How Do Elections Affect Business in Emerging Markets? Lessons from Latin America

Elections change who sets the policy agenda, which priorities receive public money, and how existing rules are enforced. A new government may revise taxes, redirect spending, alter trade or industrial policy, appoint new regulators or redefine its relationship with the private sector, and each of those decisions feeds through to operating costs, market access, permitting and long-term planning.

Latin America has just been through an unusually dense electoral cycle. Since 2023, voters in Argentina, Ecuador, Bolivia, Chile, Colombia and Peru have all favoured more conservative governments, while Mexico moved the other way and reinforced a left-of-centre project under President Claudia Sheinbaum. The cycle is not yet complete: Brazil, the region’s largest economy, votes on 4 October 2026, with a runoff on 25 October should no candidate win outright.

Taken together, these elections point to a single lesson. What matters for business is less the direction in which a government leans than whether it can govern at all.

_{Key takeaways}

• Ideology does not predict business impact. What predicts it is whether the incoming government has the legislative support and administrative capacity to turn its agenda into policy.

• A pro-market result does not guarantee reform. An election can open a policy window without delivering implementation, and that gap is often where the risk sits.

• The size of a mandate moves markets more than its direction. Investors price what a government can change, not what it says it wants.

• Institutional quality dampens the effect. Control of corruption, government effectiveness and rule of law cushion capital flows around elections; the weaker they are, the more disruptive any given vote becomes.

• Regional waves are real but never uniform. Momentum shapes expectations, though conditions still have to be assessed country by country.

_{Why do similar electoral shifts produce different outcomes?}

Elections are shaped by external conditions but decided by domestic ones, which is why comparable swings can lead to very different operating environments.

In Chile, where the 2025 campaign turned on crime and migration, José Antonio Kast won 58.17% of valid votes. It was a decisive margin, yet he took office facing a divided Congress that limits how quickly it can be converted into policy, Colombia, with Abelardo de la Espriella, faces a similar challenge. Bolivia reflected different pressures. Rodrigo Paz won 54.96% of the 2025 runoff after an economic crisis broke the Movement Toward Socialism, which had dominated national politics for nearly two decades, and although he campaigned on preserving parts of the social safety net while expanding private investment, in office he has had to negotiate support bill by bill as his coalition fractured.

Two clear wins, then, and two very different capacities to act. Judging business impact means asking what drove the vote, what constrains the new government, and what it can realistically deliver.

_{How much does external influence change the outcome?}

External actors matter, though rarely in predictable ways. The United States has been unusually present throughout this cycle, and it has made itself felt through a different channel in each country.

In Argentina, the channel was financial. A US-backed support package, which included a $20 billion swap line with the central bank, eased the fiscal constraint on a government whose direction had already been set, widening what it could do without changing what it wanted. In Ecuador the channel was security: President Daniel Noboa, a close ally of Washington, asked voters to authorize foreign military bases as part of his response to organized crime and lost the November 2025 referendum. In Brazil it has been trade, where tariffs of 50% on a broad range of Brazilian exports triggered a domestic debate about sovereignty and appear to have had the opposite effect to the one intended.

Three channels, three different results. External support can widen the space in which a government operates, but it does not reliably determine who wins, and where it arrives as pressure it tends to be absorbed into domestic politics before producing any effect at all.

_{Why does the size of the mandate matter more than its direction?}

In presidential systems, winning the presidency does not by itself confer the ability to change policy; the legislature does.

Mexico showed as much in 2024. Investors had expected Sheinbaum to win, so what surprised markets was not the result but the scale of Morena’s legislative victory and the prospect of constitutional reforms passing with little opposition. The peso fell almost 5% and equities more than 6%, though the reaction proved temporary: by August 2026 the peso had appreciated roughly 20% since January 2025.

Argentina makes the same point from the opposite direction. Its October 2025 midterms changed nothing at the top, since Javier Milei was not on the ballot, yet they transformed what his government could pass. La Libertad Avanza took around 41% of the vote and went from 37 to 101 seats in the Chamber of Deputies and from 6 to 20 in the Senate, which still leaves it short of a majority but gives it enough votes to sustain presidential vetoes and negotiate from strength. The direction of the government was unchanged; its capacity was not.

_{Where does capacity actually sit?}

Peru shows that the answer is rarely a single number. Keiko Fujimori won the June 2026 runoff with 50.1% of valid votes, one of the narrowest margins in the country’s modern history, and the same election restored a two-chamber Congress for the first time in three decades. Her party emerged as the largest bloc without a majority in either chamber, and when the new legislature chose its leadership in July, her coalition secured the presidency of the Senate while the opposition took the Chamber of Deputies. One election and one political direction produced two different balances of power, leaving a government that must assemble a majority issue by issue in a country that has had ten presidents in a decade.

_{How long does election risk last?}

Longer than election night. An IMF working paper covering 38 emerging markets between 1990 and 2020 found that countries in the lowest quartile of political risk, measured by the ICRG index, saw gross private capital inflows fall by around 28% in the election quarter against the average of the preceding six months, while countries scoring above the sample average showed no statistically significant decline. Foreign direct investment and cross-border lending proved more sensitive than portfolio flows, which can be reversed quickly.

The sharper finding concerns what happens after the vote. Among the least politically stable countries in the sample, inflows fell by around 57% where the incumbent lost, but rose slightly where the incumbent held on, and the effect persisted for two quarters rather than one. What the authors identify as the buffer is institutional quality: control of corruption, government effectiveness, rule of law and regulatory quality all mitigate the impact, while the World Bank’s political stability measure, tested separately, does not. The paper reflects the authors’ views rather than an IMF position and its data stop before the current cycle, but the mechanism it describes is the one now in play.

_{What does this mean for Brazil?}

Brazil is the region’s largest economy and the last major vote of the cycle, and also the clearest test of how far regional momentum travels: in 2018 it shifted right ahead of much of the region, and in 2022 it reversed while several neighbours were moving the other way.

It also illustrates why capacity matters more than direction. Presidents there govern through broad coalitions and have consistently faced a Congress whose centre of gravity differs from their own, and executive room to manoeuvre has been narrowed less by election results than by budget rules that shifted a growing share of discretionary spending to Congress. The most consequential change to the country’s business environment in a generation reinforces the point, since the consumption tax reform runs on a transition schedule extending to 2033 and is being implemented by a body composed of states and municipalities rather than the federal executive, while sector regulators sit on fixed terms that do not align with the electoral calendar. Whatever happens in October, much of what companies care about is being decided outside the presidential contest.

One variable does deserve close attention, however. The incumbent is contesting a close race on a fixed constitutional date, and it is the first of those conditions, not the second, that the IMF findings flag as consequential.

_{What should companies and investors watch?}

Election night is the start of the assessment rather than the end of it, and four questions do most of the work.

• Can it pass anything? The composition of both chambers, the governing coalition’s working majority, and which blocs control the committees that matter to your sector.

• Who will actually decide? The economic team, ministerial appointments and regulatory nominations, including the terms of regulators who do not change with the government.

• What happens in the first hundred days? Early ministry decisions, the first budget, and the signals sent on procurement and industrial policy.

• What constrains it? Fiscal room, institutional checks, and the courts.

The Latin American cycle points to a broader lesson for emerging markets. Election results should not be read through ideology alone, because their business impact depends on how political change translates into regulatory, political, reputational and commercial conditions, and on whether a government has the institutional capacity to deliver what it promised.

At Speyside, we help investors and companies translate electoral outcomes into the risks and opportunities that matter for their operations, investment decisions and government engagement.

Sources

Elections Matter: Capital Flows and Political Cycles (IMF Working Paper)

INE – Resultados de la elección presidencial 2024 (Mexico)

Mexico constitutional reforms more likely with super-majority in sight (Reuters)

Mexican finance minister seeks to soothe investors, reduce public debt (Reuters)

The super peso is back – and it’s starting to hurt (Reuters)

Servel – Proclamación de Presidente Electo (Chile)

Chile elects Kast as president in sharp rightward shift (Reuters)

TSE – Resultados oficiales de la segunda vuelta electoral (Bolivia)

Centrist Rodrigo Paz wins Bolivian presidency (Reuters)

Bolivia’s Paz tests fragile coalition with reform push, IMF deal (Reuters)

Argentina’s midterm election hands landslide win to Milei’s libertarian overhaul (CNBC)

DINE – Resultados electorales (Argentina)

CNE – Resultados definitivos, binomio presidencial (Ecuador)

Ecuador rejects U.S. military bases in major defeat for President Noboa (NPR)

Embattled Milei faces critical midterm elections in Argentina (Al Jazeera)

US tariffs and Brazil’s October election (Al Jazeera)

CNE – Declaración de elección de Presidente y Vicepresidente (Colombia)

Colombian right-wing candidate De La Espriella wins tight presidential race (Reuters)

Colombia oil, mining industries upbeat on new government (Reuters)

JNE proclama a Keiko Fujimori como presidenta electa (Peru)

Peru’s Fujimori takes power, extending Latin America’s rightward tilt (Reuters via US News)

Fujimori’s party wins Senate presidency ahead of inauguration (AP)

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