The political events, polls and votes of recent weeks suggest this: In the medium term, a leftward trend in South America’s politics is likely. But unlike its predecessors in the 2000s, the new generation of leftists will have fewer resources at its disposal.
by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung
At present, it looks as if Ecuador’s new president Guillermo Lasso will soon be quite lonely politically in South America. The banker and economic liberal conservative could soon be meeting communists, Marxists and former guerrillas as heads of state at regional summits.
In Peru, for example, Marxist Pedro Castillo is the favorite in the polls for the runoff elections on June 6. In Chile, Daniel Jadue of the Communist Party is currently the most promising candidate for the November presidential election. Finally, in Colombia, former mayor and guerrilla Gustavo Petro is leading the polls for the elections a year from now. And in Brazil, too, ex-president and labor leader Luiz Inácio Lula da Silva currently has the best prospects of beating incumbent Jair Bolsonaro in a year and a half.
However, it is still completely open how this political change will affect the region’s economy. The last time the left came to power in South America, it benefited from a commodity boom that lasted more than a decade and encompassed the entire range of agricultural and industrial raw materials, from oil to soybeans, from copper to beef. The export boom ensured full foreign exchange coffers and high tax revenues. This explains why politicians like Chávez in Venezuela or the Kirchners in Argentina were able to successfully hold on to power for so long despite their weak policies.
This time, the starting position is different: There is a commodity boom now, too. But it does not look as if it will develop into a supercycle. The last long cycle for commodities was triggered by China’s rapid urbanization and the rise of its population into the middle class.
Today, on the other hand, public budgets are heavily in deficit after now a year and a half of social compensation and lost revenues during the pandemic. Growth forecasts are mixed because the Corona crisis will not end for some time. Vaccination campaigns are proceeding slowly.
As a result, currencies throughout South America are weakening. In addition, foreign investors are becoming less willing to lend. The downgrade of Colombia’s bonds to junk level last week are a harbinger that, with greater political risk, South America’s credit rating will also fall further.
The left-wing governments that may soon come to power in South America will therefore hardly be able to continue the distribution policies of their predecessors in the 2000s. They will have to satisfy the social needs of a poorer population with fewer resources. Only if they succeed in doing so will they be able to hold on to power.
COVID-19 in Latin America
Development of case numbers in the region
Currently reported cases in the countries
COVID-19 vaccine doses administered
Vaccine doses administered by country