Latin America in 2019: Will Political Upheaval Stall Growth?

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University of Pennsylvania's William Burke-White and Benjamin Gedan from the Woodrow Wilson International Center for Scholars discuss the 2019 outlook for Latin America.

Change is in the air in Latin America. In the last 12 months, Brazil, Cuba and Mexico elected new leaders. Meanwhile, Argentina is preparing for fresh elections, and Venezuela faces continued upheaval in the face of Nicolas Maduro’s re-election.

In Brazil, far-right President Jair Bolsonaro has promised economic liberalization, safer days and a cleaner regime compared to the violent crimes and widespread corruption that plagued previous governments. In Mexico, Andres Manuel Lopez Obrador, its first leftist president in seven decades, faces challenges in containing migrants headed from countries to its south to the U.S., while adjusting to a new economic order after NAFTA was renegotiated last October.

In Cuba, Miguel Diaz-Canel is the country’s first president in 50 years to be a non-Castro, but he is finding his efforts at economic liberalization undermined by the Trump administration’s hostility and the resulting disenchantment among investors it hopes to attract. In Argentina, President Mauricio Macri is struggling to cope with the legacy of his predecessor’s populist policies and a sluggish economy in an election year. The outlier in the region is President Nicolas Maduro of Venezuela, who was sworn in last week for a second term, even though his re-election is branded illegitimate and the once-rich country is in economic turmoil.

How will these leaders – and their countries — fare in 2019? William Burke-White, law professor at the University of Pennsylvania, and Benjamin Gedan, a senior adviser to the Latin American Program at the Woodrow Wilson International Center for Scholars, shared their perspectives on the challenges facing Latin America in a series titled “2019: A Look Ahead” on the Knowledge@Wharton radio show on Sirius XM. (Listen to the podcast at the top of this page.)

Can Maduro Revive Venezuela?

In Venezuela, Nicolas Maduro began the year with his second, six-year term “after what was clearly a rigged election without meaningful opposition or competition, but he doesn’t seem to have a platform or a program,” said Burke-White, who is inaugural director of Penn’s Perry World House. “Venezuela has been in a state of economic and political collapse now for several years, and it’s unclear whether there’s anything that can pull the country out of it. But certainly, a second term for Maduro seems unlikely to do so.”

A country with the world’s largest oil reserves, Venezuela was once the richest country in Latin America, but rampant corruption and mismanagement of its energy sector has brought its citizens to privations such as hunger, poverty and riots over shortages of medicine and food. The International Monetary Fund, for instance, has predicted a mind-boggling inflation rate of 10 million percent for the year ahead.

“Venezuela has been in a state of economic and political collapse now for several years, and it’s unclear whether there’s anything that can pull the country out of it.”  –William Burke-White

“The scale of the economic mismanagement is extraordinary,” said Gedan, who is also an adjunct professor at Johns Hopkins University and a former South America director of the National Security Council at the White House. “We focus a lot, understandably, on the humanitarian crisis in the degradation of Venezuela’s democracy, but the economic management has been stunningly bad for a very long time. Hyperinflation, unfortunately, is not a new phenomenon for Venezuela.”

Maduro’s clinging to power through what many see as a rigged election has brought widespread condemnation, including from Venezuela’s neighbors in the so-called Lima Group that includes Brazil, Argentina and Columbia, although Mexico’s leadership seemed to side with Maduro. “He has steadily eroded all the checks and balances that had existed in what had been a robust democracy in one of the wealthiest countries in South America,” said Gedan. “He has perpetuated himself in power using every tool in the book in terms of repressing dissent, jailing his political opposition, disbanding political parties and stealing an election.”

With those tactics, Maduro seems to have ensured his regime’s survival. “I don’t think he needs to do much more at this point to solidify his dictatorship from a political standpoint,” said Gedan. However, “from an economic standpoint, his regime is quite fragile.” Burke-White agreed with Gedan and noted that the economic chaos and riots have done little to undermine Maduro’s regime. “It’s going to take something more dramatic than anything we’ve seen today to push him out of power,” he said. “But if he wants to bring his country back into the global economy, he’s going to have enormous work ahead of him.”

The Trump administration has declared Maduro’s regime as illegitimate but now faces a crucial test in whether it will support Venezuelan opposition leader Juan Guaido, who is growing in popularity, according to a CNN report. Venezuela’s opposition parties are expected to hold mass protests on Wednesday, the anniversary of a coup that overthrew dictator Marcos Pérez Jiménez in 1958, according to a report in The Hill. In a post Tuesday on Twitter, U.S. Vice President Mike Pence declared America’s “unwavering support” for the protests and wrote, “We stand with you, and we will stay with you until Democracy is restored and you reclaim your birthright of Libertad.”

According to Burke-White, “the biggest challenge for Venezuela is that it can’t sell as much of its energy overseas as it would like to, and it can’t effectively exploit that energy.” At the same time, the Maduro regime gets some cushion from its resource base of oil reserves, he noted. Gedan added that the country has seen a steady decrease in oil production, which “has been devastating to its capabilities to import basic goods,” causing scarcities of food and medicine.

Large numbers of Venezuelans have in recent years fled the country to other parts of Latin America, causing a migrant crisis for others. Gedan estimated that some 3 million Venezuelans have left their country, and about half of them are in neighboring Colombia, which happens to be “grappling with its own internal challenges following a fragile peace agreement after a 50-year civil conflict.” Venezuelan migrants have also found refuge in Brazil, Argentina, Uruguay, Ecuador, Peru and even some small Caribbean islands off the Venezuelan coast. “It’s extraordinarily difficult for a lot of these countries to continue sustaining the refugee and migrant services that they’re trying to provide, although … Latin Americans have been welcoming of these Venezuelan migrants.”

Uphill Battle for Brazil’s Economy

In Brazil, the year began with Jair Bolsonaro assuming the office of president after he won elections last October. Many have likened him to Trump, especially for his comments about women, disrespect for the 2015 Paris Climate Agreement and his views on gun rights. “The first few weeks of Bolsonaro’s government remind me of the first few weeks after Donald Trump was inaugurated in many ways,” said Burke-White.

“[Bolsonaro] has taken some bold steps on issues that are particularly salient to his political base,” Burke-White continued. That includes things like withdrawing from the migration accord, beginning a process to liberalize gun ownership, which he promotes in Brazil, and closing the labor ministry ahead of his promised labor reforms. He has also – controversially – ended protections for the LGBT community and indigenous landholders. Gedan noted that there is “understandable concern about his approach to treating vulnerable communities, to human rights issues and to the protection of democratic norms.”

“Brazil has done what no major country in Latin America has ever done, which is target current political authorities and economic elites of the highest strata.” –Benjamin Gedan

At the same time, Bolsonaro is also “starting a broader reform process,” said Burke-White. “The question is, will he be successful at that? There’s an expectation that maybe he’ll be able to crack through some of that corruption and some of the reform of the red tape that’s needed in Brazil.” Gedan agreed. “There is a lot of optimism and enthusiasm among investors in the U.S. and elsewhere,” he said. “The one caveat is that it will be extraordinarily difficult for him to pull off the scale of reforms that he is now promising.”

Gedan noted that much is expected from Bolsonaro’s pick to head the ministries of finance and industry, Paulo Guedes, a former student of economist Milton Friedman at the University of Chicago. But Guedes faces big challenges. “He’s promising broad privatizations and market liberalization in a country where the business elite will oppose it and many powerful entities within the political system as well will not be on board,” Gedan said. “So, it’s not guaranteed he’ll be able to get even close to what he’s pledged.”

Brazil’s other big problem is violent crime; it saw nearly 64,000 murders in 2017, or six times more than that in the U.S., according to a New York Times report. Bolsonaro may have relatively more success on that front, said Gedan. “He has great maneuverability [in tackling crime], but I’m much less optimistic that he will achieve anything productive,” even as he has advocated a strong-fisted approach to deal with that problem.

But big obstacles exist there as well. Bolsonaro has to manage with “a police force that’s not perfectly trained and funded,” and his encouragement to the police “to take on criminals not through investigations, but rather through very aggressive paramilitary-type raids on dangerous and marginal communities” may not result in much success, he said. Such tactics may attract political support, at least initially, in a country that desperately wants to be free of high levels of violent crime, he noted.

On the sunny side, Gedan hailed Brazil as “an anti-corruption success story,” referring to the so-called Car Wash probes that resulted in unearthing of corruption scandals at public-sector companies like Petrobras and the impeachment of former president Dilma Rousseff a couple of years ago. “Brazil has done what no major country in Latin America has ever done, which is target current political authorities and economic elites of the highest strata,” he said. “Brazil could carry on with that … and is on a good path to stronger democratic institutions and establishing the rule of law.”

Argentina Pays for Populism

Brazil’s neighbor to its south, Argentina, is facing its own economic woes with a shrinking economy. Burke-White noted that Argentine president Mauricio Macri is battling a stalled economy, rising inflation and a weakening currency (peso). Macri’s predecessor, Cristina Fernandez de Kirchner, could put up a strong fight with populist programs in the elections coming up in October-November 2019, he noted. “Macri’s austerity efforts over his first term have failed to yield any fruit.”

“Chinese money is absolutely irresistible to Latin American governments.” –Benjamin Gedan

Gedan agreed that Macri’s progress report while in office — an inflation rate of around 50% and an economic recession this year – will not help him to run for office again. At the same time, he noted that Macri inherited many of those problems; external factors, too, are to blame. “Many of his base will understand that the wreckage he inherited from the last populist experiment would not logically lead voters to elect a populist once again.”

Trade and Migrants Loom Large for Mexico

In Mexico, new President Andres Manuel Lopez Obrador has many fires to fight, including immigration from countries further south, said Burke-White. According to Gedan, it is not clear if Lopez Obrador will have the support of the U.S. in containing the problem of migrants.

“On the one hand, [Lopez Obrador] is seeking to avoid any confrontations with President Trump, and he has been willing to play ball on keeping some of the Central American migrants in Mexico while their asylum applications are processed north of the border,” Gedan said. “On the other hand, he is pushing for addressing the root causes of this migration, and he has said that he would like to invest tens of millions of dollars or billions of dollars in northern Central America – in Honduras, Guatemala, El Salvador – to try to address the factors that are pushing these migrants through Mexico and toward the U.S. The problem there is the U.S. occasionally supports that policy, but then episodically threatens to pull that foreign assistance as well. So, it’s unclear he will have the resources or a consistent partner in that effort.”

On the economic front, Lopez Obrador has to ensure that the renegotiated NAFTA – the U.S.-Mexico-Canada Agreement — protects Mexico’s interest, especially in areas such as the automobile industry. “More broadly, [the challenges Lopez Obrador faces are about] figuring out how to keep the Mexican economy moving forward and strong, making sure that that there is economic growth, and that it looks more populist and leftist in nature to placate the base that elected him,” said Burke-White.

Chinese Investors Head for Cuba

In Cuba, expectations from new President Diaz-Canel “are modest, at least in the short term,” said Gedan. The hostility Cuba faces from the U.S. is a dampener, and that could prove a drag in its economic liberalization, he added. The U.S. withdrawal from the region has encouraged China to consider “every opportunity to invest” there, Burke-White noted, adding that Chinese investments are visible also in other countries like Venezuela.

“Chinese money is absolutely irresistible to Latin American governments,” said Gedan. “There’s a huge infrastructure gap in the region, and they just cannot say no to Beijing.” Corruption in Latin American countries has also made it easier for Chinese investors to enter the region, said Gedan. As corruption-related risks make it difficult for the region’s public-private partnerships in the infrastructure sector to find conventional investors, “it’s the Chinese money that they turn to,” he added.

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