Note: Today is the first in a series of posts that detail Eurasia Group's Top Risks for 2013.
Since the onset of the financial crisis in 2008, investors and companies have focused mainly on risks in developed world markets. But as conditions in the U.S. and Europe continue to improve in 2013, the most worrisome risks will again come from emerging market countries. These countries are fundamentally less stable than their developed world counterparts, and some of their governments used a period of favorable commodities prices and the benefits from earlier reform to avoid the tough choices needed to reach the next stage of their political and economic development.
Some of these emerging market nations face more difficult challenges than others, and much depends on the degree of political capital each leader will have in order to make unpopular but necessary changes. These countries can be divided into three broad categories according to the complexity and immediacy of the risks they face and the longer-term upside they offer.
The first category includes the best bets:
The second category of emerging market economies are at risk of considerable volatility.
Lastly, there are the underperformers, those countries where risks will overshadow returns.
On Friday, we'll profile Risk #2: China vs Information.
HOANG DINH NAM/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie-presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
Must-Reads1. "South Korea's Presidential Election: A Homecoming"
Banyan Asia blog, The Economist
On Wednesday, Park Geun-hye was named president of South Korea by a small margin, making her the first woman to hold the post in the nation's history. How will her presidency differ from Lee Myung-bak's? What are the implications for North-South relations?2. "The Importance of Shinzo Abe"
Sanjaya Baru, The Hindu
A much more momentous Asian election took place this past weekend, as Shinzo Abe and the LDP returned to power. Many are focusing on the possible conflicts that the election could provoke between China and Japan, but this piece asks: Are Japan and India the "natural partners in Asia?" In light of the conflict over the Senkaku/Diaoyu islands, it seems Japan is pursuing an ABC policy (Anybody But China). Why not India?3. "Pakistan: Mullahs and Militants Keep Polio Alive"
Sami Yousafzai, The Daily Beast
The eradication of polio has been tantalizingly within reach, as its presence has dwindled to just a handful of countries. But wiping the disease out of Pakistan comes with substantial risks. This piece focuses on the dangers to the anti-polio mission in the wake of Bin Laden's death and the role that vaccinations played in gathering intelligence for the operation.4. "Slavery's Global Comeback"
J.J. Gould, The Atlantic
Another atrocity that hasn't disappeared: human trafficking and forced labor. These are new terms for what Gould still dubs 'slavery.' Even by conservative estimates, there are more people enslaved today than at any point in history. This is an epidemic that needs global attention.5. "The Putin Show"
Brian Whitmore, Power Vertical Blog
If there were a foreign-policy edition of People magazine, Putin would fill the pages. Why all the hype for his most recent press conference? Consider analysis of his performance as our guilty pleasure political risk story.
Longer Reads6. "Utopia for Beginners: an amateur linguist loses control of the language he invented"
Joshua Foer, The New Yorker
This piece is not political per se, but the treatment of language as an art -- communicable and easily repurposed the world over -- has global as well as philosophical implications. Foer follows a man who spent 34 years inventing a language designed to more precisely mirror reality. The story of who ended up co-opting it -- for political purposes no less -- makes for a fascinating read.
Today, we turn to risk #6 in our series of posts on Eurasia Group's Top Risks for 2012 and answer the most common questions we've gotten about it.
Here's a summary:
Pakistan: Turmoil and spillover -- Pakistan's economic and security challenges will become more difficult in 2012, driven by weak governance, the spread of extremism, and deteriorating ties with the U.S.. The state will not collapse, but the risk of severe political instability is growing, not just for Pakistan but also the region, as the U.S. withdraws from Afghanistan.
Q- What are the Pakistani government's biggest problems?
A- There is the weak economy, the government's deteriorating finances, a hostile military, judges spoiling for a fight over corruption charges, determined militants who have proven they can strike virtually anywhere inside the country, and worsening ties with a key source of direct and indirect financial aid -- the United States. Flooding last year did considerable damage to exports of rice and cotton, undermining the country's balance of payments position. Higher electricity subsidies and renewed pressure for large financial bailouts for cash-strapped public sector enterprises (especially airlines and railways) will also limit the government's ability to mind the budgetary gap.
The best thing this government has going for it is that neither the opposition nor the military wants responsibility for this mess and aren't ready to try to force the ruling party from power -- at least not yet.
Q- How does the beginning of withdrawal of U.S. troops from Afghanistan feed these problems and what is the risk of spillover?
A- A smaller U.S. footprint in the region will feed financial
insecurity in Pakistan, because Washington will probably reduce development aid
to the country and roll back Coalition Support Funds, a reimbursement program
for Pakistan's counter-terrorism cooperation. Pakistan isn't totally dependent
on U.S. aid, but it does plan on external financing from the U.S. and other
donors when it prepares a domestic budget.
The U.S. drawdown will also add to Pakistani fears that
Washington is passing leadership in Afghanistan to India, allowing Pakistan's
long-time rival to encircle the country. That's not purely paranoia. India's
development and diplomatic presence in Afghanistan is real, and the two
governments signed a strategic partnership agreement
last year. India also wants to build on traditional ties with the country's
Northern Alliance groups, the Taliban's most obvious rival for power. That's
why Pakistan will resist calls from Washington to increase pressure on the
exiled Taliban leadership living within its borders this year, because the Pakistani
military and security services may calculate that the Taliban will again become
their most reliable friend inside Afghanistan.
This dynamic is bad for the entire region, because it undermines progress toward South Asian economic integration at a time when India's fast-growing energy demand, Pakistan's energy crisis, and Afghanistan's obvious development needs are only becoming more urgent. The Afghanistan-Pakistan Transit Trade Agreement, for example, probably won't be extended to include India anytime soon.
Q- Does all of this raise the terrorist threat to India?
A- Whenever the Pakistani government pushes the Pakistani military to attack militants inside the country, those militants have a compelling incentive to try to launch an attack inside India. That's because when India goes on high alert, Pakistan's military will always turn its attention to threats from India's military. Let's be clear: heightened risk does not mean an attack will happen. The success of a particular attack comes down to the capabilities of the attackers, the effectiveness of Indian security officials and police, and some degree of luck. But this is certainly a threat that India will take seriously
Next up, China and its nervous neighbors.
Arif Ali/AFP/Getty Images
By Ian Bremmer and David Gordon
Pakistan is experiencing a near perfect storm of political, economic, and social crises, and the Pakistan People's Party-led government is not equipped to manage the fallout. A full-on military coup like the one that brought Pervez Musharraf to power in 1999 is unlikely in 2011, but the government's ineptitude and a worsening security situation across the country could fuel still more unrest, encouraging the army to play a more direct and active role in the country's politics. President Asif Ali Zardari will fight any bid by the army to remove members of his inner circle from power, and even if the military were to install a technocratic administration, it would struggle to reverse the effects of years of weak governance.
Zardari and Prime Minister Yusuf Raza Gilani face challenges on multiple fronts. Gilani is focused on rebuilding the ruling coalition and fighting a Supreme Court and media set on undermining Zardari and other senior PPP members. This political battle will continue to distract the government from addressing pressing problems, like the need for structural reforms to slow the expansion of a fiscal deficit that leaves the government little room to invest in much-needed development projects. It's hard to get accurate statistics on inflation and unemployment, but both are high enough to arouse widespread public anger. Food prices are a particular source of anxiety. Severe flooding has created emergency conditions. The government will continue to struggle to hold together a fractious parliamentary coalition.
The government has no political control in the unstable Federally Administered Tribal Areas and Khyber Pakhtunkhwa (the new name for the Northwest Frontier Province). Nothing new there, but the bigger worry is that instability is spreading to the heart of the country and the provinces of Punjab and Sindh. Both have been relatively isolated from the turbulence of the tribal areas, but militants have been increasingly encouraged by the Pakistani government's weakness and the success of allies across the border in Afghanistan. The governor of Punjab, Salman Taseer, was assassinated in Islamabad just three weeks ago. Social upheaval is generating a surge in crime (including kidnappings, extortions, and robberies), protests, and other forms of unrest in Pakistan's large cities --especially Karachi. Further social and ethnic turmoil in the heart of the country might push the military to argue that urban unrest and terrorism are undermining national unity -- and that political change has become an urgent necessity.
These risks have clear implications for U.S. troops across the border. Following a sharp spike in the number of U.S. boots on the ground in Afghanistan, U.S. gains, though limited, are real. But they aren't sustainable without a much more stable Pakistan that can limit the militants' room for maneuver. That will require a political sea change in Karachi, and that's not in the cards for 2011.
On Wednesday, we'll examine Top Risk no. 9: Mexico, where the government's battle against drug cartels continues.
Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.
ASIF HASSAN/AFP/Getty Images
By Maria Kuusisto
While Barack Obama's travels are focusing international media attention on India this week, rival Pakistan is on the brink of major political change. Increased violence, this summer's flooding, and the aftermath of the global recession has left most Pakistanis feeling increasingly insecure, and President Asif Ali Zardari's government has done little to ameliorate these anxieties.
Now it seems that just two years after the fall of former president (and general) Pervez Musharraf, the military may once more intervene. Only don't expect a coup like the one that brought Musharraf to power in 1999. Despite a long history of meddling in Pakistan's politics, the army is likely to stay behind the scenes this time and force the government to improve governance or face significant reshuffling.
The evidence pointing to intervention is unusually strong at the moment. Pakistan is beset by problems-political, economic, social, and security-related. Zardari's ruling Pakistan Peoples Party (PPP) is distracted by its battle with a hostile supreme court and largely disinterested in governing. The government has been unwilling and unable to introduce urgently needed financial reforms, which are necessary to bring the country's runaway fiscal deficit under control. Zardari has also failed to increase revenue collection by introducing a value-added tax. Instead, Islamabad has been resorting to a variety of quick-fixes, such as borrowing from the state bank, to finance its growing spending commitments. These moves are undermining the economy, hindering recovery, and fuelling inflation.
Meanwhile, social tensions-always a threat in this fractious, multiethnic country-are running high. People feel abandoned by the government: They're struggling to support themselves economically and afford basic food stables and services. These frustrations are manifesting themselves in protests, violence, crime, and terrorism. The law-and-order situation is particularly volatile in Karachi, the largest city and commercial capital. More than 1,200 people have been killed in the city's recurring waves of politically motivated clashes between rival groups and targeted killings this year. Hence, more and more of the public feels that the PPP's lassitude is leading to anarchy and undermining Pakistan's national interests.
The country's elites are looking for someone -- anyone -- to get them out of their current fix. Neither the PPP nor the opposition Pakistan Muslim League-Nawaz (PML-N) are up to the job of challenging and replacing Zardari. The president is highly skillful in intimidating his enemies and incentivizing his allies within the PPP, making it hard to form a united front inside the party against him. Moreover, the PML-N is more comfortable in being an opposition force and remains reluctant to take over the responsibility of running the country. That leaves the army as the only viable challenger. Pakistan's elites have begun calling on the military to intervene for the sake of national interest, before it's too late.
In the old days, everyone in Pakistan knew what this meant: a coup and a military government. After all, a military government has run Pakistan for more than half of its history. This time, however, Chief of Army Staff Ashfaq Pervez Kayani knows that stepping in directly would damage the military's domestic and international reputation, which he has carefully rebuilt since Musharraf's resignation in 2008, and could trigger a backlash. More importantly, Kayani knows that the military can't afford to jeopardize the aid it gets from Washington -- money (to the tune of $7.5 billion over five years in civilian assistance and $2 billion in military assistance) that the United States has linked to Pakistan's ongoing democratic process. The military's resources are already strained by its counterterrorism operations and flood relief efforts and it desperately needs those dollars from Washington.
Yet Kayani also knows he can't just sit and watch Pakistan's deepening crisis from the sidelines. He's under increasing pressure from others in the military and the country's influential elites -- who comprise his political power base -- to do something. In Pakistan, it is often said, only half-jokingly, that the country doesn't have a military, the military has a country. Now, the army's leadership is becoming worried that it may not have a country for long if it lets the political, economic, and security situation further deteriorate. As a result, expect Kayani to begin putting pressure on the PPP to improve governance, but from behind the scenes. The general, unlike his predecessor, will carefully evaluate the political mood (both domestically and internationally) and follow constitutional processes in challenging the current political set-up.
So change is coming to Pakistan, and the military may soon be sitting in the director's seat. But expect less drama than in its past performances; most of the action will stay behind the scenes for now.Maria Kuusisto is an analyst in Eurasia Group's Asia practice.
Late last week, Ecuadorean President Rafael Correa, having tried to pass a new public servant law that would have significantly cut police wages, found himself roughed up, tear-gassed, and barricaded inside a Quito hospital by rebellious cops for several hours before loyal officers finally shot their way inside and freed him. It was all the result of Correa's attempt to roll back spending in one of South America's most challenged economies, in a context where he has precious few financing options (having defaulted on his country's debt in 2008, Correa's finding it a little hard to get loans these days).
Because Ecuador's military and its top police commanders remained loyal, the coup quickly fizzled and the plotters were soon jailed. Order, for the time being, has been restored. But last week's unpleasantness in the Andes reflects a broader story with potentially more worrisome implications: how the extended economic downturn is dramatically exacerbating popular discontent with regimes where political instability had already been percolating -- and how, in some cases, that discontent can quickly and without warning spiral out of control.
This isn't much of a concern for the world's key emerging markets -- think China, India, Turkey, or Brazil -- since they've all performed well over the past year. Nor is it an issue for most of the underperforming developed states, since even the worst of these laggards have enough built-in social and political stability to weather the slow, painful recovery to come (think Japan). Even Greece, basket case that it is, should be able to soldier on, thanks to all the funding and outside support it has received from Europe and multilateral bodies such as the IMF.
But the dangers are out there. In Latin America, the worst fat tail risks -- that is, countries where serious unrest is still a relatively low probability but would be massively destabilizing if it erupted -- are in Cuba and Venezuela. That's because both countries are in disastrous economic shape, and are going to need to make some serious, painful cuts to stay afloat; yet in both countries, the regimes face major problems with popular legitimacy, which will make these cuts hard to sell to regular folks. Further afield, Ukraine, with its economic woes, deeply divided population, and perpetually dysfunctional political culture, also deserves to be added to the mix. (Indeed, the new president, Viktor Yanukovych, probably knows this, which is why he's recently tacked his foreign policy toward Europe, in order to connect to the broader electorate.) And while the developed states are generally well insulated, it's probably worth keeping half an eye on Spain -- which faces one of Europe's worst economic situations but must contest national and regional elections in the next twelve months. Portugal is also worth watching. This isn't to suggest that Iberia is about to erupt in flames. But if protests do occur and the Spanish and Portuguese take to the streets in real numbers, the narrow political consensus around the belt-tightening necessary to get through the economic crisis could crumble.
As for literal collapse, that's a real risk in a few places. Exhibit one is Pakistan, where this summer's massive floods worsened an already shaky political situation. The one saving grace so far has been that the military has little interest in intervening, since that would force the generals to assuming responsibility for governing the troubled country themselves. That said, don't rule out the chance of some sort of a sudden power transition. And then there's North Korea, which is trying to negotiate a leadership succession (from a coddled dipsomaniac to an overweight, untested 28-year-old, no less under disastrous economic circumstances; never an easy move).
The overall prognosis? Stay tuned. Place brittle regimes under great stress, and the one thing you're almost guaranteed to get is a larger number than usual of "unexpected" regime changes.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations?
PABLO COZZAGLIO/AFP/Getty Images
By Maria Kuusisto
Even before the heavy rain began to fall, Pakistan was suffering through more than its share of political, economic, and security worries. The Pakistan Peoples Party (PPP) government and President Asif Ali Zardari face fast-falling approval ratings, and multiple political and legal challenges that distract them from governing the country more effectively and creating a working, civilian-led counterterrorism strategy to target safe havens that militants have established in tribal areas along the country's border with Afghanistan, particularly in North Waziristan. That has helped the various Taliban and al Qaeda-linked terrorist groups, which now coordinate their work more closely, to launch a bombing campaign in Pakistan's largest cities, killing thousands of Pakistanis in recent years in response to US and Pakistani military strikes.
The political distractions have also made it more difficult for the government to tackle the country's considerable economic troubles, which include the need to stabilize a deepening fiscal crisis, stimulate a stagnant economy, expand the tax base, cut subsidies, and tackle high inflation. The recent flooding, which covers about 20 percent of the country, has made matters much worse.
Over the past three years, Pakistan has experienced a major economic slowdown. Local manufacturers have been hit hard by reduced demand for Pakistani goods in many countries, higher operating costs, and frequent work slowdowns thanks to a worsening electricity shortage and a volatile security situation in many areas. That's an especially large problem, because manufacturing accounts for about 25 percent of Pakistan's GDP, 60 percent of the country's exports, and nearly half of Pakistan's jobs.
The flooding was just the latest bit of extraordinarily bad news. State officials hoped that this year's expected bumper crop for cotton, the country's second biggest crop (after wheat), would stimulate textile production, the largest sub-section of Pakistan's manufacturing sector. The flooding will probably cost Pakistan at least 2 million bales of cotton this year of the 14 million that was expected. Faced with shortages, the textile sector will be forced to pay dearly for imported cotton, which will then make Pakistani textiles more expensive -- and, therefore, less competitive.
These problems risk large-scale layoffs in the textile sector, a development that would deepen the country's economic troubles, further undermining the government's credibility. The inevitable ripple effects through the rest of Pakistan's economy can only make it easier for Taliban and other militant groups to expand their influence in the country's poorest provinces and to recruit in larger numbers.
The Pakistani government is not about to collapse. Though the country's major opposition parties and military will compete with the government to claim credit for aid to flood victims, they would rather let Zardari and his ministers take full blame for the hard times to come than to claim power for themselves. And they certainly have an interest in protecting the country's baseline security and stability.
Yet, the devastating floods ensure that a tough year for a struggling country will become tougher still -- and could fuel a level of unrest not seen since independence.
Maria Kuusisto is an analyst in Eurasia Group's Asia practice.
ADEK BERRY/AFP/Getty Images
By Maria Kuusisto and Seema Desai
Twenty months after the Mumbai terrorist attacks put Indian-Pakistani relations on ice, last week's much-anticipated meeting of the nuclear-armed neighbors' foreign ministers ended without a breakthrough. A contentious press conference held by Pakistani Foreign Minister Shah Mehmood Qureshi and his Indian counterpart S.M. Krishna underlined the reality that it will take more than time to heal the wounds inflicted by the attacks and their aftermath.
But beyond the outcome of any one meeting, there are four main obstacles to a stronger relationship. First, there's the ongoing risk of terrorism. Pakistan's foreign minister does not reflect the militant groups based inside his country that would like to launch more attacks on India. (And when he did speak during the press conference that followed last week's meeting, it was to condemn Indian accusations of Pakistani complicity in the Mumbai attacks.) With another attack in the Indian city of Pune in February, Indian security agencies also say they've foiled several planned strikes on high-profile government and commercial targets in large cities.
The terrorist risk will remain high for the foreseeable future, and another attack linked to Pakistan-based groups would trigger public pressure on India's government to respond with military force-with aerial attacks on suspected terrorist camps and infrastructure inside Pakistan, for example. Aware of the risk that escalation could spiral beyond either side's full control, Delhi would work hard to resist these pressures. But Indian leaders won't take military threats off the table for fear of emboldening militant organizations like Lashkar-e-Taiba, the group that India blames for Mumbai.
There's also a political dimension to the terrorism problem. Under Indian and American pressure, Pakistani security forces briefly detained Lashkar-e-Taiba leader Hafiz Saeed. In June, a Pakistani court released him. Indian officials continue to insist that progress in Indian-Pakistani relations depends on Pakistan's willingness to bring those responsible for Mumbai to justice. Pakistani officials counter that better relations should have no precondition. And since Pakistan's foreign and security policy is managed by the country's military, not its civilian government, there is little that Pakistani negotiators can credibly promise their Indian counterparts on this issue at this time.
Second, there is Kashmir. This perennial flashpoint, which has triggered three wars between India and Pakistan, is off the negotiating table for the moment. Things had been improving in the region. Local elections last year in Indian-controlled Kashmir featured high voter turnout and little sign of violence. But in recent weeks, clashes between security forces and demonstrators have killed 15 civilians in the provincial capital of Srinagar, and Indian officials have placed the blame squarely on Lashkar-e-Taiba. A military confrontation remains unlikely for the moment, but the unrest makes clear that Kashmiri violence is not a thing of the past.
Third, there is Afghanistan. The Obama administration plans to begin a U.S. withdrawal from the country next year, leaving India and Pakistan at cross-purposes as each prepares for a post-American power vacuum. Pakistan wants an allied government in Kabul, and elements of the Pakistani military and security services are pushing for a power-sharing deal between Afghan President Hamid Karzai and Sirajuddin Haqqani, leader of an al Qaeda-linked militant network and Islamabad's traditional regional ally.
Delhi sees this Pakistani maneuvering as a direct threat to Indian national security, since it could allow the Taliban to resume support for terrorism in Kashmir and provide sanctuary for anti-Indian militants. India will look to boost its own influence in Afghanistan through anti-Taliban elements, including the Northern Alliance.
Finally, there is water. India plans to build several hydropower projects on rivers that cross the border to irrigate 80 percent of Pakistan's agricultural land and fuel 50 percent of Pakistan's hydropower capacity. Islamabad worries that India could use hydropower projects to trigger a flood or a drought -- and the economic crisis that either might provoke. This fear reached new heights in August 2008, when India withheld a considerable amount of water from the Chenab River and stored it in a local dam, worsening already serious problems for Pakistan's farming sector. Pakistan claims that India's projects violate a 1960 treaty that governs the use of water resources in the Indus River System. India says they do not.
Given the complexities of their shared history, it's little wonder that Qureshi and Krishna could agree last week on little more than the value of meeting again. That's why, if every journey begins with a single step, Indian and Pakistani diplomats should pack for a long trip.
AAMIR QURESHI/AFP/Getty Images
By Ian Bremmer and David Gordon
Asia is still a morass in 2010, but the U.S. troop surge has given Obama some
will produce bigger and bigger domestic headlines, but not much will actually
change until the United States reaches (or, more likely, is forced to reach) a
decision point. For now, that's 2011 at the earliest.
Having said that, there's a broader South Asia risk developing this year. The decision by Pakistan to go after terrorists domestically provides Islamic extremists with powerful reasons to expand asymmetric attacks on Pakistan's urban centers and to try to reignite Indian-Pakistani conflict. That's easy enough to do. Pakistan's extremist groups have increased in sophistication and consolidated their capacity, both by joining together and by forging closer links to al Qaeda in the region. In Pakistan, a significant proportion of the population continues to believe that terrorist attacks against the population originate in India. Pakistani networks operating in India haven't gotten much attention, however, and represent a weak link on the counterterrorist front.
This means that the likelihood of attacks in India and against Indian targets in the region is increasing, a particular worry given the nature of the potential targets (government facilities and densely populated urban areas). The Indian government is aware of the threat and has sought to improve its counterterrorist response -- including via increased ground-level coordination in Delhi and Mumbai with American and British counterterrorist organizations. But progress has been slow, and India's counterterrorism capacity remains underdeveloped, badly coordinated, and vulnerable.
Meanwhile, any new attacks would put serious pressure on India to take a tougher line on Pakistan. India's Congress Party leadership is loath to escalate military tensions with Pakistan. But following a quieter line after the Mumbai attacks in late 2008, it made strong demands on Pakistan to take decisive steps against extremist networks with ties to India. Successful large-scale attacks would undermine the Congress Party's credibility on the issue, leading the Indian government to take outsized steps in raising the military posture toward Pakistan. That, in turn, means Pakistan shifting its focus away from the tribal areas and, as importantly, changing its strategic view on taking on further operations -- a shift that would sit comfortably with much of Pakistan's senior military command, who still see rising India as Pakistan's main strategic challenge.
Indian-Pakistani relations, which had been quietly improving during the final years of the Musharraf regime, have already deteriorated somewhat under President Asif Ali Zardari, and it will prove harder for both sides to back away from any high-level military alert. Meanwhile, in both Delhi and Islamabad, Obama's pledge during his Afghan speech to begin U.S. troop withdrawals in 2011 is being read as a signal that the United States is minimizing its long-term commitment to the region. This feeds the already powerful views in both capitals that they should plan for continuation of their long-term strategic rivalry. Worst case, should there be a series of terror attacks in India, we could see Indian efforts to secure international sanctions against Pakistan -- and potentially surgical strikes by India against military training camps inside Pakistan. In short, for the first time in nearly a decade, there are serious factors pushing the Indian and Pakistani governments back toward confrontation.
Next stop: Eastern Europe.
Ian Bremmer is president of Eurasia Group, and David Gordon is the firm's head of research.
ASIF HASSAN/AFP/Getty Images
By Maria Kuusisto
On 7 December, the Supreme Court of Pakistan started hearing a case that challenges the legitimacy of the National Reconciliation Ordinance (NRO), granting immunity to President Asif Ali Zardari and thousands of other politicians and bureaucrats against corruption cases dating back to the 1990s. Zardari has little option but to relinquish some of his powers if he wants to survive. While this may buy the president some time, tension is likely to continue, risking a major political shake-up.
The opposition Pakistan Muslim League - Nawaz (PML-N) and the military
desperately want to push President Zardari into a ceremonial role. They see
Zardari as putting Pakistan's national interests (as well as the military's
institutional interests) at risk and are pressing him to give up his powers
under the constitution, thereby empowering Prime Minister Yusuf Raza Gilani.
Zardari's most significant power is his right to sack an elected government and
appoint the military leadership. In return for giving up his key powers, the
PML-N and the military say they will not support efforts to remove Zardari.
If Zardari refuses to give up his key powers, he is likely to face intensified pressure and potential removal. The Supreme Court, led by Chief Justice Iftikhar Muhammad Chaudhry, is likely to strike down the NRO case, using it as an opportunity to settle a long-standing political score with Zardari. This development could lead to the re-opening of corruption and criminal cases against him, some of which are suspected of having some real merit. If he's convicted, the opposition could bring an impeachment motion against him in the national assembly, where Zardari enjoys a narrow, often case-by-case majority.
Until recently, Zardari has refused to see the writing on the wall, thinking that he can manage the political pressures against him through a combination of political and judicial manipulation. However, on Nov. 29, Zardari handed over control of the National Command Authority (NCA), which is the agency in charge of the deployment and development of Pakistan's nuclear weapons, to Gilani. This could signal that Zardari is finally starting to realize he has few options but to give up his key powers. But he needs to act quickly, as the opposition and the military are growing impatient.
Even if Zardari eventually gives up some of his powers, political tension will remain in Pakistan. The president is likely to try to dominate government. While Prime Minister Gilani is trying to take a more independent role, he remains a weak leader. He does not enjoy strong support within the PPP, which sees him as a political nobody and little more than Zardari's hand-picked choice. This makes Gilani highly dependent on Zardari's support. If Gilani refuses to fall in line, Zardari could sack him and replace him with someone else.
For the time being, the PML-N and the military want to work with the PPP government. The PML-N feels that an early fall of the PPP government would only invite the military to re-intervene in politics and undermine its longer-term political aims. Moreover, it feels that it needs more time to prepare the ground for national elections and it does not want to take charge of the government now when the country is facing multiple crises. Meanwhile, the military feels fears that a fall of the PPP government would strengthen PML-N's position.
While both Zardari and the PPP government may survive in the short term, pressure is likely to build up against them. Since the Feb. 2008 national elections, the popularity of Zardari and the PPP has taken a nosedive. They have become involved in a series of political scandals, which have undermined their credibility and distracted them from effective governance. Moreover, they have failed to meet their key pre-election promises of clean governance, pro-democratic reforms, and pro-people policies, and are perceived to be taking dictates from Washington. This weakened popularity is creating differences with the PPP's coalition partners and emboldening the opposition, which could lead to another crisis.
Maria Kuusisto is an analyst at Eurasia Group.
Chris Hondros/Getty Images
By Ian Bremmer
For the first time in several years, shifting security dynamics could push India and Pakistan toward confrontation.
The good news is that Pakistan's military has had success lately with attacks on local militants in the tribal areas along the border with Afghanistan. The bad news is that the militants have demonstrated an ability to retaliate in other parts of the country, most recently with a deadly assault on the heavily fortified army headquarters in Rawalpindi in October. The worst news is that they may try to launch new attacks across the border in India.
Pakistan's militants know they face less pressure whenever Pakistan's military and security forces feel directly threatened by India. Following last fall's Mumbai terror attacks, allegedly planned inside Pakistan, Pakistan's military, fearing an Indian reprisal, went on high alert. The breathing room the extremists won and the support they gained from others with an anti-Indian agenda may well have helped them develop new links with like-minded groups in the region -- possibly even with radicals at the margins of India's own Muslim community.
Since the Mumbai attacks, the Indian government has worked to simplify the processes of intelligence -- sharing among security agencies and police and to increase ground -- level coordination in Delhi and Mumbai with U.S. and British counterterrorist organizations. But it's a work in progress, and India's cities remain vulnerable.
India's Congress Party leadership wants to keep simmering tensions with Pakistan from reaching a boil. But to minimize the damage from opposition charges of weakness following the Mumbai attacks, India's government demanded that Pakistan take decisive action to disrupt cross-border terrorist operations. The Pakistanis have done very little in response. Another major attack would all but force the Indian government to take a much more hostile approach to Pakistan's government, allowing Pakistan's military leadership to set aside attacks on local militants and turn their attention to an enemy they feel less reluctant to antagonize.
Ian Bremmer is president of Eurasia Group.
SAM PANTHAKY/AFP/Getty Images
By Eurasia Group analyst Maria Kuusisto
Pakistan is experiencing multiple crises. First, the political system remains unstable. The civilian government is fragile, and facing a range of internal and external pressures that are undermining its effectiveness. Second, the security situation is deteriorating. The Taliban is expanding its influence in the northwestern tribal belt and carrying out frequent terrorist attacks in the large cities, causing fear among the population. Third, the economic outlook is not showing any signs of improvement. While Pakistan's foreign exchange situation has improved, its GDP growth has declined to 2 percent and the key manufacturing and textile sectors are in recession, leading to increased unemployment and poverty. To make things worse, the country is facing a power supply and demand gap of some 4,000 megawatts, hindering economic activity and spurring popular discontent.
After the 2007 political crisis, a civilian government returned to Pakistan. The country's politics have long been dominated by two main parties: the left-leaning Pakistan People's Party (PPP) led by President Asif Ali Zardari and the conservative Pakistan Muslim League-Nawaz (PML-N) led by former prime minister Nawaz Sharif. These parties have a history of intense, highly personalized political rivalry that dates back to the 1990s. The PPP won a landslide victory in the February 2008 elections, largely because of popular sympathy for the party after popular PPP leader Benazir Bhutto was assassinated in December 2007. This election result paved the way for a PPP-led coalition government, including the PML-N. After a few months of cooperation, however, the PML-N resigned due to differences over democratic reforms.
Since then, the PML-N has become an increasingly powerful opposition force. While the PPP is widely perceived as having failed to address the multiple crises facing the country, the PML-N is seen as being more in touch with people's problems, increasing its popularity. A major turning point was the March pro-democracy campaign sponsored by Sharif, which led to the reinstatement of Chief Justice Iftikhar Muhammad Chaudhry. The PML-N is hoping to carefully manage a transition in civilian politics -- while preventing the military from intervening -- and prepare for early elections. It is taking up highly populist issues, forming alliances, and delivering relatively effective governance in Punjab, where it has a provincial government. Early elections are likely to lead to a PML-N-led coalition government.
Meanwhile, the US is trying to broker a power-sharing deal between the PPP and PML-N. The Obama administration has formed a good working relationship with Zardari and the PPP-led government. It is concerned about the prospect of early elections and related political instability, which risk undermining Pakistan's fight against al Qaeda and the Taliban. Moreover, it is concerned about PML-N's political agenda, which is highly populist, less accommodating toward Washington, and more sympathetic to conservative religious forces. The Obama administration hopes that a power-sharing deal would lead to a national government, including the PML-N, and prolong the life expectancy of the current political set-up.
The United States is unlikely to succeed in its brokering efforts. In 2007, Washington tried, albeit unsuccessfully, to broker a similar power-sharing deal between Bhutto and former president General Pervez Musharraf. In this case, the PML-N has little interest in a power-sharing deal, particularly if Zardari remains the most powerful person in the political arrangement. Such a deal would undermine PML-N's popularity and long-term political prospects. Many Pakistanis would view such a deal as a sell-out for short-term political gain. They would also make PML-N liable for the perceived failing policies of the government. For its part, the PML-N has little trust in PPP's willingness or ability to meet its end of the bargain. That said, the PML-N is likely to continue talks about a potential deal because it needs to accommodate the United States and because it needs more time to prepare the ground for early elections. The likely collapse of talks also will eventually provide the PML-N with a convenient excuse to mobilize opposition against the PPP.
The continuing political tension in Pakistan undermines the government's ability to tackle the country's multiple crises. On the political front, the government needs to implement constitutional reforms to strengthen democracy and civilian institutions. On the security front, it needs to shift from carrying out counterterrorism military operations to delivering better governance (eg, integrating the tribal belt into the political and institutional mainstream). On the economic front, the government needs to improve domestic revenue collection -- instead of relying on international assistance -- and stimulate the economy through well-channeled incentives to key sectors and social protection schemes. If the government fails to tackle these crises, it risks social unrest and the increased influence of conservative political and social forces.
By Eurasia Group analysts Seema Desai and Maria Kuusisto
While no one’s launching a full revival of the India-Pakistan peace process yet, conversations are beginning to take place in the wings. On June 15, Indian Prime Minister Manmohan Singh and Pakistani President Asif Ali Zardari met for the first time since the November 2008 Mumbai terrorist attacks. Largely because of U.S. diplomatic pressure, they agreed to this brief discussion and public appearance on the sidelines of a Shanghai Cooperation Organization (SCO) summit in Russia.
Although the meeting demonstrates that Delhi and Islamabad may be willing to resume some sort of dialogue, both Singh and Zardari remain constrained by the hard-line sentiments of their domestic constituencies. India wants clear signs that Pakistan is cracking down on extremist elements within its borders. Meanwhile, the Pakistani government is under pressure from the military, which remains suspicious of India. And Pakistan's recent release of a prominent militant from house arrest has undermined prospects of cooperation.
From the U.S. perspective, the Obama administration sees easing India-Pakistan tension as an essential part of its regional stabilization strategy. It would enable the Pakistani military to focus on fighting the Taliban along the Afghan border and defuse covert and overt support for the Taliban and other extremists. In early June, the United States launched a diplomatic push, sending U.S. Special Representative Richard Holbrooke and Under-secretary of State William Burns to South Asia; Secretary of State Hilary Clinton will visit India and Pakistan in July.
India and Pakistan are sensitive to U.S. pressure: Islamabad needs U.S. financial assistance, and Delhi is keen to deepen the George W. Bush–era engagement. As a result, Delhi and Islamabad both made positive comments on the peace process around the Holbrooke-Burns visits, but they remain deeply sensitive to domestic forces, which will ultimately prevent deep engagement right now. And neither government wants to be seen as giving in to U.S. pressure, making a return to the results-oriented, pre-Mumbai composite dialogue highly unlikely.
Arif Ali/AFP/Getty Images
By Ian Bremmer
In the Pakistani city of Lahore on Tuesday, a dozen gunmen attacked a bus carrying members of Sri Lanka's cricket team, killing six policemen and a driver and injuring several of the athletes. Press accounts of the assault suggest a level of coordination similar to that used by the Pakistan-based militants who killed 173 people at several sites in Mumbai in September. Across Pakistan, suicide bombers killed two people in 2005, six in 2006, 56 in 2007, and 61 in 2008. Suicide attackers killed more people in Pakistan last year than in either Iraq or Afghanistan.
There are two important reasons why the threat of global terrorism is growing. The first is long-term and structural. The second is more directly tied to the global financial crisis. Both have everything to do with what's happening in Pakistan.
First, a report released in December from the U.S. Commission on the Prevention of Weapons of Mass Destruction, Proliferation, and Terrorism hints at both sets of problems. The report notes an increasing supply of nuclear technology and material around the world and warns that "without greater urgency and decisive action by the world community, it is more likely than not that a weapon of mass destruction will be used in a terrorist attack somewhere in the world by the end of 2013."
Destructive (and potentially destructive) technologies are now more accessible than at any time in history for small groups and even individuals. This will dramatically increase the baseline threat of disruptive violence from non-state actors over time. It's not just biological and nuclear material. GPS tracking devices help pirates operating off Somalia's coast venture further from shore and undertake increasingly ambitious attacks on private and commercial vessels.
Second, it's unlikely that we'll see the "greater urgency and decisive action by the world community" called for in the report. For the moment, political leaders around the world are too busy wrestling with the effects of the global financial crisis on their domestic economies (and their political standing) to coordinate action against such a diffuse threat.
But there's another reason why the financial crisis heightens the risk of global terrorism. Militants thrive in places where no one is fully in charge. The global recession threatens to create more such places.
No matter how cohesive and determined a terrorist organization, it needs a supportive environment in which to flourish. That means a location that provides a steady stream of funds and recruits and the support (or at least acceptance) of the local population. Much of the counter-terrorist success we've seen in Iraq's al Anbar province over the past two years is a direct result of an increased willingness of local Iraqis to help the Iraqi army and US troops oust the militants operating there. In part, that's because the area's tribal leaders have their own incentives (including payment in cash and weaponry) for cooperating with occupation forces. But it's also because foreign militants have alienated the locals.
The security deterioration of the past year in Pakistan and Afghanistan reflects exactly the opposite phenomenon. In the region along both sides of their shared border, local tribal leaders have yet to express much interest in helping Pakistani and NATO soldiers target local or foreign militants. For those with the power to either protect or betray the senior al-Qaeda leaders believed to be hiding in the region, NATO and Pakistani authorities have yet to find either sweet enough carrots or sharp enough sticks to shift allegiances.
The slowdown threatens to slow the progress of a number of developing countries. Most states don't provide ground as fertile for militancy as places like Afghanistan, Somalia, and Yemen. But as more people lose their jobs, their homes, and opportunities for prosperity -- in emerging market countries or even within minority communities inside developed states -- it becomes easier for local militants to find volunteers.
This is why the growing risk of attack from suicide bombers and well-trained gunmen in Pakistan creates risks that extend beyond South Asia. This is a country that is home to lawless regions where local and international militants thrive, nuclear weapons and material, a history of nuclear smuggling, a cash-starved government, and a deteriorating economy. Pakistan is far from the only country in which terrorism threatens to spill across borders. But there's a reason why the security threats flowing back and forth across the Afghan-Pakistani border rank so highly on Eurasia Group's list of top political risks for 2009 -- and why they remain near the top of the Obama administration's security agenda.
The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.