Move aside economists: what investors need now above all in Latin America are political analysts.
From the top to the bottom – Mexico to Argentina – the big issue is political risk. It is engulfing large as well as small economies. The region that so recently seemed politically becalmed – albeit with continuing dysfunction in Venezuela and Argentina – has sprung back to strife.
In Mexico, president Enrique Peña Nieto’s ability to govern throughout the country was again called into question with the spectacular escape from prison of Joaquin Guzman, a drug lord.
The high-profile incident played into negative perceptions of the control of criminal networks in the country and, coupled with suspicions about his health, have led to a marked increase in cynicism and scepticism in the business community in Mexico City about the nation’s status as the emerging markets’ leading long-term champion.
Corruption
Meanwhile, Brazil can’t find a way out of recession, exacerbated by the political stasis caused by corruption enquiries that drag ever more senior politicians into their sights by the week.
Argentina faces a watershed presidential election and the business-friendly candidate appears to be stalling in face of a resurgent Kirchner-backed Peronist alliance.
Venezuela is Venezuela.
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Really, it’s come to something when one of the region’s perceived bastions of stability is a country in the middle of peace talks – Columbia and Farc – while one of its brightest hopes for growth is Cuba.
The timing is tragic/ironic, depending on your view of causality.
All of this coincides with a period when capital markets activity in the region is becalmed beyond mere stillness. Mandates are harder to find than, well, an escaped prisoner or an Argentine politician you can trust. These are markets that need a shot in the arm; instead they’re getting a shot in the face.
Latin America needs to find a new engine of growth as the commodity boom runs out of fuel. Much needed infrastructure would be an ideal new motor.
However, what investors in long-term projects want most is stability, not just in revenues and growth but political stability too – regulatory and tax regime clarity and above all the rule of law.
Sadly, the number of jurisdictions in the region capable of fulfilling these wishes seems to be falling.