This time last year, Speyside?s senior consultants huddled together, across borders and time zones, to compile a list of 13 predictions for Latin America in 2013. As always with such exercises, there is a fair amount of risk involved in making projections for the future. Some of our predictions did hit the mark (the Andean surge, European courtship of Latin America, anti-corruption push in Brazil, growth in private healthcare and education, and the continued expansion of the middle class), while others proved incorrect (opposition candidate elected in Venezuela, default in Argentina, Felipe Scolari sacked), or did not materialize in 2013 but could still be on course for 2014 (peace agreement with FARC in Colombia).
Due to popular demand, here is our new set of predictions for Latin America in 2014, which we will selectively revisit from time to time throughout the year to see how we?ve fared
Venezuela plunges into crisis
Nicolás Maduro defeated opposition candidate, Henrique Capriles, by the thinnest of (official) margins in 2013 to become President and also escaped disaster in the later municipal elections. But the economy is now in freefall. Maduro, boosted by emergency decree powers and success in recent municipal elections, is blaming economic woes on political adversaries and foreign interests, but how much longer can the charade last? Without the love, fear, and respect that Chavez engendered, Maduro is vulnerable and economic crisis looks set to spur further social unrest and political crisis. Currency devaluation could close the government's fiscal gap and reduce capital flight, but it may also aggravate product shortages. Will Maduro act before it?s too late? We have reasons to believe others may decide for him?
Dilma will be re-elected in Brazil
Dilma Rousseff will win Brazil?s presidential elections in October. It will be a hard fought battle, especially if there is a repeat of the June 2013 protests leading up to the World Cup, but she will prevail in the end. Eduardo Campos and Marina Silva of the Brazilian Socialist Party (PSB) will be the revelation of the elections however, ending the Workers? Party (PT) and the Brazilian Social Democracy Party?s (PSDB) duopoly, and positioning the party strongly for elections in 2018. But before then, Brazil will first hush its critics who are already questioning the country?s economic performance this year and making jokes about the reduced work calendar. Paradoxically, World Cup distractions and the forthcoming elections means there will be relative stability and visibility on policy making after a tumultuous 2013, which will allow businesses to focus on profits. Many of Dilma?s key cabinet members will step down to run for state-level elections, and be replaced by technicians to keep things running (more or less) smoothly until October.
Commodities will continue to spur growth
The commodities boom has admittedly slowed down recently, after years of sustained Chinese demand caused exports to soar from nearly $4 billion to $71 billion between 2000 and 2012. Given the investment projects we?re seeing coming through from clients and prospects in the mining and energy sectors though, we believe some of the gloomier analyst predictions are overblown, as countries from Indonesia to the US pick up the slack from reduced Chinese demand. Demand within Latin America itself will also pick up, propelled by big infrastructure projects. Brazil, for example, plans to spend more than US$400bn on ports, airports, rail and roads in the next few years. Against that background, and despite concerns about lower prices in some parts of the industry, we expect the commodities sector as a whole in Latin America will remain buoyant in 2014.
Bachelet reforms but keeps Chile on the same path
Michelle Bachelet marched predictably back into office in Chile, but she will be faced with a number of important challenges when she takes over from President Sebastián Pi?era in March. High on her agenda are the reforms necessary to tackle the country?s steep social inequality, a key issue during the presidential campaign. In line with this, Bachelet will deliver on her promises to reform education and close corporate tax loopholes. Her government is also expected to develop an emergency action plan to accelerate new energy projects, which will include increased use of LNG and a law favouring renewable energies. For years, Chile has served as a model of free-market growth in the region and a bellwether for liberal economic policy in Latin America. Bachelet will not risk rocking the boat enough to scare off foreign investment and stifle growth and will stick with the liberal economic consensus in the Pacific Alliance countries. How her electoral base will take that remains to be seen, but we predict more loud protests before the year is out.
Argentina will not default on its debt but many problems remain
Argentina?s woes are multiple and have been for quite some time now. An artificially overvalued currency, stubbornly high inflation, cash-guzzling state subsidies, social unrest, and a terrible business environment have torpedoed Argentina?s competitiveness and brought it closer to the brink. Many experts are now expecting the country to default on its debt (as we did last year). And while Argentina lost an appeal of a US court ruling several months ago, the US Supreme Court has now agreed to rule on whether the country will have to pay out upwards of $1.33 billion to the so-called ?vulture funds?. However, the US Justice Department has sided with Argentina in the case, noting that the US Foreign Sovereign Immunities Act (FSIA) protects foreign governments? assets from being seized. While we believe Argentina will not default on its debt, the story of the Libertad and the possibility of a Supreme Court ruling in Argentina?s favour should not mask the country?s grave and persistent economic problems. The shale oil bonanza on which President Cristina Fernández de Kirchner increasingly appears to be staking her country?s economic future, will surely not come soon enough.
Santos re-elected and peace deal sealed with the FARC in Colombia
The peace talks between the FARC and the Colombian government are progressing despite continuing violence and significant internal opposition. President Juan Manuel Santos will be running for re-election in May and hopes to secure what would be an historic agreement with the FARC before then. In theory, any such agreement will submitted to the Colombian people as a referendum at the time of the election. This timing currently looks very ambitious. Agreement has been reached on agricultural reform and FARC?s political participation, but huge hurdles remain: disarmament, illicit drugs, rights of the victims, and the peace deal?s implementation. Opposition voices, led by Santos?s predecessor, Alvaro Uribe, are utterly opposed to the talks and any suggestion of leniency in the treatment of guerrillas in the justice system. President Santos is eager to tap into the potentially enormous economic peace dividend and public opinion remains on his side. We believe Santos will win the election, but it may not be with the peace deal in hand just yet. Even then, the much greater challenge of implementing a deal, with Uribe likely leading opposition from the Senate rather than the sidelines, looks daunting.
Another maracanaço at the FIFA World Cup in Brazil
Brazil will be ready in time for football?s homecoming in June. But unlike the Confederations Cup which the Seleç?o won last year, Brazil will not be winning a sixth World Cup. History often has a strange and ironic way of repeating itself. This is why we predict another maracanaço similar to Brazil?s traumatic loss against neighbouring Uruguay in the 1950 World Cup final. It might not be Uruguay this time around, but it will be a Latin American team that lifts the cup in Rio on 13 July. And given the city?s renowned traffic problems, the prize may have to go to whichever team manages to show up!
Wishing you all the very best for 2014 (and may the best team win)!
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Disclaimer: This document contains forward-looking statements that involve risks, uncertainties and assumptions. If such risks or uncertainties materialize or such assumptions prove incorrect, the results could differ from those expressed?except for the football. There?s no doubt we?re right about the football this time?