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Latin America: Dirty Politics

Most investors disregard the new authoritarianism tendencies, but they could have dire implications for the future.


A streak of authoritarianism is sweeping through Latin America. The market is ignoring the trend, but it could become a major risk. Latin America abandoned its military governments almost two decades ago, but a fresh crop of caudillos (strongmen) are sprouting across the landscape. Growing out of the populist movements that commenced at the start of the decade, these leaders are enacting reforms to enhance their power, extend their mandates and reduce accountability. Unfortunately, these changes foster corruption. They sow the seeds for future political instability and reduce the prospects for foreign investment.  


The adherents of the so-called Bolivarian movement did not do much to improve the general welfare. The countries are among the poorest in Latin America. However, these leaders used their popularity and their control of the governmental apparatus to dismantle their countries’ democratic institutions. Taking his cue from Fidel Castro, President Hugo Chavez brought most of Venezuela’s political and economic resources under his control—in the process enriching himself and his associates. President Correa is doing the same in Ecuador. The suspension of 57 congressmen by President Correa propelled Ecuador into a constitutional crisis. An attempt by the Constitutional Tribunal (TC) to invalidate the decision calling for a constitutional assembly is adding to Ecuador’s institutional woes. A similar drama is unfurling in Bolivia, where President Morales is implementing changes that will allow him to remain in office until 2018.

The national leadership’s disregard for governmental institutions and property rights is creating an air of impunity. The governments of Ecuador, Venezuela and Bolivia, for example, are nationalizing private assets. Not surprisingly, crime is on the rise--as people perceive the lack of regard for law and order. Street crime is reaching epidemic proportions in Venezuela, forcing an exodus of the middle class to the U.S., Europe and Panama. Unfortunately, these problems are not limited to the Bolivarian states. Other countries, such as Colombia, are witnessing the heavy infiltration of criminal elements. On the eve President Bush’s visit to Bogota, for example, Colombian prosecutors arrested Jorge Noguera, the former head of the national intelligence agency (DAS), for suspected ties with paramilitary groups. However, he was released as soon as the North American President departed. Dealing with criminal elements is becoming an everyday fact of life. The U.S. Justice Department recently fined Chiquita Foods for payments made to Colombian paramilitary groups for “security services.”


MAuthoritarianism runs deep in Latin America. It is a legacy of colonial rule. During the 1980s and the 1990s, there was a shift towards democracy. However, the pendulum is moving in the opposite direction. The dismantling of checks and balances, the growing restrictions on the press and the erosion of democratic institutions results in corruption and mismanagement. Unchecked governance produces arbitrariness and casts doubts over property rights. It eventually increases the risk premium economic agents demand for investment, thus suppressing growth. Most investors disregard the new authoritarianism tendencies, but they could have dire implications for the future.

Walter Molano is head of research at BCP Securities.

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