In Eco-political analysis

John Price
Managing Director
AMI

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While the world looks scarier at the start of 2024 versus 2023, Latin America is decidedly calmer. The specter of seven left-leaning populists leading Latin America’s seven largest economies in early 2023 turned out to be less perilous than investors feared. Many were surprised to find that Latin American institutions are more resilient than assumed. Congressional plurality, independent judiciaries, international trade and finance agreements and sturdy central banks all played a role in reining in much of the destructive instincts of newbie populist presidents whose reform and spending agendas frightened investors.

There is still plenty to fret about in our region—as this article will help reveal—but there’s also plenty to applaud, including: a win for democracy in fragile Guatemala, progress on much-needed tax reform in Brazil, the return of liberal (libertarian) economic ideas to the region, and the likely first re-election this decade of a pro-business president (in the Dominican Republic).

Continuing our established tradition, we are pleased to share AMI’s “Good, Bad & Ugly” analysis for 2024. For more in-depth information, don’t hesitate to check out our industry-specific analyses on Payments, Energy and Logistics.

(Click to enlarge)

2024 AMI Good, Bad and Ugly Score

TAKE NOTE: At the end of the day, comparing countries broadly has limited utility to investors. Enormous opportunities in select sectors can be found in even the least appealing countries. The same sectors may face ominous threats in seemingly promising countries. Market due diligence, when properly conducted, looks at many factors from country risk to regulatory/legal/political risk to competition and of course customer demand. This is precisely how we help our clients at AMI—helping them assess on a macro and micro level their business prospects in Latin America.

The Exceptional

Guyana

Desperate for political distraction, Venezuela’s President Maduro continues to press his nation’s historic claims to the Essequibo region, which includes approximately 60% of present-day Guyana, including most of its energy and mineral wealth. Few believe that Washington will tolerate any Venezuelan military incursion into Guyana. Not only is this small nation of less than one million inhabitants a US ally, but it is also home to the most exciting energy economy in the world, thanks to the investments of America’s third largest company, Exxon. The territorial threat has dimmed some of Guyana’s luster but remains barely a smudge on the bright and shiny economic future of this small nation.

Guyana Good Bad Ugly

In 2024, economic growth will ‘slow’ to a 27% annual expansion (down from 63% annual growth in 2022) as the construction phase of Guyana’s oil development slows and production takes hold. Now that oil is flowing, Guyana offers opportunities well outside of oil exploration and production. Government spending will ramp up as its coffers are filled, as well as private spending on infrastructure (ports, roads, refining, telecommunications) and ancillary sectors (real estate, finance, retail, you-name-it, etc.)  As the table below reveals, Guyana remains “off-the-charts.” For that reason, we created a separate ‘The exceptional’ designation for it to occupy.

The Good

Brazil

The Kissinger adage “The absence of choice makes decision making easier” captures quite nicely the fiscal corner into which Brazil has painted itself. Faced without options, Brazil is finally tackling the simplification of its tax rules, possibly the most complex in the world. With all levels of government in Brazil owning the right to levy their own set of taxes, Brazil’s is a labyrinth. Consumption taxes are levied by the state where a product originates, not where it is consumed, creating perverse economic levers in a dysfunctional fiscal economy. A surprisingly bold tax reform has passed the lower house and now faces the scrutiny of the Senate, where some of Brazil’s most powerful and corrupt politicians reside.  Even if diluted, the tax reform will be an applaud-worthy victory for pragmatism.

Since the election of former President Temer in 2016, Brazil has managed to pull off a series of reforms, privatizations, and pro-investor regulatory tweaks that has gradually improved the nation’s competitiveness and investor appeal. 2024 will bring monetary policy relief as well. After aggressively raising rates to curb inflation, provoking President Lula’s ire, the central bank is now dropping interest rates quickly, unleashing national savings back into productive investing, a boon for real-estate and private infrastructure spending. A record coffee harvest will bring in extra dollars in 2024. With El Niño and mid-east conflict potentially conspiring to raise food prices, Brazil’s vast food production will probably benefit. Momentum favors Brazil. Hopefully her stewards in Brasilia won’t make a mess of it.


Chile

A long sequence of bad decisions and worse luck must transpire to remove Chile from our “good” list. The last half-decade has been unkind to investors in Chile, but it remains a relatively safe, if less profitable country in which to conduct business.

After zero growth in 2023, Chile will grow moderately (1.7%) in 2024 as its central bank eases rates after conquering at great expense its largely imported inflation. High rates were an unwelcome anomaly for Chilean business which has basked in the lowest rates in the region for two decades. Chile is home to a disproportionate number of multilatinas, in part because of the cheap and plentiful money available from its capital markets and banks. High rates from 2022-2023 brought an unwelcome shock to the Chilean economy.

After poorly communicating the Chilean government’s interest in its lithium deposits (and causing unnecessary investor angst), there is now greater mutual understanding between policymakers and investors. Miners from around the world look to Australia and Chile as the two relatively safe jurisdictions that can deliver tomorrow’s copper and lithium, which are needed for global energy transition.


Uruguay

After suffering drought in 2023, Uruguayan farmers will rebound impressively in 2024, boosting agricultural output by 6-8% and the economy by close to 3%. The coalition government has managed to stay intact for three years, no easy feat for President Luis Lacalle Pou of the center-right Partido Nacional (PN). He passed modest, pro-business reforms, also a triumph in traditionally center-left Uruguay that resembles a Nordic democracy more than anything found in the Americas.

Uruguay has been trapped for decades inside Mercosur, the South American trade agreement that both protects its economic relevance and holds it back. President Lacalle Pou wants to negotiate bilateral agreements with others, like the US, EU and even China but has lacked the permission from big brothers Brazil and Argentina to do so. The arrival of Milei to power in Argentina changes the free trade narrative. With Uruguay going to the polls in October 2024 and Lacalle’s term ending in March 2025, Uruguay may have to wait a little longer to play outside of its Mercosur sandbox. A successful Milei will do more than break the shackles of Mercosur for Uruguay. Soon after Milei’s candidacy gathered steam, Uruguay’s first libertarian party was formed, changing the political conversation in Latin America’s healthiest democracy. Uruguay faces some tough policy choices ahead as one of Latin America’s oldest populations takes account of its generous blend of social benefits that soon will be unaffordable. Lacalle’s reforms were the first necessary steps. Hopefully more pro-business policy making will soon follow.

The Bad

Mexico

In AMLO’s last year in office, any façade of governance integrity and competence has faded, revealing an ideologically broken, tone-deaf autocrat at the helm who is trying desperately to “Make Mexico Great Again” by resorting to policies and tactics reminiscent of Mexico’s ugly and undemocratic PRI past.

Despite trend-defying party majorities in both houses of government, AMLO has done less damage than he might have. Mexico’s Central Bank, the USMCA, and the (barely) independent judiciary have each played a part in reigning in the visceral politicking of a leader who carries a big chip on his shoulder after being denied (yes, he probably won) electoral victory in 2006. Unable to change Mexico’s economy (he even invented a name for it – 4T) with poorly designed and executed policies, AMLO poured his efforts into creating a new political force (the Morena party) in his image, in the hopes of continuing his legacy after he steps down in December 2024. He looted the Fondo Minero, twisted arms, and built alliances so he could finance viable Morena candidates in every Mexican state. AMLO built a new hegemonic political party in less than six years, using the skills of an old school PRI apparatchik. That will be his legacy.

Luckily for Mexicans, their economy runs on two cylinders: the domestic economy and the NAFTA economy. Six years of AMLO has done great damage to the former. Nearshoring has done wonders for the latter. Mexico’s domestic economy has shrunk in real terms since AMLO came to power in 2018 but thanks to nearshoring and trade, economic growth overall has been modestly positive. What Mexico might have achieved in the age of nearshoring with a more modern leader at the helm will be pondered for years to come.


Bolivia

Few have come to grips with the fact that Bolivia is headed for a currency crisis this year. The central bank reporting of foreign reserves is spotty at best. In December 2023, they stood at approximately US$$1.7 billion, barely above their mandated minimum of US$1.3 billion. Purchasing dollars is restricted. The black market rate for the boliviariano is about 20% cheaper than the official rate. Bolivia’s pegged currency, in place for close to 15 years, seemed at first a sustainable policy, underpinned by massive natural gas production and exports. The currency peg, introduced by then-Finance Minister (now President) Luis Arce, provided stability in a politically volatile nation. But the nationalization of the gas sector, and subsequent neglect, corruption and lack of investment has diminished Bolivia’s gas exports. At the same time, Bolivians are addicted to imported and subsidized gasoline. Over time, healthy trade surpluses turned into dangerous trade deficits.

Bolivia flag with a human face

The policy that underwrote President Arce’s political legitimacy is crucial to his survival as leader of Bolivia’s only dominant party, the MAS. But there is an old sheriff back in town, Evo Morales, betting that the currency peg won’t make it till the October 2025 elections — and he is probably right. The currency holds and Arce wins. If a sloppy devaluation ensues, Evo will win.

Bolivia ought to have lots of options to keep its currency peg going for another 18 months, but politics keeps getting in the way. Bolivia enjoys low foreign debt but needs a legislative majority vote to take on more — blocked by Evo’s loyal members of congress. Cutting gasoline subsidies would provoke riots as working Bolivians are still licking their wounds over inflation spikes in ’22 and ’23. B2B style measures (forcing banks to keep more local currency, asking exporters to keep more proceeds in the country, etc. are more politically viable but can also trigger capital flight among the nation’s largest holders of USD. The ugliness of the Evo-Arce political standoff only serves to complicate Bolivia’s delicate currency conundrum.


Trinidad & Tobago

If any nation is rooting for a Democratic victory in the 2024 elections, it is Trinidad & Tobago. President Biden’s recent decision to mothball the construction of additional LNG export terminals is a godsend to Trinidad. The island nation’s economy relies a great deal on its natural gas industry, its ability to export LNG and convert it into downstream biproducts.

Trinidad and Tobago flag with human face

For years, US natural gas, some of the cheapest in the world, was trapped inside continental USA by virtue of lack of export terminals. President Obama acquiesced to the US chemical giants who lobbied to keep trapping the gas and in return funded the construction of massive chemical plants in key states during the high unemployment period after the financial crisis. President Trump ended that moratorium, export terminals were built, and US LNG flooded global markets, including filling about 60% of the gap left by sanctions on Russian gas by Western Europe.

Trinidad’s latest economic uptick comes with the hope that they can replace some of the US gas that won’t make it to Europe, as well as the role it will play as oil begins to flow from Venezuela to the US (and elsewhere) again. But such prospects are dimming by the day. Venezuela’s President Maduro has squandered what little good will he gained in DC and Donald Trump stands an even chance of retaking the White House, which would open the US natural gas taps again.

The Ugly

Venezuela

Juan González, special assistant to Biden and the National Security Council’s senior director for the Western Hemisphere, is set to depart in mid-March 2024. His resignation will likely mark a change in thinking in DC about Venezuela and the reliability of President Maduro as a partner. Gonzalez was instrumental in engineering Washington’s rapprochement with Venezuela, in what now seems a strikingly naïve initiative by the Americans.

Venezuela flag with human face

Venezuela was poised to add US$500 million of profit per month to its suddenly legal exports of oil to the USA (instead of accepting heavy discounts to sell it on the black market). The agreement could have paved the way to removing sanctions on individual corrupt Venezuelan officials and breathed new reputational life into senior officials in Caracas whose monies and persons are trapped inside their own country. However, Maduro has squandered any and all goodwill afforded him by the Americans. He has proven equally naïve in his assessment of the willpower of the Biden administration to reverse its sanctions lifting, thinking that cheaper gas prices and an election year of distractions would outweigh the need to hold Venezuela to its end of the bargain.

But Venezuela does matter in a US election year, specifically in Florida, the largest of American presidential swing states. Though many Venezuelans residing in the US under political refugee status cannot yet vote, their plight ignites the memories and resolve of other diaspora voters who emigrated from autocratically run nations like Cuba, El Salvador, and Nicaragua, as well as countries impacted by civil wars such as Colombia and Peru. Biden lost Florida in 2020 in part because his advisors underestimated the political importance of Venezuelan emigrees and the horrors they left behind.  If that lesson is finally learned with the departure of Juan González, then Biden will close the books on Maduro and abandon the controversial Barbados accord.


Ecuador

Not long ago, Ecuador was one of South America’s safest countries, a favorite among overseas retirees from the US, Canada and Western Europe, drawn to its enviable climate, warm people and dollar cemented stability. In 2024, Ecuador is reeling from a series of brazen attacks by organized criminal groups whose meteoric rise have taken all but a few by surprise.

A decade of aggressive spending by former President Correa, some of which built vital infrastructure, was financed by loans underwritten by Ecuador’s future oil exports. By mortgaging the economy, Correa placed a straight jacket around Ecuador’s ability to grow. Furthermore, the departure of Correa, a political strongman in his own right, opened a Pandora’s box of discontent that led to political fragmentation and the rise of the Latin America’s leading indigenous party, the Pachakutik plurinational unity movement. Their rise reflected a broad based pro-environment sentiment among Ecuadorian voters that has stymied both the expansion of Amazonian oil exploration as well as investment in Ecuador’s impressive geological wealth that could rival that of Peru. Even an ex-banker, Guillermo Lasso, who became president in 2021, could not attract much foreign investment in such a political backdrop.

The election of young Daniel Noboa, who is a member of Ecuador’s most famous business family, sparked renewed investor interest in a nation blessed with resources. But within six weeks of Noboa taking office, Ecuador was rocked by violence (January 7th, 2024) when two jailed gang leaders escaped, riots broke out simultaneously in multiple prisons, bombs exploded in several cities and masked men stormed a TV broadcast. The lead prosecutor assigned to investigate the case was murdered 10 days later. Noboa, who hoped for a honeymoon period to promote his country’s investment opportunities, has had to pivot to a security focus, potentially mimicking the actions of El Salvador’s Bukele. A new, ugly chapter has begun in Ecuador, and it may be a while before tourists and investors return.


Argentina

Many applaud the boldness and conviction of President Milei as he sets out to exorcise Argentina of its Peronist demons. Within weeks of assuming office, Milei’s team, an impressive roster of center-right political veterans prepared a legislative package with over 600 reforming clauses and a presidential decree with another 300+ changes. By mid-February, however, the ugly reality of Argentinian politics had sunk in. The omnibus package of legislative reforms failed to pass and some of the most important decrees have been met with legal push-back. Now begins the political war of attrition against Peronism that pervades congress, the courts and Argentina’s militant public unions. Argentina’s battle lines are no less dramatic than what Margaret Thatcher faced in the UK in 1980, when the “Iron Lady” took on British socialism in an ugly duel to the death.

It is too early to tell who will win the many battles ahead but even the most hopeful accept the fact that 2024 will be an economic write-off. Argentine purchasing power will collapse as the government cuts subsidies, weakens the currency and lays off thousands in an effort to fiscally rescue the country. It will take time to entice skeptical investors. As the country awaits a rebound, hopefully in 2025, things will first grow far worse for the middle and working classes of Argentina.

Just as Britain became a much stronger economy after several years of Thatcher malaise, Argentina can as well. Time will tell if Argentines have the same level of pluck as their old rivals the Brits. We all hope that they do.

Next Steps

Contact us to find out more about how AMI’s 30 years of experience in providing strategic market intelligence can help your company navigate the waters in 2024 and beyond. We provide strategic guidance and data-based clarity for a wide range of industries and business objectives, including opportunity benchmarking, political risk, economic risk, competitive intelligence, partner research, and more.

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