Unwinding the Tide. Latin America's Shift to the Political Right

Summary

Left-leaning policy platforms gathered momentum across Latin America after COVID, sparking the region's second "Pink Tide" political phenomenon. However, those same administrations have seen approval ratings decline and overall popularity falter more recently. Over the next 18 months, most major Latin American nations will host elections, and in our view, regional politics will shift to the right side of the political spectrum. As the political pendulum moves right, we expect the second Latin American "Conservative Wave" to improve longer-term political risk profiles as well as bring about regional financial market stability. But before the "Conservative Wave" fully forms, policies that typically generate regional financial market instability are likely to be pursued in full force, which in the interim, can create short-term volatility across regional and local financial markets.

Unwinding the Tide. Latin America's Shift to the Political Right

Latin America has experienced multiple eras of political ebbs and flows: starting with the Spanish American wars of independence in the 1800s to the original “Pink Tide” and beyond. As fascinating as the entire Latin American political saga is, for the purposes of this report, we will focus on the “Pink Tide” and “Conservative Wave” eras of the last 40–50 years. When we say “Pink Tide”, we are referring to the rise of left-leaning political platforms and more liberal politicians across Latin America. Pink Tide support started in the 1980s, many decades after the wars of independence ended and right-wing governments dominated political office. Multiple catalysts sparked the original Pink Tide, including: regional democratization, economic malaise following multiple sovereign debt crises in Latin America, and global acceptance of more liberal policy ideologies. Pink Tide momentum gathered throughout the 1990s and eventually culminated with Venezuela electing Hugo Chavez in 1998. Left-leaning politicians remained popular through the end of the 20th century and into the mid-2000s with most Latin American nations participating in the trend. By the 2010s, Pink Tide momentum slowed. The death of Hugo Chavez in 2013 may have been the starting point for the shift away from left-leaning policy platforms, although multiple developments over the next few years—including the Odebrecht case, Operation Car Wash, the end of the commodity supercycle and sluggish economic growth—heavily contributed to the effective end of the first Pink Tide and the start of the “Conservative Wave.”

The “Conservative Wave” was a political phenomenon that saw right-leaning governments elected across Latin America. For example, Argentina pushed back on Peronism with the election of Mauricio Macri in 2015. Brazil impeached Dilma Rousseff in 2015, and following a temporary conservative caretaker government, elected the far-right Jair Bolsonaro in 2018. Peru and Chile both opted for conservative political platforms during this time, while Bolivia, Ecuador, Guatemala, Honduras and Paraguay also voted for right-leaning presidential candidates to lead policymaking. Overall, the “Conservative Wave” era put right-leaning and conservative policymakers largely in control of Latin America's political theater through the end of the last decade. By the time COVID hit, the Conservative Wave was fading, and the pandemic all but ended Latin America's shift to the right side of the political spectrum. Not only did COVID upend the Conservative Wave, but the pandemic also acted as a starting point for Latin America's second “Pink Tide.” Over the course of the early post-COVID years, left-leaning policy agendas saw renewed interest from voters across the region. Bolivia elected Luis Arce and the Movement for Socialism party, Peru opted for the socialist Pedro Castillo, Honduras and Chile elected left-leaning presidents, Colombia chose the first leftist government in the country's recent history, and the trend was punctuated by the return of the far-left Lula in Brazil for a third term. For most of the post-pandemic era, Latin American politics have been dominated by left-leaning political ideologies.

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