The risk of political volatility in Latin America and the Caribbean is increasing, as the region is in the midst of a busy and important election season. Several of Latin America's largest economies, including Brazil, Mexico and Colombia, will elect new presidents in 2018. They will do so in an environment of increasing public anger over corruption, amid a plethora of corruption scandals in recent years that have in many cases implicated high-level politicians. In this environment, disillusionment with the traditional political class is growing; institutions remain weak and public governance lax. Even in countries that remain relatively unaffected by these simmering tensions, political effectiveness will remain weak, given the presence of minority governments, fragmented legislatures and unstable coalitions in many countries in the region.
Although a mild cyclical recovery is under way in the region, Latin America's recent downturn highlighted enduring structural weaknesses, including persis-tent dependence on commodities and weak productivity. Tackling these prob-lems will require a broad range of structural reforms in areas such as the labour market, and regulatory and tax systems. A political shift away from populism in many countries in the region in recent years and towards more orthodox policymaking has put such reforms back on the agenda, although the 2018 electoral season may lead to some setbacks. Global conditions will be broadly favourable in 2018-19, but the external environment will be less supportive thereafter (The Economist Intelligence Unit expects growth to ease notably in the US in 2020). This may concentrate policymakers' minds on the need for productivity-enhancing reforms. Yet, because of institutional deficiencies, weak implementation capacity and political fragmentation, we remain fairly pessimistic about prospects for productivity gains in the medium term.
Business environment rankings
Latin America will make some progress in improving the business environment in 2018-22, but it will lag behind other emerging markets (reflecting a lack of political appetite in Latin America to challenge obstructionist legislatures) and the region's business environment ranking will remain below all regions bar the Middle East and Africa, with which its score will tie. The region's score for political stability is relatively good, but it scores extremely poorly for political effectiveness, reflecting problems including corruption, weak institutions and frequently incoherent government policy towards business. The scores for tax policy and infrastructure are also particularly poor.
Latin America and the Caribbean: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela
Latin America 12: Argentina, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Mexico, Peru and Venezuela
Mercosur (the Southern Cone customs union): Argentina, Brazil, Paraguay, Uruguay and Venezuela
The Andean Community: Bolivia, Colombia, Ecuador and Peru
Central America: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama
Caribbean: Cuba, Dominican Republic, Jamaica, and Trinidad and Tobago