PRL Volume XXXIII, Number 5 May 2011
Economic Reforms Not an Immediate Priority
With the 2012 parliamentary elections approaching, Angola looks set to follow the path of political continuity, with no serious challenge to the ruling MPLA. According to constitutional amendments approved last year, the presidency will be held by the leader of the party claiming the most seats in the legislature, making another term for the current president, Jose Eduardo dos Santos, all but certain.
In power since 1979, dos Santos has consistently refused to indicate a timeline for his retirement or name a successor to the party’s leadership. By not naming a new vice president to replace the ailing incumbent, Fernando da Piedade Dias dos Santos, the president sent a signal to senior party leaders that they need not hurry with plans for his retirement. Nevertheless, it can be safely assumed an internal struggle over succession will intensify in the coming months, posing one of the main sources of potential instability.
Until the issue is resolved one way or the other, it is unlikely that major shifts in policy can be expected. In particular, reforms aimed at diversifying the oil-dependent economy will take a back seat to political matters. High oil prices and continuing foreign investment will be the main drivers of growth, with real GDP averaging 7.5% in 2011. The finance ministry says growth will double in 2012, boosted by revenues from new deep-water fields and exports of liquefied natural gas.
Scandal Creates Opening for the Right
All assumptions regarding the 2012 presidential contest became invalid on May 15, when the world learned that Dominique Strauss-Kahn, the current managing director of the IMF and the front-runner to secure the presidential nomination of the main opposition PS, was in police custody in New York, accused of sexually assaulting a hotel maid. The rapidly emerging consensus is that Strauss-Kahn’s political career is over, regardless of the outcome of the legal proceedings in New York. Assuming that is the case, the PS faces the prospect of a repeat of the run up to the 2007 presidential election, when a vitriolic internal fight to choose a presidential nominee left the party weakened by division.
The removal of Strauss-Kahn from the equation would seem to ensure that Marine Le Pen, the new leader of the far-right FN, will advance to a run-off election, as polling data indicated that Strauss-Kahn was the only prospective candidate capable of defeating the FN leader in the first round. That could benefit the beleaguered President Sarkozy, if he is perceived to be the candidate most capable of preventing a victory by Le Pen in a run-off contest. Similar considerations could contribute to a late surge by an alternate PS candidate.
However, if Le Pen manages to convince the electorate that her party’s anti-immigration and euroskeptic stances are consistent with the interests of France—which, given the potential for a refugee crisis or a worsening debt crisis within the euro zone, cannot be rule out—she could benefit from disgust with the established parties, and win a head-to-head contest.
In short, it is far too early to predict with any confidence who might win the 2012 presidential election. But the fact that Le Pen is currently the most likely candidate to advance to a second round is itself indicative of a worrisome political malaise taking hold among the electorate.
Given the current configuration of the Parliament, it is unlikely that either the PS or the FN will win an outright majority of seats, regardless of the outcome of the presidential contest. As such, there is a fairly high probability that the next president will be forced to govern with a prime minister from a different party, an arrangement that would dim the prospects for significant progress on fiscal consolidation and limit the potential approval of reforms aimed at boosting France’s competitiveness and creating a more inviting climate for foreign investment.
Security Risks Growing
The outlook for this year’s presidential election has been complicated by the possibility that the current first lady, Sandra Torres, could stand as the candidate for the incumbent center-left UNE. Although the constitution bars the family members of a president from standing for the office, Torres has been granted a divorce from President Alvaro Colom, despite more than a dozen legal challenges filed by various political rivals.
For now, the front-runner remains Otto Pérez Molina, a former general and the leader of the right-leaning PP, who will once again campaign on the failure of successive governments to combat crime, an issue that is perennially among the top concerns of voters. All indications are that the problem is going to get worse before it gets better, as the country’s police force is rife with corruption, and is both outmanned and outgunned by the cartels. Consequently, Pérez should have little trouble keeping his pet issue at the center of debate throughout the campaign, which will work in his favor.
It is highly doubtful that any party will win an outright majority of seats, and factional rifts within the major parties will reinforce the diffusion of legislative power among several blocs. Consequently, there is a better than even chance that the next elections will produce another minority government headed by a president who will struggle to forge legislative majorities.
Current restrictions on ownership, local operations, taxation discrimination, repatriation, and labor-related factors are generally in the low to moderate range, but growing security problems and the vulnerability of a minority government to the application of pressure from interest groups opposed to economic liberalization will cloud the prospects for any improvement in the climate for investment throughout the forecast period.
Election Controversy Bodes Ill for Stability
Michel “Sweet Micky” Martelly, a popular singer and a political novice, defeated former First Lady Mirlande Manigat in a presidential run-off election held in March. Although his margin of victory was decisive, turnout was less than 20%, and Martelly is all but certain to encounter governance problems, as he has no experience navigating Haiti’s very difficult political terrain, and will be hard-pressed to forge a majority coalition out of the numerous parties represented in the legislature.
That has significant implications for Haiti’s ability to overcome the devastation caused by the January 2010 earthquake. Although the global community has conveyed its willingness to help, the delivery of the funds will be contingent on the maintenance of stable political conditions and the government’s willingness to pursue a policy program prescribed by the IMF.
It is therefore incumbent upon the next administration to very quickly win the confidence of foreign donors, which will be difficult under any circumstances, but all the more so given that Martelly will take office on May 14 with weak support in the legislature and in a climate of heightened political tensions. In the latter regard, the recent return to Haiti of both former dictator Jean-Claude “Baby Doc” Duvalier and former President Jean-Bertrand Aristide is cause for concern.
Uncertainty May Erode Confidence
The political environment has turned from grey to black for Prime Minister Silvio Berlusconi in the early months of 2011. In January, the Supreme Court overturned a law giving the prime minister immunity from prosecution, and Berlusconi now faces trial on charges related to allegations that he had sex with an underage prostitute, as well as other longstanding corruption charges.
Although Berlusconi has proven exceptionally adept at avoiding prosecution over the years, it seems unlikely that he will survive the latest threat, not least because the steep decline in popular support triggered by the most recent charges reduces the likelihood that his political allies will back legal reforms designed to save his neck.
An early election prompted by Berlusconi’s resignation is expected before the end of the year. Given the state of disarray within the opposition, the result will likely be the formation of another center-right coalition government. The bigger question is whether the new government will be headed by the current finance minister, Giulio Tremonti, who has gained wide respect for (so far) prevented Italy from following Greece, Ireland, and Portugal down the road to financial ruin, Umberto Bossi, whose anti-immigration stance could resonate with voters increasingly concerned that unrest in North Africa will create a refugee crisis, or, by some feat of political gymnastics, Berlusconi himself.
The identity of the next prime minister matters less in terms of the impact on policy, which in the main would continue to be pro-business regardless, than with regard to the internal stability of the coalition, a factor that will be just as essential to easing doubts about Italy’s creditworthiness.
DPJ on the Defensive
Prime Minister Naoto Kan faces a fight for his survival amid growing public criticism over the government’s handling of the natural and nuclear disasters that befell the country in March 2011. The national emergency has quieted opposition calls for an early election, but the LDP will take advantage of opportunities to exploit the crisis for political gain (primarily by criticizing the government’s performance, rather than obstructing the recovery effort), and there is no evidence to suggest that the challenge presented to Kan’s government has done anything to promote a greater sense of unity within the DPJ.
Although a first emergency budget has been approved, more spending packages will be required. These will likely include a mix of tax hikes and additional borrowing in the bond market that will add to a public debt burden that at nearly 200% of GDP is by far the largest among industrialized countries. Kan’s political weakness will become a liability once the immediate trauma of the disaster passes and the LDP enjoys greater freedom to adopt an obstructive posture without leaving itself vulnerable to charges of undermining the national interest. At present, there is a good chance that Kan will be replaced before the end of the year, and that an early election will be called sometime in 2012.
Assuming the government cannot postpone raising the VAT rate to help finance the costs of recovery (which are projected to total more than $400 billion over several years), the DPJ will face an uphill battle winning another term, regardless of when the election is held. At this point, the only thing working in the DPJ’s favor is the size of the gains the LDP would need to make in order to reclaim a majority in the lower house. However, given the enormous challenges confronting Kan and his party, nothing can be ruled out.
Beyond the direct losses in lives and property resulting from the earthquake/tsunami, disruptions in power, water, transport, and supply lines are multiplying the cost of the disaster, which has negatively affected the country’s largest manufacturers. Factory output fell by 15.3% in March, the steepest fall recorded since the government began maintaining records in 1953. Likewise, sales for the big three auto manufacturers were halved in April, the biggest decline in more than 40 years.
Convincing Victory Cause for Optimism
Administrative obstacles forced the postponement of presidential and legislative elections that were to have been held in early April, and under the revised (and staggered) schedule for holding the vote, the presidential contest took place on April 16. The incumbent president, Goodluck Jonathan, who succeeded to the office following the death of President Umar Yar’Adua in May 2010, and stood as the candidate of the governing PDP, won a full term in his own right by a decisive margin.
Jonathan’s bid has been a source of controversy, as he is a southern Christian, and members of The PDP’s predominantly Muslim northern faction had insisted that it was their turn to choose the nominee under a “gentlemen’s agreement” to rotate control of the presidency between the regions. Significant gains for the opposition at parliamentary elections held on April 9 stirred fears that Jonathan might lose, or win by a margin so narrow as to cast doubt on the legitimacy of his mandate, either of which might have triggered a post-election split in the PDP. However, it appears that the PDP will continue to play its crucial role as a unifying force in a country where ethnic, religious, and cultural divisions run deep.
Jonathan will have to accommodate the interests of his disparate allies and bring at least some members of the opposition on board if he is to push key reform proposals through the new, less compliant National Assembly. In that regard, winning approval of the Petroleum Industry Bill and the creation of a sovereign wealth fund will top the agenda. The delay in adopting the new rules for the oil sector has already delayed up to $120 billion of investment in the oil and gas industry.
A New Dynamic
The social and political stability that has been a hallmark of Sultan Qaboos bin Said Al-Said’s long tenure in power has been threatened by the wave of popular unrest sweeping across North Africa and the Middle East. A turning point came in late February, when a protest in the port city of Sohar escalated into rioting and turned deadly when authorities intervened to restore order. Although security forces did not use live ammunition and only one person was killed, the resort to force changed the political dynamic in the country, and protest marches, sit-ins, and strikes have become an almost daily event.
At present, the unrest does not pose any significant threat to the rule of Sultan Qaboos, who has made some concession in response to demands for increased political participation and government accountability, a crackdown on corruption among state officials, and higher wages and jobs for Omani workers. However, protests have spread to Salalah, the capital of the southern province of Dhofar, and while both demonstrators and the security forces have displayed restraint, the possibility of clashes that trigger a generalized eruption of violent unrest cannot be rule out, especially if Qaboos fails to act quickly to deliver on his promises of reform.
In terms of policy, the recent unrest can be expected to solidify the government’s commitment to economic diversification, which will be crucial to creating the jobs required to provide gainful employment for Oman’s large youth population.
Focus on Easing Domestic Tension
The political climate in the kingdom remains broadly stable, but tense, amid spreading unrest in North Africa and the Middle East that has put regimes throughout the region on high alert. The return home of King Abdullah bin Abdul Aziz Al-Saud in late February, following a three-month absence for medical treatment, has significantly restored the confidence in the Saudi regime’s ability to maintain order, and the government has moved to stave off the contagion of rebellion with a three-pronged strategy consisting of massive welfare spending, mobilization of the conservative clergy in defense of the monarchy, and the deployment of the full resources of the security apparatus.
It is difficult to gauge the extent of discontent among the population, but many of the factors that contributed to mass rebellions in Tunisia and Egypt—a large youth population, a high level of Internet penetration, and shortages of housing and jobs—are present in Saudi Arabia. Calls for the fall of the monarchy have so far been very rare, even among those intrepid souls willing to ignore the beefed-up security presence and voice their complaints in public.
However, given Abdullah’s age and failing health, and the question marks surrounding royal succession, the possibility of a power struggle within the royal family that triggers a generalized popular uprising animated by anti-monarchical thinking cannot be ruled out.
Assuming the government’s political strategy succeeds in preventing an outbreak of destabilizing domestic unrest, the economic outlook is fairly bright. Although anxiety over turmoil elsewhere in the Gulf region will discourage private sector spending and investment, reduced oil output will hold global prices remain high, ensuring that the Saudi government has sufficient financial resources at its disposal to prevent a sharp deceleration of economic growth.
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