PRS’ coverage of the Americas in May includes an update on Chile, where the center-left coalition government is encountering political headwinds. President Michelle Bachelet’s approval rating has plummeted amid a spate of corruption scandals, including a charge of influence-peddling against her son, and dissatisfaction among the electorate with the weak performance of the economy, which government critics have blamed on uncertainty created by the New Majority administration’s tax and labor reforms.
The update will discuss Bachelet’s prospects for implementing the remainder of her ambitious agenda, which includes the provision of tuition-free college education and electoral reforms that hold the potential to bring a party realignment at the next round of elections in 2017. PRS will also assess the outlook for economic policy as the government grapples with the fiscal implications of low prices for copper, the life-blood of Chile’s economy.
Our coverage of Asia this month provides an update of investor risks in Vietnam, which has seen heightened tensions with China impact on oil exploration in the region and local tourism, while creating impetus for improving trade partnerships with the European Union, Russia and South Korea, among others. We analyse Hanoi’s evolving relationship with Beijing, while also assessing any notable prospective domestic political issues in view of the looming Communist Party congress in January 2016, which might impact on the reforms benefiting investors, some of which are due to come into effect later this year.
These and other issues revolving around political stability, a corruption clampdown and structural reforms are all factored into our assessment of economic growth and the outlook for other macro-fiscal-financial indicators affecting investor decision-making. That includes how banking sector stability is shaping up, and whether the Communist Party can maintain the model of centraliszed political control given the demands for freedom from a population served by an increasingly modern market economy.
Over in Africa, political conditions in Angola look broadly stable. A lack of clarity in the succession plans of President José Eduardo dos Santos, who has ruled continuously since 1979, creates some risk, but there are no indications of any credible challenge to the 72-year-old president’s continuation in power for the foreseeable future. Mounting allegations of high-level corruption and human rights abuses are unlikely to deter Angola’s key trading partners. However, falling oil prices have squeezed the profits of the state oil company, Sonangol, forcing the government to revise its generous public spending program.
A revised 2015 budget approved by Parliament in February imposed spending cuts worth roughly $17 billion, on top of cuts to fuel subsidies introduced in late 2014. Exactly where the cuts will be made remains unclear, but the government is unlikely to embark on a radical austerity program. Nevertheless, a combination of higher inflation and currency depreciation will contribute to a heightened risk of social unrest.
The pressure on Angolan economy may test investors’ confidence, particularly if the government starts amassing arrears in payments to contractors, as occurred in the wake of the 2008 global financial crisis. The regime currently enjoys better access to global lending institutions than was the case seven years ago, and the government plans to raise around $10 billion via external financing to keep large infrastructure projects afloat. The central bank has indicated it will maintain a cautious monetary policy, and the government has stayed away from proposals for a tax on foreign-exchange remittances going abroad.
Our coverage of the Middle East and North Africa features a revised report on Saudi Arabia that will examine the implications of a series of important personnel changes at the top levels of the political hierarchy since King Salman succeeded his half-brother Abdullah as monarch in February 2015. Of greatest significance, the positioning of Salman’s nephew and son as crown prince and deputy crown prince, respectively, in an April reshuffle has set the clock ticking on an inevitable generational transfer of power.
On the one hand, the initiation of rule by the grandsons of ibn Saud, the kingdom’s founding monarch, may increase the potential for far-reaching political and economic reforms. On the other hand, Crown Prince Mohammed bin Nayef’s future ascension to the throne could also be accompanied by a heightened risk of destabilizling infighting among the many dozens of princes who may view themselves as better qualified than their cousins to hold various positions of power.
More immediate risks that will be examined are those stemming from a steep fall in global oil prices, which should be easily contained in the near-term, and from the kingdom’s more aggressive use of its military to address security threats in the region, which poses a much bigger danger of sowing instablity political climate in which the House of Saud will prepare for the landmark transfer of power to a new generation of leaders.
Turning to Europe, a a closely contested general election set to take place in the United Kingdom on May 7 looks to produce a hung Parliament, and the uncertainty is heightened by the unclear path for Prime Minister David Cameron’s Conservative Party to forming a viable government, even if it wins the most seats. The Conservatives are running neck-and-neck with the center-left Labour Party in pre-election polls, and with neither on track to secure a majority of seats, and the Liberal Democrats, the junior partner in the current govening coalition, projected to secure too few seats to provide either of the main parties with a working majority, the Scottish National Party—for which an alliance iwth Labour would be the more natural fit—is poised to play king-maker.
Our report evaluates what this will all mean for political stability, the UK’s relations with other European Union member states – with an EU referendum unlikely without the Conservatives at the helm – and for UK business and foreign investors in light of the new government’s programme. We round out with a review of economic prospects, including GDP growth, inflation, pound-sterling and the all-important fiscal metrics in light of the UK’s improving, but large deficit still fuelling a rising debt burden topping 90% of GDP in 2015.
Over in Eastern Europe, PRS will issue a revised report on Czech Republic, where Prime Minister Bohuslav Sobotka’s ideologically diverse coalition maintained a surprising degree of unity. Our report will assess the prospects for sustaining harmonious relations among the partners as they prepare to tackle issues that were temporarily laid aside in order to give the alliance time to establish a solid foundation, including proposed tax reforms and state energy policy. The prime minister’s apparent eagerness to begin giving serious consideration to establishing a firm timeline for the country’s adoption of the euro is another potential source of friction that will be examined.