impose various restrictive
policies, such as the recent tariffs on steel and other products. The USA-China
trade war continues without respite. Investors await clear signs of a recovery,
whose caution can be attributed to legal instability, the effectiveness of the
anticorruption efforts, populist immoderations and, now more than ever, the
movements of the masses, which take to the streets of major urban centers every
time rates for public services are hiked a few cents.
The social instability and convulsions of the disenchanted masses represent yet
anothercomponenttoconsiderinanalyses.Theyarenewfactorthatmathematics
have been unable to explain or to give an idea of what will come tomorrow.
Apparently, the smartphone is a major enemy, with the capacity to catalyze
the disenchantment and to schedule the next congregation in the streets. The
Apparently, the
smartphone is
a major enemy,
with the capacity
to catalyze the
disenchantment
and to schedule the
next congregation
in the streets.
2. Brazil’s fear of importing the social movements erupting across the
region could inhibit promising initiatives to adjust the size of the
Brazilian state to the scale of its capacity to pay for its government and
its public pensions and still have cash to invest.
smartphone substitutes the political pendulum that swung between
the left and the right with the real and generalized resentment of
society against everything and against everyone, with the capacity to
mobilize protests not only in Santiago, Bogota and Quito, but also in
Hong Kong, Paris and Iraq.
Emblematic Latin America economies, such as Brazil and Mexico,
play a crucial role in the region’s performance. In Brazil, the success in
passing structural reforms effectively represents important progress
and brighter prospects. But the fear of the smartphone could inhibit
new changes next year, which unfortunately is an election year in
which 5,500 cities across the country will choose their mayor.
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Brazil
Brazil’s fear of importing the social
movements erupting across the
region could inhibit promising
initiatives to adjust the size of the
Brazilian state to the scale of its
capacity to pay for its government
and its public pensions and still
have cash to invest.
If we ignore the inappropriate
banalities voiced by President Jair
Bolsonaro, his economic team gives
us hope that there are real chances
ofadvancesintheeconomyfor2020
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and the coming years, albeit with
tepid but consistent growth rates.
Brazil, with its nearly 210 million
people, always has been difficult
to explain. Today it is experiencing
various paradoxes. The stock market
is setting record highs. The real is
weakening against the dollar to
unprecedented levels. Meanwhile,
Brazil risk is at 121 basis points, the
lowest since 2012, when the risk
premium reached 500 basis points.
As recently analyzed by journalist
William Waack in his article in the
century-old newspaper O Estado
de São Paulo, investors attribute
these paradoxes to the fact that
Brazil’s external debt has reached
nearly 80% of GDP, even with
the pension reform. The level of
the budget deficit is not healthy
and Argentina’s crisis explains the
deterioration in the trade balance.
Brazil’s export performance is
highly dependent on Argentina.
From a more subjective
viewpoint, the uncertainty also
can be attributed to Brazil’s
weak economic growth. A study
conducted a few years ago by
the prestigious Getúlio Vargas
Foundation (FGV) showed that
the higher the uncertainty, the
lower the GDP growth. This
year, the uncertainty index fell
to its lowest level of the last ten.
Among the sayings in Brazil,
there is one that can be seen as
optimistic: “In Brazil, everything
is possible.” Perhaps growing a
bit more robustly and surprising
the world could be possible over
the coming years if President
Bolsonaro would opt to keep his
mouth shut a bit more and to
stop endowing the world with his
shock talk.
3. Mexico
But the gift of the spoken word
is not just held by Bolsonaro in
the name of the extreme right in
Brazil. Mexico’s left, represented
by President Lopéz Obrador, is a
strong competitor in the practice
of creating conflict. Curiously, civil
society in both of these countries
is divided between those who love
and those who hate. The forecasts
published some weeks ago pointed
to GDP growth of 1.4% in 2020, and
just a few days ago international
financial institutions have adjusted
this projection to 0.8%.
A stable economy is expected for
next year, supported by the prudent
fiscal policy that limited credit.
Inflation is contained. The budget
for 2020 increases public spending
by 4.6% and projects around 4.8%
more in productive investment.
For the multinationals that
investment in Mexico, the Trump
administration’s recent decision to
classify the country’s drug cartels
as terrorists could imposed large
investments in their compliance
policies and controls and even
in the cancellation of their
business deals in the country. The
implications and consequences of
any kind of involvement with the
These reforms spearheaded by
Duque, according to the country’s
scientists, have overlooked the fact
that Colombia has one of the highest
concentrations of wealth in the local
elite, which has thrown even more
fuel on the protests. According to
the IMF, in its analysis of Colombia’s
economic performance, GDP should
close this year at 3.6%, well above
the 2.4%. With just over 50 million
people and despite the growing
economy, the country is facing a high
unemployment rate, which reached
9.7% this year. High unemployment,
high wealth concentration, less
money for social programs and
reforms that reduce benefits for the
poor are just the right ingredients for
mobilizing Colombians against the
Duqueinthesecondyearofhisterm.
cartels could lead to the flight of
large companies given the risks.
In fact, the reach and scope of
what would be classified as foreign
terrorist organizations would leave
multinational companies highly
vulnerable. For example, if they do
business with a midsized Mexican
company and it is later shown
that the company, in the course
of its production operations, has
bought products and has relations
with a member of a cartel, the
consequences could be dire.
Colombia
Colombians also are taking to the
streets to protest against their
government, in this case another
representative of the region’s right,
President Iván Duque, who was
elected in 2018. In addition to
protesting against the suspension of
the peace deal with the FARC signed
by his predecessor Juan Manuel
Santos and the deaths of the leaders
of agrarian social movements, the
protests also are calling for social
and economic measures targeting
lower-income brackets, even with
thegovernmentmovingforwardwith
the pension, labor and tax reforms,
which are seen as being inspired by
the Trump administration, in other
words, as ultraliberal.
Argentina
On December 10, President
Alberto Fernández, who defeated
businessman Mauricio Macri,
will move into Casa Rosada in
an Argentina reliving the return
of the name of former president
Cristina Kirchner to newspaper
headlines as the vice-president of
this administration.
Macri, lamentably, was unable
to revive the economy, which is
plunging into a crisis that will
drag GDP growth down to -3.1%
From a more subjective viewpoint, the uncertainty also can be attributed to
Brazil’s weak economic growth. A study conducted a few years ago by the
prestigious Getúlio Vargas Foundation (FGV) showed that the higher the
uncertainty, the lower the GDP growth.
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4. this year, with the IMF projecting
another year of economic
contraction in 2020, of -1.3%.
Unemployment also is high on the
list of complaints of Argentineans,
10.6% of whom currently have no
job opportunities, with this rate
projected to remain above the
10% mark in 2020 and 2021.
Fernadéz, meanwhile, who was
elected by a coalition of the left,
wants to attack poverty and hunger
by creating two new fronts, the
Federal Council to Eradicate Hunger
and the National Observatory to
EradicateHunger.Thesemechanism
will implement anti-hunger public
policies at the national level, joining
forces with the Church, universities,
social organizations, companies
and communication means in a
repeat, of course, of a populist effort
to combat the problem.
Another pressing issue that should
mobilize the new administration
is combatting inflation, especially
given that the IMF forecasts that
the country will be one of the three
nations in the world with the highest
inflation rates in 2020. The forecast
for 2019 is that prices for the more
than 45 million Argentineans
will increase by 54.4% in the
period. However which way you
look at the Casa Rosada, the new
administration’s challenges are
enormous in an environment of little
faith in politicians and their policies.
such massive discontent. Held
as a liberal economic model in
Latin America, as exemplified
by the economic liberalism of
it investment banks, the people
took to the streets against low
pensions and the precarious state
of healthcare and education,
taking over Santiago and various
parts of the country, from desert
mountains to seaside cities.
Since the ousting of dictator
Augusto Pinochet, in 1990, Chile
had not experience a generalized
explosion of discontent and revolt
that took over streets and metro
stations, in which 25 people died,
thousands were injured and 200
sustained serious eye injuries.
Sebastian Piñera was the target
of fury on social networks, with
messages disapproving of his
administration reaching 90%,
according to public opinion
surveys. In Chile, without a
doubt, social networks and
the fake news phenomenon
contributed to uniting the angry
masses across the country – the
interpretation is that the means of
traditional communication were,
until early October, working to
keep opinion in the center of the
political spectrum, containing
the population’s dissatisfaction.
But Facebook, Twitter and even
WhatsApp were transformed
into a channel to “verbalize” the
criticisms and social demands of
the people.
Piñera, meanwhile, is responding
quickly and could contain the
movement, which could be
resolved through reforms and
supported by the country’s healthy
economic situation. According to
the IMF, GDP should grow by 2.5%
this year and by 3% in 2020, with
unemployment of 6.9%, which
should fall to 6.3% in 2023. Right
now, those are the best indicators
of any country in Latin America.
Peru
With allegations of corruption
involving Odebrecht bringing
down presidents and driving
Alan Garcia to suicide, the
group’s expulsion from Lima and
even the current government
taking on Keiko Fujimori, Peru
appears to be experiencing mass
protests calling for the return of
the right.
In this climate, President Martín
Vizcarra, who was sworn in after
Pedro Pablo Kuczynski resigned
pressuredbytheOdebrechtscandal,
recently has adopted a drastic
measures: dissolving Congress and
calling for presidential elections in
January2020.Atthesametime,the
Congress itself, reacting, removed
Martín from office and appointed
Vice-President Mercedes Araóz
to lead the country. But that
lasted less than 24 hours, when
Araóz resigned.
The discontentment of Congress
with the Peruvian president
is rooted in the changes that
Martín wanted to make on the
Constitutional Court, seeking
to reduce the opposition’s
leadership among its members,
who are much more faithful to
the daughter of former president
Fujimori Keiko. Vizcarra believes
and defends that Peru must
combat corruption and impunity
to advance and reduce poverty,
while expanding opportunities
for everyone – in short, politicians
should use politics less for their
personal benefit.
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Chile
Surprised by the protests that
have engulfed the country
since mid-October, admirers
of Chile never immagined
that the country’s 19.2 million
people had been repressing
5. While the elections are pending,
the country’s economy remains
positive, despite the political
discontentment. After delivering
GDP growth of 4% in 2018, GDP
should grow by 2.6% this year
and accelerate to 3.6% in 2020,
according to IMF forecasts. The
32.5 million Peruvians currently
face an unemployment rate of
6.6%, which has been trending
lower since the start of the decade,
with inflation under 2.2%, one of
the lowest in the region. With this
scenario, although the protests
could take to the streets of Lima
and other major cities, the focus
of protesters should be those
guilty of corruption and politicians
involved in wrongdoings of the
executive and legislative branches.
year and a mere positive 0.5% for
2020, and the unemployment rate at
4.3%, and rising slightly to 4.7% in
2020, but rising.
Following seven years of economic
growth, recession has knocked on
the country’s door this year, with
GDP forecast to contract by 3%,
with business activity constrained
by the weak performance of its
neighbors Brazil and Argentina, and
also due to the international cattle
and agriculture markets, which in
2019 were adversely affected by
high rainfall and flooding in 2019.
The prospects for the coming year
are brighter, but still tepid.
Ecuador
With just over 17 million people,
Ecuador has rebelled on the streets
against the end of fuel subsidies
and other austerity measures
announced by Lenín Moreno.
Indigenous people from all over
the country and urban residents
marched against the change in
position adopted by Moreno, who
was elected to continue the leftist
administration of Rafael Correa,
who was generous and attentive to
the population’s social demands.
However, it seems that now there
are no funds to pay for the subsidies.
With the approval rating of his
administrationlow,at19.2%,Moreno
is trying to find ways to address
the country’s weak economic
performance, with GDP growth
projected at negative 0.5% for this
Panama
With less than six months into the
new administration, the country
already is reaching the end of
its honeymoon with President
Laurentino Cortizo. After starting
his term with negotiations and an
inflow of funds to shore up part of
the budget, the government was
challenged by protests of students
and civil society, both clamoring for
a suspension of the constitutional
reforms coming up for votes in the
NationalCongress,sincetheywould
be voted by a legislative branch
tainted by scandals and corruption.
Despite the GDP forecast of 4.3%
growth this year and acceleration
in 2020, to 5.5%, Panama ranks
fifth worldwide in terms of income
inequality, with the rising cost of
living working to reduce the middle
class and consumer spending. The
hopes of the nation and the efforts
of Cortizo are the public-private
partnership to build the Panama
City subway, the construction of
the fourth bridge over the Panama
Channel and the project to store
natural gas to supply to Central
American nations.
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Paraguay
Brazil’s Operation Car Wash
took a toll as well on its neighbor
Paraguay, with an arrest warrant
issued by the Brazilian courts for
former president Horácio Cartes,
who is charged with involvement
with a major Brazilian black market
currency dealer. The development
gave much needed support to right-
wing President Abdo Benitez, who
was elected in early 2018. That is
because the supporters of Cartes
were undermining the president’s
support and his administration’s
measures. Bolsonaro’s Brazil and
Macri’s Argentina also may be to
blame for the low approval rates
of the Asunción administration,
when they negotiated a revision of
the Itaipu and Yacyretá agreements
that reduced the compensation
paid for the electricity purchased
by Brazil and Argentina. Cartes was
left with the image of a traitor of the
nation and servant of other nations.
Amajorissueinthecountryhasbeen
the violence associated with drug
traffickingandthecountry’sgrowing
market for money laundering. The
influence of Brazilian organized
crime in border regions has led to a
growing number of victims among
the criminals and law enforcement,
which has been frightening the
more than 7 million Paraguayans
who were more accustomed with
dealing with Brazilian farmers than
with criminals.
6. Paulo Andreoli
CEO and chairman, MSL Group
in Latin America
This article was written by Paulo Andreoli, CEO and chairman of MSL Group in Latin America,
with the collaboration of the CEOs of the group’s agencies and affiliates in the region:
MSL Argentina / Alurralde Jasper + Asoc.– Matias Alurralde
MSL Bolívia / Extend – Clemencia Siles
MSL Chile / MG Consulting – Tatiana Guiloff
MSL Colombia / Jimeno Acevedo – Mario Acevedo
MSL Ecuador / Comunicades Consulting – Fielding Dupuy
MSL Mexico / PRP – Paola de la Barreda
MSL Panama / Logos – Fernando Cuenca
MSL Paraguay / DESA – Roberto Codas
MSL Peru / Corpro – Bernardo Furman
MSL Uruguay / N3XO – Pablo Reyes
Nicaragua
What should we expect from
Nicaragua in 2020? The answer to
that question is more repression
from Daniel Ortega, despite the
pressure from protests in the
streets of Managua and other
cities. Until April last year, Ortega,
who has been in power since
2007, manipulated the population
through an amicable relationship
with the business community and
with democratic institutions, but
with the protests last year that
scenario has changed.
Ortega has been holding onto
power by repressing the people
and persecuting opposition
politicians. His government,
replicating a regional model, faces
intense accusations of corruption
and illegally enriching allies, while
the economy of the country’s 6.5
million people will contract by
5% this year, with unemployment
at 8.7% of the labor force. The
local government has been
suffering international sanctions,
but Ortega, a former Sandinista
guerrilla, persists in power.
Venezuela
The Venezuelan dictatorship of
Nicolás Maduro, the successor
to the Bolivarian regime of Hugo
Chaves, has been plunging deeper
intochaosthepeopleofthecountry,
which has one of the largest oil
reserves in South America. With
an unemployment rate calculated
by the IMF standing at 35% of the
labor force and the GDP reaching
an impressive negative 35%,
Venezuela is expected to take a
long time to return to normal, but
which necessarily will involve a
change in power in Caracas.
The democratic uprising of the
people in favor of Juan Guaidó has
not had any effect so far, despite
supportfromOASandgovernments
aroundtheworld,suchastheUnited
States and France, to mention only
the two most important.
In fact, for those who are familiar
with the internal reality of
Venezuela, organized crime also has
infiltrated the bases of Guaidó and is
undermining support and consensus
for either of the sides, Maduro
or Guaidó, to re-democratize the
country. A sad chapter for this part
of the continent, without a doubt.
Bolivia
Implicated in electoral fraud and
ballot box inconsistencies last
October, Bolivian President Evo
Morales, who has led the country
since 2006, resigned and fled
the country to Mexico, fearing
for his own safety and that of his
family. Since then, the country has
been experiencing a wave of riots
and protests by both Morales’
supporters and the opposition,
which is seeking a new political
leadership for the government.
The vice-president of Congress,
Jeanine Añez, has succeeded the
presidency, in accordance with
the Constitution. Since then, she
has been working to dismantle
the actions of the Socialist model
of the 21st Century, which guided
Morales in his almost 14 years as
president of Bolivia.
Living off the commodities boom,
the country has grown at impressive
rates, such as 6.8% in 2013, for
example. But the crisis has caught
up with the country and GDP should
grow by 2.5% this year, although
the IMF expects Bolivia to grow by
3.8% in 2020, despite the political
crisis sparked by the resignation
of Morales and the rapid response
by Añez to call for new elections in
March or April of next year.
DECEMBER, 2019
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*Thetextreflectsthepersonalopinionoftheauthor.