Latin America’s Perverse Political Parade
Latin America topped Q1 main stock market results with Peru and Brazil roughly tied with 10% gains, as the President finally bowed to congressional will and public anger at his consulting for disgraced construction firm Odebrecht and resigned, with the moderate vice president assuming the term’s remainder. The move ended months of political standoff and maneuvering and the departure may not protect PPK from judicial prosecution as he must stay in the country for now. Elsewhere Central America kicked off the election season with an unexpected cliffhanger in Costa Rica between the “two Alvarados,” one from the ruling party and the other an evangelist entertainer. The former won the second round with a minority in parliament which will continue to frustrate long-promised fiscal reforms to pare the 60% of GDP public debt. Government salaries take half of revenue, and popular opinion has turned against democracy with only 60% backing on the heels of scandals such as around questionable Chinese cement imports. El Salvador also had legislative and municipal polls in March with an almost 60% abstention rate, with the opposition Arena alliance ahead of the FMLN in power, which suffered its worst defeat since inception. The outgoing mayor of the capital Bukele was not on the ballot, but is tipped as the frontrunner in next year’s presidential run. The incumbent Sanchez Ceren has disappeared from view on rumored illness as GDP growth slugs along at 2% amid increased murder and poverty levels. In Cuba non-democratic next generation transition is also underway as Raul Castro hands over the nominal mantle to Vice President Diaz-Canel in his late 50s, who is a career Communist functionary with unknown economic policies. US tourism is down under stricter Trump administration travel curbs, with less than 5 million visitors in 2017. Havana in turn has cracked down on private sector business, which accounted for over half a million jobs by last count, but coders have found a place with European outsourcing, according to reports.
Mexico was flat for the period amid continued bickering over NAFTA 2.0, with about one-third of the 30 chapters completed and negotiations overshadowed by Washington’s steel and aluminum tariff decision hitting Canada. The latest rounds have been stuck over hot button national content, dispute resolution and expiration clauses with the US Trade Representative pushing for “creative solutions.” Inflation has eased to 5.5% with an eventual 3% target, as new central bank chief Diaz de Leon is on shock watch and prepared to raise the benchmark rate and peso intervention ahead of July’s presidential contest. Although retail sales are weak, manufacturing has been healthy with the PMI at 55 and real wages are up. Leftist-populist candidate AMLO is ahead at this stage with a 40% voter preference as backlash against the main parties’ corruption and security failures. He has downplayed past radical approaches to wealth redistribution and drug cartel relations, and repositioned as a competent economic manager who would scrap the proposed $15 billion Mexico City airport upgrade as wasteful. Conservative PAN standard bearer Anaya had been in second position with charisma and age drawing young and independent support, but now faces allegations of suspect real estate deals. The stock market itself has come under insider trading doubts as the regulator examines patterns in financial group listings, but punishment is rare as impunity likewise lingers in that culture.
