ALGERIA

Military Re-emerges

After easily winning re-election in early 2009, President Abdelaziz Bouteflika seems to be losing some of his grip on power, especially since the re-emergence of military leaders on the public stage has raised concerns that a destabilizing power struggle could be in the offing.

Rising food prices have added to discontent among the broader population, and domestic calm has been disturbed by industrial action from both public- and private-sector workers.

Signs of a looming disruption of political stability became apparent when Mohamed Meziane, chief executive of Sonatrach, which accounts for 98% of the country’s foreign currency earnings, was ordered to court to face allegations of questionable tenders for services and security contracts.

While Bouteflika had pledged to fight corruption, the wholly unexpected targeting of high-profile figures who are well-known to be close political allies of the president has fueled speculation that the legal pressure is, in fact, evidence of an orchestrated campaign to clip Bouteflika’s wings.

ANGOLA

More Power at the Top

Efforts to establish a foundation of democratic credibility have made progress in recent months, although not without controversy during the process of producing a new constitution, which the legislature approved in January but UNITA boycotted the vote.

The president will now appoint members of the Constitutional Court, the Supreme Court, and the Court Audit, but the presidential term will be limited to two terms. However, limits will not take effect until after the next presidential election, allowing José Eduardo dos Santos’ the possibility of staying until 2022.

Dos Santos declared that the next elections will not be held until the end of the current legislative term in 2012, and given the overwhelming political dominance of the ruling MPLA (191 out of 220 seats), the president and his party are unlikely to face a meaningful threat to their hold on power.

BULGARIA

Complicating Debt Reduction

The EC placed Bulgaria under the Excessive Deficit Procedure, requiring the government to take concrete steps to bring the fiscal deficit below the 3% of GDP ceiling under the EU’s Stability and Growth Pact.

If Prime Minister Boyko Borisov’s minority center-right government fails to achieve the target in a timely way, Bulgaria could face fines and other penalties, including restricted loans from the European Investment Bank.

The government’s lack of commitment to fiscal consolidation has done little to boost confidence; a plan to increase the VAT was abandoned in the face of strong opposition from labor unions and business, and Borisov instructs GERB lawmakers to vote against his finance minister’s tax measures.

Nonetheless, the ruling GERB party is all but assured of continuing to head the government over the next five years, although possibly as lead party in a formal center-right coalition or much less likely—and only in the event of an early election—as the holder of an outright parliamentary majority.

INDIA

Hitting a Wall

Prime Minister Manmohan Singh’s UPA-led coalition, although freed from its dependence on the Left Front by the decisive election victory in 2009, has now lost support from two non-UPA allies (BSP and SP), and two UPA parties are having second thoughts about the regime’s proposed reforms.

UPA parties All-India Trinamool Congress and the DMK hold a combined 37 seats in the Lok Sabha, but both are facing weakened support in their respective home bases, West Bengal and Tamil Nadu, as public discontent mounts over government policies in the face of state elections in 2011.

Pieces of legislation that could boost India’s long-term investment prospects are stalled indefinitely, including one bill that would allow foreign universities to operate in India, which could well spur strong enough growth in the education sector to reverse India’s chronic “brain drain.”

The most significant near-term risk to domestic stability arises from the Naxalite (Maoist) insurgency, which affects more than a dozen states, including Andhra Pradesh, Chhattisgarh, Jharkand, and West Bengal.

ISRAEL

Major Step Backward

Although “proximity talks” between Israeli and Palestinian negotiators that began in May breathed life into a long-stalled peace process, the Israeli raid on the international aid flotilla that had threatened to run their blockade of Gaza cannot be interpreted as anything but a big backward step.

Prime Minister Binyamin Netanyahu and his Likud party based their entire political strategy on the notion that the rest of the world (possibly excepting the US) either desires Israel’s destruction or does not care enough to stop it, thereby justifying an uncompromising approach to peace negotiations.

Netanyahu’s government has clearly stated its intent to closely control all movement to and from Palestinian-controlled Gaza and has categorically rejected calls for an international investigation into the raid.

The odds that the current, awkward center-right coalition regime will last for 18 months—let alone for a full four-year term—are less than even, and based on the current configuration of the Knesset, the only alternative that could produce a majority would be a pairing of Kadima and Likud.

ITALY

Testing Unity

Although the ruling center-right coalition performed well in recent local elections, the LN had a surprisingly strong performance, giving its leader, Umberto Bossi, a basis to win concessions from the coalition leader, Prime Minister Silvio Berlusconi.

Although the LN is the main coalition partner with Berlusconi’s PdL, their relationship has long been tumultuous (since the days of Forza Italia), as frustration over Berlusconi’s failure to plan for regional devolution has twice resulted in the LN’s defection and the fall of a Berlusconi regime.

Despite such pressures on internal cohesiveness, the ruling bloc is unlikely to call a snap election, especially since the growing concerns about the sustainability of Italy’s debt burden make it incumbent upon the regime to take decisive action and avoid sending the wrong signals to investors.

SOUTH KOREA

Political Quandary

The sinking of the Cheonan by a torpedo with North Korean “fingerprints,” apparently in retaliation for a 2009 naval clash, has left South Korea with limited options, triggering a catastrophic war or trying to secure UN support for sanctions with little hope of needed support from China.

However, the future of relations on the peninsula may depend largely on an unfolding leadership transition in the North.

The attack on the Cheonan created a political problem for Lee Myung-bak, who won the South Korean presidency in part on a promise to adopt a harder line in relations with Pyongyang to persuade North Korea to commit to nuclear disarmament.

Since then various issues, not just Cheonan, led to a poor showing for Lee’s GNP at recent by-elections, and while posing no immediate threat to Lee’s position, the results will heighten existing party tensions, thereby increasing the likelihood of delays in implementing the government’s agenda.