Latin America and the Caribbean: Top Three Risks for 2023

Though 2022 was not the best year for Latin America and the Caribbean (LAC), it was not the worst either. Under the shadow of the war in Ukraine, its growth seems to be reaching 3.5 percent, according to the IMF—continuing the post-pandemic recovery. In political terms, both traditional political parties and populist figures continued to lose support, while many of the anti-political preferences have been captured by center-left coalitions in the so-called new pink tide. Despite the January 8 insurrection, Brazilian institutions remain strong since has shown an important degree of institutional stability in the face of Jair Bolsonaro's Trumpist playbook. However, Lula da Silva will face much more domestic challenges to governance than during his first two terms of government in parallel with an increasing political polarization and a legacy tainted by corruption. Meanwhile the region witnessed both the instability in Peru with the dramatic end of the Castillo presidency and authoritarian repression in Nicaragua, including the arrest of high-ranking representatives of the Catholic Church.

The Latin American international agenda did not shine much in 2022 either, despite expectations of a return of the White House to the region. In addition to regional fragmentation, the Summit of the Americas did not meet regional expectations and the Americas Partnership for Economic Prosperity initiative did not change the regional landscape much, while China and Russia were more focused on their domestic and regional agendas than on their plans in the Western Hemisphere. In addition, Argentina's presidency of Community of Latin American and Caribbean States (CELAC) was eclipsed by Brazil's absence and a series of back-and-forth with Andrés Manuel López Obrador (AMLO)'s Mexico. The year thus ended with no major news and a rather gray outlook.

Eurasia Group's 2023 annual forecast identifies an aggressive Russia, the unrivaled leadership of Xi Jinping in a more assertive China and the intersection of technology and authoritarian regimes as the major global risk, placing Latin America only in a marginal place related to water shortage. The outlook for Latin America and the Caribbean is mixed as the context is not very encouraging. The Center for International Studies at the Pontifical Catholic University of Chile’s Riesgo Político América Latina 2023 sees the organized crime, democratic backsliding, complex governability, social unrest and migration crisis as the major challenges for the region. However, the economic agenda and global strategic competition seems to be at the center of a new wave of instability. The region may face three central risks: recession, political weakness and, finally, the assertive Chinese and Russian activities in the region.

Recession

First, economic development is at the top of the regional agenda and the impact of a possible global recession in 2023 is bad news. Growth forecasts could be halved relative to 2022 to just 1.7 percent, according to the IMF. Moreover, the three largest economies—Brazil, Mexico, and Argentina—would not exceed 2 percent growth and with no prospect of major economic reforms to attract investors or, in the case of Southern Common Market (MERCOSUR) countries, generate expectations of greater economic openness at the international level. At the presidential speech to the National Congress, Lula stressed that his foreign policy would have regional priorities through integration based on MERCOSUR and the revitalization of the Union of South American Nations (UNASUR), which adds to the announcement of the return to the CELAC. However, early signs indicate an emphasis on political dialogue rather than on the economic agenda. Lula 3.0 would not be very different from 2.0 or 1.0 in a quite different international context. While regional fragmentation opens a window of opportunity for an activa e altiva (active and prominent) leadership policy in South America, the deepening of ties with the BRICS, especially with China and Russia, together with the bet on the narrative of multipolarism, would have higher costs than in the past. Inflation become a headache for LAC economic decisionmakers in 2022, while the decision of the U.S. Federal Reserve to continue raising the interest rate—which is highest level in 15 years—is adding pressure to weak macroeconomic stability. Even if in next year the inflation would tend to decrease, the economies of the region have to fight again against a problem that seemed to have been overcome.

Political Weakness

Second, the “new pink tide” is quite discolored compared to the old leftist wave, of Chavez, Kircher, and Lula two decades ago. The fall of Pedro Castillo in Peru is a clear example of the weakness of the new turn of the center-left. The newcomers to power are sustained, not by a general support for a progressive agenda, but by citizens’ exhaustion with the traditional political class and parties. That fatigue also fuels social and political mobilizations that can overthrow governments. To avoid this scenario, Colombia’s Gustavo Petro will have to continue maneuvering with Congress to achieve progress in the pension system reforms and support for the "total peace" negotiations. Chile’s Gabriel Boric will have a key test with the development of the New Constitutional Convention and a plebiscite at the end of November. Lula will have to take advantage of the first year to advance his agenda in a polarized context and AMLO has on his agenda an electoral reform and the definition of his successor for 2024. Meanwhile, Daniel Ortega's Nicaragua most probably will continue with its authoritarian drift and the Venezuelan opposition will get ready for a tough internal contest to define its candidates for 2024, in a context of less international pressure against the authoritarian regime of Nicolás Maduro.

2023 will be a year of low electoral intensity unlike 2022 but there are a series of crucial electoral battles—Paraguay, Guatemala, and Argentina—where the "pink tide" will not have too many opportunities to continue growing. While in Paraguay and Guatemala more continuity than major changes are expected, in the case of Argentina, the electoral scenario is set for a shift to the center-right where the opposition, Juntos por el Cambio—led by Propuesta Republicana (PRO)—could return to power. Neither the candidates of the ruling party—current president Alberto Fernandez does not have enough endorsements—nor of the opposition have been defined, but nowadays, the chances of the head of government of Buenos Aires, Horacio Larreta, and the president of the PRO, Patricia Bullrich, as well as the former president Mauricio Macri, are more the most likely. On the other hand, polls show a great dissatisfaction with the current administration—and the political landscape in general—and a high negative image of the main figure of the ruling coalition, Vice President Cristina Fernández de Kirchner. The arrival of an outsider like libertarian Javier Milei is not an improbable scenario either, although difficult to realize.

Extra-Hemispheric Actors

In October 2022, the directors for Latin American affairs of the Ministries of Foreign Affairs of China and Russia held a new round of political consultations on the region, while Vladimir Putin is putting special attention to Cuba, revisiting the Cold War times. The agenda of the People's Republic of China and the Russian Federation will be more active in Latin America this year for different reasons, but with a clear message of discontent with Washington. On the one hand, Beijing is forcibly dropping the zero-Covid policy that had disrupted international ties across the board, from the high-level visit agenda to critical infrastructure investments. Nevertheless, trade continued to grow—in 2022 China became Ecuador's number one partner—with more than 450 billion in 2021 and remains one of the "top sources of FDI and funding for the region." The securitization of China's international policy and the tensions with the United States may also bring novelties in 2023 with increasing interest to sale of military weapons, the need to position itself strategically in the Western Hemisphere and the expansion of cooperation mechanisms as was conveyed in the fifth China-Latin America and the Caribbean Defense Forum. In the case of Russia, the stakes are more urgent while in the recent past its actions have been more confrontational with the United States. The historical ties and political dialogue platforms with Cuba and Nicaragua—strengthened in 2022—provide the channels through which Russian actions can be carried out in the region, while there will be a search for greater rapprochement with Brasília in the context of Lula's return to power. As an example, Putin’s loyalist Valentina Matvienko, chairman of the Federation Council and permanent member of the Russia’s Security Council, attended Lula’s presidential inauguration.

Comparing with other regions, LAC seems to be a low-risk region for another year but has enormous challenges ahead with slowing down economies in a global turbulent context, the arrival of weak center-left coalitions, and the greater ambitions of the Eurasian powers in the Western Hemisphere.

Ariel González Levaggi is a non-resident affiliate with the Americas Program at the Center for Strategic and International Studies in Washington, D.C.

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Ariel González Levaggi

Ariel González Levaggi

Former Senior Associate (Non-Resident), Americas Program