Coming Soon in Our March 2020 Political Risk Reports

In addition to full reports on Costa Rica, Honduras, and Paraguay, PRS’ coverage of the Americas this month includes fully revised reports on Haiti and Venezuela, where President Nicolás Maduro has managed to retain his grip on power, despite broad international support for the rival administration headed by Juan Guaidó, the leader of the National Assembly.  Guaidó’s failure to galvanize a popular uprising again the authoritarian leftist regime has undermined his credibility, but his re-election as “president” by the legislature earlier this year will ensure that he continues to enjoy the support of the US and other government’s strongly opposed to Maduro’s continued rule.

Our analysis will include an assessment of what the political standoff implies policy-wise as Maduro and Guaidó each strives to bolster his legitimacy at home and abroad.  PRS will also examine the possible alternative outcomes of an end to the impasse, and what risks and opportunities those will present for investors.  The report will also assess the risks associated with political turmoil and the prospects for the repair and recovery of a devastated economy.

Our coverage of Western Europe this month includes an update on France, and fully revised reports on Greece and Germany, where we assess the pressure building within Chancellor Angela Merkel’s Christian Democratic Union (CDU) following the downfall of her protégé, Annegret Kramp-Karrenbauer, whose short-lived tenure as party leader ended amid an internal row over whether to cooperate with far-right political forces.  Our report analyzes the divisions within the CDU as the party struggles with the emergence of the caustically anti-immigrant Alternative for Germany (AfD), which created a political earthquake in Thuringia by teaming up with moderate political forces to help Thomas Kemmerich, a liberal, secure the regional leadership.

The CDU’s waning influence is highlighted by some disappointing state election results, including the latest drubbing in Hamburg, and our report looks at who is likely to take over the party leadership in the summer, how it might affect its position on key issues, and whether this might spark early elections not due until October 2021 at the latest given the fact that the CDU’s junior partner, the Social Democratic Party (SPD), is threatening to bolt the government if Merkel is forced out by the new CDU leader. We also take a look at foreign policy issues including the debate surrounding the Chinese firm Huawei developing digital infrastructure, and the various economic challenges as Germany struggles with global trade frictions, technological issues caused by climate change, and the worldwide spread of the novel coronavirus (COVID-19). We round out the analysis by assessing how long the industrial slump will last for by presenting newly revised forecasts for a range of macro-fiscal indicators pertinent to investor returns.

Coverage of Eastern Europe will include a report on Romania, where a power struggle between President Klaus Iohannis and the parliamentary opposition now led by the center-left PSD is contributing to political paralysis and an erosion of confidence amid pessimism about the prospects for implementing reforms that are crucial to long-term fiscal stability.  With the courts blocking the president’s attempt to allow PNL leader Ludovic Orban to form another minority center-right government following the toppling of his previous administration by confidence vote in early February, it is looking all but certain that parliamentary elections will be held well before the March 2021 deadline, and possibly as early as mid-2020.  Polling suggests that the PNL will coast to victory and add significantly to its seat total, and Orban has already received assurances of support from the liberal reformist USR-PLUS alliance, which should he enough to ensure a majority in the new government.

The analysis examines the priority items on the reform agenda and assesses the prospects for implementing key measures under a center-right government and the most likely alternatives to that regime scenario.  Policy-related forecasts will focus on the outlook for addressing the most significant deterrents to investment, including corruption, doubts about the impartiality of the judicial system, and bureaucratic obstacles faced by foreign companies.  The report will also discuss how the change in government could impact relations with the EU, and how that will affect economic performance over the forecast period.

Turning to the Middle East and North Africa, the roster for March includes new reports on Morocco and Iran, where conservative political forces made big gains at recent parliamentary elections that were held against the backdrop of a rising diplomatic tensions in the Gulf region and  growing domestic discontent over the economic hardships created by the restoration (and subsequent tightening) of US sanctions since May 2018.  The precise numbers will not be known until a second round of voting is concluded in late April, but the first-round results suggest that political hard-liners will control a supermajority in the 290-member Majlis.  Although the conservatives are prone to infighting, they will be able to block reformist initiatives proposed by President Hassan Rouhani and will likely possess the votes required to force his early departure from office if Supreme Leader Ali Khamenei deems that to be in the interests of the Islamic republic.

The report will examine what the resurgence implies for the impetus for market-based reforms and Iran’s relations with its neighbors and the broader international community.  Although Rouhani will still be nominally in control of foreign policy, his room for maneuver will be limited.  PRS will also assess what the increased influence of the conservatives will mean for relations between Tehran and the European powers, which have lobbied hard to convince Iran to abide by the terms of the landmark 2015 nuclear deal, and how that will impact investment- and trade-related risks.  We will also discuss the potential effects of the coronavirus outbreak on internal stability and near-term economic performance.

This month’s coverage of sub-Saharan Africa includes updates on Zambia and South Africa, that latter of which analyzes the prospects for political stability as economic decline, fiscal distress, and high unemployment affecting up to one-third of the population contribute to dismal conditions that hold the potential to trigger an explosion of popular outrage.  We look in particular at how the budget deficit and electricity supply problems at the state provider Eskom will impact on policymaking this year, as the country faces the prospect of another year of austerity and stagnation worsened by the deepening global crisis caused by the spread of the novel coronavirus (COVID-19) and only limited progress easing global protectionism.

Our report analyzes the direction taken by Finance Minister Tito Mboweni to boost economic growth and address a fiscal shortfall that is projected to equal 6.8% of GDP this year, but may be much larger if external or domestic circumstances worsen. A key factor figures to be the outcome of the fight with civil servants that is inevitable as the government moves forward with plans to trim its wage bill.  The report also looks at the central bank’s options, and prospects for a wide range of other important indicators, including the current account deficit, debt accumulation, inflation, and foreign exchange reserves coverage, all affecting sovereign creditworthiness, equity valuations, and volatility of the rand.

Our coverage of Asia includes an update on Vietnam, and a report that analyzes the risks of investing in Japan, where the political temperature is heating up as Prime Minister Shinzo Abe’s poll ratings have slipped, partly due to a bribery scandal involving Liberal Democratic Party (LDP) member Tsukasa Akimoto, and worsened by an economy in recession and a slow response to tackling the spread of the novel coronavirus (COVID-19). Abe’s pursuit of an amendment to provisions of the constitution related to Japan’s right to self-defense is dividing loyalties within the main governing party and could undermine the LDP’s alliance with its junior coalition partner, Komeito, upon which it relies for a two-thirds majority in the lower house. Abe in intent on implementing the reform before he steps down at the end of the current term, but he faces both popular opposition and a lack of necessary support in the Senate. The prime minister is under pressure to focus instead on reviving a very weak economy at the mercy of external forces and roll out of efforts to limit the spread of COVID-19, which if not kept in check might force the cancellation of the Summer Olympics scheduled to be held in Tokyo.  Beyond the potential loss of more than $25 billion already invested in preparations for the Olympic games, the health crisis is already having an adverse impact on tourism and dampening activity in the key retail and manufacturing sectors. Our report looks at whether the government and in particular Abe can survive these blows on top of the damage resulting from a series of graft scandals and an unpopular hike in sales tax last October, as we assess the merits of former Defense Minister Shigeru Ishiba, who is tipped to replace Abe after failing in a previous attempt to claim leadership of the LDP.

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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