Political clouds gather

Political risk grabbed the headlines this month, with protestors taking to the streets across the Andes and Argentina electing a new Peronist president. Demonstrations in Ecuador and Chile will weigh on growth in Q4 and have already forced policymakers to reverse recent austerity measures. But Chile has strong public finances and Ecuador is likely to keep the IMF on board, so we suspect that markets in both countries will recover. In contrast, Argentina’s fiscal position is deteriorating, and it is not clear that President-elect Alberto Fernández will agree to an augmented deal with the IMF. A large debt write-down is likely.