Craig DempseyA number of left-wing presidents have been voted into power in Latin America in recent years – echoing a political shift seen in the early 2000s that became known as the “Pink Tide.” But investors shouldn’t be panicking about the current trend.
With Colombia set to stage presidential elections in May, a lot of people in the business and investing worlds are expressing concerns online about what might happen if leftist candidate Gustavo Petro wins the election, and more broadly about the spread of left-wing politics in Latin America.
Given that Colombia has not had a truly left-wing president in the modern era, a Petro presidency looks unlikely. He made it to the run-off of the 2018 presidential election, where he suffered a resounding defeat. While the former urban guerilla may have enough support to get to the second round again this year, the end result should be similar.
However, the same cannot necessarily be said for other countries from the region, with both Costa Rica and Brazil showing very real signs that candidates representing leftist parties could come to power during elections this year.
Inter-American Development Bank (IDB) President Mauricio Claver-Carone recently emphasized Castillo’s commitment to “responsible economic management”
They would join presidents elected on left-wing platforms in recent years in Argentina, Bolivia, Chile, El Salvador, Mexico, Panama, and Peru. When these countries are added to original Pink Tide holdouts Nicaragua and Venezuela, as well as Cuba, a clear leftist tendency can be seen in the region, which could arguably be described as a New Pink Tide.
It is important to state, however, that while those latter three nations highlight the scope of leftism in the region, it is not fair to compare any elected government to regimes that have an established track record of using repression and sham elections to cling to power.
In fact, one good reason that investors shouldn’t panic about the current political trend is the considerable political disparities that can be found within the countries listed above, and the conditions within which those governments will be acting.
Political Left in Latin America
It’s incredibly important to recognize that, while the map of the New Pink Tide points to a sweep of leftist politics through the region, it covers a broad political spectrum and a wide range of policy positions that will affect investment differently.
What’s more, even when presidents are elected on left-wing platforms, in many cases they take a more pragmatic approach once they come to power and understand the economic reality in which they operate.
Take Peru’s President Pedro Castillo, for example, whose election win in April 2021 caused considerable consternation given the radical nature of the former union leader’s campaign pronouncements.
However, those concerns have been significantly dampened by the country’s strong economic showing over the course of last year, with Inter-American Development Bank (IDB) President Mauricio Claver-Carone recently emphasizing Castillo’s commitment to “responsible economic management.”
Similar alarm has been seen with regard to Chile’s President-elect Gabriel Boric and Honduras’ President-elect Xiomara Castro, who both won elections in late-2021 and will take office on March 11 and January 27 respectively.
While on paper a Figueres victory would be a leftist victory, the reality is that he represents the status quo, and should only be expected to adopt moderately progressive policies not unlike some of those seen in the past that have helped raise Costa Rica up to being one of the most developed and prosperous in the region.
In both cases, it’s likely that we will see considerably more restraint than is feared in the investment community, with Boric recently publicly inviting business leaders to participate in discussions for a new tax reform, and declaring his commitment to “protect investment.”
In Costa Rica, meanwhile, where José María Figueres of the center-left National Liberation Party (PLN) is marginally ahead of two conservative challengers in the polls, it is important to point out that while the PLN is ostensibly a center-left party, it is very much part of the political mainstream, having occupied nine of the past 18 presidencies, during which it has adopted a wide range of policies more traditionally associated with conservative politics.
So while on paper Figueres victory would be a leftist victory, the reality is that he represents the status quo, and should only be expected to adopt moderately progressive policies not unlike some of those seen in the past that have helped raise the country up to being one of the most developed and prosperous in the region.
‘Progressive’ Investments on the Rise
Another reason why concern over Latin America’s leftist political current should be curbed is the fact that we are entering a period of rising interest in what could be considered “progressive” investments – namely those focused on technologies and innovations intended to protect or preserve the environment.
This includes a great deal of excitement in the likes of Argentina, Bolivia, and Chile for the emerging ‘green hydrogen’ economy – an emissions-busting process using only renewable energy sources to generate hydrogen as a fuel source.
Renewable energy itself is also another major growth economy in the region, with Colombia inaugurating its largest solar power plant on January 21, while the Dominican Republic recently saw demand outstrip supply 15-fold when it issued its first green bond to expand wind power capacity. Green bonds are financial mechanisms intended to raise capital for projects that have the environment in mind.
While they have been in use in the region for a number of years, raising more than USD 8 billion in the region between 2014 and 2017 alone, the IBD recently issued the region’s first blue bond – a similar mechanism designed to raise funds for the protection of oceans and water sources. That is indicative of the fact that Latin America is increasingly waking up to the need to forge a more sustainable future and promote the green economy and green investments.
Take Costa Rica, for example, where the government has pioneered its “Green Protocol,” encouraging financial institutions to make funds available for businesses promoting environmental protection and environmentally-friendly products.
This is all happening at a time when Latin America’s tech and innovation economy is entering a major boom cycle, with many startups focused on developing technologies designed to protect or preserve the environment, and yet more making public commitments to promote sustainable practices.
With consumers also increasingly committed to buying sustainable products and supporting environmentally-conscious companies, such businesses are also attracting increasing attention from international investors.
These are precisely the type of investments that progressive presidents and governments can be expected to promote, meaning that the leftward political shift, to some extent, is dovetailing with commercial and investment trends.
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