LatAm leaders will focus on investment as politics grow stickier

A trend of growing political unpredictability across Latin America may have a near-term silver lining for business: governments struggling to maintain popularity are encouraged to double down on efforts to attract investment as a means to boost economic growth.

High voter expectations, underpinned by a surging middle class that came to demand more and better public spending during the commodity price boom, have clashed with the numerous corruption scandals that have emerged across the region, as well as sinking presidential approval ratings, weakening governments and limiting their ability to enact reforms, according to Maria Luisa Puig, senior analyst at Eurasia Group.

Governments also have less room to maneuver in terms of fiscal policy, as commodity prices, while stronger today than their lows of a few years ago, are not returning to boom levels. In other words, they are not necessarily able to spend as much as voters expect.

One answer to this tight spot has been governments' continued or strengthened efforts to attract investment as the route to economic growth, a positive for investors despite the often greater political uncertainty, Puig said Tuesday at the LatAm Mining Cumbre in Santiago.

A good example is Chile, the country considered to have the lowest, or at least most stable, political risk profile in Latin America, where Puig expects to see "policy correction" under President Sebastian Pinera, who took office in March.

Although Pinera will face pressure to spend on inherited policies, as well as his own commitments, which combined with revenue constraints has already forced the president to backtrack on certain platforms, such as one to reduce corporate income tax, the analyst highlighted the administration's efforts to fast-track measures to make Chile more business friendly.

"If there is no investment, there is no development," said Chile's mining minister Baldo Prokurica in his inaugural talk at the event, stating that the new government wants mining to be a primary driver. Large-scale mining projects typically require 1,500 different permits in Chile, Prokurica said, noting the OECD's recommendation to Chile to reduce bureaucracy.

Mining industry players have positively received the creation of a special inter-ministry project management office to streamline permitting, as well as a department within the mining ministry to assist companies in navigating the permitting process.

Goldcorp country manager Mauricio Alvarez told the conference that, for the investor who has chosen Chile, it is "comforting" that the government knows what needs to be done to regain lost competitiveness.

Countries across Latin America have made efforts to boost investment specifically to combat the weakened macro scenario of the past few years: Ecuador, Colombia and Venezuela have particularly looked to bolster mining as a substitute for reduced oil income, while Argentina and Brazil have also moved to improve the legal climate for mining, as well as launching billions of dollars in infrastructure public-private partnerships.

Infrastructure spending is also likely to drive economic growth in Peru in the near term, as the country looks to unblock delayed projects and advance with a US$8bn program to rebuild areas damaged by floods last year.