Coming Soon in Our June 2019 Political Risk Reports

This month’s coverage of the Americas includes updates on Ecuador and Mexico, as well as a fully revised report on Panama, where the center-left PRD will return to power following a decade in opposition after winning the presidential and legislative elections held in May.  Although Laurentino Cortizo won the presidency with just 33% of the vote in a four-way race, he will take office in July with a fairly strong basis for governing, as the PRD and its coalition partner, the center-right Molirena, will control a majority of 38 seats in the 71-member National Assembly.

Corruption and constitutional reform were key issues in the campaign.  The tight presidential race suggests that the public is not particularly confident on the willingness or ability of any political faction to deliver in those areas.  Nevertheless, expectations of the new administration will be high, and the more militant segments of the electorate may be unforgiving if their hopes are disappointed.  Our analysis will focus on Cortizo’s prospects for implementing the various elements of his agenda—among other things, he has pledged to bring greater transparency to the process of awarding state contracts, secure approval of changes to the voting system (e.g., two-round voting for the presidency), increase spending on the training, evaluation, and salaries of teachers, and eliminate inefficiencies and corruption in the health-care system—and what his success or failure will imply for political risk and the climate for investment and trade.

In addition to a fully revised report on the Netherlands, our coverage of Western Europe this month will focus on Belgium, where results of federal and regional elections held concurrently with voting for seats in the European Parliament on May 26 do not bode well for the rapid formation of a majority government.  The polarized political climate contributed to the resurgence of the Flemish nationalist VB in Flanders, where the secessionist N-VA holds sway, and a rise in support for Greens and the far-left in Brussels and Wallonia, at the expense of the traditional parties.  PRS will look into the possibility that the mainstream parties might abandon the traditional “cordon sanitaire” strategy and include the far-right VB in coalition talks.  In view of the prospect of an extensive period of consensus-building to form a new multiparty government, matching previous election outcomes, our report looks into how delays in policy-making will impact on the country’s investor appeal in the light of uncertain economic prospects for the euro zone, sovereign debt financing, and unfinished reforms.

In Eastern Europe, PRS will issue fully revised reports on Bulgaria and Ukraine, in the latter case focusing on the implications of the upset victory of a political novice, Volodymyr Zelensky, in the two-round presidential election held earlier this year.  In his first official act after being sworn in last month, Zelensky dissolved the Parliament, triggering a snap election that will be held in July, four months ahead of schedule.  Recent polls suggest that Zelensky’s party, Servant of the People, could win as much as 40% of the vote, putting it close to achieving an outright majority in the 450-member Supreme Rada.  Servant of the People maintains a generally pro-EU posture, but Zelensky’s populism and his stated position on issues such as the secessionist conflict in the east could be a barrier to forming a stable majority coalition and point to a risk of difficult relations with the IMF, on whose support Ukraine will continue to depend to stave off a debt crisis.

The analysis will include an assessment of the likelihood that Zelensky will be able to count on the reliable backing of a majority of lawmakers in the Supreme Rada, and an examination of the prospects for implementing various items on the new president’s stated agenda.  Key risk factors explored will include the potential for heightened tensions with Russia and the outlook for troubled relations with the IMF.  The report will also provide forecasts of economic performance under the various regime scenarios.

Over in Asia, this month’s analysis includes a post-election update on the Philippines, and an up-to-date snapshot of South Korea that will explore the implications of diplomatic and trade relations in the region, with specific focus on bilateral relationships with Japan on the one hand and North Korea on the other, weighing up the progress, or otherwise, on denuclearization of the Korean peninsula and its impact on asset returns.  Our report also devotes considerable attention to President Moon Jae-in’s attempts to shake up the domestic policy agenda with another Cabinet reshuffle designed to inject fresh vigor into efforts to address an economic malaise caused by global trade risks and household debt growth.  The update will also assess the implications of two recent by-elections that resulted in respective victories for opposition conservative and progressive candidates, and determine what sluggish growth, rising unemployment, and a dip in the popular standing of the president and his DPK could mean for the legislative agenda if the composition of the legislature tilts more toward the opposition after elections scheduled for April 2020.

Turning to the Middle East and North Africa, the spotlight will be on Iraq, where more than a full year on from the 2018 general election, Prime Minister Adel Abdul-Mahdi has yet to complete the process of filling out his Cabinet.  The inability to fill vacancies at Interior, Defense, and Justice reflect the difficulty of achieving agreement among the Shiite, Sunni, and Kurdish partners in the governing coalition on suitable candidates to head the security-related ministries.  At the same time, the two dominant Shiite factions—Moqtada al-Sadr’s Sairoun coalition and Hadi al-Amiri’s Fatah Alliance—are unwilling to surrender the power to decide how and when their armed allies are able to resort to the use of force, a competition heightened by a lack of agreement between the two Shiite blocs on how Iraq should position itself vis-à-vis the growing tensions between the US and Iran.

Abdul-Mahdi has moved aggressively to attract oil-and-gas investment, with some success.  The report will discuss the risks for investors, both old and new, in light of both the persistent political fault lines within Iraq and the increasingly threatening posture of the US and the Gulf powers toward neighboring Iran.  PRS will also assess the prospects for delivering improvements in basic public services and reaching a basis for constructive cooperation between the central government and the autonomous Kurdish administration in Erbil, without which the risk of internal unrest will remain dangerously high.

In sub-Saharan Africa this month, we highlight the contrasting political and economic fortunes of Botswana and Zimbabwe.  Our update on Botswana focuses on the upcoming elections scheduled for October in light of the fractious nature of the governing BDP, and prospective changes in policy-making affecting the diamond-mining industry and other key sectors.  In Zimbabwe, we assess instability risk as the economic crisis continues, and security forces are put on high alert, while dissecting the various policies the ZANU-PF government will embrace as it seeks to maintain order, preserve the badly depleted supply of hard currency, and manage reforms. We look into progress on compensating white farmers, a key pledge from President Emmerson Mnangagwa, along with privatization initiatives, and other efforts to bolster the business environment.  Both updates will as usual also include forecasts for an array of key macro-fiscal variables, including economic growth, inflation, balance of payments, and forex reserves, as well as political risk factors influencing currency movements.

national elections that were finally held in March, after repeated postponements. The victory for Palang Pracharath, a new party formed by allies of the military junta, promises policy continuity. Our report looks into the various political and social implications given other institutional changes endorsed by constitutional referendum limiting democracy and ensuring Burmese-style military influence over the domestic political scene by guaranteeing control over the upper house. Our report looks into who will lead the administration, and who will be other key figures overseeing the various departments. We also look into attempts to quiet opposition voices, including by clipping the wings of the fledgling Future Forward Party, which made a surprisingly strong showing at the March elections, and how this will likely play out over the coming months and years if democracy is routinely stifled. Our report moreover looks into the government’s attempts to attract higher levels of investment, and utilize fiscal stimulus to support an economy struggling as a result of a slump in tourist arrivals and falling exports, notably of automobiles, both of which are linked to slowing growth in China and the adverse impact of the US-China trade war.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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