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2020s Vision: Inequality, politics and protests – will investors flee LatAm?

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    24 December 2019
    Published byTellimer Research

    After years of sluggish recovery since the global financial crisis, large groups of people all around the world are feeling the pinch from economic inequality and, moreover, regard themselves as excluded from decision-making, and generally from any kind of influence over the ‘global elites’, leading to rising unrest. In our final 2020s Vision piece, we discuss what the impact of this will be for investors over the coming decade in Latin American – a particular hotspot for protests.

    Within my area of coverage – Latin America – this trend seems particularly meaningful, with the ongoing riots in Chile an especially worrying sign. The protests started as a specific reaction to public transport fare increases but have morphed into broader anger against the cost of living and inequality. Similarly, the protests in Ecuador are against President Lenin Moreno’s new austerity policy, imposed under pressure from the IMF. Both sets of protests are targeted at administrations that we would deem relatively investor-friendly.

    Populism can work both ways

    Although popular discontent and populism needn’t necessarily lead to the rise of left-wing disruptive politicians – there are, of course, many examples of ‘anti-elite’ right-wingers in power around the world, from Trump and Johnson to Duterte and Bolsanaro – one of our worries for the next decade in Latin America relates to incoming market-unfriendly governments, bent on redistributing wealth.

    We believe that there is a risk of the region’s leaders focusing on short-term measures to immediately gratify their populations to the detriment of retaining international capital, ignoring the potentially dire long-term consequences if investors leave their countries.

    Turn left, head for the exit

    If, under the pressure of the protests, Latin American countries swing to the left, we think there is a danger that investors will leave in favour of ‘safer’ destinations, becoming extremely selective about the resources they opt to keep in the region, in terms of countries and sectors.

    Of course, the decade or so up to the mid-2010s that saw leftist governments come to power across the continent did not result in the abandonment of economic orthodoxy, as some had feared. However, investors are likely to take a closer look at the political trends emerging from the gradual but steady penetration of movements that markets would deem unpredictable and worrying in countries like Argentina and Mexico, and the potential spill-over of this political trend into more market-friendly countries such as Brazil and Chile.

    Read our full 2020s Vision: 20 themes for the next decade report.