Populism rearing its head…again

The tide is turning towards populist policymaking in Latin America once again. Most notably, Brazilian President Bolsonaro’s move to fire Petrobras’ CEO, Roberto Castello Branco, may be a prelude to greater state intervention in the economy ahead of the 2022 general election. Elsewhere, left-wing populist Andrés Arauz emerged as the clear frontrunner in the first round of Ecuador’s presidential election, which could lead to anti-IMF fiscal loosening. Peronists in Argentina appear to be playing hardball over a new IMF deal, and we doubt that investors’ concerns over unorthodox policymaking there will fade. We generally expect EM financial markets to fare well this year but, in Latin America, populism poses a major risk to this view.