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2019 emerging market elections: The where, the who and the so what…

Key points:

 

  • In numerous emerging markets, election years have historically coincided with a boost in fiscal spending, which has often led to a significant deterioration of what can be already fragile fiscal positions. As many countries have seen their democratic traditions develop, the financial and political cycles have decoupled somewhat, thanks to the improved quality of the fiscal and monetary framework.
  • The political volatility of 2018 was evident again in emerging markets, especially in some large Latin American countries, where voters moved decisively away from the political incumbents. The political agenda will be busy again in 2019, especially in Asia (India, Indonesia, Thailand and the Philippines) but also in Sub-Saharan Africa (Nigeria and South Africa) and to a certain extent in Eastern Europe (Poland, Romania). Ukraine, Turkey and Argentina will also go to the ballot box, against a very challenging economic backdrop.
  • Despite the busy calendar and our anticipations of a broad political continuity for most of these elections, populist rhetoric and policies are likely and the economic reform momentum may stall.

As many democratic systems have emerged across developing countries, investors have had to be particularly vigilant around political events, such as presidential and general elections. In numerous emerging markets (EM), election years have historically coincided with a boost in fiscal spending, which has often led to a significant deterioration of what can be already fragile fiscal positions. This in turn has led to an increased dependency on foreign financing that, exacerbated by an acceleration of foreign capital outflows, added pressure on currencies and bond yields. Inevitably, a lot of developing country crises occurred in sync with political cycles. As many emerging markets have seen their democratic traditions develop, the financial and political cycles have decoupled somewhat, thanks to the improved quality of the fiscal and monetary framework.

 

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