PRS’ coverage of the Americas in February includes a new report on Venezuela, where the survival of President Nicolás Maduro’s already troubled leftist government finds itself even more vulnerable owing to a plunge in global oil prices. With social tensions rising in a climate of high inflation, widespread shortages of even basic goods, and a crumbling economy, the opposition MUD alliance is displaying renewed unity, even as elements within the main governing PSUV are beginning to turn on the president. Legislative elections are scheduled to take place in September, and whatever the outcome, it is a safe bet that Maduro’s base of support will be eroded, a prospect that points to a growing danger that he could be forced from office before the completion of his term.
Looking at the Middle East and North Africa, PRS will issue a revised report on Syria, where Kurdish fighters recently reclaimed control of the town of Kobane from ISIL forces, but the broader dynamics of the civil war remain largely unaltered compared to six months ago. The US government’s strategy of limiting its involvement largely to training and equipping a rebel force capable of fighting a two-front battle against both President Bashar al-Assad’s military and armed extremists affiliated with ISIL has been beset by financial and logistical problems, and with the depleted energy of the Free Syrian Army weakening the influence of secular forces among the rebels, the conflict is increasingly taking the shape of a fight between Assad’s government and rebel groups pursuing one form or another of an Islamist system of governance. The report will assess the potential for either a negotiated agreement or a decisive military victory to bring a decisive end to the conflict, and how either of those outcomes might affect what otherwise will remain one of the most risky climates for investment and trade anywhere in the world.
This month, our coverage of Western Europe features a report on Greece that will focus on the investment implications of the recent bombshell victory for the Coalition of the Radical Left (Syriza) at the snap elections held on January 25. The crisis appears to be headed for an impasse over how best to resolve the country’s precarious debt situation and nurture the nascent economic recovery that has become evident in recent quarters. The immediate fallout from the victory of the far-left and anti-austerity Syriza includes plunging equity prices, capital outflows from Greek banks, and surging bond yields, all of which reflect perceptions of a significantly increased danger of Greece’s exit from the currency union (the “tail-risk” previously flagged), despite a large majority of the population favoring continued membership in the euro zone, and Prime Minister Alexis Tsipras’ repeated assurances that he has no desire to abandon the euro.
Our detailed report will explore the various possibilities for Greece in the weeks and months ahead, focusing most immediately on whether there are grounds for compromise on either side in upcoming negotiations between the new government in Athens and the so-called “troika” of the EU, the IMF, and the ECB. We look closely at the salient policies, and whether enforced nationalization of the banks, capital controls and the reintroduction of the drachma can be avoided. We ascertain whether the coalition of Syriza and the Independent Greeks, with which it shares no sympathies except opposition to the austerity program, will last, and importantly whether any common ground can be found with its creditors for Greece to maintain ongoing bailout support, all of which will invariably have a bearing on longer term asset values.
We also analyze the implications of the Greek crisis for Italy, where the election of a new president, Sergio Mattarella, has raised questions about Prime Minister Matteo Renzi’s ability to count on the support of Silvio Berlusconi’s center-right party. Mattarella, a former judge, is a long-time critic of Berlusconi, whose allies have protested Renzi’s failure to back a consensus candidate. Our report will assess the government’s policy successes and failures to date, and the implications of electoral reforms which received a nod of approval in the Senate following a pact between Renzi and Berlusconi that has inadvertently weakened Renzi’s hand within his own coalition. We look at the prospect of early parliamentary elections being held under the revised election rules (which are expected to be approved by the governing majority in the lower chamber in April), and where Italy will go from here in resolving its economic problems in the shadow of potential Greek contagion in the euro zone. Our report rounds out with forecasts of economic growth and other key indicators, including deflation risk, and their implications for the sovereign debt outlook.
PRS’ coverage of Eastern Europe includes an update on Azerbaijan, where President Ilham Aliyev is not required to renew his mandate until 2018, but will face a test of credibility later this year, as the governing YAP seeks to defend its sizeable majority in the 125-seat legislature at elections in November 2015. Even assuming the opposition parties do not boycott the vote, the YAP’s significant organizational and resource advantages, personality-driven divisions among the YAP’s rivals, and the government’s use of legal intimidation and media restrictions make it unlikely that the long-time incumbent’s position will be seriously threatened. However, a steep decline in global oil prices points to the likelihood that the elections will be held in a climate of increased economic insecurity that will heighten the danger of election-related unrest. The update will discuss the implications of both near-term economic weakness and the potential for bouts of domestic political turmoil on the climate for investment and trade, with a particular focus on the possibility that difficult conditions at home might encourage Aliyev to ramp up tensions with Armenia over the disputed enclave of Nagorno-Karabakh in hopes of channeling discontent in a national direction.
Our brief update on the situation in Mali looks at the prospects for peace following a resurgence of rebel conflict in the north two years since the French military drove out Al-Qaeda linked jihadists. We analyze the ability of the refreshed administration to re-establish sovereignty and resolve territorial claims under the Algeria process, as well as instill confidence in donors following a cabinet shake-up in the wake of a brief suspension of IMF aid linked to state accounting irregularities. We also look at the economic outlook by honing in on an expanding cotton-producing sector and gold mining seeing an influx of foreign investment benefiting from increased restrictions in neighboring countries.
Falling oil prices arrive at a difficult time for Gabon facing increased political tensions and civil unrest protests concerning the poor record of President Ali Bongo Ondimba, revelations his birth certificate and diplomas were falsified, and the ease with which his support party retained its majority in elections to the Senate in December 2014. Political conflict is set to continue as the authorities seek to clampdown on avenues of protest, and put pressure on former Bongo loyalists switching to the opposition. Our report looks into the main effects of all this on Gabonese assets, including the operating risks for international petroleum companies affected by oil worker strikes as cost efficiencies are undertaken to cope with the deflated oil export price. We analyze the impact on the economy and fiscal budgeting with the negative oil price shock pointing to a worsening junk status credit rating.