Politics comes to the fore

Rising political risk has dominated the headlines in Latin America this month. A recent truck drivers’ strike in Brazil, a protest against the removal of diesel subsidies, has disrupted activity and pushed up inflation. While the strike has ended, the shift in focus to October’s election, in which populists are leading the polls, has put further pressure on the Brazilian real. Copom left interest rates unchanged this month but signalled that it would tighten policy if inflation expectations rise. Elsewhere, a general strike in Argentina over the country’s IMF deal underscores the extent of the political resistance facing the government’s fiscal and monetary adjustment. Further strikes could force President Macri into wage concessions, slowing progress in bringing down inflation and the budget deficit. Finally, a victory for left-wing populist Andrés Manuel López Obrador (Amlo) in Mexico’s presidential election on 1st July seems all but certain. His presidency is likely to be characterised by looser fiscal policy and, while that could boost growth in the near term, it would increase medium-term fiscal risks.