On April 7, after this story went to press, former Brazilian President Luiz Inácio “Lula” da Silva turned himself in to begin a 12-year prison sentence on corruption, although he maintains that the investigation is a political witch hunt. He has vowed to continue his run for the presidency from behind bars, possibly anointing an alternate candidate to replace him. The arrest has left the candidate field wide open and the possibility that a large number of Brazilians will cast blank protest ballots in the October presidential race.
As the world — and the Trump administration — turns its attention to hotspots such as North Korea, Israel, China, Syria and even Europe, where populists continue to tip the continent into political uncertainty, there is plenty of turmoil taking place in America’s own backyard.
A string of corruption scandals has rocked Latin America, starting in Brazil and spreading to Colombia, Guatemala, Ecuador, Peru and many other governments. Against this backdrop, a series of highly unpredictable elections and transitions will take place this year, most notably in Brazil, Mexico, Colombia, Venezuela and Cuba. In total, nearly two-thirds of Latin Americans will elect a new president in 2018, possibly transforming the region’s politics for years to come.
Cascade of Corruption Scandals
What had been accepted as a routine part of governing is now being exposed as a blight throughout Brazil. In a word: corruption.
In 2014, a judge sanctioned Operation Car Wash, a criminal investigation into money laundering that morphed into the biggest corruption scandal in modern history, involving the national oil company Petrobras and the construction conglomerate Odebrecht. It was suspected that the palms of executives and politicians were being greased with bribes totaling billions of dollars in exchange for inflated business contracts. Odebrecht, which has paid $2.6 billion in fines, was even accused of having a special “Department of Bribery.” Billionaires and high-profile politicians have been jailed, and the accused have been caught stashing money in everything from pantyhose to horse stables.
The scandal, still under investigation, has long tentacles, reaching all the way up to the presidency and wreaking havoc on other nations such as Peru, whose president recently resigned because of corruption charges and whose economy has taken a major hit as billions of dollars’ worth of construction projects grind to a halt.
Operation Car Wash’s first big victim was Brazilian President Dilma Rousseff, who was impeached in 2016 for violating fiscal laws but was not officially accused of corruption. From 2003 to 2010, Rousseff was on Petrobras’s board of directors, although her supporters say her impeachment on technical grounds amounted to a coup.
President Michel Temer succeeded Rousseff in office after her impeachment and has battled a slew of corruption charges himself. Temer, one of the least popular presidents in Brazilian history, was able to avoid trial by the narrowest of margins after lobbying support in congress.
Luiz Inácio Lula da Silva, commonly referred to as Lula, who was in office from 2003 to 2011, was put on trial in relation to Operation Car Wash for five cases of corruption, including obstruction of justice and bribery. Lula was convicted last year for accepting the bribe of a beach apartment from OAS, a construction company. He appealed, but the charge was upheld, and his sentence was increased from nine years to 12.
Yet Lula is brazenly defying the charges, calling them politically motivated and insisting on running in Brazil’s presidential election later this year even though he faces prison time. And he is in a strong position to win despite the legal cloud hanging over him: Not only did Lula preside over unprecedented growth during his term, there is hardly a politician among Brazil’s upper echelons who hasn’t been touched by the entrenched corruption unearthed by Operation Car Wash.
While the rule of law seems to be winning out, the mission to expose the seedy underbelly of Brazilian politics and business is churning up instability. The good news is that the country’s institutions are holding steady. The bad news is that the ruling class is on shaky ground, and this will not only have a negative effect on the country, which is the largest economy in Latin America, but throughout the region.
The rot of corruption exposed by Operation Car Wash has fueled widespread disillusionment with the establishment, which in turn could influence a spate of consequential elections in neighboring countries this year.
Venezuela in particular is a top concern because of the country’s spectacular downfall under President Nicolás Maduro, who has called for an election in May to cement his divisive rule. In just a span of four years since Maduro took office, Venezuela has devolved from a one-time global energy powerhouse into an economic basket case plagued by shortages of food and medicine. Venezuela’s main opposition parties have vowed to boycott the vote. Former soldier Henri Falcon has emerged as the sole candidate to challenge Maduro, although his odds are slim. Despite Maduro’s unpopularity, the vote is largely considered a foregone conclusion in a country where pro-Chavista leftists maintain an iron grip on power (and on election-rigging).
Meanwhile, Cuba, Venezuela’s ideological ally — and America’s longtime adversary — is undergoing a historic transition in April as Raúl Castro hands the reins to a handpicked successor, ending more than 40 years of Castro control over the communist island.
But Venezuela and Cuba are not the only countries to watch. Key elections that could upend politics throughout the region are taking place in Brazil, Mexico and Colombia. Brazil’s general election is slated for October and Mexico’s in July, while Colombia’s parliamentary election took place in March, with the presidential election scheduled for May. Brazil’s corruption scandal has infected those two other countries through Odebrecht’s contracts for public infrastructure projects, but Mexico and Colombia have their own internal struggles forming the backdrop of their elections.
Brazil: Popular Disenchantment, Economic Woes
Brazil’s upcoming election will be nothing short of unpredictable, given the volatile nature of the candidate field. Lula is the big story. At the start of the year, he still had strong popular support of more than 30 percent. In the fragmented political landscape of Brazil, that likely would’ve been enough to get the former leftist president — widely revered by the masses for slashing poverty — back into office.=
The upholding of Lula’s corruption conviction was a big blow to the politician’s chances of returning to lead the country. According to Brazilian law, it means he cannot run for office for eight years. This ban would take effect if Lula puts himself in the playing field as an official candidate. At the moment, he seems to be biding his time.
“What is likely — it’s already happening — is he and his campaign people will try to keep his campaign alive as much as possible without making him an official candidate until Aug. 15,” the cutoff date for registering, Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, said. The supreme electoral court in Brazil will then have to rule whether his candidacy is legitimate, and it is widely expected to rule against Lula. The election is in October, and the field of candidates won’t really take on a definitive shape, if it ever does, until a month before the election, depending on what Lula does. Even if Lula is barred from running, he may be able to garner enough blank ballot votes to upend the race.
Corruption is the major theme of Brazil’s election, but the way the populace sees the issue is not cut and dry. In general, there has been growing opposition to the establishment in general. Rousseff came into the presidency with popular support, but voters turned against her when the economy tanked, as did her own government, forcing her out of power. With Lula, the trajectory has been different, and although a significant portion of the population said it would not vote for him because of the corruption scandal, that is counterbalanced by people who continue to support him.
Lula’s base is the poor and the lower middle class. They benefitted the most from the social programs he put in place that raised the minimum wage and increased access to health care and education, de Bolle said. “He did corrupt things and good things. He’s a force to be reckoned with,” she said.
A savvy political operative who also supported the business elite, Lula was able to manage the economy pretty well when he was in office, De Bolle explained at a panel in February at the Inter-American Dialogue on “Brazil’s election and Latin America’s volatile politics.”
Lula lifted people out of poverty in a society that is extremely unequal in wealth and plagued by violence. Between 2003 and 2014, 29 million people rose out of poverty in Brazil, according to the World Bank. The income level of the poorest 40 percent of the population increased, on average, by 7.1 percent in that period, compared to 4.4 percent income growth for the population as a whole. This achievement is what people remember — Lula left office with a nearly 90 percent approval rating — and it’s what makes him still popular with voters.
Adding to the aura of Lula’s success was the improving economy, which was partly a factor of luck that the upturn coincided with his leadership. A commodity boom, as well as credit-fueled consumption and labor expansion, drove economic growth in the last decade, according to the World Bank.
Brazil’s rate of reduction of poverty and inequality has stagnated since 2015, however, and the country underwent a deep recession in 2015 and 2016. A global collapse in commodity prices and the exposure of systemic corruption spurred the downturn.
Yet Rousseff pushed ahead with Lula’s social spending once in office despite the commodities bust, mounting public debt and falling tax revenues. When her stimulus backfired, she implemented unpopular austerity measures (and clever accounting to cover up how bad the government’s finances were), which in turn led to her downfall.
Temer announced his government would implement fiscal reforms to deal with the ailing economy, rein in spending and regain investor confidence. But with a fragmented congress and abysmal approval ratings, he does not have the backing to get anything done. One of the trickiest issues has been pension reform. The current bloated pension system threatens to bankrupt subnational governments, and Temer failed to pass tough pension reform because he was politically weakened from fighting corruption charges.
Another wildcard in the election is congressman Jair Bolsonaro, a former military officer who has likened himself to Donald Trump. The antiestablishment candidate has courted controversy for praising torture and bashing gay rights, but he has found key support among voters, including Brazil’s influential evangelicals, for pledging to stamp out corruption, violence and illegal immigration.
Despite the political volatility, one bright spot is that Brazil’s economy has begun to recover. Economic activity increased about 1 percent in 2017. Unemployment was almost 14 percent during the recession, and it is now down to nearly 12 percent, a number that is still high. The labor market is not rebounding strongly, growing primarily in part-time jobs and jobs in the informal sector.
Whoever is elected the next president will have to deal with the economy immediately when he or she enters office, and that person will have a hard time working with what is likely to be a continually fragmented congress, de Bolle predicted. The country could grow at 3 percent this year, she said, but “the bigger question is what happens in 2019. Brazil can’t sustain growth anywhere near 3 percent.”
She expects a slowdown. “The state of the Brazilian economy concerns me the most. Right now, policies are not sustainable, so there has to be a big correction,” said de Bolle. The big unknown is whether the new president will understand that policies need to be corrected to help the economy and whether he or she will be able to get things done with a divided congress.
Mexico: Implications for U.S. Relations
Mexico follows on the heels of Brazil as Latin America’s second-largest economy. In 2017, its GDP grew at 2.3 percent, according to the World Bank. Contributing to economic growth has been the strengthening of Mexico’s exports, which is tied to U.S. industrial production. This whole scenario is pegged to the North American Free Trade Agreement (NAFTA), a trade pact between the U.S., Canada and Mexico that created a powerful regional economic bloc now threatened by President Trump’s insistence on renegotiating NAFTA.
Since NAFTA went into effect in 1994, it has deeply integrated the economies of the three countries. Trilateral trade tripled to $1.2 trillion in 2016 since the start of NAFTA, according to the Peterson Institute for International Economics. NAFTA has created highly interconnected supply chains, particularly in the auto industry, that make the final products more competitive on the global market. If there is no more NAFTA, those products won’t be as competitive. Tariffs would also be raised, hurting exporters such as American farmers and Mexican car part manufactures, who in turn could pass the costs onto consumers (also see “NAFTA 2.0: Prodded by Trump, U.S., Canada and Mexico Prepare to Renegotiate Trade Deal” in the August 2017 issue).
Mexico, which is far more dependent on trade with the U.S. than vice versa, would be particularly hard hit by the demise of NAFTA, which modernized Mexico’s economy and transformed it into an automotive hub.
Talks have plodded along with little progress, as Mexico and Canada resist White House demands such as requiring more U.S. content in final NAFTA products.
But NAFTA is not necessarily the central issue in Mexico’s election. As in Brazil, the ruling Institutional Revolutionary Party (PRI) has been tainted by corruption scandals, in addition to a rise in gang violence. Trump’s repeated attacks against Mexicans, denigrating them as rapists and drug dealers while demanding that they foot the bill for a multibillion-dollar border wall, have also infuriated voters (see “Divided Neighbors: Mexican Envoy Says Break Down Bilateral Walls, Don’t Build Them” in the January 2018 issue).
The souring of relations under Trump has hurt the PRI’s electoral chances and benefited Andrés Manuel López Obrador, commonly referred to as AMLO, who is leading in Mexico’s polls. His chances have been bolstered by a fight for second place between his opponents, including the PRI’s Jose Antonio Meade, who have also been accused of corruption.
AMLO, a fiery left-wing populist who is often compared to Bernie Sanders, has failed to win two past presidential elections but is likely to win the election in July. He has railed against Trump, saying he would put the U.S. president “in his place if elected” — tough talk that has experts concerned that bilateral relations could deteriorate even further under an AMLO presidency.
AMLO embraces populist proposals such as giving people free internet access and higher pensions, but as president, many observers say his administration would likely be pro-NAFTA. In general, Mexico’s presidents support the agreement, recognizing that the country’s economy depends on strong relations with the U.S., its largest trading partner (80 percent of Mexican exports go north of the border). Mexico, whose economy is projected to only grow by 2 percent in 2018, also relies heavily on U.S. investment.
So while Mexico’s current president, Enrique Peña Nieto, isn’t thrilled with Trump, he keeps his opinion relatively low key. Peña Nieto declined to go through with what would’ve been his first visit to the Trump White House earlier this year because Trump kept insisting on a border wall that Mexico has no intention of funding.
If AMLO becomes president, “There may be change as it relates to the Mexico-U.S. relationship,” said de Bolle. “AMLO is not known to be someone who’s going to moderate in the face of any aggression coming from the U.S. administration. He’s going to talk just as loudly if he has to. That puts the whole U.S.-Mexico relations issue on a very delicate balancing act. That’s where I see the biggest risk — these tensions escalate and spill over into NAFTA negotiations in a bad way.”
An AMLO administration may be pro-NAFTA, but complications in the negotiations would deepen if AMLO starts going toe to toe with Trump’s heated rhetoric.
Colombia: FARC and the Venezuelan Crisis
After over 50 years of violence between the government and FARC guerillas, the nation has begun to heal. The armed rebel group emerged in the 1960s in response to socio-economic inequalities and wanted to transform Colombia into a Marxist state, but it eventually became notorious for killing, kidnapping and drug trafficking. The conflict — the longest in Latin American history — resulted in the deaths of 260,000 people and the displacement of millions (also see “Bogotá on Verge of Clinching Historic Reconciliation with FARC Rebels” in the August 2016 issue).
A peace agreement between Colombia’s government and FARC was finally reached in 2016, only to be rejected by a slim margin via referendum, but President Juan Manuel Santos successfully pushed a revised peace deal through congress. In exchange for laying down their weapons, the agreement allows FARC to be a legitimate part of the government.
The integration of former rebels into civil society has been rough. FARC has switched from the aggressor position to a place of vulnerability. Now a political party, FARC has faced the wrath of activists who say the group hasn’t paid the price for the violence it inflicted on the country. In February, it decided to suspend campaigning temporarily for the parliamentary election in March because of security concerns for its candidates. (In the 1980s, right-wing paramilitaries killed thousands of FARC fighters when they tried to form a political party.)
The group’s presidential candidate, former rebel commander Rodrigo Londoño, dropped out of the race citing ill health, although he had only been polling at around 1 percent. The party had an abysmal showing in congressional primary elections in March, and although FARC is still guaranteed a small number of seats in parliament, it is considered a nonentity in the May election.
Beyond FARC’s reintegration into society, voters are concerned with bread-and-butter issues such as jobs, inflation, health care, education and corruption. Both Santos and his predecessor, former President Álvaro Uribe, have been implicated in bribes tied to Odebrecht. Leftist candidate Gustavo Petro, a former mayor of Bogotá, has capitalized on the allegations by promoting himself as an anti-corruption crusader. (In 2005, he exposed ties between paramilitary drug traffickers, high-level politicians and the country’s spy agency.) Petro himself was a leftist guerilla 25 years before entering politics, but he denies being a socialist in the style of Venezuela’s Maduro.
Petro’s main opponent in the race will be Ivan Duque, an Uribe ally who represents the rightist bloc, along other possible contenders such as former Medellin Mayor Sergio Fajardo, a self-described pragmatic centrist, and Germán Vargas Lleras, who served as Santos’s vice president. The backlash over the FARC peace deal in a country that traditionally veers right could give right-wing parties an electoral boost despite the corruption allegations. Already, Uribe’s Democratic Center party, which vehemently opposes the peace deal, took the largest bloc of seats in congressional elections last month, while Santos’s coalition struggled.
Although Duque seems to be in a strong position, the country of 50 million remains politically fragmented. If none of the candidates in the presidential race receives more than 50 percent of the vote in May, a likely scenario, a second round of balloting will be held in June.
Another issue weighing on the minds of Colombian voters is the Venezuelan migrant crisis. As a consequence of mismanaged oil wealth, poor governance and international isolation, Venezuela is a failing state beset by food riots, crime and hyperinflation. President Maduro seems bound to keep his authoritarian hold on the country regardless of the election this year.
Venezuelans have been pouring into Colombia to escape the desperation of daily life in their native country. More than 1.3 million Venezuelans have migrated to Colombia as of the end of 2017, according to the Colombian government. Santos has urged greater humanitarian assistance while tightening border controls. It’s unclear how the presidential hopefuls are positioning themselves on this issue, but it is something the new government will have to address to manage the national fallout of the huge influx of migrants.
Like Brazil, Colombia enjoyed a decade of impressive growth that took a hit with the drop in commodity and oil prices, which in turn forced a decrease in government spending and an economic slowdown. Also like Brazil — and Mexico — Colombia’s political elite have been tainted by corruption scandals, further fueling the unpredictability of the upcoming elections as voters express widespread disgust with the current establishment.
For these Latin American countries, the big question is: What kind of leaders will they get? Commodity prices will consistently play an external factor in the state of a country, but the quality of the person occupying the highest office is also crucial, said Brian Winter, editor-in-chief of Americas Quarterly, which co-hosted the Inter-American Dialogue panel in February. Is the person a leader, can he or she build alliances and does he or she understand math when it comes to fiscal matters? These are the basic foundation for how a country will fare in an upcoming administration — and how it will fare on the world stage.
About the Author
Aileen Torres-Bennett is a contributing writer for The Washington Diplomat.