Another year of crisis for Latin America

Just as the region exits the pandemic, the global crisis sparked by Putin's invasion of Ukraine threatens another year of upheaval in politics, economics and security.

March 2022 feels like March 2020. We’re all staring at our screens, doomscrolling social media, wondering how the awful news of the moment is going to impact our coming days and weeks while being in relative denial that it will upend the coming years of our lives.

Having lived through the past two years of disruption, it’s not easy to contemplate another year of a totally different disruption. In the coming months, even as it’s on the periphery of the global conflict taking place, Latin America will experience a renewed upheaval of politics, economics and security due to Putin’s invasion of Ukraine and the economic sanctions done in response by the US, Europe and others.

It’s worth attempting to look past the immediate moment and try to consider what the situation looks like in six or 12 months. So with that in mind, even with all of the uncertainty of the current moment, here are a few predictions for where this will lead by March 2023.

Food prices will remain near record levels

I know I commented on this issue last week, but I want to highlight it again this week because the sustained high commodity prices will be the single biggest driver of politics and economics in the region over the coming 12 months.

There are several reasons to believe that food prices will remain at elevated levels. Most importantly, there will be a significant reduction in wheat grown in Ukraine. Sanctions on Russia are likely to impact that country’s ability to trade in grains abroad. Additionally, restrictions on the ability to purchase fertilizer from Russia will make agriculture more expensive around the globe. 

My prediction: In March 2023, the FAO food price index will still be above 120 under the current measurement standard. 

While it has spiked that high twice previously in real terms, once in the mid 1970’s and once in the early 2010’s, the fact that it already crossed that level in mid-2021 and will continue to be that high for the coming 12 months is a rare period of sustained high prices. As readers know, this is one of my top variables to monitor because high food prices correlate strongly with political unrest.

Even for countries that are net food, energy, or metals exporters, this sustained rise in commodity prices is going to generate significant discontent. For example, even if Brazil’s agricultural sector gets access to the fertilizer it needs and ultimately benefits from the rise in food prices, the hit to consumers is not going to be mitigated by the new social spending done by the Bolsonaro government. Any recent rise in the president’s polling is going to stall out. His chances to win reelection, already quite low, are going to drop even further with food and fuel prices hitting voters.

Last week for paying subscribers, we wrote about how higher energy prices would impact the potential for an IMF deal with Argentina. The key takeaway is that Argentine citizens punish politicians who raise energy prices, meaning any substantial cut to subsidies or rise in prices is going to be politically unsustainable for the Fernandez government.

AMLO’s approval rating below 40% next year

Nearly every president will find it hard to sustain or regain popularity in an environment with high inflation. However, unlike what occurred during the pandemic, Mexico’s president will not be immune to the political reality during this new crisis. By March 2023, I predict AMLO will be below 40% approval.

Lopez Obrador has sustained his approval ratings above 50% for essentially his entire term and above 60% for a good portion of it. The combination of low economic growth plus high food and energy prices will finally crack the teflon coating on the Mexican president’s public approval ratings.

The implications of this drop in approval are stark. The president will lose the political capital to drive reforms through the Congress, meaning the coming attempt to undo his predecessor’s energy reform in the first half of this year will be the last real shot he’ll have to do so.

In recent weeks, due to a very mild drop in approval ratings, Lopez Obrador has lashed out at his political opponents with a level of ferocity that has exceeded his previous critiques. AMLO has always had a mean streak when it comes to how he treats his opponents. It’s likely to appear more often and in uglier ways in the coming year, as he loses his previous levels of popularity and faces a declining economy.

Thanks for reading

Sorry for contributing to the the continued pessimism in whatever news you’re following.