Political risks weigh especially on countries with weaker fiscal capacities
While electoral periods have often been the source of political risks, we have recently seen unrest and violence spreading across large parts of emerging markets with hot spots in South America and the Middle East.
The roots often lie in perceived corruption, social injustice and political freedom but it is impossible to capture all elements. The chart below compares countries in emerging markets on political stability and perception of corruption, and we find that many of the recent high profile protests take place in countries with weaker scores on both (highlighted in bold). Chile is an exception, considered as strong on both dimensions and yet facing prolonged unrest. To assess governments’ capacity to deal with dissent (often via social spending), we included government debt as a 3rd element (bubble size). Lebanon’s fiscal position is undeniably stretched while Chile and Peru have the most comfortable positions.
