Political Risk Analysis - Discontent With Established Politicians Opens Door For Outside Candidates - NOV 2017

BMI View: Weak economic growth and corruption allegations have seen presidential approval ratings approach multi-decade lows in many of Latin America ' s largest economies. This will open the door for anti-establishment candidates in upcoming elections , with risks of policy shifts stemming from outsider victories highest in Mexico, Brazil and Colombia.

Weak economic growth, elevated inflation and widespread corruption allegations in many of Latin America's major economies have sent presidential and government approval ratings to multi-decade lows, increasing the risk of anti-establishment victories in upcoming elections. This brings with it the prospect of significant policy shifts in the region.

Within the next twelve months, general or legislative elections will take place in Chile, Argentina, Colombia, Mexico and Brazil. We believe that risks of an anti-establishment victory are greatest in Brazil, Mexico, and Colombia, while in Argentina and Chile we expect major party candidates will claim the most votes. This outlook is roughly in line with current approval ratings of sitting presidents, where Mexico's Enrique Pena Nieto, Colombia's Juan Manuel Santos, and Brazil's Michel Temer all poll below the 30% mark.

Public Dissatisfied With Sitting Presidents
Latin America - Presidential Approval Rating, % of Total
Source: Poliarquia Consultores, Plaza Publica, Pew, Gallup, MDA

Presidential approval ratings across Latin America have fallen considerably over the past decade along with confidence in established political parties generally, which will open the door for outsiders in the 2017-2018 election cycle. Much of this decline can be attributed to a regional downturn in economic activity, with approval ratings tending to track real GDP growth lower ( see chart below). However, we note that corruption has also become a primary driver of public discontent. The Lavo Jato investigation and corresponding Odebrecht scandal in Brazil has spread across the region, implicating established politicians across Latin America, including in Colombia and Mexico ( see ' Odebrecht Fallout Brings Threats, Opportunities ' , May 23). Corruption scandals have also seen major infrastructure projects shutdown across the region, weighing on construction and contributing to the general economic slowdown.

Approval Ratings Falling Alongside Growth
Latin America - Presidential Approval Ratings And Regional Real GDP Growth, % y-o-y
Source: Latinobarometro, BMI

In Brazil, we expect the 2018 general election will be the most consequential since a 2002 win by Luiz Inacio da Silva ushered in a 15-year era of leftist governance. After three years of economic recession and political crisis, largely due to sweeping corruption scandals, acting President Michel Temer's approval rating stands at 3.4%. This is by far the lowest in the region and is, in our opinion, reflective of the public's general disdain for the country's political establishment. While we believe it is still too far out to make a call on the election, the current political climate leaves the door wide open for the entrance of outsider candidates ( see ' 2018 Election Initial Thoughts: Corruption Critical To Outlook ' , August 12).

In Mexico, significant voter frustration over rising violence, criminal impunity, and corruption have seen the support for Mexico's major parties fall significantly in recent years, making a victory of anti-establishment candidate increasingly likely. Andres Manuel Lopez Obrado (AMLO) of the leftwing Movimiento Regneracion Nacional (Morena) currently sits atop the polls, with his party drawing 23% of voter intentions. A victory for AMLO, who has campaigned on a populist agenda including free education, increased rural investment, protectionism, and other policies that prioritize domestic production of imports, would bring a significant policy shift from the pro-business reform agenda pursued by President Nieto and the PRI ( see ' Crib Sheet: Setting The Stage for 2018 ' , July 27).

Morena Leads The Field
Mexico - Voter Intention In Presidential Election By Party, %
Source: Buendia&Laredo, BMI

In Colombia, a combination of corruption scandals and concerns over the handling of the peace agreement with the FARC has weighed significantly on the popularity of President Santos. The president's approval currently sits at only 25%, the lowest of any incumbent going into an election year in decades. Santos, along with other established politicians such as his 2014 opponent, Oscar Ivan Zuluaga, are alleged to have received illicit campaign financing from Odebrecht. Polling data suggest that corruption is among voters' primary concerns in the upcoming election, which we expect will boost historically smaller parties and outsider candidates ( Cabinet Reshuffle Sets The Stage For Challenging Final Year, July 27).

Colombia Enters Election Year With Highest Disapproval In Decades
Colombia - Presidential Approval Rating Of Incumbent At End Of Term, %
Source: Gallup

Political Risks Relatively Muted In Chile And Argentina

In Argentina, although President Mauricio Macri's approval ratings have briefly fallen below 50% several times over recent months, his ruling Cambiemos coalition is likely to tighten its hold on power in October's mid-term legislative elections. Cambiemos and several of its senior leaders, such as Governor of Buenos Aires Province Maria Eugenia Vidal, remain more popular than the Peronist opposition. Further, the results from open primaries held on August 13 suggest that the coalition has significant momentum heading into October's vote, which will provide President Mauricio Macri with a renewed mandate to pursue economic reforms ( see Legislative Elections Will Bolster Reforms & Capital Inflows ' , August 22).

Macri Approval Turning Positive
Argentina - President Approval Rating, % of Total
Source: Poliarquia Consultores, BMI

In Chile, while slow economic growth has weighed on public support for President Michelle Bachelet, we do not anticipate a viable challenge from outside of the major parties. We expect this year's presidential election is most likely to result in a run-off between former president Sebastian Pinera of the centre-right opposition, Chile Vamos, and Alejandro Guillier, of the incumbent, centre-left Nueva Mayoria. While Guillier is a relative newcomer to politics and free of the corruption allegations that have dogged Pinera, we believe that his views are in line with current President Michelle Bachelet, and would not represent a substantial change in policy direction in the country ( see ' Pinera To Defeat Guillier In Run-Off', April 24).