Commodity sell-off adds pressure on unpopular Latin American leaders

July 8, 2015

Brazil's President Dilma Rousseff (C) and Mexico's President Enrique Pena Nieto (2nd R) surrounded by security arrive for the family photo of the VII Summit of the Americas in Panama City

Brazil’s President Dilma Rousseff is fighting for political survival less than a year after being re-elected. Several reasons have been pointed exhaustively to explain how things got so bad in such a short period of time: chief among them are the burgeoning corruption scandal at state-run Petrobras and stubbornly high inflation, out of sync with the rest of the world.

If those weren’t enough, there is another one, often overlooked by pundits and politicians in Brasilia: in these days of falling commodity prices and disappointing growth, being president is a tough job in Latin America.

Rousseff’s 9-percent approval rating, ironically compared to the country’s inflation rate, is the lowest among regional leaders. But she is not alone: none of the leaders of Latin America’s seven largest countries is approved by a majority of their voters, according to polls. The latest, by GfK Adimark, on Monday showed Michele Bachelet’s approval rating in Chile at a new low of 27 percent.

popualrity

The correlation between economic cycles and presidents’ popularity has been widely studied in Latin America and beyond, enough to allow saying this is no mere coincidence. The problem for Rousseff and fellow leaders is that, from this perspective, there are no clear signs of a quick recovery. Commodities, the main export of most Latin American economies, are dropping fast this week towards six-year lows and could slip further as the dollar strengthens and China struggles to fend off a stock market crash.

The CRB commodities index:

crb

“No country will escape the fallout from the drop in global commodity prices. The result is that growth in the region as a whole will be much weaker over the next decade than it was over the past one,” wrote Neil Shearing, chief emerging markets economist at Capital Economics.

“The big falls in global commodity prices are probably behind us but, in the absence of a renewed boom, the growth outlook for much of Latin America will remain depressed.”

The biggest losers, although not the only ones, seem to be leftist leaders who rode most of last decade’s boom: Brazil’s Workers’ Party, Venezuela’s Chavismo, possibly Argentina’s Kirchner. To some observers, there have been signs, especially in Brazil, that center-to-right, market-friendly leaders could benefit this time, just as in some European countries post-2008, like in Spain for some time.

While that may prove right, investors should also brace for greater political instability as voters get upset in a region still growing accustomed with democracy. Rousseff’s own comments in an interview this week are revealing about how political debate has heated up as both sides accuse each other of  “golpista,” or being putschists.

When asked about heightening pressure for her to resign, Rousseff said she would not back down:

“I am not going to fall.” she told Folha. “Try me.”

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