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12.01.2018 20:28 News >> Fitch: Political Risk Key Theme For Latam Sovereigns

Fitch: Political Risk Key Theme For Latam Sovereigns

Ratings agency says political risk could become key source of uncertainty for Latin American nations this year.

Political risk could become a key source of uncertainty for Latin American nations in 2018 even as the region's broad macro and credit outlook is improving, said Fitch Ratings.

"Regional sovereign credit profiles are stabilizing following successive years of downward pressure. A cyclical rebound in growth and reduced external imbalances have generally put Latin American sovereigns in a better macroeconomic position," the ratings agency said in its regional review published Thursday.

But a series of key elections this year in large economies including Brazil, Colombia and Mexico, uncertain U.S. trade and migration policies and ongoing political developments are important risks to monitor, it said.

It noted that Peru witnessed political turmoil last month when a vote to impeach President Pedro Pablo Kuczynski over allegations he received bribes from Brazilian construction company Odebretch narrowly failed and was quickly followed by the controversial pardon of former President Alberto Fujimori.

"The resulting weakened presidential mandate and political tensions are likely to challenge governance, limit space for reforms and weigh on infrastructure investment and growth," Fitch said.

News from Brazil's ongoing corruption probe of Odebretch "has potential for further political disruption", it added.

It is also emphasized that economic and fiscal policy frameworks remain important for many regional sovereigns, especially given large fiscal imbalances, rising debt burdens and potentially tighter external financing conditions.

"The election race in Brazil remains fragmented, posing risks to the necessary continuation of austerity and fiscal reform to address Brazil's deficit and adverse debt dynamics."

Fitch noted that Colombia and Mexico are also facing general elections this year.

Regarding Colombia, it said it believes "significant policy changes resulting from the election are unlikely, although the new administration will confront challenges to reduce fiscal deficits and place the debt burden on a firm downward path".

It is also noted that in Mexico, the election race introduces uncertainty and represents another headwind for investment and growth as the leftist candidate Lopez Obrador remains ahead in the polls.

In Argentina, meanwhile, "recent events indicate a stronger reform effort following the December passage of pension and tax reforms. The developments point to a continuation of President [Mauricio] Macri's economic policy shift to promote macroeconomic stability and gradually reduce imbalances in the economy - a key factor that contributed to Fitch's revision of Argentina's Rating Outlook to Positive in November.

Fitch also said that external risks could "present challenges" to countries in the region, including U.S.-initiated renegotiations of the North American Free Trade Agreement (NAFTA), which are a "significant uncertainty" for Mexico that could weigh on its competitiveness and long-term growth if there are any significant changes to U.S. market access. -



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