This month’s coverage of the Americas features an update on Bolivia, where President Evo Morales has abandoned his pledge to step down at the completion of his current term in January 2020, and is spearheading a campaign by the governing MAS to amend a constitutional provision that prohibits the president from seeking another term. The pro-government legislature has cleared the way to hold a referendum on the issue in 2016, and polling data suggests that the amendment will be approved.
The analysis will focus on the likely effect of Morales’ change of plans on the government’s policy approach during the current term, which will be guided by electoral considerations, rather than securing a legacy. It is a safe bet that Morales will be disinclined to take any steps that might alienate sections of his base of support before the amendment is approved, but the end of the commodities boom that has buoyed the leftist administration for the better part of a decade has highlighted the need to broaden the country’s economic base. Achieving that objective will require steps by the government to create a more inviting climate for foreign investment, and the update will examine what a likely 2019 re-election bid means for progress on that front.
In the Middle East and North Africa, PRS will examine recent developments affecting political risk in Algeria, including the government’s efforts to deal with the fiscal strains arising from a steep decrease in oil income. The recently approved budget for 2016 raises taxes on essential items and cuts overall expenditures by 9% compared to the spending plan for the current year, rather drastic moves that are sure to produce the spread of discontent, and an increased risk of eruptions of domestic unrest that could be exploited by extremist groups such as ISIL, which has established a foothold in neighboring Libya, and more local jihadist groups, such as Al Qaeda in the Islamic Maghreb.
The report will examine the government’s strategy for dealing with the steep drop in revenues and the rapid depletion of foreign reserves, neither of which is likely to be reversed before 2017, and assess the potential for the government’s straitened circumstances to encourage the liberalization of restrictions on investment. President Abdelaziz Bouteflika’s health status, and the possibility of a mid-term change in leadership, will also be addressed as a factor affecting both the level of turmoil risk and the possibility of a shift in policy course.
Turning to Western Europe, PRS takes a look at what is in store for the United Kingdom now that Prime Minister David Cameron’s Conservative Party has a governing majority through to 2020, and has extended its lead over the opposition due to a growing economy and splits within the main opposition Labour Party, now led by Jeremy Corbyn, an “old-school” socialist with pacifist leanings. Our report looks at the government’s main challenges going into 2016, which include allying with France to join the anti-ISIL coalition bombing Syria, dealing with the attendant refugee crisis and mitigating a threatened National Health Service winter crisis, which has escaped the wider public spending cuts.
Other issues include border controls, the UK’s contributions to the EU budget and its clout in Brussels decision-making, all of which will feed into the referendum to decide on British membership of the European Union promised by 2017. In that context, the report will assess the probability of a vote in favor of “Brexit,” and the likely repercussions of the UK’s withdrawal from the European bloc, including the potential for a renewed push for independence in Scotland. The report will also assess Chancellor George Osborne’s recent Autumn Spending review, forming part of the annual budgeting process, which is still projecting a fiscal surplus at the end of this parliament. We also look at more chronic structural weaknesses, as record-low borrowing rates continue to fuel both a rise in housing prices and an increase in consumer debt.
A fully revised report on Portugal will discuss the outcome of the October elections, which produce a hung Parliament and a minority government at a crucial juncture in an ongoing effort to lift the economy out of its debt-induced doldrums. A very short-lived minority government headed by the incumbent Social Democratic Party has been replaced by a minority government headed by the Socialist Party and supported by an unwieldy triumvirate of Communists, Greens, and the Left Bloc, an arrangement that points to fierce policy clashes, as is likely to become apparent almost immediately as the government prepares a budget for 2016.
The report will examine the range of policies available to the government to boost employment growth, and assess the prospects for the easing of austerity to produce the desired result without risking a confidence-busting regression on the path toward fiscal stability. We assess the likelihood that the promises made to President Anibal Cavaco Silva as conditions for forming the government will be kept, and whether the country can meet the obligations enshrined in the EU’s fiscal pact, which will essential to reducing the excessive sovereign debt burden. Ultimately, the report will assess whether Portugal can remain an attractive proposition for investors, or instead is heading for a bout of instability that even fresh elections may not resolve, given the enormity of the challenges ahead.
PRS’ coverage of Eastern Europe includes an update on Kazakhstan, where President Nursultan Nazarbayev earlier this year won an extension of his mandate until April 2020, at which point he will be approaching his 80th birthday. The absence of a clear succession plan has been identified as a key source of longer-term political risk for several years, and the near-term threat of instability has been heightened as a result of a steep fall in global oil prices and the negative economic and diplomatic fallout from Kazakhstan’s close ties with Russia. Nazarbayev’s platform included promises of liberal reform designed to attract higher levels of investment, and the update will focus on an examination of the evidence of progress along that front to date, and an assessment of the prospects for significant liberalization over the medium term.
Over in Asia, we look at developments in Thailand, where the appointed National Reform Council’s rejection of a new draft constitution will delay the holding of elections that had been expected in 2016. The implied extension of effective military rule is a troubling consequence in the light of the junta’s complete intolerance of dissent. The report will examine the role of the military in governance and policy-making and the implications of the generals’ clear intent to ensure some form of ongoing political involvement for the military for the country’s investor reputation, which has benefited from the reduction of political instability over the last 18 months.
An examination of the military-backed government’s program to spark an economic recovery will include an assessment of the impact of proposed substantial infrastructure spending on the fiscal metrics and how China’s transition to a slower growth trajectory and the Trans-Pacific Partnership agreement will affect Thailand’s longer-term economic prospects.