Latin America: Continued Adjustment amid Enormous Uncertainties

By Sun Yanfeng

At a time of chaos on the global political and economic landscape, Latin America is experiencing changes that have not been seen in 40 years since the tide of democracy swept across the region in the 1980s. Traditional political parties have turned weak, with the falling and even imprisonment of traditional political figures and the rise of anti-establishment and populist “newcomers outside the power base”. The left and the right continue to be at cutthroat competition, as evidenced by surprising results in the elections of many countries. The chaos in Latin America’s political ecology has not been seen in 40 years, portending enormous uncertainties down the road in the region. On the other hand, there have been ups and downs in Latin America’s economy. While an overall momentum of recovery has been maintained, economic trends are diverging across the countries. Argentine, Brazilian and Venezuelan economies are either grappling with risks of big swings or still hovering at the bottom, making it hard to be optimistic about the future. On the diplomatic front, Latin America is increasingly divided. Regional integration is at a standstill and even backsliding. The US is stepping up engagement and intervention. Outside powers such as Russia are seeking geopolitical interests. Latin America’s internal groupings and external relations are being reshuffled amid the chaos. Generally speaking, Latin America, having experienced the advance of the left and the retreat of the right in political ecology and the economic downturn since 2015, continues to go through profound adjustment in search of the right direction forward. Continuous adjustment will define Latin America’s political and economic landscape in the years to come.  

I. Tremendous Changes in the Political Ecology

Since 2018, there have been two major changes in Latin America’s political ecology: the rise of populist newcomers outside the power base, and a new stage of strategic stalemate between the left and the right. 

On one hand, people outside the power base have risen as champions “against the establishment and political correctness”. Last July, Andrés Manuel López Obrador, leader of the left and candidate of the National Regeneration Movement who called for “Mexico first” and “people first”, won the Mexican election in a landslide victory, taking 53.1% of the votes and beating the runner-up by 30 percentage points. His election broke the monopoly by the center-left Institutional Revolutionary Party and the right National Action Party in Mexico’s politics for more than 100 years. It shows that the Mexicans are disappointed by the traditional right or left government and pin their hopes on emerging political forces. In October, the far-right candidate Jair Bolsonaro, who called for “Brazil first” and “God above all”, universal gun ownership and abortion ban and who are discriminated against the black, women and ethnic minorities, was elected Brazil’s president with a big margin, taking 51.3% of the votes and 10 percentage points ahead his rival. His victory ended the dominance of traditional political parties including the Workers’ Party and the Social Democratic Party for 20 years. Bolsonaro’s party,the Social Liberal Party, once little known, has emerged as the second largest party in the House of Representatives and taken three governorships. This underlines the fact that new forces with radical political views are popular among the public. Moreover, in the elections of both Peru and Costa Rica, there were seemingly unexpected victories of new political figures. Such surprising new political changes underscore the fact that with intensifying political infight, escalating economic and social problems, and never-ending corruption scandals in several Latin American countries since 2015, traditional political parties have seen their strengths on the decline, and traditional political figures have lost popular support. New political stars, who have been outside the power base, now emerge from such chaos, chanting populist, “anti-establishment” slogans. Such changes are the culmination of the chaos in Latin America over the past few years and pose the gravest challenge to its political system. 

On the other hand, the right and the left have entered into a new stage of “strategic stalemate” after a decade long political competition. After the advance of the right and the retreat of the left in 2016-2017, the right, strong as it is, has lost its strengths to secure an overwhelming victory. The left, though still weak, has established its foothold and even gained new battlefields in countries on the right. When it comes to the balance of power, the right continues to be in power in many countries, consolidating their strength in the region. Major countries such as Brazil, Argentina, Chile, Peru and Colombia are all governed by the right. In Brazil, in particular, Bolsonaro put together a cabinet largely made up of military officers, evangelicals, and business tycoons, who are characteristically pro-America and anti-left and may pursue more conservative domestic and foreign policies. In Argentina, the rightist party holds power in the government, the congress, the capital, and the largest province, getting immeasurable political power within their grasp. Smaller countries like Paraguay and El Salvador also see strong forces on the right. Though the left are in power in countries such as Ecuador, their domestic and foreign policies incline to the right. The majority of the top 10 Latin American economies are governed by the far right, the right and the center-right, meaning that the right retain their advantages on the continent. 

After suffering major setbacks during 2015-2017, the left has adjusted their tactics, gathered strengths, and steadily gained footholds. Cuba withstood economic sanctions imposed by the Trump administration, completed the leadership change, and, on the basis of stabilizing political power, continues to be a signpost for the left in Latin America. The Maduro government of Venezuela, confronted with the opposition at home and pressure and sanctions by the US and the West, ultimately stabilized the leftist government. Since this January, Juan Guaido, who declared himself to be the interim president with US support, took a series of measures to seize power, including organizing massive demonstrations, working with Western media to create a bad press for the Maduro government, inciting military rebellion, openly encouraging the public to revolt against the government by accepting “international humanitarian aid”, and even launching a failed military coup d’etat. The Venezuelan government, however, pulled through such a trying time, thanks to solidarity of the military, support of the people, and assistance from Russia and other countries. The dynamics is now shifting in favor of the government. In Paraguay’s election last year, the left started with 20 percentage points behind in the polls and failed with a slight 3.7 percentage points short. This shows that the people of Paraguay identify themselves with the aspiration of the left to eradicate wealth gap and pursue social justice. Obrador’s election as Mexican president testifies to the fact that the left is still firmly established in the country. And the election of a leftist mayor of the capital in Colombia for the first time demonstrates that even in the most closed and conservative rightist country, leftist propositions still enjoy strong popular support. 

On the whole, Latin America’s political ecology is moving from the chaos since 2015 to a new round of political balance. Previously, the right was on the offensive while the left was on the defensive. During the transition, both of them are on the offensive and defensive simultaneously. In some traditional rightist countries, it is still likely that the left may, out of people’s expectation, seize power. With mistakes made by the right in governance and rising public discontent over corruption, security and social welfare, it is still possible that the left will stage a comeback. At the same time, as the public are upset with the situation and deeply disappointed at traditional political parties and politicians, and given the spillover effects of the Trump phenomenon, some countries may possibly see the rise of political dark horses that are anti-establishment, anti-tradition and anti-elites. But, since Latin America has fairly complete political frameworks and mature democratic systems, the elections and changes of government have been basically stable this year. The possibility of military dictatorship, coup or regime change caused by non-institutional reasons is low. Even though populist figures such as Bolsonaro have come into power, they will be constrained by political parties, congresses, media and business interest groups. In the coming years, as economic recovery takes holds, power between the left and the right is reshuffled, and the public become tired of extremist political figures, a new balance will emerge in Latin America’s political ecology. 

II. Latin America’s Economy Is Emerging from the Bottom and Making a Difficult Recovery

Since hitting the bottom in 2017, the Latin American economy is recovering gradually and difficultly. In 2018, the momentum of recovery registered since 2017 has been weakened by a combination of factors, including international trade tensions, increased volatilities on international financial markets, and the cycle of elections in Latin American countries. On economic fundamentals, growth has slowed down, inflation risen, current account deficits increased, and currencies depreciated at a faster pace. On macro policies, severe fiscal deficits and paced up increase in US interest rate have squeezed the space for Latin American countries to deliver fiscal and monetary policies. In 2018, Latin America’s economic growth rate was only 1.2%, falling short of IMF’s upbeat forecast of 2%, and even slightly lower than that of 2017. The performance is well below the global average (3.7%), and the average of developing countries (4.7%), and further below that of Asian countries (6.5%), making Latin America the slowest growing region in the world for five consecutive years. Brazil and Mexico, as the two largest economies in Latin America, grew by only 1.4% and 2.2% respectively. The Argentine economy contracted by 2.6% and Venezuela even suffered a 10% drop in growth, dragging down the entire Latin American economy. Despite the eye-catching growth in countries on the Pacific coast such as Peru, Bolivia and Colombia and Caribbean countries like the Dominican Republic, it’s not strong enough to push for full recovery of the entire Latin American economy. It is worth noting that countries that have achieved fast growth since 2018 have mostly taken advantage of their economic links with Asia-Pacific countries including China, which lends strong impetus to their economies. For instance, the Dominican Republic grew at a high speed of 6.4%, only one year after establishing diplomatic relations with China. Peru, capitalizing on its free trade agreement with China, also achieved an impressive growth of 4.1%, becoming a highlight among Latin American economies. 

In 2019, with increasing uncertainties and risks in the global economy, the highly externally dependent Latin America is unlikely to stay unaffected. This year, Latin America is still under significant downward pressure on its growth. Major Latin American economies in particular are faced with tremendous pressure on their economic development. 

In Brazil, the Bolsonaro government has introduced ambitious economic reform policies centered on pension reform. Constrained by the opposition parties, these policies have only made slow progress. Big increases in public spending have made investors more worried about economic stability. As private investors are reluctant to get onboard, the massive infrastructure privatization and PPP plans introduced by the Brazilian government have been set back. Market forecasts about Brazil’s economic prospects have thus been on the decline. Internationally, China-US trade frictions will exert a tremendous impact on Brazil’s industrial restructuring and export structure. Unfavorable factors, both domestic and international, especially the negative growth and falling investment and consumption in the first quarter of 2019, have sparked serious market concerns that Brazil may slide into protracted recession. 

In Argentina, the government took a series of measures, including raising interest rates and cutting deficit, to curb inflation, which, however, caused severe consequences such as sharp contraction in market supply and operational difficulties for companies. In 2019, to live up to the IMF’s zero deficit standards, the Macri government has no choice but to significantly cut public spending, including subsidies on education, healthcare, transport and other public goods. This may lead to further economic contraction and rising public discontent. It is projected that Argentina’s economic growth will drop by 0.5% and inflation shoot up to 23% in 2019. The economic performance in the first three quarters of 2019 and the inflationary expectations point to a bleak prospect of achieving the zero deficit target. In particular, as 2019 is the year of election for Argentina, poor economic performance may become an obstacle for Macri to get re-elected. 

In Mexico, the economy is deeply affected by economic policy adjustment, US-Mexico trade dispute, and especially the tough trade sanctions imposed by the US. To respond to decelerating exports and prepare for the tough time ahead, the Mexican government is also compelled to cut public spending. The Obrador government has dropped the plan to build the US$13.3 billion airport in Mexico City, which had already been under construction. The IMF, World Bank, Inter-American Development Bank and Fitch Rating have all downgraded their forecasts for Mexico’s growth in the belief that Mexico’s economy may slow down this year. At the same time, according to IMF statistics, Venezuela’s growth may drop by 18% this year, the third consecutive double-digit fall. As major countries are in the doldrums, Latin America’s economy may still be struggling at the bottom in 2019. 

III. The US Steps up Intervention andLatin America is Divided on the Diplomatic Front

The US has in recent years continued to step up intervention to maintain its regional hegemony. First, it fights radical leftist countries harder. It carries on with sanctions on Cuba. After the Trump administration assumed office, it not only revoked the favorable policies introduced by the Obama administration to normalize relations with Cuba and imposed tighter restrictions on economic and social cooperation, but also prolongs economic and political sanctions on Cuba. The US also plans to expand tourism, financial and trade sanctions on Cuba. In Venezuela, the US took advantage of the anti-government activities organized by the self-declared president Juan Guaido to launch a new round of subversive acts. It has not only increased economic sanctions by announcing oil and gold sanctions on Venezuela, but also exercised long-arm jurisdiction to sanction companies and individuals of third countries who do trade and investment with Venezuela. The US has made active preparations for military intervention, deploying troops in Colombia and Caribbean islands close to Venezuela and engaging in massive reconnaissance. It also joined hands with Europe and the Lima Group in Latin America to diplomatically isolate the Maduro government. The relentless attacks on the Venezuelan administration fully demonstrate that the US does not change in the slightest its control and intervention on Latin America, and that its neo-Monroe doctrine toward Latin America is only gathering momentum.   

Second, the US ratchets up pressure on Mexico and Central American countries on trade and immigration. On trade, it forced Mexico to make concessions and sign the US-Mexico-Canada Free Trade Agreement. After taking office, Trump put the renegotiation of NAFTA high on the agenda. In July 2018, the US started bilateral talks with Mexico, using its influence to force the latter to make considerable concessions on issues such as the rule of origin for the auto industry and workers’ pay. On the issue of immigration, the US imposed pressure on Mexico and the Northern Triangle Countries (Guatemala, Honduras, and El Salvador), demanding stronger control on illegal immigrants, and cancelling the temporary protection policy for immigrants from El Salvador and Honduras. Several hundred thousand immigrants are at the risk of being sent back. This June, the Trump Administration, with no regard to the newly signed free trade agreement with Mexico, announced additional tariffs, fragrantly interfering in Mexico’s internal affairs and border control, demanding Mexico close its southern border crossings and restrict Central American immigrants’ entry into Mexico. This once again speaks to the Trump administration’s tough, arrogant and selfish attitude toward Latin America. 

Third, the US builds closer links with traditionally pro-America countries. Since 2018, former Secretary of State Rex Tillerson, former Defense Secretary James Mattis, Vice President Michael Pence, Secretary of State Mike Pompeo, and other high-ranking US officials have made frequent visits to major Latin American countries including Mexico, Colombia, Chile, Brazil and Argentina to consolidate political relations and win support on issues related to Venezuela and security cooperation. Moreover, when Argentina was hit by financial turbulences, the US-dominated IMF committed to provide US$57.1 billion in lending to help the country tide over the crisis. The rightist government of Argentina is therefore forced to listen to the Americans on major diplomatic and political issues. After the rightist candidate Bolsonaro was elected Brazilian president, Trump sent a message of congratulations, received him during his visit to the US in March, and even voiced support to Brazil in its joining the OECD and becoming a non-NATO ally. These were part of the US attempt to make Brazil its strategic pivot in South America. 

Moreover, the US has consistently smeared and sabotaged outside powers’ cooperation with Latin America, such as Russia and China. US senior officials have, on many occasions, groundlessly accused China and Russia of using their economic influence to bring Latin America into their spheres of influence, and hurting these countries’ manufacturing. And they claimed that Russia’s expanding presence in Latin America is a cause for concern. The recent report published by the US-China Economic and Security Review Commission of the US Congress called China’s presence in Latin America a comprehensive threat to the US. Apparently, the US takes China and Russia as two important variables in its relations with Latin America, underscoring the fact that to push out outside powers, the US has intensified diplomatic efforts in Latin America, with purpose of maintaining and consolidating its dominance in the region. 

As the US has stepped up reengagement in its “backyard” and new governments have been formed in some countries, some center-right governments are drawing closer to the US. The Bolsonaro government extended goodwill to the US after coming into power, planning to move its embassy in Israel from Tel Aviv to Jerusalem. To obtain lending, Argentina agreed to the establishment of US military bases in places like Tierra del Fuego. President Moreno of Ecuador is increasingly close to the US, openly criticizing several times the Maduro government of Venezuela and even agreeing to deny political asylum to Julian Assange, an anti-America figure. In spite of its differences with the US on immigration and trade, Mexico can do nothing but make concessions to accommodate the tremendous influence of the US. In the face of internal and external challenges, leftist countries such as Cuba, Venezuela and Bolivia can only fight the US in a fair and reasonable way. Generally speaking, Latin American countries are increasingly divided on their attitude toward the US. Some center-right governments are drawing close to the US, US-Latin America relations, however, have yet to be substantially improved. 

At the same time, Latin America has received more attention from outside forces in recent years. Through arms sale, aid and investment, Russia has enhanced cooperation with Latin American countries. It has pursued frequent cooperation with Nicaragua in military and information. Russia-Cuba cooperation continues to strengthen. Russia claimed that it will deploy in Cuba a ground station of its global satellite navigation system, GLONASS. In addition, Russia has gone further on its cooperation with Venezuela, agreeing to sell twelve Su-30 fighter jets, providing US$1 billion assistance in weaponry, and sending strategic bombers to “visit Venezuela”. All these moves demonstrate Russia’s military presence in Latin America and its strong support to the leftist government of Venezuela. During the crisis in Venezuela in the first half of the year, Russia, with no regard to US threats, sent military personnel to Venezuela to offer intelligence and weaponry support, becoming the most effective weapon for Venezuela to fight against US military threats. India has also accelerated cooperation with Latin America. It pursues high-level exchanges and practical cooperation through BRICS and engages in economic and trade cooperation with Latin American countries with private companies as the vanguards. India is now Latin America’s third largest export destination and has surpassed China as the largest importer of Latin American oil. Some American media believe that India’s huge population, advantages in technology and services, and English-speaking skills will attract more attention from Latin America. EU countries continue to strengthen practical cooperation with Latin America. The EU has reached a principled agreement on upgrading its free trade agreement with Mexico, and is nearing the completion of free trade negotiations with MERCOSUR, which includes Brazil and Argentine. EU countries that have more input in the region such as France, Italy and Spain continue to enhance their economic and trade cooperation and cultural exchanges with Latin American countries. 

However, regional integration has made slow progress, with solidarity declining among Latin American countries. Confronted with slow economic recovery, political instability and prominent social challenges, Latin American countries have been mostly focused on domestic affairs since 2018. Major countries such as Brazil and Mexico held elections; Argentine was hit by a financial crisis. Hence, less attention to and input in regional integration. Without “engines” and “leaders”, Latin America’s integration has come to a standstill. Moreover, countries in the region are divided on the issue of Venezuela and have been in confrontation on multilateral occasions including the Summit of the Americas and meeting of the Organization of American States. Regional integration organizations have not gone any further. On the other hand, sub-regional organizations dominated by the left are also at a standstill. Ecuador has withdrawn from the Bolivarian Alliance for the People of Our America. Six governments, including Brazil, Argentina, Peru, Colombia, announced suspending participation in the Union of South American Countries. 

Based on the current internal and external situation of Latin America, it can be predicted that Latin American countries will go through continued and significant domestic and foreign policy adjustments in 2019, so as to adapt to the tremendous changes in the political ecology, the uncertainties in economic recovery, and fierce struggles in diplomacy. 

Sun Yanfeng is Deputy Director of the Institute of Latin American Studies, China Institutes of Contemporary International Relations.