This month’s coverage of the Americas includes a fully revised report on Argentina, where the end of 12 years of continuous rule by the Kirchner dynasty appears to signal a retreat from the heterodox populism that characterized the policy approach of Nestor Kirchner and Christina Fernandez. The pro-government FPV lost its majority in the lower house of Congress, and its presidential candidate, Daniel Scioli, made a weaker showing than expected. He will go head-to-head against Mauricio Macri, whose center-right PRO advocates liberal economic policies and a pro-business agenda. Macri is favored to win the November 22 run-off after receiving the endorsement of Sergio Massa, a former member of the FPV who finished third in the October voting, and Scioli will need to distance himself from the Kirchner legacy if he hopes to compete with Macri.
As such, the policy course is all but certain to shift toward the center under the next government, regardless of who wins the election, the outcome of which will determine how much, and not whether, there is an adjustment to the policy course. The report will examine what specific policy changes are in store, based on the outcome of the presidential contest, with special attention paid to fiscal strategy, efforts to resolve the ongoing debt mess, relations with Mercosur, and possible moves to create a more inviting climate for foreign investment.
Turning to the Middle East and North Africa, PRS will provide an update on Tunisia, the only country in the region to fulfill the democratizing potential of the Arab Spring phenomenon, a fact recently acknowledged by the awarding of a Nobel peace prize to the civil institutions that played a crucial role is safely steering the transition process through to a successful conclusion. While that achievement is certainly worthy of praise, the persistence of official corruption, tensions between political secularists and Islamists, the repeated targeting of Tunisia for terrorist attacks, and the threat to security posed by conflict in neighboring Libya create the potential for the country to suffer a political regression.
PRS will examine what political leaders need to do to avoid that dismal scenario, and assess the capacity of the incumbent administration in Tunis to meet the challenge. In that regard, the analysis will focus especially on the government’s economic development strategy, and what it portends in terms of the opportunities for foreign investment, as well as plans for addressing the risks associated with terrorist violence and reducing corruption, both of which are crucial to creating a more hospitable business climate.
Looking at sub-Saharan Africa, Botswana’s economy is facing continuing strain from a downturn in global demand for diamonds, the country’s key export. A fall in revenue has forced the government of President Ian Khama to halve its economic growth forecast for 2015 and consider a stimulus package to revive the economy. Botswana has sufficient foreign exchange reserves to withstand external shocks, and the ruling Botswana Democratic Party (BDP) faces no electoral challenges until 2019. Still, economic trouble will add to pressure on the government as rival BDP factions begin to jockey for succession to Khama.
The economic slowdown comes after a string of by-election defeats for the BDP this year. The opposition is expected to continue making political capital out of widespread discontent with living standards and with Khama’s heavy-handed leadership style. With no obvious successor to Khama, risks to political stability will remain slightly elevated during the president’s second and final term in office. However, internal disputes in the BDP are unlikely to reach boiling point until the final stages of the current parliament.
We also take a closer look at Angola this month, which is approaching four decades of independence in the grip of an evolving political crisis stemming from the negative oil shock weakening the economy, and diminishing the resources on tap to maintain the regime’s survival. Refusing to draw down on sovereign wealth fund assets, we look at how the MPLA regime stuffing the legislature is borrowing more to plug gaps in public financing, which in spite of an impressive deficit-reduction program (progressing to the restructuring of Sonangol, the national oil company) is raising concerns for longer-term debt servicing capability. Unease is growing, too, among a population facing hardship through inflation and unemployment, disenchanted by corruption and a crackdown on comparatively innocent, non-violent public discourse, which is threatening to escalate into more serious civil unrest, testing the authorities’ resolve and inflicting more damage on the economy. The failure of President Jose Eduardo dos Santos to attend parliament to deliver his annual state of the nation address has moreover set tongues wagging on his fitness to govern, and worse still, the prospect of internal party dissent. With no apparent succession plan in place for the septuagenarian we look at what this and the various macro-fiscal indicators will mean for investors in 2016.
Presidential and legislative elections will be held in the Philippines in May 2016, and the contest to determine the successor to Benigno Aquino, whose economic and fiscal management has enabled the Philippines to retain the investment-grade credit rating it gained in 2013, is shaping up as a three-way race. Our report examines whether first-term senator and independent candidate Grace Poe can capitalize on her lead in the opinion polls to deny victory to former Vice President Jejomar Binay and Mar Roxas, who is standing as the candidate of Aquino’s Liberal Party, the dominant force in the Team PNoy coalition. We assess what the elections will mean for political stability, the nation’s ropey record on corruption, infrastructure spending and employment growth, and maintaining fiscal prudence. Our report assesses other key issues, including the country’s leanings towards the Trans-Pacific Trade Partnership and developments in the territorial dispute with China. We assess the wavering peace process in the autonomous Muslim region of Mindanao that has lately seen protesters take their complaints to the streets of Manila, and the related issue of mining sector rights and the sector’s outlook in light of the long-standing moratorium on new mining permits.
Our detailed coverage of Western Europe this month includes a special feature on Ireland, which is presently the euro zone’s fastest growing economy, but is also preparing for parliamentary elections in the spring that are pointing to heightened risk in light of the increasingly fragmented political spectrum. Neither the economic improvement, which in any event is largely Dublin-centric, nor the small give-away budget putting austerity on hold, guarantee victory for the Fine Gael-Labour party coalition, which would like to reform its partnership, having made collegiate progress in restoring Ireland to macro-fiscal stability. The continued presence of “ghost towns” in provincial areas affected by the real-estate blow-out, the legacy of the water charging debacle, and pockets of high unemployment fueling emigration are all assessed, contrasting with the buoyant headline figures depicting a bailout country now back on track. Our report looks at what this will all mean for the election outcome, for future political stability and for debt and deficit reduction plans as Fianna Fail and Sinn Fein, the main opposition parties battle it out alongside numerous other smaller interest groups and unaffiliated independents which collectively could scoop up a considerable number of seats in the slimmed-down 158-member legislature.
Turning to Eastern Europe, PRS will issue an update on Poland, where the conservative nationalist PiS has been returned to power following elections held in late October. Jaroslaw Kaczynski’s party was expected to defeat the incumbent PO, especially after the polarizing PiS leader named his deputy, Beata Szydlo, as the party’s candidate for prime minister. However, the failure of a coalition of green and left-leaning parties to win the minimum vote share required to qualify for representation in the Parliament unexpectedly added more than four dozen seats to the total distributed among the qualifying parties, with the result that the PiS claimed an outright majority of seats in the 325-member Sejm, despite winning less than 38% of the vote.
The update will discuss how the PiS is likely to use the freedom afforded by its ability to govern without a coalition partner, focusing on the implications for relations with the EU, for the domestic business climate, and for economic stability. In that regard, Kaczynski’s praise for the policy approach adopted by Hungary over the last several years, which has included populist deviations from fiscal orthodoxy, episodes of hostility toward foreign investors, and frequent friction with Brussels, highlights the potential for disconcerting developments that heighten risk. On a related note, PRS will also examine the relationship between Kaczynski and Prime Minister Szydlo, as part of a broader assessment of the extent to which the new government’s majority status improves its chances of surviving for a full term.