This month’s coverage of the Americas features an update on Chile, where President Michelle Bachelet has seen her approval rating plummet to historic lows as a result of corruption scandals involving close associates (including her son), public uncertainty about the wisdom of some of the center-left government’s ambitious reforms, and a worrisome slowing of economic growth related to weakening Chinese demand for copper, Chile’s most important export. The report will examine the administration’s prospects for putting the corruption scandals behind it, and the implications of Bachelet’s current low approval numbers for the fate of her reform program, which includes a proposal to completely overhaul a constitution inherited from the military government that ceded power in 1990.
Bachelet’s ability to keep the governing MN coalition united will be a key factor influencing political risk; our analysis will include an assessment of potential sources of friction among the members of the center-left alliance, which include a shift to a more conservative fiscal stance in response to falling income, as well as the potential for electoral reforms approved earlier this year to encourage defections as elections scheduled for 2017 draw closer.
PRS will also take a look at recent developments in Haiti, where preparations for a presidential election are taking place in the aftermath of chaotic legislative elections held in August. The legislative contests drew less than 20% of eligible voters, and were marked by widespread fraud and episodes of bloodshed; most of the contests will either be decided by a run-off or will need to be re-run. The report will discuss how the questions surrounding the validity of the elections affect the outlook for forming a stable government, without which Haiti will face a high risk of social upheaval and economic collapse. In that regard, the decision of the party affiliated with former President Rene Preval to withdraw from participation in the upcoming elections is not a favorable portent.
An examination of political risk in Saudi Arabia will be a focus of our regional coverage of the Middle East and North Africa this month. The revamped leadership installed in January has come under unprecedented criticism following a deadly stampede of Muslim pilgrims that resulted in more than 700 deaths and has raised questions about the competence of the king, who is rumored to be in poor health and is widely believed to be leaving responsibility for running the government to his nephew, Crown Prince Mohammed bin Nayef, and Salman’s son, Deputy Crown Prince Mohammed bin Salman, who is also the minister of defense. Two letters allegedly penned by an anonymous Saudi prince have explicitly called upon senior members of the royal family to depose Salman and his chosen successors, citing the rapid depletion of the kingdom’s oil reserve fund and the lack of results from Saudi Arabia’s military intervention in Yemen as further evidence of gross mismanagement.
Although it is unclear how much credence should be granted to the letters, they do highlight the challenges that confront the Saudi leadership, and probably represent an accurate reflection of the concerns of at least some top figures in the royal establishment. The report will assess the outlook for political stability against that backdrop, and discuss the steps being taken by the government to mitigate the economic damage from a steep and prolonged slump in global oil prices, which poses a threat to the viability of the regime’s longstanding strategy of relying on generous state spending (along with an uncompromising intolerance of public dissent) to ensure domestic order.
Coverage of sub-Saharan Africa includes a new report on Congo, which faces a period of heightened risks to political stability due to President Denis Sassou Nguesso’s push for constitutional reform that could allow him to stand for a third term in August 2016. Sassou Nguesso announced in September a referendum on constitutional changes, after receiving a green light from a national conference composed largely of pro-government groups. PRS believes the constitutional proposals stand a good chance of being approved, given the entrenched dominance of state institution by the long-ruling Congolese Labor Party (PCT). However, the opposition has vowed to fight Sassou Nguesso’s bid for another term, pointing to the likelihood of regular street protests and possible clashes in the coming months. The violent backlash in Burundi and Burkina Faso against attempts by entrenched leaders to prolong their time in power highlights the risks associated with the government’s plans.
Domestic instability would add to the strain on the economy which faces a sharp decline due to Congo’s vulnerability to lower oil prices. The economic growth could decelerate to as low as 1%-2%, which would mark its weakest performance in eight years. The government has responded to the pressure on fiscal and external accounts by cutting expenditures in the 2015 budget by 12%. External debt is expected to increase to 48% of GDP by the end of the year, but a more serious threat to the outlook will be mitigated by a stable currency and low inflation.
Over in Asia, parliamentary elections in Myanmar on November 8 are expected to see strong gains for pro-democracy campaigner Aung San Suu Kyi’s National League for Democracy (NLD), a result that is likely to heighten strife within the incumbent Union Solidarity and Development Party (USDP), negatively affecting the outlook for political stability in a country that has attracted large amounts of foreign capital since it embarked on the path of “guided democracy” in 2010. The removal of the reform-minded parliamentary speaker (and possible presidential candidate) Shwe Mann as chairman of the USDP marks a setback for pro-democracy forces, and highlights the continued political influence of military leaders seeking to limit both the speed and the extent of democratic reform. The report will focus on what the anticipated election results will mean for the political and economic reform process going forward, and will assess the prospects for resolving armed ethnic conflicts that provide a potential pretext for the military’s direct assertion of political control. The analysis rounds out with an assessment of the economy, infrastructure development ,and business financing, as well as a reminder of what corruption, contractual obligations and the slump in oil prices mean for the nascent hydrocarbons extraction industry.
Our extensive coverage of Western Europe revisits Spain this month, which is now one of the fastest-growing economies in Europe, but still has astonishingly high unemployment (with more than one-fifth of its workforce without a job) and some difficult political challenges to overcome; this in a year in which important regional and national elections are taking place, culminating in the parliamentary decider in December. We look at what the municipal elections in May and the latest opinion polling signify for the prospects of Prime Minister Mariano Rajoy’s Popular Party government. Our report delves into the election campaign to investigate whether the main opposition Socialists or the populist, anti-austerity Podemos can spring a surprise, and what will happen if the PP wins the election, but falls short of winning a majority of seats in Parliament. PRS will also assess the implications of the recent status referendum in Catalonia, particularly with regard to the risk of dangerously tense relations between Barcelona and Madrid.
PRS will also take a look at Denmark, delving into the ramifications of the June general election that saw Lars Lokke Rasmussen return as prime minister, a position he previously held in 2009–2011. Although the orientation of the government has now shifted from center-left to center-right, promising a more business-orientated agenda, Rasmussen is heading a minority government comprised only of his Liberal Party that will depend on outside support of the “blue bloc” parties to pass legislation. Our report analyzes the government’s first budget bill for indications of what investors can expect in the coming years in terms of other policies, especially since the far-right/populist Danish People’s Party will play an influential role owing to its ability to topple Rasmussen’s government by withdrawing its support. The report rounds out with a review of the Danish economy, which is growing, but rather weakly. PRS will assess the prospects for the krone, which remains tied to the euro within ERMII, and discuss the potential for any shift with regard to Denmark’s longstanding EU opt-outs, which periodically come up for review.
Turning to Eastern Europe, PRS will examine political conditions in Czech Republic, where a strange bedfellows coalition headed by the Czech Social Democratic Party (CSSD) has for the most part managed to avoid divisive policy battles, but remains vulnerable to tensions between Prime Minister Bohuslav Sobotka, the leader of the CSSD, and Finance Minister Andrej Babiš, the leader of the euroskeptic ANO, whose competing ambitions represent a threat to the sustainability of their alliance. The report will examine what anticipated production cutbacks and layoffs at scandal-scarred Volkswagen’s Czech facilities imply for an otherwise favorable economic outlook, and will also discuss the ramifications of the European refugee crisis for the unity of Sobotka’s coalition and domestic political stability more generally.