Top five risk drivers | Latin America - Strategic Outlook 2023

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THE GLOBAL UNRAVELLING

STRATEGIC OUTLOOK 2023

Latin America | Top five risk drivers

The US looks unlikely to make engagement in Latin America a priority, which leaves the door open to China to deepen its influence there, particularly with Argentina, Uruguay and in Central America. This will probably take the form of free-trade agreements, Chinese government loans, and investments in mining and other infrastructure. Such influence is likely to contribute to further decay of democratic governance, as well as corporate espionage and IP theft.

Rising Chinese influence

5

Producing and selling cocaine is very likely to remain the main source of revenue for criminal groups in most countries in Latin America in the long term. This will rely on sustained coca production, principally in Colombia, control of which armed groups will almost certainly continue to fight over. A significant shortage in production – probably caused by natural disaster – would portend increased competition between traffickers in the form of turf wars in cities across the region.

Coca production

4

3

Several countries in Latin America are heavily indebted to US-headquartered intergovernmental organisations, Western lenders, or the US itself. The combination of interest rate rises by the Federal Reserve to combat inflation in the US, and poor economic conditions generally, will make servicing foreign debts even more onerous for Latin American countries. Argentina, Ecuador, El Salvador and Panama are particularly vulnerable to default on these repayments, which would probably be a precursor to serious economic crises.

Foreign debt pressures

2

In 2023, Latin America will have the highest number of left-wing governments since the so-called ‘Pink Wave’ in the early 2000s, including major economies like Brazil and Colombia. Unlike during that period, such new governments are unlikely to make radical changes to their countries’ regulatory frameworks. But the ascension to power of anti-conservatives means that some governments are likely to seek to raise taxes on international companies and restrict the activities of environmentally-damaging commercial sectors, especially extractives.

A new Pink Wave

Rising cost of living

1

High inflation fuelled by a range of global economic distortions will almost certainly remain the principal driver of labour activism and hardship protests in Latin America. Argentina is likely to remain particularly vulnerable to this. Official macroeconomic data and precedent of mass protests suggests that Brazil, Chile, Colombia and Peru will very probably experience similar bouts of unrest in the coming year.

Indicators

Governments have to use dwindling foreign reserves to afford basic food and fuel imports.
No agreement with IMF and external debtors on future bailouts.
Significantly high inflation and currency depreciation
Governments introducing austerity measures.
Shortages of imported goods including food, medicines and fuel.