Coming Soon in Our October 2020 Political Risk Reports

PRS’ coverage of the Americas this month includes a fully revised report on El Salvador and an update on Guyana, where a protracted political crisis was finally resolved in early August by a court ruling upholding the validity of an election recount that determined the opposition People’s Progressive Party–Civic (PPP-C) had won a general election held five months earlier. The new government headed by President Irfaan Ali and Prime Minister Mark Phillips takes power at a time when Guyana is poised to enjoy the benefits of a windfall from offshore oil production that came online late last year. Meanwhile, the political partnership of former President David Granger’s People’s National Congress–Reform (PNC–R) and the Alliance for Change (AFC) is showing signs of strain after barely more than two months on the opposition benches, pointing to a possible acrimonious divorce that would greatly facilitate the PPP–C’s ability to govern as it sees fit.

Our report will examine how the PPP–C’s return to power is likely to affect relations between the government and oil investors, focusing particularly on potential changes to the terms of new oil contracts. PRS will discuss the administration’s immediate strategy for dealing with the economic fallout from the COVID-19 pandemic, which has contributed to a steep fall in global demand for oil, resulting in production cutbacks. Looking further down the road, we will also assess the government’s plans for ensuring that Guyana does not fall prey to the “resource curse.”

Our extensive coverage of European countries this month includes a timely status update on the risks to investors in Ireland following the formation of a new coalition government in late June comprising historical arch-rivals Fine Gael and Fianna Fail, plus a reluctant Green Party as their junior partner. Struggling to manage the coronavirus outbreak, and with the economy weakened, our report looks at government stability and policymaking effectiveness over the winter months in the light of the administration’s inauspicious start. This has been marked by several resignations, including two agriculture ministers, infighting among the greens (a faction of which is opposed to propping up the center-right), and reputedly heated arguments between Prime Minister Michael Martin and his predecessor and deputy, Leo Varadkar, who will resume the leadership role again halfway through the five-year term if the government remains intact. Our report looks at how this instability will influence the policymaking agenda, and to what extent the additional financing required to mitigate the healthcare crisis will impact on the debt trajectory, which had been improving. Encouragingly, the economy has not been as badly-affected as predicted due to its structural peculiarities, including the preponderance of many pharmaceutical and technical multinational companies. Our report nevertheless looks at waning prospects for recovery and social stability in the light of rising unemployment, a second wave of C-19, and the possibility of a no-deal Brexit altering trade and diplomatic relations on the island of Ireland, and with the British mainland.

Our additional coverage of euro zone countries this month includes both the Netherlands and Italy as we look at what investors can expect in terms of political and economic risks, including prospects for economic recovery during the winter months. In Italy we assess the recent regional elections and constitutional referendum reducing the size of Parliament and what they both mean for future elections and the stability of the coalition government led by Giuseppe Conte, comprising four separate political parties: the Five Star Movement, Democratic Party, its breakaway group Italia Viva led by former Prime Minister Matteo Renzi and the left wing group Free and Equal. Our report goes on to assess how the pandemic shock that has proved so severe in Italy has influenced the political dynamic, including trust in leadership and Italy’s future in Europe, noting the economic impact bearing down on longer-term banking sector and fiscal sustainability which had been already in some doubt. In this, and other reports this month, we also devote some attention to how the pandemic is affecting the corporate sector, identifying winners and losers that are key to paper asset trends, and how Brexit and the euro-dollar pair will impact on returns.

Coverage of Eastern Europe will include reports on Ukraine and Bulgaria, where Prime Minister Boyko Borissov’s center-right government is on the defensive following weeks of disruptive protests fueled by public disgust over official corruption that has been reinforced by the insecurity generated by a pandemic-driven economic downturn. Borissov has called for the convening of a grand national assembly to overhaul the constitution and has stated that he will resign if the Parliament agrees to proceed with the plan. However, lawmakers are less than thrilled with many of the prime minister’s proposed amendments, which include reducing the number of parliamentary seats by one-half and judicial reforms aimed at increasing the effective of anti-corruption efforts.

The recent upheaval has been accompanied by a steady erosion of popular support for Borissov’s center-right GERB and a surge of interest in There Are Such People, a populist-libertarian party headed by musician Slavi Trifolov that is currently polling third behind GERB and the Socialists. The report will examine the implications of the poll trends for post-election coalition-building and how a potential king-maker role for Trifolov’s party could affect policies related to the climate for investment and trade.

Turning to the Middle East and North Africa, the roster for October includes an update on Israel, where news of recent agreements that lay the ground for improved relations with Arab states has been overshadowed by a resurgence of the COVID-19 pandemic that has forced the government to impose a second national lockdown that will inflict additional heavy damage on an already battered economy.  The atmosphere of crisis will discourage moves by any of the main parties to foment instability, and the steep fall in support for the centrist Blue and White since it teamed up with Prime Minister Benjamin Netanyahu’s conservative Likud in a unity government in late March will provide Benny Gantz with a strong incentive to ensure that he does not give Netanyahu a reason to reconsider his coalition options.

The update will assess what a renewed lockdown means for the economy in the near term, and how the significant negative impact on the fiscal balance could influence policy-making over the next 18–24 months, particularly with regard to taxation and privatization. The analysis will also include a discussion of the practical impact of recent agreements with the UAE and Bahrain, and an analysis of how the normalization of ties with key Arab states will affect the peace process with the Palestinians and broader long-term regional security and stability.

Our coverage of Asia this month includes fully updated reports on Singapore, Myanmar, and South Korea where we assess the political and economic risk climate following the legislative elections in April and the recent leadership contest for the ruling Democratic Party. Our report provides in-depth assessments of major foreign policy issues, including the volatile nature of inter-Korean relations, the country’s relationship with China and the US, and prospects for rapprochement with Japan following the recent change of leadership in Tokyo, all affecting trade and investment. We also analyze how the economic downturn and social restrictions accompanying the Covid-19 pandemic will influence policymaking during the 18 months remaining until the next presidential elections are held and look in detail at how public confidence has been eroded, not only by the pandemic effects, but also the perceived abuses of power by the administration led by President Moon Jae-In. This has seen his, and his party’s approval ratings plummet. It has also concomitantly led to a surge in support for the main opposition People Power Party since it formed from a merger in February of various conservative parties and independents. Our report looks at why Moon’s government is tarnished, what investors can expect, and how this will influence the won and other assets over a 3-6 month time frame.

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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