Risk Pulse: Corruption perceptions will impact Latin America’s 2018 elections
Exclusive new data from Dalia Research’s Risk Pulse shows that corruption remains one of the biggest problems within the Latin American region. This issue will foster uncertainty for future elections and threaten the modest economic recovery.
Modest economic recovery amid corruption scandals
After a six-year economic deceleration, including a 1.3% contraction in last year, the World Bank is finally forecasting economic growth in the Latin America and Caribbean region’s GDP of 1.2% for 2017 and 2.3% for 2018. The Economic Commission for Latin America and the Caribbean (Cepal) has a similar forecast, of 1.2% for 2017 and 2.2% for 2018.
Argentina and Brazil will lead the rebound. Argentina is expected to grow 2.8% in 2017 and 3 percent in 2018, while Brazil is expected to grow 0.7% and 2.3%, respectively.
Primary among the reasons that caused the economic crisis, was the fact that Latin America’s export commodities lost value. This affected the trade balance and GDP, which led to a weakening against the dollar and, consequently, increased inflationary pressures in the region.
As if the economic crisis wasn’t bad enough, it was swiftly followed by several corruption scandals. These in turn led to political crises in several countries. Brazilian construction company Odebrecht (ODBE3) took the prize: it was implicated in one of the biggest corruption scandals ever uncovered. The Odebrecht scandal brought down top politicians and high-level executives alike. It aggravated the Brazilian recession and had an impact in the region, affecting Peru’s growth rate.
Perception of corruption generates risk
In 2015, the World Economic Forum asked Latin American leaders to identify the region’s biggest problem. Their answer was clear: corruption. On 9 October this year, Transparency International’s survey of 20,000 people across Latin America found that 62% of those surveyed believe corruption had increased in the last 12 months, and 53% felt that the government is failing to address corruption.
Source: Transparency International
Data collected independently by Dalia Research, to which GRI has early access, paints a very similar picture. Dalia’s survey results for September and October 2017 cover Brazil, Mexico and Venezuela. In these countries, 63%, 61% and 79% of the population respectively, say that the level of corruption has “increased a lot” in the past 12 months. Additionally, 35% of Brazilians, 64% of Mexicans and 63% of Venezuelans have have witnessed or experienced an act of corruption in the past 12 months. The numbers overall were highest in Mexico and Venezuela:
Source: Dalia Research
Of course, perception of corruption can increase disproportionately to actual levels, especially when high profile scandals are made public.
But what’s crucial to understand here is that whether corruption is growing or not, the population’s perception matters and affects the elections directly. Add the fact that Latin Americans associate the economic crisis with corruption – and out of the mix emerges the rejection of traditional political actors in favour of outsiders.
Conditions favour outsiders in upcoming elections
Latin America and the Caribbean will see eight elections in 2018, in which the perception of corruption could play a major role. The economic recovery is still too nascent for major positive impacts to be felt by the population, whereas the corruption scandals are followed daily in the media. Dalia’s surveys show persistently high levels of dissatisfaction with existing leaders and political parties.
These factors will increase anti-establishment feeling, opening an opportunity for ‘outsiders’ to run. The lack of viable alternatives within the political elite also plays a role here. Chile, for example, has as one of its main candidate former president Sebastán Piñera, who might take advantage of the low popularity of Michelle Bachelet. In Brazil, former president Luiz Inácio Lula da Silva is seen as the strongest candidate, even after being sentenced to almost 10 years in prison.
The trend in Latin America as a whole is that the new middle class, enlarged during the economic growth of the early 2000s, has higher expectations of what governments should provide. People expect more social spending, better services and greater efficiency – which largely have not been delivered. Combined with the impression that governments are powerless to combat corruption, this situation carries risks of unrest and political instability.
