Political Risk to Increase in Latin America in 2022

Political risk will increase in the region this year. We must prepare for another year of cloudy times.


Photo: Bolivian women wear masks to prevent the spread of COVID-19. Source: Juan Karita / Associated Press.

The “Political Risk Latin America 2022” index of the Pontificia Universidad Católica de Chile Center for International Studies (CEIUC) yielded a clear conclusion: political risk will increase in the region this year. We must prepare for another year of cloudy times, characterized by high levels of uncertainty, volatility, polarization and, indeed, political risk.

The index identified ten risks in the following order of importance: 1) erosion of the quality of democracy; 2) climate change and water scarcity; 3) a resurgence of social protests and violence, many of them led by frustrated young people; 4) a worsening of the migration crisis; 5) an increase in illicit economies; 6) political polarization and fake news; 7) a drop in foreign investment; 8) growing regional irrelevance; 9) an increase in cybercrime; and 10) the greater presence of China in the region.

In comparison with the 2021 report, climate change and cyberattacks emerged as new risks in the region; the migratory crisis rose two places in importance, and trends such as the deteriorating quality of democracy, the lack of incentives for foreign investment, the irrelevance of the region at a global level, and the complexities of the greater Chinese presence in strategic sectors continued.

Although the region closes 2021 with 6.3 percent GDP growth, after a 7 percent collapse in 2020, the rebound appears to be insufficient and unsustainable. The projections for this year are timid and heterogeneous among countries, with the IMF predicting growth of around 3 percent. Thus, Latin America would become the region with the lowest growth in the world. If the estimates are accurate through 2023, the region is heading toward a new “lost decade” as it experienced in the 1980s. Added to this is growing political risk, which not only meant a decrease in foreign investment in 2021, but also a massive capital outflow: 128 billion dollars, according to the Institute of International Finance. The possibility of new COVID-19 variants, macroeconomic imbalances generated by inflation, and the region’s lower fiscal margin all raise levels of uncertainty.

With the triumph of President-elect Gabriel Boric in Chile in last month’s elections, the question is how the political map will be reconfigured after elections in Colombia and Brazil, where the candidates leading the polls today are both from the left (Gustavo Petro and Luiz Inácio Lula da Silva). In 12 of 13 regional elections since 2019, voters have changed their country’s political direction from one party to another. If the 2022 elections confirm the region’s anti-incumbent tendency, the right would see its presence reduced to three countries in South America: Uruguay, Ecuador, and Paraguay.

The political environment is equally complex. We will have to be aware of the crisis in Haiti, the authoritarian drift of El Salvador, the course of the new leftist government of Xiomara Castro in Honduras, and the growing deterioration of the rule of law in Guatemala. Likewise, the evolution of the dictatorships in Nicaragua, Cuba, and Venezuela present major challenges for the region. In Ecuador, the government of Guillermo Lasso has already begun to show governance problems, while in Peru the presidency of Pedro Castillo is unstable and faces the permanent threat of impeachment. In Mexico, we must pay attention to the democratic erosion that the country is experiencing at the hands of AMLO and his confrontations with the electoral authority (INE), judges, the media, and the electricity sector. In Argentina, we continue to monitor the fragile economic situation and negotiations with the IMF, while in Chile we must examine the first signals from the new government of Gabriel Boric and the future of the Constitutional Convention.

Responding positively to these tough times will not be an easy task. The region’s leaders—many with low levels of popularity and working with a legislative minority—must govern in times of complexity, with increasing citizen demands, high volatility, and political risk.

Jorge Sahd is the Director of the Pontifical Catholic University of Chile (UC) Center for International Studies.

Daniel Zovatto is a Senior Researcher at the Pontifical Catholic University of Chile (UC) Center for International Studies.

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