Moody's: Upcoming elections across Latin America increase policy uncertainty

Friday, February 2, 2018

The following is an experpt of the press release for the Moody's report: "Sector In-Depth: Sovereigns - Latin America: Contentious political climate ahead of 2018 elections increases policy uncertainty", available here.

New York, February 01, 2018 -- Upcoming presidential elections in Latin America pose risks to fiscal and structural reforms in the region. New governments may be less committed to pursuing ambitious reform agendas, following several years of weak growth. Even if commitment to reform remains, implementation may be challenging due to lack of political support, Moody's Investors Service says in a new report.

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Corruption allegations against elected officials and weak economic performance throughout the region have fueled discontent with existing governments. As such, there has been a surge in candidates that oppose reforms ahead of 2018 presidential elections in Brazil (Ba2 negative), Colombia (Baa2 stable) and Mexico (A3 negative) -- some of them new to politics or unaffiliated with traditional parties, promoting policies that tend to be at odds with those advocated by the established parties.

"This will reduce policy predictability, adversely affecting business and consumer sentiment, as well as investment spending," says Samar Maziad, a Moody's vice president.

Given the popularity of such candidates in Mexico and Brazil, these two countries face increased risk of policy reversals that could undermine fiscal consolidation and structural reform efforts. In these cases, institutional features, such as the composition of Congress, will influence new governments' ability to push through their respective policy agendas.

Alternatively, in Colombia, despite growing dissatisfaction with the current government, institutional features, as well as support from the leading presidential candidates for prudent fiscal policies, would contribute to policy continuity despite political polarization. However, we expect a slower pace of fiscal consolidation due to persistently weak growth.