Three Shocks Unsettle Business Confidence across Latin America

By Michael Stott

"Several economies which were considered stable for a long time are all of a sudden in question," said AS/COA's Eric Farnsworth to the Financial Times.

Political risk is nothing new in Latin America. But three big shocks in the space of a few days in previously business-friendly nations have reminded companies that even by the region’s elevated standards, risk is rising fast.

Voters in traditionally moderate Chile handed a first round election victory to José Antonio Kast of the far right, the most extreme presidential candidate in three decades to secure such a strong result. While he aims to be business friendly, Kast will struggle to govern if he wins the second round as he lacks a base in Congress and his radical positions could trigger more street protests.

Peru’s hard-left government announced without prior warning that it would close two copper mines owned by London-listed Hochschild Mining on environmental grounds. Days later it changed its mind again.

Mexico’s populist president alarmed markets by abandoning his nomination of a respected former finance minister, Arturo Herrera, as the next central bank head in favor of a little-known public sector economist who is loyal to him.

Investors in the region have long shunned socialist Venezuela, and Argentina is off-limits for most foreign investors after its perennial debt defaults and the imposition of price and exchange controls. But the latest trio of shocks came from nations regarded as much better bets for business, prompting dismay among bankers and executives.

“There’s an awful lot of gloom out there,” said Eric Farnsworth, vice-president of the Council of the Americas, an international business organization. “What is really concerning people is that several economies which were considered stable for a long time are all of a sudden in question.”…

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