Here we go again. In many quarters, the surge of the left across Latin America seems to be inspiring tired, kneejerk reactions that spring from the kind of rigid ideological mindsets that have encrusted the region’s history.
Investors in financial markets no doubt feel justified in their fears over the new cohort of left-leaning leaders taking office across Latin America. They are freaking out over Gabriel Boric’s agenda in Chile. They fret about Luiz Inácio Lula da Silva’s plans for Brazil. They are wringing their hands over the “ business-averse” economic policies of Gustavo Petro in Colombia.
Latin American politicians will likely feel equally justified in snubbing investors as roadblocks on the path to shared prosperity.
Sure, Chile’s Boric is working to overhaul not just the constitution but also the private pension system that proved wildly lucrative for the financial sector. Lula does have ambitious plans for public spending and has railed against the Brazilian Central Bank’s high interest rates. Argentina may have defaulted.
Lefties have had mean things to say about international capital and imperialism in Bolivia and Colombia. Even Mexico’s Andrés Manuel López Obrador, who runs one of the most tight-fisted, conservative macroeconomic policies in the world, spooks the money on Wall Street with left-sounding words about the role of the state in the energy sector and stuff like that.
But as they clutch their pearls, muttering darkly about Latin Americans’ Bolshevik affinities, the movers and shakers of global capital markets must acknowledge an uncomfortable fact: Many of the leftist governments of recent vintage across the region have been decent stewards of their economies, certainly no worse than their ideological foes on the right.
In fact, the Latin American left does a better job than the right delivering on one of Wall Street’s favourite metrics: stock market returns.
Consider Argentina’s Peronist governments — those of the magical belief in the power of their politics over the behaviour of macroeconomic aggregates. They have delivered much better returns on the Buenos Aires Stock Exchange than their free-market rivals, champions of the neoliberal order carrying the water of the business class.
Despite Covid and all that, the Merval stock index has more than doubled in dollar terms so far during the Presidency of Alberto Fernández, a nice contrast to the 57 percent dollar loss during the four years under right-winger Mauricio Macri. In the 12 years before that, under the Peronist governments of Néstor Kirchner and his wife, Cristina Fernández de Kirchner, the market gained nearly 600 percent.
Something similar happened in Brazil, where the Bovespa fell 2.2 percent a year, in dollars, from 2019 through 2022, during the regime of Jair Bolsonaro, and recovered most of the loss in the first few weeks of Lula’s, (who, by the way, presided in the 2000s over average dollar gains of 40 percent per year for 8 years. Even including vast losses under his successor, Dilma Rousseff, the market returned over 13 percent a year on average over their combined 13+ years in government).
The Mexican Bolsa gained over 40 percent in just over four years under AMLO, about as much as it lost under his right-wing predecessor Enrique Peña Nieto, and roughly the same as it gained in the six years under rightist Felipe Calderón.
In Chile, the stock market surged during the two terms of President Michelle Bachelet, of the left, and sank during the governments of the right-winger Sebastián Piñera, who alternated with her from 2006 through 2022.
Of course, the performance of the stock market is influenced by many things — commodity prices, international interest rates, what have you — that have nothing to do with who may be running the country at the time. Perhaps the right has suffered spectacularly bad luck. The left was, for sure, in power at the right time — when China was buying South American raw materials at scale.
But the masters of global finance would do well to consider how the causes of the left — battling poverty and inequality, investing in public education and social services like housing for the poor — ultimately improve societies in a way that can enhance their stability, productive capacity and purchasing power, the kind of things that power economies and drive stock prices up.
The forces of the right that ruled Latin American countries during long periods since the 1980s — sometimes alternating with the left as in Chile, Brazil and Argentina, sometimes uninterrupted as in Mexico, which they ran from the late 1980s through 2018 — failed to build stable, successful economies that Wall Street could bet on consistently.
One of the reasons was their failure to build the kind of social safety net that underpins most successful economies. The pro-market right embraced NAFTA as Mexico’s ticket into the first world. It ignored that Mexico was entering that engagement with the modern economy with half of its labour force in the informal sector, lacking access to even a meagre pension, health insurance or unemployment insurance.
Across the region, the right’s enthusiasm for the so-called Washington Consensus, which called for balanced fiscal accounts, orthodox monetary policy, privatising state-owned enterprises and reducing barriers to trade and foreign capital, contrasted with its lack of interest in the vast concentration of income in a tiny plutocracy, which made Latin America the most unequal region in the world.
Perhaps the greatest irony in Latin America’s history is how the left’s policies served the narrowest coterie of domestic and foreign investors. With their few listed companies controlled by sprawling corporate consortia, equity markets in the region do little to finance productive investment. And very few Latin Americans own any stocks. While private pension savings in Mexico, Colombia and, most notably, Chile, invest in local equity markets — the “people” have not been the great beneficiaries of upwardly mobile markets.
The money in Santiago’s tony Vitacura may bristle at Boric’s proposed tax reform and his plan for a government-run pay-as-you-go pension funded by taxes on employers. Investors on São Paulo’s Faria Lima may frown upon Lula’s reluctance to live by Brazil’s stringent fiscal constraints.
They might want to spend more time and effort pricing the social and economic consequences of Brazil’s untrammelled inequality, or considering how Chile’s inability to fund an adequate safety net, notably the failure of its private pensions to guarantee a decent retirement, is undermining its social cohesion and destroying its promise.
They should count their blessings. Boric’s agenda is not the main threat to what Milton Friedman called “the best economic success story in Latin America.” A much bigger risk would be to ignore the wounds scarring Chilean society that Friedman’s right-wing acolytes left to fester.
* Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration.
by Eduardo Porter*, Bloomberg