turning tides a guide to latin america’s busy 2018...

A report by The Economist Intelligence Unit

Turning tides A guide to Latin America’s busy 2018 election year

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Turning tidesA guide to Latin America’s busy 2018 election year

© The Economist Intelligence Unit Limited 2017 1

Executive summary 2

Chile: It’s the economy, stupid 4

Honduras: Electoral disputes and social woes 5

Costa Rica: Divided we stand 6

Cuba: So long, farewell 7

Colombia: The usual suspects 8

Paraguay: Plus ça change 9

Mexico: Third time lucky? 10

Brazil: Draining the swamp 11

Venezuela: Stumbling towards chaos 12

Contents


© The Economist Intelligence Unit Limited 20172

Executive summary

Latin America’s 2018 election season is an extremely busy one—and a vitally important one too. All but one of Latin America’s top five economies will elect a new president in the next 12 months.

They will do so in an environment of increasing public anger over corruption, amid a plethora of corruption scandals across the region in recent years.

In this environment, the political tide may well be turning. Disillusionment with the traditional political class is growing; the leaders of Latin America’s big economies are for the most part extremely unpopular (see below). All this creates opportunities for political outsiders—and populists on the right and the left of the political spectrum—to tap into anti-establishment sentiment and spring surprises in the 2018 polls. In Brazil, for example, Jair Bolsonaro, a right-wing former army officer, has started to climb in the opinion polls. In Mexico, the leftist, populist Andrés Manuel López Obrador is a front-runner.

More established names are jumping on the anti-establishment bandwagon. Mexico’s Margarita Zavala has left the centre-right Partido Acción Nacional (PAN) to run as an independent, and in Colombia a myriad of familiar faces have registered new political movements in time for the 2018 race.

At stake is the region’s recent shift away from populism and towards a more fiscally responsible, pro-globalisation stance that governments in the likes of Argentina, Peru, Colombia, Chile, Mexico and Brazil hope will bring more sustainable long-term growth (and better progress in reducing poverty) in a region emerging only slowly from a deep downturn in 2015-16. As the regional recovery

Latin America's unpopularity contest(Approval ratings, %)

Source: Press reports.

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Temer (Brazil) Pena Nieto (Mexico)Maduro (Venezuela) Santos (Colombia)Bachelet (Chile)Macri (Argentina)



gathers steam in 2018, the benefits of such policies may become clearer. Even so, the 2018 election season could prove a bumpy ride.

In this report The Economist Intelligence Unit provides a short guide to all the election races in Latin America in the rest of this year and in 2018, starting with Chile’s November 2017 general election and ending with the presidential poll due in Venezuela in December 2018 (but unlikely to happen then). The guide provides just a snapshot of the in-depth political and economic analysis included in our Latin America Country Reports.

The Economist Intelligence Unit produces Country Reports for 35 countries in Latin America and the Caribbean. In an uncertain election period the information provided in these reports will be vital for companies to understand the risks and opportunities presented by Latin America in the coming year.

Election timeline

Source: The Economist Intelligence Unit.

Nov-17

19 NovemberChile, general election

26 NovemberHonduras, general election

7 OctoberBrazil, general election

28 OctoberBrazil, second-round presidential election, if needed

Chile, second-round presidential election, if needed

Costa Rica, second-round presidential election, if needed Colombia, second-round

presidential election, if needed

Cubapresidentialelection

Colombialegislativeelection

Paraguaygeneralelection

Colombia, first-round presidential election Venezuela,

presidential election, unlikely

to be held as scheduled

Costa Ricageneral election

Mexico, general election

17-Dec-17 Feb-18 4-Feb-18 11-Mar-18 1-Apr-18 11-Apr-18 27-May-18 17-Jun-18 1-Jul-18 Oct-18 Dec-18



Chile: It’s the economy, stupidNovember 19th 2017 (first-round presidential election), December 17th (second round)

Chile will kick off Latin America’s election season with a race pitting a businessman and former president (2010-14), Sebastián Piñera, from the centre-right Chile Vamos coalition, against a plethora of candidates on the left and centre-left. The most important of these are two TV journalists-turned-politicians: Alejandro Guillier, who has the backing of the majority of the ruling centre-left Nueva Mayoria coalition, and Beatriz Sánchez, who will represent the newly formed left-wing Frente Amplio coalition.

Mr Piñera consistently receives support of around 40% in opinion polls, compared with 25% for Mr Guillier and around 15% for Ms Sánchez. Although we would expect a second round to be more competitive, polling consistently gives Mr Piñera the edge in a run-off against any likely competitor.

The race is thus Mr Piñera’s to lose. His message of restoring dynamism to the national economy resonates with Chileans, who will this year experience their fourth year of weak growth (averaging just 1.8% in 2014-17). Voters have tired of the haphazard structural reform agenda implemented by the administration of the current president, Michelle Bachelet, which voters blame for having exacerbated the economic slowdown.

Voters have also tired of a string of corruption scandals among the political and entrepreneurial class (Mr Piñera has not been immune from allegations), which has led many voters to support an outsider candidate such as Mr Guillier over more established figures. But in this race it looks as if the state of the economy will be the deciding factor.

Regardless of who wins, there are already signs that the Chilean economy is turning around, and Ms Bachelet’s successor should assume office in March 2018 against a sunnier economic backdrop.

Opinion polls over time(% first-round support among likely voters)


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Honduras: Electoral disputes and social woesNovember 26th 2017 (presidential and legislative)

Barring a last-minute shock the incumbent president, Juan Orlando Hernández of the centre-right Partido Nacional (PN), is on the path to re-election. Should he win, however, Mr Hernández’s victory will be highly controversial and, according to his opponents, legally dubious. His ability to run is based on a Supreme Court ruling from 2015, which suspended a constitutional ban on consecutive presidential re-election. The ruling—and the president’s decision to stand again—has stoked political polarisation that will persist beyond the election.

Opposition parties may even challenge the legitimacy of the results on constitutional grounds. For now, three opposition parties have formed an electoral alliance, the so-called Alianza Opositora contra la Dictadura, to try to challenge Mr Hernández in the election. They have picked Salvador Nasralla, a TV presenter and political newcomer, as their candidate.

But Mr Hernández has the advantage. On top of the benefits of incumbency he can lay claim to a well-performing economy, a declining (albeit still very high) murder rate and social programmes introduced by his administration. According to a CID-Gallup poll published in September, he has 37% voter support, against 22% for Mr Nasralla and 17% for Luis Zelaya of the centrist Partido Liberal.

Post-election, policymaking will not be smooth sailing. The legislature is fragmented, and the PN is unlikely to have a majority after the November legislative poll. This will affect the government’s ability to address some of the most pressing issues facing Honduras, including widespread poverty, corruption and high levels of criminality. Reforms in some of these areas are under way, but major additional advances could be stymied in an environment of political divisiveness and tensions.

Comparative poverty and murder rates(Select countries)

(a) Latest year available. Source: The Economist Intelligence Unit.

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ChileCosta RicaPeruPanamaEcuadorNicaraguaEl SalvadorBoliviaMexicoGuatemalaHonduras



Costa Rica: Divided we standFebruary 4th 2018 (presidential and legislative); second-round presidential election April 1st

Costa Rica is grappling with a period of deep political change, which has seen the decline of traditional political parties and the increasing fragmentation of Congress. With this process set to continue in the run-up to the 2018 polls and with political reverberations from the recent “cementazo” corruption scandal still likely, there is plenty of room for surprise in the presidential election.

A pluralistic electorate comprised largely of non-affiliated voters will make it difficult for any party to surpass the threshold of 40% of the vote needed to avoid a second-round run-off in April. This has implications for the electoral calculus: although Antonio Álvarez of the centrist Partido Liberación Nacional (PLN) will lead in the first round, reflecting the strength of the PLN party machine, whoever faces Mr Álvarez in the run-off will benefit from widespread anti-PLN sentiment, probably scuppering the party’s chances of returning to power in 2018.

Whichever party comes second in the first round—the ruling Partido Acción Ciudadana (PAC) or the centre-right Partido Unidad Social Cristiana (PUSC)—therefore stands a good chance of taking the presidency. The PAC’s candidate, Carlos Alvarado, will receive broad support from left and centre-left voters but will also have to grapple with criticism of the party after its first ever term in government. Meanwhile, Rodolfo Piza of the PUSC, if uninspiring at times, exudes a centrist conciliatory tone similar to that of Guillermo Solís when he won the presidency in 2014, which sits well with the centrist Costa Rican electorate.

Whoever assumes the presidency will have been dealt a tricky hand in the form of a large public debt, a creaking infrastructure and rising criminality. With a divided Congress and wounded public trust in institutions, the only way to pass much-needed reforms will be through political consensus. But that has proved elusive for several years now.


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Abstention rate;right scale

Vote share of traditional parties (PLN & PUSC) as a percentage oftotal valid votes(first round, presidential election); left scale

Declining support for traditional parties



Cuba: So long, farewellFebruary 2018 (TBC; presidential)

Finding Cuba in a guide to Latin American elections may seem counterintuitive. But Cuba will begin an election process on November 26th 2017 that will culminate in the handover of power from Raúl Castro to his successor in February 2018—the first time in almost 60 years that Cuba will not be ruled by a member of the Castro family.

In November 2017 Cubans will go to the polls to elect municipal representatives. Municipal elections are the only direct elections in Cuba, but they begin the process that ultimately culminates in the election of the 612 members of the National Assembly; the National Assembly in turn elects the president. The presidential handover is expected to occur next February, but this could be delayed because the municipal elections have been pushed back by a month in the aftermath of Hurricane Irma, which hit in September.

The most likely successor to Raúl Castro is his first vice president, Miguel Díaz-Canel. Although there was initial optimism that Mr Díaz-Canel might be more reform-minded than his predecessor, several leaked recordings have shown him towing the party line. What’s more, his room for manoeuvre will be limited, given likely opposition from Communist Party hardliners and the fact that his former boss will remain the head of the Communist Party of Cuba and probably also of the armed forces.

The transition happens as Cuba faces difficult headwinds resulting from a continued decline in Venezuelan largesse; a rollback of the rapprochement with the US initiated by the previous US president, Barack Obama; and the challenge of reconstruction post-Irma. The liberalisation of economy policy has stalled, and bold but necessary economic moves—such as the unification of the dual exchange-rate system—are unlikely to be undertaken before the leadership transition is firmly entrenched. We should expect more continuity than disruption in the short term. There is no “Cuban Spring” on the horizon.

The president is elected by the612 members of the National Assembly. In 2011, the current president, Raúl Castro, limited Cuban presidents to two five-year terms. Mr Castro's second term will end in February, when he is expected to hand over power to a younger leader. Nevertheless, Mr Castro will retain the president's traditional responsibilities as head of the ruling Partido Comunista de Cuba, as well as probably of the armed forces, which will limit the next president's true power.

Presidential elections (TBD, assumed February 2018)

Elections are held every five years for the 612-seat National Assembly of People's Power, and were last held in February 2013. Candidates are nominated by municipal assemblies from lists compiled by municipal, provincial and national candidacy commis-sions, with input from "mass organisations" controlled by the Cuban state. Only one candidate appears on each voter's ballot paper, whom voters can either accept or reject. Although nominally the National Assembly is the "supreme organ of state power" according to the Cuban constitution, in reality the body is no more than a rubber-stamp parliament.

Provincial and national elections (TBD)

Cuba's only direct elections (held every 2.5 years) are for the 12,589 municipal council members. These delegates are most account-able to the general public and address local concerns. Elections are apolitical; candidates need only be nominated to stand; at least two and up to eight candidates must compete for a seat. Municipal councilmembers, once elected, nominate candidates to stand at the provincial and national level.

Municipal elections (November 26th; run-off December 3rd)

The path to political transition

1 2 3



Colombia: The usual suspectsMarch 11th 2018 (legislative), May 27th (presidential; first round), June 17th (presidential; second round)

In Colombia’s 2018 election season new political movements are in vogue. With the prestige of the traditional political parties plunging, “independent political movements”—featuring some very familiar faces—have been created on the left and the right to try to capture votes from an increasingly discontented, anti-establishment electorate.

One of these familiar faces is that of Sergio Fajardo, the centre-left former mayor of Medellín, although he has teamed up with some more established political parties, including Partido Verde (led by Claudia López) and Polo (led by Jorge Robledo), in a centre-left electoral alliance called Coalición Colombia. It is still unclear whether Mr Fajardo or Ms López will actually run in May, but the coalition’s platform of support for the historic 2016 peace deal with the FARC guerrillas, combined with a commitment to fighting corruption, will sway large swathes of voters, and Coalición Colombia seems likely to make it to the second round.

There the coalition is likely to come up against Germán Vargas Lleras, the centre-right former vice president to the current president, Juan Manuel Santos, who has also launched a new political movement. Mr Vargas Lleras can count on a strong electoral machinery and has clearer security and economic credentials than the opposition.

With the FARC deal remaining a divisive topic, Mr Vargas Lleras’s ambivalent stance towards the peace accord will also appeal to many voters on the right. The conditions of special peace courts that will judge crimes committed by the guerrillas, as well as the FARC’s formal entrance into politics, will be a matter of substantial debate during the campaign.

Whoever wins will inherit a long to-do list related to the implementation of the peace accord. But opinion polls show that other concerns predominate, including corruption, security and the state of the economy, and these will also need to be addressed. None of the candidates appears likely to offer complete reassurance in all of these areas.

Evolution of voter perceptions, selected areas (Net improvement/deterioration in current situation; percentage points)

Source: Gallup.

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Paraguay: Plus ça changeApril 22nd 2018 (presidential and legislative)

Paraguay’s long election season (all parties are to hold primaries on December 17th) will culminate in a contest between the feuding Partido Colorado (PC) and a broad, if unstable, opposition alliance composed of the centre-left Partido Liberal Radical Auténtico (PLRA) and the left-wing Frente Guasú (FG) in April 2018. The campaign will focus on the legacy of the president, Horacio Cartes, whose push to modernise the public sector and the country’s infrastructure while seeking foreign investment and finance has proven controversial within the PC and beyond. Secondary topics will include charges of clientelism and corruption against the PC, the spread of organised crime and the (weak) insurgency of the Ejército del Pueblo Paraguayo (the Paraguayan People’s Army, a Marxist rebel group).

Mr Cartes’s failed attempt at extending presidential term limits, which culminated in the death of a PLRA militant and the burning of part of the congressional building earlier in 2017, has widened divisions within the PC and resulted in a bitter primary race between Santiago Peña, a protégé of Mr Cartes, and Mario Abdo, a traditionalist senator. Despite the virulence of the campaign, in April the victor is likely to enjoy the full support of the PC’s widespread get-out-the-vote operation, itself buttressed by the party’s strong territorial presence and history of electorally motivated public spending (see figure). The PLRA president, Efraín Alegre, is the front-runner to head the PLRA-FG ticket. Although the PLRA-FG campaign will be buttressed by the support of the FG’s leader and former president, Fernando Lugo (2008-12), and that of Mario Ferreiro, the popular mayor of Asunción, the PC’s formidable electoral machine gives its candidate a clear edge.

Whoever wins will have to contend with the economy’s over-reliance on agriculture, high poverty and substandard infrastructure, coupled with the growing demands of a middle class that has proven receptive to Mr Cartes’s international openness and modernisation agenda.

Ñeembucú

Caaguazú

Departamento CentralAsunción

San Pedro Canindeyú

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Partido Liberal Radical Auténtico Partido Colorado

Party in power (governor)

Partido Revolucionario FebreristaFrente Guasú

BOLIVIA

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Political control of Paraguay, by department



Mexico: Third time lucky? July 1st 2018 (presidential and legislative)

Enrique Peña Nieto’s disappointing presidency has been a breeding ground for anti-establishment sentiment. After a promising start, which saw rave reviews for his quick success in pushing through structural reforms, Mr Peña Nieto’s term is coming to a humiliating end. He is extremely unpopular, reflecting a succession of corruption scandals involving fellow members of his party, the Partido Revolucionario Institucional (PRI). Voters are also deeply troubled by the evolution of Mexico’s relations with the US under the presidency of Donald Trump.

All this is useful fodder for the current front-runner in the race, Andrés Manuel López Obrador, the populist candidate of the leftist Movimiento Regeneración Nacional (Morena). A one-time mayor of Mexico City, Mr López Obrador will be running for the third time in 2018. He came second in two previous presidential attempts (in 2006 and 2012), and his support in the polls has remained steady at around 30%. In Mexico’s first-past-the-post system he may not need much more than that to win.

But it is still early days, and Mr López Obrador’s lead could well slide once other parties have defined their candidacies. The PRI is lagging well behind for now but could be revived once its candidate is selected. A stronger challenge to Mr López Obrador will come from Margarita Zavala, a former first lady who left the centre-right Partido Acción Nacional (PAN) in October to run as an independent. By leaving one of Mexico’s “big three” parties, Ms Zavala may also be seeking to tap into voters’ desire

for change. It will be difficult, however, for her to successfully brand herself as a political outsider given her long-standing ties with the PAN—and those of her husband and former president, Felipe Calderón (2006-12). She will also lack the vast political machinery long considered necessary to win elections in Mexico.

So far the economy has brushed off political concerns, growing by a steady if unspectacular rate of just over 2%. All this could change as the election draws closer, however, reflecting investor jitters over the election result itself and over the status of ongoing talks to renegotiate the North American Free-Trade Agreement (NAFTA) with the US and Canada. If the talks grow more hostile or collapse, nationalist sentiment will grow, boosting support for Mr López Obrador.

Disillusioned with democracy (Percent of respondents answering question: "How satisfied are you with the way democracy isworking in our country?”)

Source: Pew Research Center.

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VenezuelaPeruBrazilArgentinaGlobalmedian



Brazil: Draining the swampOctober 7th 2018 (legislative and presidential), October 28th (second-round presidential)

The outlook for Brazil’s October 2018 polls is unusually uncertain. Politicians from major parties have been hugely discredited by the high-profile corruption investigations that have made daily headlines over the past three years. This is fertile ground for figures outside the political establishment, such as Jair Bolsonaro, a right-wing politician and former army officer. He is popular with Evangelical Christian groups (a growing political force), and his law-and-order discourse appeals to many Brazilians terrified by the rise in violent crime.

Ironically, Luiz Inácio Lula da Silva, a former president (2003-10) of the left-wing Partido dos Trabalhadores, leads in the polls, despite the fact that he has been convicted of corruption and may well be barred from standing if his appeal fails. He retains support among poorer Brazilians, particularly in the north, who benefited from socioeconomic improvements during his tenure.

Assuming Brazil’s incipient economic recovery strengthens, the chances of victory for a candidate from a centrist party—most likely from the Partido da Social Democracia Brasileira (PSDB)—will brighten. At the same time, high disapproval ratings would almost certainly scupper the chances of extreme left-wing or right-wing candidates in an all but certain second round, unless this second round pitted a candidate from the extreme left against one from the extreme right (a scenario that would represent a break from Brazil’s pragmatic consensus-seeking history).

Whoever prevails will inherit the country’s shaky public finances and will need to steer unpopular pension reforms and other fiscal adjustments through a fragmented Congress to stop the public debt reaching 100% of GDP and triggering a debt crisis.

In this context, the election campaign will be overshadowed by concerns about a return to the economic populism that contributed to Brazil’s brutal 2015-16 recession. For now, investors are taking a sanguine view, but nerves will begin to fray in the run-up to the elections.

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Venezuela: Stumbling towards chaos Presidential and legislative: TBD

In theory, Venezuela is due to hold presidential and legislative elections in December 2018. In reality, it is unclear whether the increasingly authoritarian government of Nicolás Maduro will stick to this timetable. If elections do happen, it seems all but impossible that they will be free and fair.

The constituent assembly put in place in August amid violent protests to draft a new constitution has a two-year remit. The Supreme Court would undoubtedly rubber-stamp any attempt to delay the presidential election until after this period expires. If the government wished, it could thus push the vote back to August 2019 (with further delays a possibility). Alternatively, the government could seek to bring the election forward to take advantage of a weak opposition.

The opposition is in disarray in the aftermath of regional elections in October, in which it gained just five out of 23 seats (it had expected to win up to 18). The playing field was uneven. Coercion of voters was clear; the opposition states that it has proof of full-blown fraud. But cracks in the opposition alliance are deepening amid despair over what to do next.

Despite all this, and although 2018 may well bring more of the same—more centralisation of power in the regime, more opposition disarray and more violent but ineffectual protests—we do not see the Maduro regime lasting in the long run.

The scale of economic mismanagement and corruption and the government’s unwillingness and inability to address the root causes of Venezuela’s economic malaise bode ill for an economy that has already been in recession for several years. Default and hyperinflation are looming—either could tip the Maduro regime over the edge, producing a chaotic transition audited by the military.

But even without default or hyperinflation, the decimation of domestic production and the ongoing destruction of Venezuela’s oil-producing capacity (its only source of dollar revenue) will, without massive inflows of investment from abroad, in the end run the Maduro government into the ground. But 2018 may not be the year.

Destruction of GDP

Sources: Local sources; EIU estimates.

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Copyright

© 2017 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited.

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