The Receding of the Pink Tide in Latin America

The populist left-wing parties are rapidly losing ground in Latin America, but is it good news?

The first decade of the century marked the reign of left-wing parties in Latin America. The new left, also called the pink tide, reached Brazil, Argentina, Uruguay, Bolivia, Chile, Ecuador, Paraguay and Peru. More than just a coincidence, the movement also saw some coordination between those governments as they developed a more or less coherent plan of action and a long term vision for the region.

Bit by bit, a common narrative began to emerge, as well as an institutionalisation of the movement with the creation of organizations to advance their cause, such as UNASUL, CELAC and ALBA.

The pink tide can be identified by an anti-imperialist, anti-American approach, varying in intensity depending on the country, but in all cases distancing the region from the American sphere of influence. For some governments, like Venezuela, the rapprochement with countries such as Iran and Russia had the clear objective to upset the United States.

Nevertheless, in general, the pink tide countries were betting on a more multipolar environment, searching to break new grounds with emerging economies and exploring new centres of power.

The tide seems to be receding–a reason to cheer?

In fact, since the end of the decade, the left-wing governments in the region are rapidly losing ground. A shift back to the right is now crystallizing on the continent. Many international observers see this movement as the beginning of a new phase of stability and opportunities for foreign investors, yet things are a far more complex than this narrative have it.

Venezuela, the most vocal member and birthplace of Bolivarianism, is on the brink of economic and political implosion. With shortages of pretty much everything, its president, Nicolás Maduro, is struggling to maintain power.

The opposition, long overshadowed by the arbitrary rule of Chavez and Maduro, has secured control of the parliament on a landslide victory and is rapidly gathering popular support, also within the last stronghold ofChavismo, the poorest. Still, even with the potential ousting of the current government, the country’s prospects remain bleak.

In Brazil, the spectacular impeachment of Dilma Rousseff led the way to a deeply conservative interim government. President Michel Temer immediately adopted a market-friendly approach to rebuild the country’s broken economy. Still, his cabinet is plagued with corruption scandals and his capacity to redress the country is far from certain. More tellingly, the outbreak of large-scale demonstrations across the country show a deep dissatisfaction with political leaders from the whole political spectrum.

In Buenos Aires, the transition seems to be running more smoothly with the election of the center-right businessman Mauricio Macri, putting an end to twelve years of Kirchnerism. Macri moved swiftly to reignite relations with the US.

He welcomed president Obama at Casa Rosada to discuss the reopening of trade and investments between both countries, completely halted since 2008 due to political disagreements. At another important milestone, Macri also agreed to settle on past sovereign debt defaults, issuing US$ 15 billion in bonds to pay holdout creditors.

Nevertheless, his shock therapy to reverse previous populist policies is already decreasing his fragile popular support. He is backed by a slim 3% margin victory over Daniel Scioli, from Kirchner’s party. Crucially, the majority of voters had no special allegiance to him and simply wanted to put an end to the Kirchners’ rule.

In Bolivia, a popular referendum turned down president Morales proposition to run for a fourth term and in Ecuador, Rafael Correa has vowed to step down after three consecutive terms.

Economic stagnation initiated the downfall

In most of the countries, the economy, at first boosted by commodities and China’s growth, collapsed with the economic stagnation of China and the collapse of commodity prices. The redistribution of this new wealth, which had boosted the popularity of the governments, was halted. As a consequence, the continent plunged into a downward economic spiral, affecting most of the social progresses obtained during the decade.

To make matters worse, governments frequently violated democratic institutions to remain in power. The pink tide quickly lost its moral high ground and became a synonym of corruption and authoritarian rule.

The poor administrations are the main cause of their own demise. They did not use the bonanza times to fully reform their countries institutions and consolidate economic growth, with most of the countries still overly depending on export of natural resources and commodities.

Not surprisingly, the change in the public mood comes more from disappointment with their governments than from enthusiasm with the alternatives the opposition has presented so far.

Clearly, the tide has lost its breath. Nevertheless, as the history of the continent shows, things are more complicated and all-encompassing explanations often overlook its complexities and nuances.

It may be too soon to dismiss the influence and the legacy of fifteen years of left-wing rule. Also, new governments will need to strike a difficult balance between social and market-oriented policies to stabilize their economies and appease the public opinion.

More importantly, one cannot automatically conclude that a shift to right is good news for the continent and for international investors. It is important to remember, the pink tide itself is a response to the catastrophic neoliberal approach adopted in the region during the eighties and nineties.

The policies, intended to attract foreign investments and incorporate the region into global markets, backfired in a dramatic manner. The “lost decade”, as the period became known, was marked by stagnation, inflation, enormous public debt and a surge in social inequality.

The issue here is definitely not ideological. A pink tide or a shift to the right are not, by themselves, safe indicators of improvement. Stability, sustainable growth and a solid business environment cannot be achieved until the main problems which have long plagued the region are not addressed: extractive institutions and structural inequality.

So far, the opposition parties still have not presented good reasons to believe in structural change.

This article was originally published by Global Risk Insights and written by GRI analyst Caio Pizetta Torres.