PRS’ coverage of the Americas in April includes a fully revised report on Mexico, where President Enrique Peña Nieto is struggling to recover from scandals involving apparent police and government involvement in the murder of 43 college students in the state of Guerrero last year, and, more recently, allegations that the president, his wife, and his finance minister have purchased homes at reduced rates in return for government contracts. The president’s troubles have been compounded by a fall in global oil prices that has delayed the appearance of tangible benefits from the liberalization of the energy sector.
The report will examine the implications of Peña Nieto’s difficulties for the political fortunes of the governing PRI, which lacks a legislative majority, and it at risk of losing ground to both the center-right PAN and the center-left PRD heading into the second half of Peña Nieto’s six-year term. PRS will assess what he might be able to accomplish under those circumstances, while also discussing what can be expected on the reform front if the outcome of the midterm contests provides the president with a basis for moving ahead with a liberal reform agenda.
PRS will also issue an update on Cuba that focuses on the implications of US plans to pursue a limited normalization of relations for the island country’s risk profile. Although the policy changes proposed by President Barack Obama do not include a near-term lifting of the trade embargo that has been in place for more than five decades, the easing of restrictions on travel, financial flows, and some forms of trade will bring immediate benefits for an economy threatened by the deepening political and economic troubles in Venezuela, which for years has been a crucial source of financial support for the Communist Party government in Havana.
The update will address potential obstacles to a more complete normalization of relations, including human rights issues and diplomatic tensions between the US and the embattled government in Caracas, while also examining the opportunities made possible by the changes already announced. In addition to identifying those sectors that will benefit immediately from the partial opening by the US, the update will also assess what changes can be expected in the more general climate for investment and trade, and how the easing of Cuba’s international isolation is likely to affect an ongoing political transition that includes plans to hand over control of the government to a new generation of leaders in three years.
Germany heads up our coverage of Western Europe this month, as we look in detail at recent and upcoming state elections in Brandenburg, Saxony and Thuringia during the second half of last year, in Hamburg during February 2015 and in Bremen this May, all of which are providing litmus tests of support for Chancellor Angela Merkel’s two-party federal coalition comprising the centre-left Social Democratic Party alongside her own CDU/CSU center-right partnership. Our report analyzes the shifting kaleidoscope of political opinion in light of the rise of Pergida, the anti-Islamist and anti-immigrant movement intent on civil protest, and of Alternative for Democracy (AfD), an anti-euro party now taking its first seats. We explain how this is shaking up the old order and influencing popular debate, and how it will affect Germany’s role in resolving the Greek debt crisis as the euro zone’s principal architect. We also look at the investor implications of proposed changes to the German Banking Act, the federal budget for 2015 and longer term fiscal metrics, and ultimately to the strengths but also weaknesses in Germany’s economic trends to ascertain whether its top grade investment potential is still warranted.
We also present an in-depth report on Switzerland this month, casting a critical eye on the federal elections to be held in October 2015 to ascertain what the likely outcome will be and how it may impact the currency, asset prices, and the economy. Our report looks at the main pre-electoral battlegrounds, which include Switzerland’s relations with the EU, the environment, and the thorny topic of immigration, which remains a very important issue for voters, to the benefit of the right-wing Swiss People’s Party, which is leading in the opinion polls.
Our report looks at recent and upcoming referenda shaping policy implementation in Switzerland’s rather unique system of direct democracy, and we analyse the motivations for, and repercussions of, the shift in monetary policy by the Swiss National Bank, which abandoned its ceiling for the franc-euro exchange rate in January. The reports also examines the latest macro-risk indicators to chalk out prospective trends that may either encourage, or alternatively concern, investors in Swiss assets.
Regional coverage of Eastern Europe includes a new report on Hungary, where Prime Minister Viktor Orban’s populist Fidesz administration has adopted a somewhat more business friendly posture of late, but a U-turn on an unpopular proposal to tax Internet usage and the imposition of restriction on Sunday shopping, under pressure from its Christian democratic coalition partner, underscores the continued potential for unpredictable policy shifts. The report will discuss the potential impact of the government’s loss of its claim to a super-majority in the Parliament and growing support for the far-right Jobbik for the policy course over the remainder of the current four-year term, and what recent developments mean for both political stability and policy continuity beyond the next general election.
Looking at the Middle East and North Africa, our April offerings include a new report on Kuwait, where growing security concerns and a steep fall in global oil prices will command the attention of the monarchy, which has been troubled in recent months by allegations of coup-plotting by senior members of the royal family. Rumors of dangerous divisions in the ruling Al Sabah clan are especially troubling in light of suspicions that ISIL is mapping out a strategy to exploit sectarian and political divisions across the region with the aim of expanding the de facto borders of its self-proclaimed caliphate.
The report will examine the progress on implementation of a long-delayed liberal reform agenda since the election of largely pro-government Parliament in July 2013, and gauge the prospects for passage of important pieces of legislation that hold the potential to expand investment opportunities PRS will also assess the risks for the Kuwaiti regime as it attempts to navigate the choppy political waters, which figure to become rougher still as reduced oil income increases pressure for unpopular fiscal adjustments, including reduced spending on subsidies and possibly even the introduction of an income tax for Kuwaiti businesses.
Turning to Africa, the spotlight will be on Kenya, where the coastal region around the port city of Mombasa remains caught in a deadly cycle of violence fueled by supporters of Al Shabaab, the Somalia-based Islamist militant group. The violence has inflicted significant damage to the country’s tourism industry, while the heavy-handed tactics of the security forces risk further alienating local Muslim communities. President Uhuru Kenyatta is under growing public pressure to deliver on his promise of tackling the security threat, but tighter anti-terrorist legislation has been condemned by opposition leaders for undermining constitutional provisions on basic rights and free speech.
The security headache comes just months after the prosecutors at the International Criminal Court decided to drop their case against Kenyatta for his alleged role in the ethnic violence accompanying the 2007 presidential election. The collapse of the trial removed a major risk of executive instability stemming from the possibility that Kenyatta might be convicted. The president is trying to boost his political capital by providing strong backing for a major corruption investigation. Five Cabinet ministers have been forced to step down, along with 16 other high-ranking officials. But unless convictions are secured, the move will fail to make a significant impact on Kenya’s (poor) corruption ratings.
We will review the prospects for fiscal consolidation against the budget plan for the fiscal year 2015/2016 beginning in July. The budget deficit is estimated at 8.8% of GDP in 2014/2015, and the government is planning to reduce the shortfall to 7.5% of GDP next year. However, the target is based on somewhat optimistic revenues projections, and economic growth face considerable downside risks posed by the precarious security situation and possible adverse weather conditions. That said, inflationary pressure has eased following a drop in global oil prices, and reserves stand at around $8 billion, equivalent to 4.4 months of imports.