Political risk in Latin America driven by US protectionist policy

23 April 2018 Authored by Consultancy.lat

Political risk is a determining factor when businesses operate internationally. For multinational businesses, political risk will continue to be a major concern in this year according to the Marsh 2018 Political Risk Map. A number of events including Brexit, increasing national protectionism and a looming trade war between China and the US have created a divided political landscape worldwide. 

The past year has been politically tumultuous and its effects have been felt around the globe. According to the 2018 Political Risk Map from consulting firm Marsh, the political landscape in 2018 is likely to be as unstable. Marsh’s map is supported by data and insight from BMI Research and provides over 200 countries with a score out of 100, with the higher end being more stable. There are three categories of risk included in the overall score including political, economic and operational. These categories have integrated data for both short term and long term security and together they determine how politically stable a nation is. 

In Latin America, the map shows a decline in political stability overall and predicts a year of uncertainty ahead. In 2018, Brazil (56.9 points) and Colombia (58.5 points) will hold presidential elections hoping to bring clarity to political scandals and political polarisation respectively. Colombia’s elections mark FARC’s first election since the guerrilla group turned political party signed a contentious peace agreement with the government. Both countries are feeling regional instability over the crisis in Venezuela, with hundreds of thousands of refugees having crossed both borders. 

Venezuela will also hold elections but there is little hope for regime change. The country has a political stability rating of 32.5 points and although the president set a date for elections earlier this year, he has also quelled the opposition, stating that “the people have already decided…Nicolás Maduro is president of the republic for the period from 2019 to 2025,” at a pro-government rally. Only Haiti is presumed to be less politically stable within Latin America and the Caribbean.

Political risk in Latin America

Paraguay’s election only hours ago of a conservative president Mario Abdo Benítez shows a swing towards a regional pro-business agenda. The country has seen a decrease in ratings according to the map with a 2.7 point drop in the past year due to perceived political corruption. Argentina felt a similar political shift over the past years and has experienced a mildly stable political landscape. Chile’s ratings have dropped from the second highest bracket range (70-79) to the third (60-69), although it is still the most politically stable by far with 69.7 points, the highest in Latin America. 

Donald Trump & Latin American relations

Much of the global instability has come from the first year of Donald Trump’s presidency. For Latin America, this era has been riddled with anti-immigrant rhetoric, protectionist policies and the infamous Mexican wall proposal. On January 18, Trump took to Twitter to comment that Mexico is “the number one most dangerous country in the world.” This is just one example of his willingness to sacrifice Latin ties for domestic political gain. 

Recently, Trump exemplified his lack of interest in the region when he failed to attend the Summit of the Americas, the first US president ever to have done so. Trump’s neglect of the Latin America in combination with an overtly hostile policies against some Latin nations have sparked fear for relations with the world’s largest economy.

A regional news poll by Gallup released in January, 2018 analyses Trump’s approval ratings across Latin America. Overall the results were stark, showing that only 16% of Latinos across the continent approved of Donald Trump with many fearing his presidency would weaken ties between countries. Surprisingly, the country with the most approval for Trump was Venezuela. Mexico was on the other end of the spectrum with only 7% of Mexicans believing that Trump’s job performance has been up to scratch, a 55% decline from President Obama. 

Political risk in South America

The by-product of Trump

Although an estimated 25% of total US trade goes to Latin America, the region is positioning itself for heightened trade restrictions and a shift of global power relations. In the Political Risk Map, the US has fallen from the top tier bracket with a rating this year of 78.7 points. Amid growing levels of protectionism and local and regional tension, Latin leaders are looking regionally for solidarity. As a result of Trump’s policies, pan-American cooperation has been encouraged by the same negative rhetoric, anti-trade policies and US withdrawal from the TPP. 

A political scientist at New York University, Patricio Navia, said, “Trump’s policies and disparaging remarks about immigrants have forced other countries to say, ‘We have to help each other out and look for alternatives among ourselves.’” Naiva continued, “Trump has inadvertently done more for commercial integration in Latin America than many Latin American leaders managed to accomplish.”

Trade agreements and increased economic ties are on the cards for some of the most stable countries within the region. Two of the region’s biggest trading blocs are shaping up for regional expansion in the future. The Pacific Alliance’ members Chile, Peru, Colombia and Mexico are in negotiations to form a partnership with the Mercosur, which is comprised of Argentina, Brazil, Uruguay and Paraguay.

The two trade blocs combined make up over 90% of Latin America’s total GDP and foreign direct investment. The deepening of economic ties between the two trade blocs will have a profound impact on the way business is done in the region. “The convergence between Mercosur and the Pacific Alliance could mean the birth of a new dynamic pole of the world economy,” said Brazil’s Foreign Relations Minister last year. The move could boost economic risk perception in the region and drive political cooperation leading to increased stability. 

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