Latin America shifts to fiscal stability
Latin America’s recent shift to the “right” suggests a strong fiscal anchor ahead, which cements the positive momentum for bonds in the region. This shift is largely associated with the approach to governments’ fiscal stances, security, and corruption, rather than immigration, sovereignty, and regional integration.
Fiscal Consolidation
A number of Latin American countries have moved towards fiscal consolidation, with 9 elections held between 2022 and 2024, and 6 of them won by the right or center right. This trend has continued, with 100% of elections held between 2025 and 2026 won by the right or center right.
According to the Congressional Research Service (CRS), Reuters, and Edelman, the results of these elections are shown in a table, with right/center right wins plotted in blue and left/center-left wins plotted in red. Brazil is set to hold its second round election on October 25, with Flavio Bolsonaro campaigning on a platform of fiscal cuts.
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Left-Right Swings
The “left-right” ping-pong is nothing new in Latin America, with the region known for significant left/right swings that can happen quickly. Countries such as Colombia and Argentina have flipped between left and right in recent elections, with key topics such as security and inequality contributing to the high tendency to vote for change.
In some countries, such as Uruguay, the left-right pivots hardly make any difference, due to policy continuation regardless of the party in charge. However, in countries such as Argentina, Brazil, Ecuador, and Bolivia, these swings can cause significant market repricing, with bonds rallying on positive fiscal signals and selling off on prospects of fiscal deterioration.
Fiscal Improvement
Despite the swings, fiscal consolidation has already shown improvement in recent years, with Latin America’s debt to GDP (simple average excluding Venezuela) stable in recent years and lower than the peak reached in COVID. The region’s debt-to-GDP is slightly above 60%, showing stability and significant improvement relative to the prior decade.
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If policymakers stick to their rhetoric of fiscal efforts, debt to GDP is expected to trend lower. However, if history repeats itself, another full swing right-left in the next presidential cycles may be expected, but until then, bonds are likely to be well anchored amid a wave of austerity efforts.
In addition to the fiscal anchor, recent political shifts bring some geopolitical benefits, including solid bilateral relationships with the current US administration, which helps to keep risks such as tariff disputes and other macroeconomic threats at relatively low levels, reducing bond market volatility to headline news.
Corporate bonds in regulated sectors, including utilities, metals & mining, and oil & gas, can also benefit from the region’s economic situation. According to the Simple weighted IMF past data and forecasts, the region’s fiscal anchor is expected to remain strong, supporting the positive momentum for bonds. The region’s fiscal situation is expected to continue improving, with the IMF forecasting a stable economic outlook.
