Prediction: 2020 will be worse for instability in Latin America
The trends connecting the protests will continue while countries face individual circumstances that will exacerbate the problems
Welcome to the Latin America Risk Report - 21 November 2019.
In this edition:
Why 2020 is likely to be worse in terms of instability
Venezuela updates: Protests and Foreign Currency
Corruption Corner
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Why 2020 is likely to be worse
This year has been busy in terms of protests and anti-incumbent politics in Latin America. The past eight weeks have been particularly difficult. As I told two events in DC this past week, my forecast is that the number and intensity of protests will increase in 2020. Or, as I was quoted by Bloomberg this week:
“Anger at the political systems isn’t going away and, in many ways, governments are trapped… There will be more protests, and they’ll be more violent in 2020.”
I promised several readers I would outline some of my reasons for that prediction in this week’s newsletter. My forecast comes from looking at the big picture trends across the region as well as the details of the political, economic and security issues specific to each country.
Big picture: The trends connecting the protests are going to continue
Latin America’s citizens are angry at their political systems due to corruption and a lack of results on citizen security and economic promises. They are upset about inequality, low growth and the increasing cost of living. Urbanization and youth with cell phones made rapid organization of protests in cities possible.
Some variation of those base level factors exists in nearly every country in Latin America. They explain the protest movement we are seeing post-hoc, but they aren’t predictive. For example, nothing about economic inequality predicted Chile would experience mass protests in October 2019 rather than April 2019 or October 2018. Similarly, it’s tough to take any specific variables that would have predicted three months ago that Chile would fall into major protests before Brazil. People in numerous countries around the region have been angry about corruption, economic inequality and other base level issues for a while.
But having seen protests begin, there are strong reasons to believe they will continue and expand around the region. Many countries seem to be on edge, waiting for a catalyst to light the fire. And as protesters have seen success in neighboring countries, they have been emboldened to call for similar protests in their own countries.
Country-level: Nearly every country in the region has conditions that are likely to generate protests
I’m going to separate out the countries likely to protest into four groups (though some overlap multiple groups and each country does have its own unique circumstances).
1. Most countries that protested in 2019 aren’t done yet. Venezuela, Honduras, Ecuador, Haiti and Bolivia all have factors that are going to lead to continued and likely increased protests in the coming year. Though the strength of the protests will ebb and flow, none of those five countries has a clear path out of the protest movements that continue.
2. Anti-system populists are struggling. Latin America’s two largest countries are governed by populist leaders who have not met expectations.
In Brazil, the Bolsonaro administration is below the 50% mark in the first year and has faced regular controversies over corruption scandals. The country’s legislature just passed pension reform, something that may be good for Brazil’s long term budget but is likely to spark anger in the short term. Bolsonaro’s personality makes him likely to overreact to initial protests and create reasons for protests to escalate.
In Mexico, President Lopez Obrador will finish his first year with over 50% popularity, not something many other presidents in the region can claim. But he is far from his goals for economic growth and faces a security crisis that is worse than the worst days of the Calderon or Peña Nieto administrations. This has hit his popularity recently
3. Stable countries look like Chile, and that’s not good. Chile was a model country, considered relatively stable with strong business environments by outside analysts in recent years. Many countries, including Colombia and Costa Rica, welcomed comparison to Chile. But comparisons to Chile aren’t necessarily positive after the past few weeks of protests. Presidents and political systems across the region are unpopular. Economic inequality is high and there are large numbers of poor and lower middle class not able to take advantage of economic gains. The populations would like to see greater government investments in social services, even as governments are concerned about a tough macroeconomic environment. For the same reasons Chile exploded in protest, you can find similar reasons in countries that have tried to emulate the Chilean model.
4. New administrations face early challenges and resource constraints. There are three new administrations taking office that have the potential for early failure: Argentina, Guatemala and Panama. All three were elected with less than 50% of the vote and some of their support came due to voters disliking their opponents more rather than a mandate for the new president’s ideology or policy platform. All three presidents are likely to see divided governing coalitions and all three lack the economic resources to meet their campaign promises.
Venezuela updates: Protests and Foreign Currency
There was a mixed reaction to Juan Guaido’s planned protests last Saturday. The protest was big enough to demonstrate Guaido’s continued relevance but small enough to not pose a threat to Maduro’s stability. Guaido has continued a series of protests this week including support for protests organized by university students today. The organization and support of small protests by various sectors (teachers, nurses, students) is likely to continue in the weeks to come.
The night prior to the protest, a group of armed men entered the party offices of Voluntad Popular. The intimidation tactics by government thugs suggests concern by Maduro that the protest organization could be a threat to his government if it were to grow too large.
Maduro is nervous in part because many presidents are nervous given the recent large and relatively successful protests in other countries. Maduro has promised that Venezuela will not experience a “coup” similar to Bolivia’s. Guaido also referenced Bolivia in his call for protests. This led to showdowns at the Bolivian embassy in Caracas and the Venezuelan embassy in La Paz.
Two other pieces of news this week relate to the ongoing shift towards foreign currency in Venezuela’s economy. The Venezuelan government has increased the level of Euros in circulation and is paying suppliers in hard currency. Separately, in an interview, Maduro said that he welcomed dollarization of the economy. Both moves were major shifts from the Chavista’s previous currency controls and long time opposition to foreign currency being used in the economy. However, with the military, government employees and pensioners still being paid in Bolivares, the increased foreign currency increases inequality as it only benefits those with access to the foreign currency.
Corruption Corner
Brazil/Paraguay - A Brazilian judge requested an Interpol notice for the preventative imprisonment of Horacio Cartes, the former president of Paraguay and a key actor in the current Paraguayan ruling coalition, as part of a new phase of the Lava Jato investigation related to money laundering. The charges appear to stem from Cartes’s relationship with Dario Messer, a money launderer who was detained earlier this year on criminal charges in Brazil.
Peru - The founder of Grupo Gloria in Peru has admitted to donating US$200,000 in cash to the 2011 campaign of Keiko Fujimori. The admission occurred as Vito Rodriguez testified to the Lava Jato commission. The news could cause several people within Fujimori’s Fuerza Popular to face criminal charges as it would imply they lied on disclosure documents.
Reading List
Washington Post - Latin America’s generals, back in the political labyrinth
LA Times - Inside the bloody cartel war for Mexico’s multibillion-dollar avocado industry
CSIS - Responding to Armed Groups in Venezuela
Brookings - There are no short cuts in resolving Mexico’s spiraling violence
Reuters - Bolivia's ouster of Morales stirs tensions in left-leaning Nicaragua
Reuters - In interview, Haiti's president warns of humanitarian crisis, calls for support
RANE - More Sanctions Spook Companies
Thanks for reading
Paying subscribers this week received an additional update on the violence and protests in Bolivia. You can support this newsletter and receive additional information by signing up.