With a surprising and inconclusive election result and no clear route to a government almost two weeks later, Italian politics appear to have returned to what passes for normalcy there. Despite the near-term uncertainty, three things do seem clear. First, new elections are likely to take place between six months and a year from now. Second, voters are fed up with tax-heavy fiscal consolidation and structural reforms. Third, Italians have had their fill of a corrupt and gerontocratic political class, as demonstrated by the success of comedian Beppe Grillo's anti-party, anti-corruption Five Star Movement (M5S).
Despite the movement's negative portrayal in the media, Grillo's M5S could be the breath of fresh air that Italian politics badly needs if -- and it's a big if -- it can make a constructive contribution to dialog in the parliament. It is true that M5S's feud with the domestic media, crude skewering of established politicians, and potentially disastrous economic views have raised concerns from foreign policymakers and market participants. For example, Grillo personally supports a referendum on euro membership and has discussed restructuring the public debt or delaying interest payments. Officially, the Five Star Movement also hopes to roll-back the Biagi law, a liberalizing labor market reform, and renationalize the telephone network, among other economically questionable proposals.
But the movement has also been treated unfairly by international commentators. Comparisons to populist, far-right groups are just wrong. The M5S is not racist, violent, nationalist, or anti-democratic. Moreover, some of its economic proposals, especially where competition policy and reducing the state bureaucracy are concerned, are sensible. And while M5S's newly-elected parliamentarians may be inexperienced, they are also younger, more educated, and include more women than most other parties. These qualities make the movement more representative of modern Italy than many of their opponents.
But in the near-term, Italian politics will be dominated by efforts to form a government. Pier Luigi Bersani, the leader of the "Italy Common Good" coalition, gets the first crack at forming a cabinet thanks to his coalition's majority in the lower house (it failed to secure a senate majority, though). Bersani hopes to persuade the "Grillini" to support an eight point legislative plan, though Grillo has only agreed to evaluate each bill independently. The markets and the Italian public seem to understand that economic reforms are on hold for now, but both are hoping for political reforms.
Should Grillo allow political reform to move forward -- especially to the flawed electoral system -- the public will likely reward the Five Star Movement when Italy returns to the polls. (A new president must first be chosen, while electoral reform and cutting the number of parliamentarians and their salaries, as Bersani has proposed, would take several months.) A more cynical electoral strategy would be to hamstring any attempt at change, perhaps forcing Bersani to turn to Berlusconi and the center-right for a grand coalition. That strategy may allow the Grillini to capitalize on public disgust when new elections are called, but it is unclear how voters will respond if M5S adopts such an intransigent approach.
Whatever M5S does, even greater uncertainty will probably surround the next elections. Inaccurate polling, and perhaps a new voting system, will again make seat counts difficult to predict. And because markets will demand more than just political housekeeping, the stakes are almost certain to be higher. But the election could also provide an opportunity to finally move on from the dysfunctional, bipolar politics of the Second Republic, and that would be no small achievement.
Peter Ceretti is a researcher with Eurasia Group's Europe practice
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The future of Myanmar's National League for Democracy (NLD) seemed preordained when the trammels of political repression were removed in 2012. The party would parlay the popularity of its leader Aung San Suu Kyi and coast to victory in the 2015 elections over a ruling party led by widely despised former generals. But democracy is messy, and even its most fervent adherents can slip once the real challenges of governance and politics surface.
The NLD has stumbled in the past few months and its trajectory is now less certain. The party faces a growing list of constituent demands and the ruling Union and Solidarity Development Party (USDP) has demonstrated a talent for political maneuvering that is improving its outlook.
The NLD's internal disorder is in part a natural consequence of having to shift its focus from opposing a hated military government to winning an election in a diverse country. Burma has 135 recognized ethnic groups, many of which live along the eastern, western, and northern borders. Some of them have never yielded to rule by an outside force, making the majority-ethnic Burman NLD's task of building an effective national party more difficult. But the party has also been accused of mishandling internal party elections, delaying the first party congress until the second week of March. Several hundred disgruntled members defected from the party in Pathein several months ago, and recently party members gathered in Mandalay to protest party election fraud. The aging party leaders are also rumored to be excluding party youth from the policymaking process, which could result in more defections that could bolster the NLD's competitors or provide the core of new parties ahead of the 2015 national elections.
Aung San Suu Kyi's new role has also forced her to make compromises that have alienated some would-be NLD supporters. She has exhibited greater pragmatism and less ideological conviction in her role as member of parliament than she did as an activist. Though her silence on the Rohingya humanitarian crisis is less problematic in Myanmar than it is among international donors, Aung San Suu Kyi has not won allies through her silence on the conflict in Kachin State. Her silence may cost the NLD dearly if it finds that it must rely on ethnic parties to form a ruling coalition after the 2015 elections, much as the NLD did in 1990 when it formed an alliance with ethnic coalition the United Nationalities League for Democracy.
Meanwhile, the USDP has improved its ability to govern, thanks in part to personnel changes that have promoted technocrats and its experience with the exercise of power. The USDP has been increasingly vocal about taking credit for the recent political liberalization, and as economic liberalization begins to improve the standard of living, the party's leaders will no doubt seek to burnish the USDP's reputation. From a policy perspective, this means that development will likely be steered toward areas that return the biggest, quickest, and most obvious improvements in living standards, which includes areas such as electrification, telecoms, and agriculture.
Finally, the USDP will use the familiar divide-and-rule tactic of the past, working to undermine their opponents by fostering personality-based rivalries and distrust across ethnic lines. The USDP and military have pursued an aggressive effort to broker ceasefire deals with 11 groups since November 2011, whom they will then encourage to register as political parties. If successful, this tactic will force the implicit acceptance of the 2008 Constitution by Myanmar's ethnic groups and will also present the NLD with new challenges in minority ethnic electoral districts. And if the NLD cannot improve its relationship with ethnically based parties -- either because of concerns about the selection of local party officials or because of its silence on the Kachin -- then it may find itself competing with them instead of building a coalition. That outcome would divide the opposition vote and cede the advantage to the USDP.
Similarly, in an effort to raise the stock of the breakaway NLD competitor, the National Democratic Force, President Thein Sein on Feb. 6 appointed one of its members of parliament as the first non-USDP cabinet minister. And if Thein Sein feels he can succeed, he may also encourage the pro-democracy group, 88 Generation Students (88 GS), to form a party. The organization's moral authority in Myanmar approaches that of Aung San Suu Kyi, and an 88 GS party would challenge NLD's pro-democracy bona fides.
The result is that the NLD is too weak to shape the reform agenda for the next three years, and perhaps longer. Aung San Suu Kyi is probably aware of this and as a result will be careful not to overreach and risk alienating international stakeholders. For the USDP's part, Thein Sein and his cabinet will continue with reforms that are intended in part to gradually legitimize both the military and the USDP while entrenching their privileged economic and political positions.
Christian Lewis is a researcher in Eurasia Group's Asia practice.
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Note: Today is the tenth in a series of posts that detail Eurasia Group's Top Risks for 2013.
Jacob Zuma's reelection as ANC president will hasten the decline of South Africa's dominant political party and increase social pressures on the continent's most advanced economy. As elections loom in 2014, critical reforms will fall victim to more populist policies.
On the surface, the ANC's December 2012 national conference at Mangaung struck a surprisingly market-friendly tone: Zuma and his allies defeated his most populist challengers, elected labor-leader-turned-tycoon Cyril Ramaphosa as deputy president, dropped any mention of nationalization from the party's platform, and rammed through an endorsement of the pragmatic National Development Plan (NDP). But beneath the surface, worrying trends have become apparent.
The ruling party's policy of strategic state ownership introduced further policy uncertainty to the mining sector (especially on taxes) and paved the way for a heavier state presence in industries like energy and steel. The government is now more likely to use the threat of new taxes to try to secure cheaper inputs for state-run energy and infrastructure projects.
The NDP will probably provide too little, too late. The plan's most critical reforms -- more flexible labor laws, education reform, and rationalizing local government -- will probably be scuttled by vested interests and weak governance, and its 20-year plan for expanding employment and reducing inequality is too broad and too long term to offer much-needed near-term help. As a result, the plan's more populist elements -- including boosting public-sector employment and social spending -- will be implemented first, further limiting government's ability to find longer-term, structural fixes. Ramaphosa's business experience and negotiating skills will help the NDP's cause. But the plan lost its primary champion when former finance minister Trevor Manuel resigned from the ANC's National Executive Committee.
Zuma's demonstrated ability to survive internal challenges will relieve some of the factional pressures within the ANC leadership: All top six party executives are now Zuma allies, and the president's most vocal challengers were uniformly eliminated from the 80-member NEC. Yet this winner-take-all outcome will also reduce the ANC's so-called broad church of leaders and supporters, further undermining the party's monopoly on political legitimacy among black South Africans and increasing the risk of social unrest.
Despite its electoral dominance -- the ANC won 65.9 percent of ballots cast in 2009 -- growing voter apathy and discontent with the pace of economic change has substantially reduced turnout, meaning the ANC now has the support of just 50 percent of registered voters. Anger over inequality has also driven a rise in violent protests, including frequent demonstrations against poor service delivery and last year's wildcat strikes in mining and farm communities. In general, these actions have been instigated by disgruntled or former ANC-affiliated leaders trying to exert influence from the outside.
These trends will continue in 2013. The new ANC leadership will alienate leaders and constituencies from the same areas where protests and strikes are most common, and government efforts to exert tighter control over provincial resources will exacerbate local tensions. Cutbacks and shutdowns by gold and platinum miners in the first half of 2013 -- as well as the June expiration of wage agreements in the gold and coal sectors -- will almost certainly spark another bout of labor unrest in the mining sector, especially given the weakened position of the government-aligned National Union of Mineworkers and the rise of more militant bodies such as the Association of Mineworkers and Construction Union. Combative stances are also likely from the Congress of South African Trade Unions.
The bottom up pressures will weigh on the ANC in advance of the 2014 elections, as will the scandal-plagued leadership of Zuma himself. Though Ramaphosa's respectability provides the party with badly needed cover, the ANC government will still have to focus on short-term spending and patronage to shore up support. Looser monetary policy is also a real possibility, as is a more aggressive (though still tempered) approach to land reform. Without these steps, continued bouts of social unrest may well shake investor confidence more than unwelcome policies.
Bottom line: Zuma is not Nelson Mandela, and the ANC no longer has enough credibility with poor South Africans to (once again) ask for patience in achieving a better life.
Next, we'll profile our "red herring" risks for 2013.
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Note: Today is the ninth in a series of posts that detail Eurasia Group's Top Risks for 2013
With slow growth, persistent inflation, and large fiscal and current account deficits, India desperately needs to implement a range of economic reforms. But due to its own shortcomings and a constraining political environment, the ability of the Congress party-led United Progressive Alliance to tackle structural problems is limited -- and will wane further in the run-up to national elections.
Elections are due by May 2014, and the Congress party is scrambling to shore up its popularity in the wake of high-profile corruption scandals. Other coalition members and issue-based supporters, sensing weakness, will try their hardest to extract political concessions from the Congress while the opposition Bharatiya Janata Party (BJP) will likely remain relentlessly obstructionist in its quest to regain power.
Consequently, parliamentary gridlock will persist, with only minor administrative reforms politically feasible in 2013. P. Chimdambaram's return as finance minister in July 2012 has buoyed foreign investor confidence and market sentiment, but he needs to make deep, politically difficult spending cuts to improve India's chance of averting a sovereign credit downgrade to junk status.
And parliamentary elections are not likely to lead to an improved policymaking environment. Like the Congress party, the BJP is in the throes of a prolonged leadership transition and has been largely unable to capitalize on the decline in public support for Congress. This leadership vacuum has enhanced the influence of swing regional and state parties. Elections will likely result in a hung parliament and an even more unstable coalition that will be capable of approving only lowest-common-denominator policies.
Growth will improve in 2013 but India will likely miss its fiscal deficit targets of 5.3 percent of GDP for fiscal year 2012-2013, and 4.8 percent for fiscal year 2013-2014, without substantial subsidy cuts unprecedented in an election year budget.
Expectations for India's performance in 2013 are limited. While it can hope to accomplish just enough on fiscal policy and economic reforms to avoid a sovereign downgrade, India will make negligible progress on structural problems that have long vexed its economy.
On Wednesday, we'll profile Risk #10: South Africa.
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Note: Today is the sixth in a series of posts that detail Eurasia Group's Top Risks for 2013
While the immediate crisis has subsided, risk still emanates from Europe in 2013. First, the process of institution-building to address the flaws of the eurozone structure will continue to be halting, especially in light of major elections in Italy and Germany. And second, many eurozone countries face recession or stagnation, which could test the eurozone structure in new ways.
To be clear, as in 2012, the risk of a eurozone break up is minimal, primarily because the European Central Bank has made clear it will do whatever it takes to preserve the euro. But the muddle-through approach presents risks in 2013, just as it did in 2012.
Germany heads to the polls in September. While Chancellor Angela Merkel has gained the strong backing of the German public for her handling of the eurozone crisis, the current government will be loath to contemplate any major new institutional or funding moves that might upset the careful balance she has struck. The most pressing concerns are policies allowing the direct recapitalization of eurozone banks and the building of an ambitious fiscal and banking union.
Italy holds elections on February 24-25 in which anti-austerity and populist parties could win more seats. Such a government would likely struggle to provide political stability, the reform drive could suffer, and financing costs could again rise.
Beyond the political calendar, a number of factors could test the temporary eurozone equilibrium. If France fails to hit budget deficit targets, President Francois Hollande's government will probably have to enact additional spending cuts and some tax hikes. Spanish Prime Minister Mariano Rajoy is unlikely to ask for financial assistance from the eurozone's new permanent bailout fund absent market pressure. But should that pressure arise, Spain would ostensibly have to agree to reform commitments stipulated by the ECB's agreement to purchase the country's bonds in the secondary market. Those commitments are likely to be met with resistance in hard-hit Spain, putting the ECB in a quandary: If Spain refuses to meet the conditions, does the ECB loosen its requirements, potentially encouraging moral hazard in other member states, or does it insist on reforms and potentially withhold assistance that could cause a new conflagration in the eurozone?
Later this week, we'll profile Risk #7: East Asian geopolitics.
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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.
By Hani Sabra and John Watling
Egypt's first round of the referendum on the new constitution delivered a blow to the Muslim Brotherhood and boosted the hopes of the non-Islamist opposition. The draft constitution received a strong yes vote with 56 percent support, but it fell far short of the two-thirds majority that the Brotherhood had likely calculated would be the minimum vote it would win. In addition, voter turnout was low at just 31 percent and Cairenes reportedly rejected the draft 58 percent to 42 percent. The most significant point of comparison is the result of the March 2011 vote that set in motion efforts to draft the new constitution. The Brotherhood and other Islamist groups also backed that poll and it was approved by a massive 77 percent of voters while turnout was also stronger at 41 percent.
The implications for the upcoming parliamentary elections are potentially dramatic, with the non-Islamist opposition emboldened, united for the moment, and possibly on track to win a significant proportion of the seats, though it will still probably fall short of a majority. Egypt's electorate is fluid and a plurality of Egyptians are probably unaffiliated. The non-Islamists probably have a core support of around 20 percent, while the Muslim Brotherhood's core support is probably at around 25 percent. The Muslim Brotherhood also retains its robust electoral machine, and likely support from Salafists, who have their own parties but generally support Brotherhood initiatives. However, the Brotherhood's peripheral support among the remaining plurality of the population -- the unaffiliated voters -- appears to have taken a hit and is waning.
The results are likely to push the Brotherhood to take a less conciliatory approach to governing in the short term, as it scrambles to maintain its advantage. Despite rhetoric about so-called talks, Brotherhood leaders, such as Supreme Guide Mohamed Badie, are becoming increasingly nervous about opposition challenges, and do not want to appear as though they are negotiating from a position of weakness with groups they believed were irrelevant. In addition, as protest activity against the Muslim Brotherhood has increased, the movement has looked inward rather than reaching out to the broader Egyptian society.
The referendum results will fuel the tensions between the Brotherhood and the non-Islamist opposition. The confrontation, played out through protests, strikes, and clashes between opposition supporters and police, will make governing even more difficult. This will be compounded by the ongoing battle between the bureaucracy and the presidency.
Hani Sabra is an analyst with Eurasia Group’s Middle East practice. John Watling is a senior editor with Eurasia Group.
GIANLUIGI GUERCIA/AFP/Getty Images
By Daniel Kerner and Risa Grais-Targow
The Bolivarian revolution in Venezuela is rapidly approaching its biggest test yet: The defiant Hugo Chavez, the man who has personified Venezuelan politics for 14 years, has publicly admitted that his days as president may be numbered. His movement has a slight edge in elections that are likely to be called within months, but much will depend on the president's ability to transfer his personal appeal to his chosen successor.
Throughout multiple treatments for what appears to be cancer, Chavez had refused to publicly acknowledge that he may be too weak to lead his country. But on December 8 he announced that he would need a fourth round of surgery in Cuba, and named Vice President Nicolas Maduro as his successor, setting in motion plans for a potentially rapid transition.
According to the Venezuelan constitution, new elections must be held within 30 days should the president be forced to step aside before inauguration day (January 10) or during his first four years in office. Maduro would likely face Miranda Governor Henrique Capriles Radonski, whom Chavez defeated by about 10 percentage points in the October 7 presidential election.
Anointing a successor is a clear admission by Chavez that he is unlikely to complete his six-year term, making an election inevitable. There are three main reasons the government will likely call for a vote as soon as possible.
The future of Chavismo depends on Chavez's ability to transform a movement that is largely based on a cult of personality to one that can survive without him in perpetuity. Chavez remains popular, despite the fact that a majority of the public thinks poorly of the government's ability to solve problems. Chavez therefore needs to aggressively make the case to the Venezuelan people that Maduro has the talent and vision to carry on the revolution. Chavez's ability to campaign for Maduro is uncertain, but it will only lessen with time.
Second, foreign exchange dynamics are untenable for much longer. The country has an unorthodox three-tiered exchange system, with two different official rates for businesses and individuals needing dollars, as well as a parallel (illegal) rate. Black-market rates indicate that the bolivar should be much weaker than it is in the official windows, and dollars are becoming increasingly scarce.
The government would likely prefer to hold fresh elections before a devaluation, which would propel already-high inflation and be politically costly for Maduro's candidacy. In the meantime, the government can rely on domestic and foreign debt issuance to meet fiscal and foreign exchange needs to buttress the political environment in Maduro's favor.
Finally, Chavismo wants to capitalize on an opposition that remains weak and divided following Capriles Radonski's defeat, by forcing it to compete before an official candidate selection process can take place. Capriles Radonski faces a gubernatorial election on 16 December, which he is likely to win. But if he does not, the opposition will have to scramble to coalesce around a new candidate in a short amount of time.
That said, the opposition is likely to take advantage of its best chance to win since Chavez came to power by uniting around a single candidate. It is far from certain that Chavez will be successful in transferring his personal appeal to Maduro, but Chavismo retains a slight edge in the coming election.
Regardless of who wins, Venezuela faces a very challenging 2013. Maduro would be forced to make difficult economic adjustments and manage divisions within Chavismo. An opposition president would have to make the same adjustments before setting out on a reform course, but would face even more obstruction from Chavismo stakeholders across the state apparatus.
Daniel Kerner is an analyst in Eurasia Group's Latin America practice. Risa Grais-Targow is an associate in the firm's Latin America practice.
By Shaun Levine
Joko Widodo's win in the September 21 Jakarta mayoral election was a momentous step forward for the forces of reform in Indonesia's increasingly stagnant political scene. The luster will soon wear off, however, unless Widodo can translate his victory into fixing the mess he has inherited: failing infrastructure, immovable traffic, water supply issues, and a rebellious regional government, just to name a few. If his time as mayor of the small town of Solo is any indication, Widodo may be up to the challenge. Widodo improved Solo's transportation networks and governance, and reduced the level of corruption endemic in Indonesian politics. However, in order to effect change in the big city of Jakarta, where he is now a de-facto national leader, Widodo will need to roll up the sleeves of his signature checkered shirts.
Widodo's victory could be an important turning point for Indonesia. The early head-first rush into democracy and reformism in 1998 has given way to the patronage politics so common during the days of Suharto. Bureaucratic reforms, the fight against corruption, and attempts to improve governance have largely come to a standstill -- which largely benefits the remnants of Suharto's New Order regime that cling to power and look set to compete with one another in the 2014 presidential election. President Susilo Bambang Yudhoyono's ten-year mandate is coming to an end, with the early promise of reform having been snuffed out by reactionary forces. Even with the backing of more than 60 percent of voters, change and reform have not been easy for Indonesia's first directly elected president.
Going forward, Indonesian voters will have to choose between elevating new reformers such as Widodo, who himself may become a presidential candidate in 2014, and the crop of leaders from the New Order who see 2014 as a must-win election; most may be too old to compete in 2019.
For these leaders, Widodo's win -- which appeared unlikely at the start of the campaign in the early summer -- should be seen as a wakeup call. The proven tactic of pandering to voters, and in some cases buying their votes, may not be the panacea it was in the past. Neither will efforts to translate a growing sense of confidence in Indonesia's future, based on its international standing and strong economic growth, into economic nationalism. Voters are well aware that the reform movement has largely stalled, and that current leaders want to chip away at democracy so that regional governors like Widodo are appointed and not elected.
But the real impetus is on Widodo and his like-minded counterparts, who have overcome the hurdle of reaching office but will now face the bureaucratic challenges, and temptations, of the reformers that came before them. Promises made on the campaign trail mean nothing when gridlock and animosity seek to undermine reform; compromise is a hallmark of democracy, but not when it benefits the few to the disadvantage of the many.
Against all odds, Widodo was able to show that honesty and a proven track record of reform could overcome overwhelming challenges in campaign financing and political party support. The win also demonstrates that Indonesian politics, which is mired in patronage and money, doesn't have to remain so. This is a democracy that will have its fits and starts, but will more than likely rise up to become a leader in the global community commensurate with its population and wealth.
The presidential election in 2014 is likely to be the last for the Suharto-era leaders, many of whom have witnessed Widodo's victory with envy and some of whom have even benefited from supporting his campaign. The chances of a dark-horse candidate such as Widodo winning in 2014 are still slim. But voters' choice in the Jakarta mayoral election has moved Indonesia a step closer to realizing its much-heralded democratic and economic potential.
Shaun Levine is an analyst in Eurasia Group's Asia practice.
By Famke Krumbmüller
The results of the closely watched Dutch elections are broadly positive, signaling a shift toward centrist policies, and making it unlikely that the new government will throw up roadblocks to management of the ongoing eurozone crisis. Pre-vote concerns that a government led by the Socialist Party (SP) could have weakened the Netherlands' support of the conservative northern camp led by Germany are now moot.
The People's Party for Freedom and Democracy (VVD -- also known as the liberals) secured a strong plurality in the lower house with 41 seats, up 10 from the previous parliament and the largest number of seats the party has ever controlled. The Labor party (PVDA) took second place with 39 seats (up nine). The Socialists (SP) remained steady at 15 seats, but most other parties saw their seat tallies decline sharply. The far right Party for Freedom (PVV) headed by the flamboyant Geert Wilder lost nine seats, down to 15, the centrist Christian Democratic Appeal (CDA) lost eight seats for a total of 13, and the Green Left took three seats (down seven). The centrist Democrats 66 (D66) boosted their total by two, taking 12 seats in the new parliament.
The results likely make formation of a new government easier than had been anticipated. The expectation prior to the vote had been that one of the three major parties (VVD, SP, or the PVDA) would negotiate support from centrist parties to stitch together a working majority. Mark Rutte's VVD is likely to again form the basis of a coalition, but it will have to work with the PVDA in order to govern. But the VVD may add one or two other smaller parties in an effort to make legislative approval in the senate easier. A VVD-PVDA coalition would control 80 of 150 seats in the lower house, but only 30 of 75 seats in the senate. The CDA and D66 are the probable candidates, with the CDA somewhat more likely given that its 11 upper house seats would secure a comfortable majority in the senate. But the CDA's reduced vote tally has eroded its negotiating leverage and one option is that a VVD-PVDA coalition negotiates CDA support in the senate only, rather than formally bringing it into the government. That scenario -- with only two parties in the coalition -- would make policymaking simpler, though a third party may reduce tensions between Labor and the Liberals.
The key signpost for future policy trends will be the cabinet formation process. Both Rutte (VVD) and Diederik Samsom (PVDA) know they need to form a stable government as quickly as possible, but the two parties must also work through a potentially acrimonious policy agreement process. In the end, future policy is likely to be somewhat more balanced between the left and right than it currently is and the next government could have the political wherewithal to approve needed and painful domestic healthcare and housing reforms. Nonetheless, with Rutte in line to return as prime minister, a high degree of continuity is likely. A long government formation process (which is common in the Netherlands) could be a signal of tensions though, and the agreement will signal how stable such coalition will be. Rutte's likely return as prime minister also signals that the coalition government will be pro-European and that it is likely to support ongoing fiscal rectitude, though the PVDA may push for some measures to stimulate growth.
Famke Krumbmüller is an associate with Eurasia Group's Europe practice.
By Crispin Hawes
Iraqi Prime Minister Nouri al Maliki is losing patience with his fractious coalition and is trying a number of tactics to force it into line, including ceding concessions on some contentious issues designed to win over Sunni factions and weaken political opponents. The current political impasse has delayed much legislation, preventing progress on issues such as ongoing power shortages that are damaging the economy and the quality of life for most Iraqis. While Maliki has threatened to call new elections in an effort to sway his coalition, a vote is unlikely this year, as is any long-term easing of the current political impasse. A vote is possible, however, in 2013, one year before the next elections are currently scheduled.
Maliki continues to perform well in Iraq's limited opinion surveys, despite strong negatives in some parts of the country. His relative popularity results from his reputation for forceful government, and Maliki now views the legislative deadlock as a major problem that could undermine his position. As a result, Maliki wants his coalition to pass important legislation and has shifted his focus from backroom negotiations to openly confronting his political partners and rivals.
Maliki is also preparing the ground for elections. His chief tactic has been to allow the reinstatement of Sunni officers in the military and security forces, a decision reached in June and intended to ameliorate some of the anger among Sunnis. Maliki is not allowing across-the-board reinstatement and instead has instructed the military to focus on recruiting expelled officers from Anbar province. The political goal is to undermine support for the main political opposition Iraqiya.
Maliki has threatened snap elections, in large part to spur his coalition into action. He can do this because opinion polling indicates he would have won an election held in July this year, while some of his most fractious allies and opponents would have performed particularly badly.
The tactic may well result in some legislation being approved, a step that could add further gloss to Maliki's reputation for forcefulness. But a resolution on important issues, such as the long-running dispute between the Kurdistan Regional Government (KRG) and the Baghdad government over the legality of disputed oil contracts, will almost certainly be delayed until the next government. And even if some legislation is approved in the near term-which would be enough to delay any snap general election-structural issues will encourage tensions to eventually resurface.
As a result, Maliki is unlikely to make good on his threat to call elections this year, but is actively considering calling early polls in 2013. Despite his skepticism of opinion surveys, the consistent results could tempt him to schedule a vote a year ahead of schedule in an effort to maintain his position atop the delicate balance of forces in Iraq. Early polls would probably also favor his more coherent State of Law party list over other coalitions, such as Iraqiya.
Crispin Hawes is the head of Eurasia Group’s Middle East and North Africa practice.
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By Carlos Ramirez
At first glance, the Institutional Revolutionary Party (PRI) is the clear winner of Mexico's July 1 presidential election. But a closer look at the results reveals a more muddled picture. On the surface, the PRI certainly came out ahead: After 12 years in opposition, Mexico's once-hegemonic power reclaimed the presidency and engineered a strong congressional coalition. Also, when Enrique Pena Nieto is inaugurated on December 1, the party will have governors in place in 22 states and control of a majority of state legislatures. Meanwhile, the PRI's main rival, the currently ruling National Action Party (PAN), fielded a third-place presidential candidate, lost control of the key states of Jalisco and Morelos, and saw itself reduced to the third-largest party in the lower house of congress.
The PRI's pick-ups and the PAN's failure to retain the presidency were largely predicted in the weeks preceding the election. What came as a surprise was Pena Nieto's inability to reach the critical 42 percent threshold of total votes, which translated into a weaker performance for the PRI in the congressional races. The party failed to achieve working majorities in both chambers, and the outcome fell far short of the PRI's expectations-especially in the senate, whose members are elected every six years. So in a dramatic turn of events, Pena Nieto will assume the presidency but will have to depend on legislative support from the PAN to secure his agenda.
The electoral outcome has damaged the center-right PAN, but it does have this one lifeline. As a pivotal party in congress, it will be the only powerbroker with which the PRI will be able to negotiate structural reforms. This is the inverse result of the 2006 election, which may provide some consolation to PANistas who watched the policies of outgoing president Felipe Calderon repeatedly held up by the PRI over the past six years. This time, it is the PRI that will be tied to the PAN for the entirety of the Pena Nieto administration.
This ironic turn of events clearly was not part of the PRI's plan. Pena Nieto intended, after winning by a double-digit margin and capturing both chambers, to propose moving forward on many long-stalled reforms, to secure congressional approval with or without PAN support, and to avoid having to undermine the vested interests that make up his constituency. The goal was to demonstrate the PRI's effectiveness from the outset and achieve solid results. The Mexican public, in turn, would see 12 long years of obstructionism and stalled reforms quickly vanish. But that plan collapsed last weekend.
So why, exactly, is the outcome so bad for the PRI? From a business perspective, it seems reasonable that the PRI and the PAN would come together to enact needed reforms. According to Pena Nieto and his advisers, the PRI is pursuing the same reforms that the PAN tried (and failed) to pass during the Vicente Fox (2000-2006) and Calderon (2006-2012) administrations: fundamental changes in the areas of labor, fiscal policy, energy, and competition. The PAN has no deep-seated ideological opposition to any of these (unlike the other major party, the Democratic Revolution Party, or PRD). And it does not have strong ties to the groups with an interest in maintaining the status quo. Conventional wisdom, therefore, would say that Pena Nieto will find a way to get the PAN on board to pass the relevant legislation.
It is not that simple, however. If the PAN learns from its historic defeat, it will quickly come to terms with the fact that it now has a golden opportunity over the next six years to push for a much deeper transformation of Mexico's political and economic landscape. In particular, the PAN can offer support for the PRI's structural reforms in exchange for dismantling the vestiges of the old PRI-led corporatist coalition that survived Mexico's transition to democracy. (The PAN struggled against this coalition during its 12 years in the presidential residence.)
Accomplishing such a feat is a pretty straight-forward task, as there is no shortage of issues on which the PAN can seek concessions in exchange for supporting reforms. The list is large -- underscoring the many problems left untouched during the past dozen years-but certainly achievable. Here are some of the topics that could be up for negotiation:
There is no question that the PAN will support these structural improvements. After all, the party's only chance of returning to power relatively quickly is if Mexico breaks with its corporatist past and modernizes at a faster pace. The real question is whether Pena Nieto is serious about enacting real change-serious enough that he is willing to defy the rent-seeking coalition that backs him. If he is truly committed to advancing reforms (and is ready for the epic, vociferous resistance sure to emanate both from within his own party and from the PRD), then Pena Nieto might succeed in becoming the first president to usher in a historic transformation. In that scenario, the country will have undergone unprecedented economic reforms during his administration and will function in 2018 within a renovated institutional framework that empowers Mexicans to reach their real potential. If, however, Pena Nieto is not committed enough -- if he ends up preferring accommodation rather than transformation, and if the dead weight of the PRI's past prevails once again -- then Mexico will remain condemned to the same mediocre performance witnessed over the past decade.
The stakes for Pena Nieto are clear. Will Mexico's new president be transformational, or will he prefer to continue playing the role of a soap-opera actor? Like Mexico's famed telenovelas, the election had a surprise ending.
Carlos Ramirez is an analyst in Eurasia Group's Latin America practice.
By Carlos Ramirez
Allegations that WalMart-Mexico's executives bribed local officials to speed up permitting for new stores highlight the issues of corruption in Mexico, but will have little impact. In the short term, the Mexican federal government has announced an investigation regarding the federal permits granted to the retailer. But that seems to be a political response to the growing criticism of inaction by the authorities rather than a serious case against the company. Because the allegations of wrongdoing relate to local-level permitting, any federal investigation will likely turn up little, if anything, of note. Furthermore, with the present federal administration entering its last few months, the investigation will probably fail to reach any meaningful result before its November 30 deadline.
In reality, federal officials are legally constrained from pursuing the allegations. They would first need a formal accusation by a third party before being able to launch any investigation regarding the alleged bribery. Furthermore, the division of powers under Mexico's constitution gives states and municipalities control over construction and most environmental permits, and national prosecutors have limited leeway to investigate local affairs other than when federal crimes are suspected.
A formal investigation at the state and/or municipal levels is even less likely. Since Mexico's transition to democracy, political power has shifted from the once all-powerful presidency toward the 32 state governors and the mayors of some of Mexico's biggest cities. The governors have strengthened their leverage over important decision-making within their jurisdiction through their control of local institutions. Increased budgetary and debt resources, with little related accountability and transparency (which increase the likelihood of corruption), have only reinforced the governors' political clout. Moreover, because the alleged corruption occurred five or six years ago, and reelection is banned in Mexico, politicians who served at that time will no longer be in office, which would further complicate a formal investigation.
Ultimately, both federal and local governments welcome companies that bring jobs and economic activity and that will likely to trump other considerations. WalMart-Mexico is currently Mexico's largest private sector employer with more than 210,000 employees. Local and federal authorities are unlikely to constrain WalMart-Mexico's growth, particularly when citizens cite jobs as among their principal concerns. In fact, federal and local authorities are likely to continue to regard the company as an important contributor to the economy.
In the short term the most likely immediate outcome for WalMart-Mexico is increased scrutiny of its operations by the media, competitors, and NGOs that oppose its presence in the country, but this is unlikely to hamper the company's ability to keep expanding in Mexico.
The episode does raise questions about whether Mexico's next president, to be chosen in July, will be able to tackle the lack of local-level transparency and accountability. Not only do governors face few checks, but the ban on reelection also means that politicians have few incentives to govern with any concern for their longer-term public reputation. If Enrique Pena Nieto from the Revolutionary Institutional Party (PRI) wins the July election, cooperation between federal and local authorities would improve in some areas. Calderon was frustrated with the lack of cooperation from the states on security, leading to tense relations, especially with PRI governors.
But the fact that the PRI controls most states and many municipalities means there are few incentives for a PRI president to seriously attempt to improve transparency. If elected, Pena Nieto is likely to prioritize the need to win support from governors for his own agenda, rather than pursue the complex political reforms needed to seriously tackle accountability and transparency issues at a local level.
Carlos Ramirez is an analyst with Eurasia Group's Latin America practice.
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By Alexander Kliment
Vladimir Putin thinks that Russia's elections are over, and that it's time to move on with business as usual. The trouble for him -- and the system of "managed democracy" he has built -- is that Russia's season of elections is just beginning.
In his final address as Prime Minister to Russia's State Duma (the lower house of parliament) on Wednesday, Putin, who will return to the presidency on May 7, explained that in a "mature democracy, after elections are concluded there begins a more important phase of work." He called for unity and an end to the "heightened emotions" that have recently taken hold of Russia's politics.
So much for that. A few minutes later, the entire faction of the left-leaning Kremlin-created opposition party A Just Russia walked out of the hall in response to Putin's defiantly tin-eared response to a question about the disputed mayoral election in Astrakhan. In that city, the largest administrative center in Russia's Caspian littoral, A Just Russia member Oleg Shein has now entered the third week of a widely-publicized hunger strike to protest well-documented fraud in a mayoral vote that he lost on March 4, the very day that Putin was returned to the Kremlin.
The battle in Astrakhan, which anti-corruption crusader Alexey Navalny and other opposition figures have joined, follows a mayoral election in the northern city of Yaroslavl, where a former member of Putin's United Russia (UR) party ran as an independent, built unified support from several opposition groups, shrugged off scathing coverage from local media, and trounced the government's preferred candidate. More than a thousand election observers, mainly from Moscow, arrived to monitor the vote.
The controversies in Astrakhan and Yaroslavl have mainly to do with local issues, and Putin still has pre-eminent control of the country. United Russia, however tarnished by its new sobriquet as the "party of crooks and thieves," maintains its chokehold on the legislative and executive branches at all levels of Russian politics. But these local episodes underscore an emerging national reality: Opposition politics is taking root in Russia, and the regions will be the most fertile ground.
Despite Putin's wishful thinking, election season is far from finished. Later this year, regional legislative elections will be held in a half dozen localities. A similar number will vote in 2013 and 2014. By then, Russia's opposition forces may well have coalesced into a coherent national force, and voters will choose a new city council for Moscow, a city that Putin actually lost in last month's election.
Moreover, the Duma is expected to approve a bill in coming weeks that will reintroduce direct election of regional governors, though the president can still "filter" the candidates. Several regions could elect new leaders as early as this fall.
These elections will take place at a moment of unprecedented civil society activism, a trend that will cast a bright light on Russia's brand of democracy. Candidates for posts ultimately beholden to the Kremlin for their authority and resources must court an electorate increasingly skeptical of the prevailing power elite. Putin's "vertical of power," the system he has used to maintain political control across the country, already brittle thanks to the weakness of Russia's governing institutions, could begin to show real signs of stress as an increasingly restive public watches election results with new interest.
If so, the country's nascent opposition will have to begin to build a much broader infrastructure to help its leaders speak to a national audience about local problems. Change won't come quickly. Putin's approval rating stands at 68 percent, and Russia's economy is performing reasonably well. Moreover, few key regions face legislative or possible gubernatorial elections in coming months. But at the regional level, increased activism and attention from civil society and opposition groups, coupled with a threatening crisis of legitimacy for United Russia, could introduce a new element of unpredictability into local politics and, by extension, into center-regional relations.
Russia's opposition has a lot of building to do, but at least it now knows that a growing number of Russians are paying attention.
Alexander Kliment is an analyst in Eurasia Group's Eurasia practice.
ALEXEY DRUZHININ/AFP/Getty Images
By Hani Sabra and John Watling
Egypt's presidential election is devolving into a comedy of errors, but with potentially tragic consequences. It is no longer primarily a contest about who voters believe is the most credible and trusted politician to lead Egypt through a potentially tricky transition. Instead, it is turning into a war of wills between the Muslim Brotherhood and the ruling Supreme Council of the Armed Forces (SCAF). These natural antagonists have accommodated one another for the past year in an effort to marginalize the young revolutionaries who ignited regime change. But the tensions inherent in the relationship have turned them into frenemies. The process has been particularly apparent during the past few weeks as their interests have diverged. When and how that relationship unravels completely -- and the presidential election is a key element -- is critical to Egypt's future.
On 31 March, the Muslim Brotherhood reversed the position it had maintained since Hosni Mubarak's ouster and announced that it was fielding a presidential candidate. The Brotherhood had claimed for more than a year that it would not do so, ostensibly because it wanted to reassure Egypt's political class that it was not interested in dominating power as Mubarak's National Democratic Party had done. The more likely reason was an understanding with SCAF about the division of power; the Muslim Brotherhood would get domestic policy portfolios (the premiership and control of the cabinet) while SCAF would control the security and foreign policy portfolios by having a weak and friendly president. Yet, the Brotherhood became both cocky and nervous. At the same time that it saw broad public support, it was losing confidence that SCAF would hold up its end of the bargain. Finally, the Brotherhood's leaders decided that without a new constitution and with no guarantee that the president's power would be reduced, that the group needed to contest the election. Indeed, the courts today disbanded the assembly that was set to write the constitution, and which was dominated by the Brotherhood and other Islamists, signaling that the Brotherhood was perhaps right to be concerned.
Additionally, in a dramatic scene fit for inclusion in a political thriller, Omar Suleiman reversed his decision not to run and submitted his candidacy papers less than an hour before the 9 April deadline. Suleiman is a stalwart of the old regime; he was Mubarak's right hand man, the director of internal intelligence, a friend to Israel, and a sworn enemy of the Islamists. But unlike Mubarak's other confidantes, who have been arrested, several signals hint at possible military support for Suleiman, including a military escort when he filed his papers. Even though SCAF denies that Suleiman is their candidate, the optics and timing suggest his candidacy is intended at the very least to send a message to the Muslim Brotherhood. While Suleiman is not popular, SCAF still has strong influence over Egypt's courts and other resources that will help his candidacy, like the state-controlled media.
But the comedy of errors continues. Critics of Hazem Salah Abou Ismail, a hardline Salafist and the only candidate with an explicitly anti-U.S. platform, recently revealed that his mother was a U.S. citizen at the time of her death in 2008 and apparently had even registered to vote in California. Under Egypt's tough electoral laws, he is now technically disqualified from competing in the election. It is also possible that Khairat el Shater, the Muslim Brotherhood's senior policy chief and presidential candidate, will also be disqualified based on his felony conviction during the Mubarak era.
The tragedy is that this maneuvering may mean nothing. Egypt's economy is suffering and none of the candidates has outlined a real rescue plan or a vision for the future. Economic collapse would change the calculus completely, given the likelihood for widespread societal discontent.
Hani Sabra is an analyst with Eurasia Group's Middle East and North Africa practice.
John Watling is a senior editor with Eurasia Group.
Peter Macdiarmid/Getty Images
Today, we turn to the last 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:
Venezuela -- A lose-lose election. No matter who wins the October 7 presidential election, Venezuela's political and economic conditions are likely to worsen. President Hugo Chavez would maintain the same distorting economic policies, and the economy would struggle to overcome the effects of a large pre-election increase in spending and debt issuance. An opposition win would likely lead to an eventual improvement in economic policy, but the transition could produce instability as Chavez supporters, who would still control most of the state apparatus, try to counteract reform.
Q- Can Chavez win another election? What will affect the outcome?
A- Chavez has the edge because of his relatively persistent popularity despite a growing dissatisfaction with the status quo. The president's popularity (his approval ratings are currently around 50 percent) comes despite high inflation (estimated at nearly 28 percent in 2011), low growth, good shortages, and an electricity crisis. To alleviate these negatives, Chavez will likely engage in a massive campaign spending spree, fueled by high oil prices. His government will also issue a large amount of debt to provide dollar-denominated assets to curry favor and counteract dollar shortages. The major wild card is Chavez's health. He announced in July that he was diagnosed with cancer, but little is known about the severity of his illness. Should his health deteriorate significantly, Chavez's reelection chances will diminish, as the public's faith in his ability to lead drops.
Q- Who is the opposition?
A- The Coalition for Democratic Unity (MUD) will select its presidential candidate when it holds primary elections on February 12. Miranda Governor Henrique Capriles Radonski, a young and popular governor from one of Venezuela's most important states, is the favorite. The opposition hopes to capitalize on the growing dissatisfaction with Chavez and to continue the momentum from the 2010 legislative elections, when a unified opposition list of candidates won 54 percent of the popular vote against the president's United Venezuelan Socialist Party (PSUV). The MUD would promote more orthodox macroeconomic policies, likely leading to lower inflation and more fiscal stability in the long run. The opposition would also adopt oil-related policies that are more attractive to foreign investment.
Q- What are the different risks arising out of the election outcome?
A- A Chavez win would mean a continuation of the same economic policies that have produced widespread market distortions and a strained relationship with foreign oil companies. It will be even harder for the country to recover from the large uptick in spending and debt Chavez is likely to push to improve his election chances. Given Chavez's wide-ranging power within the government, however, it would be easier for a Chavez government than a more fragmented opposition to make some economic adjustments, such as devaluing the currency or tweaking the foreign exchange system.
An opposition win, while positive for long-run growth, could paradoxically lead to more instability in the short-run. The government would be opposed at every turn by Chavez allies, contributing to policy paralysis. The most stable outcome would probably occur if the opposition wins, and Chavez's health makes it difficult for him to continue leading his movement behind the scenes. The most unstable environment would likely arise from a rapid deterioration in Chavez's health, causing him to abandon the presidential race and creating a power vacuum that would roil both the governing party and the opposition.
JUAN BARRETO/AFP/Getty Images
Today, we turn to risk #9 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:
South Africa-ANC discord. In South Africa, a bitter struggle for leadership and the policy direction of the ruling African National Congress (ANC) will undermine governance this year in a country trying to prove it belongs among the top tier of emerging markets. Populist pressures and elite infighting have intensified to a level not seen since the end of apartheid in 1994, President Jacob Zuma will likely win reelection as ANC leader and another term as South Africa's president, but disillusion among former allies will fuel political discord, preventing the country from making much-needed economic strides.
Q- What is driving the strife within the ANC?
A- During his tenure as South Africa's president (1999-2008), Thabo Mbeki held to a conservative macroeconomic approach that pleased investors but disappointed many within the ANC who hoped for a more aggressive spending approach to the country's social and economic problems. When Zuma succeeded him as ANC leader in December 2007, supporters hailed him as a unifying force who would offer a more inclusive leadership style than his predecessor. Zuma then became South Africa's president in 2009. But after less than three years in office, Zuma has maintained Mbeki's spending discipline, feeding a perception that he is at best indecisive and at worst more interested in enriching his friends than in addressing the country's needs. Opposition to Zuma is personified by firebrand ANC Youth League leader Julius Malema, who has called for the nationalization of mines, among other populist policies. Malema has been suspended by the party for indiscipline, but opposition to Zuma extends far beyond the Youth League.
Q- To see where the country is going, what are the events to watch this year?
A- The release of the national budget on February 22, the ANC's policy conference in June, and the December party elective conference. The Treasury faces a difficult balancing act: There is pressure to spend on social programs and improvements to South Africa's poor infrastructure, while foreign investors hope to see continued fiscal discipline. Complicating matters is South Africa's exposure to the volatility in the eurozone, which has placed pressure on the rand and threatens trade flows to South Africa's largest trade partner. At the June policy conference, the ANC will emphasize economic transformation and a statist approach to the economy, and the proposal to nationalize mines will be debated. The conference is unlikely to endorse outright nationalization, but clear consensus exists on the need for broader redistribution of the wealth that the country's natural resources generate. That's why we'll probably see more state involvement in the mining sector and tighter regulation. Finally, the December elective conference, the ANC's highest decision-making organ, will endorse the party's June policy resolutions and will essentially determine whether Zuma will preside over South Africa for the next several years, or whether a challenger -- most likely Vice President Kgalema Motlanthe -- will get the nod.
Q- What will be the impact of the ANC discord?
A- Generally speaking, there will be policy paralysis. The ANC is increasingly unable to conclusively reject radical policy proposals such as nationalization, and it will fail to endorse necessary microeconomic reforms, such as a liberalization of labor markets. Opposition to Zuma will encourage the government to use the intelligence apparatus and corruption charges against rivals to bolster his authority. This could help Zuma eliminate potential rivals, but we could also see corruption charges against the president himself. Conspiratorial politics will be pervasive, undermining the government's ability to concentrate time and resources on efforts to reduce high unemployment and improve competitiveness. Poor governance will damage South Africa's appeal as an investment destination.
Despite the country's much vaunted inclusion among the BRICS group of emerging market powerhouses, and at a time when politics in many developing states is maturing, South Africa's political system is in danger of becoming a hindrance to the growth needed to lift so many South Africans from poverty.
Next up, a lose-lose election in Venezuela.
John Moore/Getty Images
By Daniel Kerner
It's been a busy few weeks in Latin America, with citizens scurrying to the polls in Guatemala, Nicaragua, and Argentina. In Guatemala and Nicaragua, the elections left some uncertainty. Will former army general Otto Perez Molina's tough rhetoric translate into meaningful change in Guatemala, especially where crime and taxation are concerned? And with rampant electoral fraud alleged in Nicaragua, will the United States and the European Union recognize incumbent Daniel Ortega's nearly 32-point win? There are fewer questions in Argentina, where Cristina Fernandez de Kirchner's reelection promises more of the same-and possibly even more of it, if she tries to tweak the constitution to give herself a shot at a third term.
Despite Argentina's staggeringly high inflation (around 25 percent, according to private estimates), worsening fiscal position (spending is up 35 percent so far this year), declining trade surplus (imports have grown 37 percent year-to-date, while exports have gained only 28 percent), and steady capital flight (around $3 billion a month for the past few months), Fernandez de Kirchner swept the Oct. 23 elections. Macroeconomic imbalances notwithstanding, GDP continues to expand, unemployment is low, and wages have kept up with inflation. And this, together with expansive social policies, has improved voters' well-being. Now backed by nearly 54 percent of the vote, as well as comfortable majorities in both the lower house and the senate, Fernandez de Kirchner has little incentive to steer economic policy in a more orthodox direction-including, say, less expansionary fiscal and monetary policies to contain inflation or easing restrictions on foreign trade-especially as Argentine authorities watch the US and Europe struggle under just such a framework.
The government's moves since the elections support this more-of-the-same outlook. Three days after Fernandez de Kirchner's win, her administration decreed that it would force energy and mining companies to repatriate all of their export revenue (previously, they'd been allowed to keep 70 percent and 100 percent of it abroad). This about-face was likely an attempt to reduce downward pressure on the currency, a result of the deteriorating trade balance and rising demand for dollars. The government also limited access to foreign currency to stem capital flight. The central bank has already spent more than $4 billion of its reserves trying to prop the peso up, and while the administration is loath to let the currency fall, it's likely to keep proffering ad hoc fixes like forcing companies to repatriate revenue or imposing foreign exchange controls rather than making any serious adjustments. Likewise, while the government announced earlier this month that it would reduce subsidies to the energy and transportation sectors, thereby curtailing spending, the proposed $140 million reduction is miniscule compared with the roughly $17 billion that the government spends on subsidies. And most of that $17 billion will probably come in the form of higher taxes rather than higher energy prices (which would stimulate investment). So no game changer there.
As a result, Argentina's economic distortions are unlikely to improve much, and could worsen if the world economy languishes further. Fernandez de Kirchner will have to be careful, though. Her popularity depends in part on the country's economic conditions, and her chance of securing a third term depends on her popularity. She'll need support from two-thirds of both chambers to make the necessary constitutional adjustment -- a challenge, but not an impossibility. It remains to be seen whether she'll test the waters this year.
Daniel Kerner is an analyst in Eurasia Group's Latin America practice.
DANIEL GARCIA/AFP/Getty Images
By Heather Berkman and Adam Siegel
Panama's booming economy and newly acquired investment grade status have made the tiny tropical country a market darling. A number of factors, including a slew of corporate tax incentives, the government's efforts to get Panama off the OECD's grey list of tax havens, and the ongoing expansion of the Panama Canal, have enticed investors over the past few years, and the World Economic Forum just bumped up Panama's competitiveness ranking. But beneath the glittering veneer of economic progress lies reason for skepticism: President Ricardo Martinelli's recent antics.
A conservative supermarket chain owner and the leader of the right-of-center Democratic Change party (CD), Martinelli promised to "build a government of national unity" when he won the 2009 election. Since then, however, Martinelli has engineered a series of defections from rival parties in congress, raising the number of CD representatives and bringing him tantalizingly close to the 36-member majority that would free him from having to forge alliances. And while Martinelli has followed through on promises to boost pensions and ease transportation bottlenecks in Panama City, the self-proclaimed "loco" leader has also proven to be brash and mercurial.
On Aug. 30, Martinelli issued a terse press release relieving the Panameñista vice-president, Juan Carlos Varela, from his duties as foreign minister. The spark was a seemingly innocuous reform proposal: to introduce a second-round run-off in the presidential election. But many politicians felt that Martinelli's motivation was less about reform and more about keeping his party in power in 2014, when his term ends. The opposition Democratic Revolutionary Party (PRD) has the most support nationwide (when measured by the number of registered voters), and the CD and the Panameñistas made a pact to join forces for the 2009 and 2014 elections to avoid splitting the conservative vote. A potential second-round run-off has already emboldened the CD to ditch the pact and run its own candidate in 2014. The party figures that it has a good chance of finishing second to the PRD candidate in the first round and winning with the full conservative vote in the second.
These calculations were clear to the Panameñistas, who balked at letting the reform through the assembly, demanding instead that Martinelli get it approved via a public referendum. In response, the president simply sacked Varela and forced other Panameñistas out of government. An unrepentant Martinelli then tweeted that "politics is the art of making false friends and true enemies," and relations between the formerly allied parties have only grown more contentious. The president has been accused of attempting to blackmail Panameñista leaders and participating in corrupt land deals, while senior Panameñistas formerly in the administration report that they have been prevented from accessing their offices and computer files.
In the face of such turmoil, it's unclear how much Martinelli will benefit from his determination. Sure, he now has the numbers in congress to push through his reform. But a host of spurned Panameñistas are looking for payback, and opposition parties are threatening to fight the reform both in court and on the street. Martinelli said this week that he would put the reform to a public referendum in 2012, even if it passes the assembly, but his popularity has taken a hit and voters are unconvinced by his proposal. A recent poll found that the president's approval rating fell 20 percentage points in the past month, and that nearly 80 percent of the country's voters are not in favor of a second round. Together, the crumbling of Martinelli's governing alliance, the sharp drop in public support, and the uphill battle to pass the electoral reform suggest that policymaking could continue to be turbulent for the remainder of Martinelli's term.
Heather Berkman and Adam Siegel are part of Eurasia Group's Latin America practice.
Vittorio Zunino Celotto/Getty Images
By Daniel Kerner
President Cristina Fernandez de Kirchner scored a clear victory in Argentina's first ever open primary election on August 14, setting the stage for her to sweep the October 23 presidential election. Fernandez de Kirchner's win in the primary came on the back of Argentina's strong economic growth. That growth, however, is based on unorthodox economic policies that are unlikely to change if Fernandez de Kirchner wins reelection, and that implies macroeconomic concerns in the future.
Fernandez de Kirchner is in a very strong political position. Popular support for her is at the highest levels since she came to office in December 2007. Moreover, several indicators suggest voters are content with the status quo and that there is little demand for change. Fernandez de Kirchner's 50.06 percent of the primary votes compares favorably to the 45.6 percent she won in the 2007 presidential elections. The increase is mostly because of robust economic growth and the opposition's weakness.
Fernandez de Kirchner's overwhelming victory bodes very well for her chances in the October elections. Participation was high at more than 77 percent, which means that these results should be taken as indication of how voters are likely to behave in October. In fact, support for her could even grow as her front-runner status attracts additional voters.
In contrast, the opposition is in disarray. There is a substantial distance between Fernandez de Kirchner and other candidates and no other candidate is likely to emerge as serious competitor. Ricardo Alfonsin obtained only 12.7 percent of the votes, a former president, Eduardo Duhalde, got 12.6 percent, and the socialist candidate Hermes Binner received 10.27 percent.
There is some speculation that opposition parties could coalesce behind a single candidate in October. That is unlikely. All three opposition candidates were close and there is little incentive for any of them to step aside. Additionally, any decision to leave the race would mean abandoning that party's candidates for legislative and local elections, and that would be resisted. Barring a major economic or social deterioration in the run up to the October elections, Fernandez de Kirchner is favored to win. In fact, the primary is likely to generate the perception that Fernandez de Kirchner is unbeatable.
With Fernandez de Kirchner on track to win reelection, attention now turns to what might happen during her next term. There is unlikely to be any major change or improvement in economic policy after the election, in fact, quite the opposite. Strong growth and popular support mean that the government perceives little need to adjust policy. Fernandez de Kirchner's likely victory in October (and probably with a comfortable margin) will only reinforce this feeling. In addition, the profile of some of the individuals that seem to be gaining strength within government suggests that Argentina's unorthodox economic policies are likely to continue, which bodes poorly for the country's macroeconomic outlook.
Daniel Kerner is an analyst in Eurasia Group’s Latin America practice.
By Heather Berkman
Guatemala's presidential campaign has been full of twists and turns, with the most recent bump coming on Wednesday, when the indigenous organization Waqib Kej presented a letter to the United Nations denouncing former Army General Otto Perez Molina for his alleged involvement in acts of genocide and torture during the country's long civil war. Perez Molina also happens to be the right-of-center Patriot Party presidential candidate and favorite to win Guatemala's September 11 election. His competitor is former first lady Sandra Torres, who last March divorced her husband, current President Alvaro Colom, in order to "marry the people of Guatemala" -- or, in other words, to claim eligibility for her own presidential bid. The turbulent campaign only mirrors Guatemala's larger woes. And no matter who secures the presidency, the country seems unlikely to get it together anytime soon.
Guatemalan politics over the past few years have been reminiscent of a dark and twisted telenovela. This is the country where a lawyer planned his own death and posthumously released a video blaming the government for it, and where just last week famed Argentine singer Facundo Cabral was gunned down in his car. Since the May 2011 start of the election period, more than 30 candidates for office -- ranging from local councils to mayorships -- have been murdered, and members of the supreme election tribunal have received death threats. The alarming events led Jose Miguel Insulza, the secretary general of the Organization of American States, to express concern about rising tensions leading up to the national elections.
The country's troubles are also what have enabled Perez Molina to soar to the top of public opinion polls. While the allegations of human rights abuses are nothing new, little concrete evidence has been presented to date, and Perez Molina has capitalized on his anti-crime stance to curry favor with voters. Torres, meanwhile, is waging an uphill battle to reverse the election tribunal's decision that her former marriage makes her ineligible to run for president.
But whatever happens on election day, the new administration will have a tough time lifting Guatemala out of the morass it finds itself in. Since he entered office in January 2008, President Colom has seemingly lurched from one disaster to the next and has failed to build enough support in Guatemala's unruly and fragmented legislature to pass much-needed tax reforms. Meanwhile, drug traffickers from Mexico have extended their networks through the country, crime and violence have sapped government resources and stymied investment, and the government repetitively has had to turn to multilateral financial institutions and foreign governments for support. Perez Molina may promise to usher in change and a heavy hand on security, but following through on his agenda and bringing Guatemala back on track may be more than what this former military man has bargained for.
Heather Berkman is an analyst in Eurasia Group's Latin America practice.
JOHAN ORDONEZ/AFP/Getty Images
By Risa Grais-Targow and Daniel Kerner
Venezuela's President Hugo Chávez is currently recuperating in a Cuban hospital after emergency surgery on a pelvic abscess. Or so goes the official story. However, in the three weeks since the June 10 operation, rumors have metastasized into full-blown speculation that he is in critical condition (perhaps with prostate cancer) and that Venezuela is on the verge of having to find a successor to the man who has run the country for 12 years.
Chávez's uncharacteristic quiet since the surgery has been feeding the rumors. With the exception of several tweets and a call into a local television show immediately following his surgery, Chávez has maintained complete silence. Also contributing to the uncertainty has been mixed messages from his close associates. Foreign Affairs Minister Nicolas Maduro recently said Chávez was "fighting for his health" while Vice President Elias Jaua downplayed the severity of his illness. If Chávez remains absent during the upcoming July 5 independence day celebrations, it will confirm that his health situation is grave.
If Chávez is indeed seriously ill, a number of scenarios present themselves, all of which result in greatly heightened short-term political and economic uncertainty. If he is forced to step down in the near term or if he abandons the 2012 presidential race, his Chavista movement will face significant challenges. There is no clear successor. Influential figures, such as Jaua (next in line if Chávez were to die or resign) or Maduro, lack popular appeal. Others, such as Finance Minister Jorge Giordani or PDVSA President Rafael Ramirez, strongly influence particular sectors but lack his political skills or clout. Interestingly, Chávez's younger brother Adan has ramped up both his revolutionary rhetoric and his public visibility, suggesting that he may be preparing himself for a transition. In the end, however, Chavismo's political survival would be in question if Chávez leaves the scene.
Infighting could also undermine policymaking. Venezuela faces serious policy issues. The country's electricity grid is failing and power supply does not meet demand, and the oil sector desperately needs additional investment in order to boost production (the government's principal revenue source). Squabbles could also distract from delivering on social programs, the cornerstone of the movement's popularity.
All of this is, however, potentially good news for the opposition. The opposition has been struggling to establish a united front ahead of what was already shaping up a tight election. If Chávez is out of the running, the opposition would have a better chance of winning. More importantly, if they were to win, they would have an easier time managing the transition than if Chávez were to lose the race.
Risa Grais-Targow is an associate with Eurasia Group's Latin America practice. Daniel Kerner is an analyst with Eurasia Group's Latin America practice.
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By Christopher Garman and Jefferson Finch
At first glance it would appear that Brazilian President Dilma Rousseff has successfully weathered her administration's first political crisis: a scandal that led to the resignation of her chief of staff, Antonio Palocci (his second departure from a Workers' Party government due to accusations of shady dealings). Indeed, it'd be easy to think that it might be smooth sailing for the rest of the year. The president substituted Palocci with Gleisi Hoffman, a senator whom she knows well and who is loyal to her; the market's trepidation about inflation appears to be receding for the moment; and the latest unemployment data, released yesterday, reveal that seasonally adjusted unemployment has reached an all-time low of 5.9 percent. What's more, a public opinion survey conducted by Datafolha in June found that Brazilians' impression of the Rousseff administration had improved a little since March, with 49 percent of respondents saying her government was "good" or "great," compared with 47 percent before.
But Rousseff's political future might not be as rosy. If you dig a little deeper, a different, more challenging picture emerges. The same Datafolha poll found that the share of respondents who think inflation will stay high jumped from 41 percent in March to 51 percent in June. Likewise, the portion of respondents who think their purchasing power will increase dropped from 43 to 33 percent. Meanwhile, the National Confederation of Industry found that 71 percent of the people they spoke to expect inflation to increase over the next year, the highest percent in roughly a decade.
To make matters worse, consumer confidence is starting to drop. Datafolha discovered that 17 percent of respondents think the economy will worsen, almost double the number (9 percent) who felt that way in March. These shifts in popular sentiment may not be dramatic enough to change the political calculus of Rousseff's advisors, some who think her popularity might even rise later this year. But they do hint that the economic foundation of Rousseff's popularity is splintering. As Brazilians feel their purchasing power sapped, the rosy halo around Rousseff will likely start to fade. That said, the president's downhill slide will probably be gradual. After all, we're talking about higher inflation, not runaway inflation, and slower growth (just under 4 percent for 2011), not recession.
Christopher Garman is head of Eurasia Group's Latin America practice. Jefferson Finch is an associate in the practice.
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By Daniel Kerner
Venezuela's President Hugo Chávez faces the real possibility that he may lose the 2012 presidential election after more than a decade in office, in part because of his administration's failure to ensure adequate power supplies. Venezuela was forced to implement strict rationing in 2010, which thwarted the country's economic recovery. But while last year's problems were caused mostly by shortfalls in rain that stressed hydropower reservoirs, the problems are now the result of the government's failure to meaningfully address capacity and transmission problems.
The recent measures to address the situation are unlikely to solve the sector's problems. On June 13, the government announced it will offer up to 50% reduction in rates to households who reduce their consumption by up to 20%, but will also fine consumers 200% of their bill if they increase consumption by over 20% from a 2009 baseline. In addition, commercial users have been asked to install their own generating capacity, and face surcharges or electricity cuts if they do not. Finally, illuminated billboards will be shut off after midnight. The measures could contain demand, but do not address the fact that the system cannot meet peak demand.
The government has promised to increase generation capacity, the only real solution to the current structural problems. But it is unlikely to deliver given financial and logistical challenges, and Venezuela will still face transmission bottlenecks. The country is estimated to have around 24,000 MW of installed capacity; effective capacity, however, is around 17,000 MW. The government claims it installed 1,250 MW of new capacity in 2010 and will install an additional 2,568 MW in 2011, but the data's reliability is suspect -- the government stopped publishing data on Venezuela's power system last year, a tacit admission that the problems are severe. The government has also promised to invest some $21 billion in the sector over the next several years, but a long list of spending commitments and the government's proven inability to manage the electricity sector means these promises are hard to take seriously.
The shortages are likely to have a dramatic impact on an economy that is only now slowly recovering -- it grew by 4.5% in the first quarter, the first positive figure in a year and a half. Similar measures in 2009 and 2010 helped cut industrial activity by 6.4% in 2009 and 3.4% in 2010. Energy saving measures could limit industrial production, and blackouts could disrupt oil output.
Higher energy prices and electricity shortages, however, pose a serious political liability for Chávez's hopes of reelection, especially if they affect economic growth. In 2009, power shortages helped reduce his approval ratings from 61% to around 50%. A variety of opinion polls show that Chávez has lost support. The government has done its best to protect Caracas from the power shortages as a means of avoiding the political costs. But the state of Zulia, which recently suffered a day-long blackout, is home to the country's second largest city, Maracaibo.
Chávez will still likely have an edge over the opposition, however. He does have a strong group of core supports among the rural poor who are over represented in the legislature and he is gearing up to expand debt-fueled spending on social programs. But the election is shaping up to be the tightest of his decade-long run as president and Chávez is more vulnerable than ever before to economic and social problems.
Daniel Kerner is an analyst in Eurasia Group’s Latin America practice
JUAN BARRETO/AFP/Getty Images
By Philippe de Pontet
On Sunday, Goodluck Jonathan was sworn in as the fourth president of Nigeria, guarded by security personnel and shadowed by the country's double-digit inflation. He's not alone. Rising food prices threaten governments across Africa, where food costs consume more than 50 percent of urban dwellers' average incomes. A handful of countries face a heightened risk of unrest as a result, and in a year of multiple elections, incumbents will struggle to cling to power. That said, the intensity of the threat varies widely across the continent, and the widespread upheaval rocking the Middle East isn't in the cards. Here's a cheat sheet for the continent:
Philippe de Pontet is head of Eurasia Group's Africa practice.
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By Antonio Barroso
Spain's ruling Socialist Party (PSOE) suffered a major defeat in Sunday's regional and local elections, shifting the political focus firmly to the national parliament. Prime Minister Jose Luis Rodriguez Zapatero remains unlikely to resign, despite calls from the opposition Popular Party (PP). The results do, however, complicate the government's efforts to introduce further reforms, which however remain likely to be approved.
The PP trounced the PSOE, leading in the overall vote count by more than ten percentage points. The PP retained control of regions and cities, such as Madrid, but also scored wins in former PSOE bastions such as Castile-La Mancha and Extremadura. The vote reflects the historical volatility of leftist support for the PSOE compared to the well understood stability of support for the PP.
The defeat puts the socialists on the defensive, but Zapatero has no intention of either calling an early legislative election or holding a confidence vote for now. The PSOE will stick to its strategy: wait for the economy to recover and give the party enough time to select a new prime ministerial candidate. The government will likely continue to push for reforms such as a review of collective bargaining agreements or the restructuring of the Spanish financial sector in order to avoid an external intervention. But those reforms will be tougher to push through parliament now.
The PSOE will try to rely on its legislative deal with the Nationalist Basque Party (PNV) and the Canary Coalition (CC) to implement economic measures. Although PNV leader Inigo Urkullu recently threatened to withdraw from the agreement if extreme-left wing nationalist party Bildu was not authorized to run in the elections, the PNV is likely to stick to the agreement. Urkullu wants to use the PNV's leverage at the national level to control the debate about the end of violence in the Basque Country and to ensure that the national government follows through on its promise to grant more policy autonomy to the regions. Urkullu also knows that a PP government with an absolute majority, as some polls currently suggest is a possibility, would be less sensitive to demands from the autonomous regions.
This scenario could change, however, if Zapatero is forced into implementing further austerity measures in order to comply with deficit targets. Additional spending cuts would almost certainly increase social discontent and the nationalist parties could decide to withdraw their support in order to avoid sharing the political penalties implicit in additional austerity.
Antonio Barroso is an analyst with Eurasia Group's Europe practice.
By Wolfango Piccoli
Recent opinion polls suggest that Turkey's Justice and Development Party (AKP) is on course to win a third successive term with a comfortable parliamentary majority at the June 12 general elections. However, Prime Minister Recep Tayyip Erdogan appears unlikely to achieve his goal of securing the 367 seats necessary to modify the constitution without a referendum. That result would set the stage for an acrimonious political struggle in the aftermath of the election given the AKP's apparent determination to change the constitution and increase the powers of the president. Such volatility could hamper efforts to boost the economy, while also impeding Turkish efforts to boost its international reputation.
Opinion polls show support for the AKP is running at 45-48 percent, ahead of the Republican People's Party (CHP) at 25-28 percent and the Nationalist Action Party (MHP) at 12-14 percent. However, the pro-Kurdish Peace and Democracy Party (BDP) is expected to perform strongly in predominantly Kurdish areas. Its candidates are running as independents in order to sidestep a requirement that political parties win at least 10 percent of the national vote in order to win representation in parliament. The BDP could take around 25 seats, up from 19 in the current parliament.
When combined with the expected improvement in the performance of the CHP, the increase in the number of BDP deputies is likely to mean that the AKP will need at least 50 percent of the popular vote in order to win the same number of seats as it did in 2007. If voting tracks the current opinion polls, the AKP is likely to win around 310-335 seats. While this is a comfortable majority (276 votes are required for a simple majority), it is far short of the supermajority it is looking for. The only real way the AKP could win the supermajority is if the MHP falls below the 10 percent threshold and fails to obtain representation in parliament and if the BDP performs poorly in the southeast.
The AKP, however, appears determined to attempt constitutional reform. Its election manifesto, announced on April 16, declares that its first priority will be a new constitution. EU accession efforts, however, are effectively dead. Erdogan has made it clear that he wants to replace the current parliamentary system with a presidential one. He is then expected to attempt to win that post for two consecutive five-year terms.
Even if Erdogan fails to introduce a presidential system, a new constitution could still provoke volatility. Kurdish nationalists are demanding that it eliminate any mention of Turkish ethnicity. Any such initiative would provoke a furious reaction both from opposition Turkish nationalists and the Turkish nationalist wing of the AKP. Similarly, any attempt to amend the first four clauses of the current constitution -- theoretically unalterable -- would result in mass protests from Kemalists and a possible application to the Constitutional Court for the new draft to be annulled.
If, as seems likely, the AKP does not secure the hoped-for supermajority, politics in Turkey after the June election will almost instantly focus on the constitutional referendum and take the government's focus away from pressing economic issues and its efforts to boost the country's international profile.
Wolfango Piccoli is a director with Eurasia Group's Europe Practice.
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By Risa Grais-Targow
Votes are still being tallied for Ecuadorean President Rafael Correa's May 7 constitutional referendum (to his own 2008 constitution), which asked voters to weigh in on 10 issues ranging from banning bullfighting and gambling to granting Correa greater control over the media and the judiciary. As this went to press, voters looked likely to approve the bulk of the proposals, though two of the most important were up for grabs. The referendum has caused a few jitters, in part because of the precedent set by Correa's northern neighbor, President Hugo Chávez, who enjoys broad control over Venezuela's media and institutions and convinced voters to abolish term limits in a 2009 referendum. But even if the final count enhances Correa's powers, he won't be the next Chávez.
For one, Correa is likely to get closer rather than more hostile to the United States in the aftermath of the referendum. Bilateral relations have been shaky since April, when Correa declared U.S. Ambassador Heather Hodges persona non grata after WikiLeaks released cables suggesting that Correa was aware of corruption in the upper echelons of his police force. The accusation undermined Correa's campaign rhetoric about sprucing up Ecuador's tarnished justice system. In retaliation, U.S. President Barack Obama expelled Ecuador's ambassador, even while the renewal of the decades-old Andean Trade Promotion and Drug Eradication Act (ATPDEA) remained outstanding. The trade preferences expired in February, just in time for Ecuador's flower exporters to lose out on the Valentine's Day market. They and other exporters are still clamoring for ATPDEA to be renewed. Once Correa's campaign for more control has subsided, he'll likely heed those calls and sidle up to the United States again in order to hold onto the U.S. market.
Moreover, the referendum is essentially a popularity contest -- and one from which Correa is likely to emerge victorious. He is an appealing candidate and a good campaigner, and he has an approval rating of 57 percent. Winning yet another contest should bolster his confidence further by reinvigorating his mandate -- which, maybe paradoxically, will make him less inclined to behave rashly.
That said, if the unexpectedly close outcome gnaws at Correa, there could be a few bumps in the road ahead. The two items in the referendum that would clinch a Chávez-like power grab for Correa are those pertaining to the media and the judiciary. They are the two he likely cares most about and are also the most closely contested. The proposal regarding the judiciary would allow Correa to essentially handpick judges, concentrating ever more power in the executive and limiting the checks on the president's authority. If the measure is approved, Correa could also wield his dominion over the courts to curb any serious political threats. The question pertaining to the media, meanwhile, would create an oversight body to regulate "discriminatory media" -- as defined by the president. But the close race suggests that Ecuadoreans are less enthusiastic about enabling a strongman than Venezuelans were. That's a good sign, even if Correa wins this round.
Risa Grais-Targow is an associate in Eurasia Group's Latin America practice.
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By Wolfango Piccoli
British voters are set to reject electoral reform in the May 5 referendum and deal a blow to the incumbent Conservatives and Liberal Democrat Party (LDP) in local and regional elections held concurrently. The fight over the electoral reform will damage the relationship between the coalition partners, but the government will survive and early elections are unlikely.
The referendum lies at the heart of the power-sharing deal struck between the Conservatives and the LDP. The LDP demanded the vote as a key condition for joining the coalition after the Tories, who want to retain the existing first-past-the-post system, failed to win a clear victory in last year's general election. The Labour party is split on the issue, but its leader Ed Miliband supports a system in which voters rank candidates in order of preference.
Local government elections will also be held in Scotland, Wales, and much of England, providing the first comprehensive indication of how the main parties have fared since last year's general election. Labour is expected to make the most gains, with some pollsters suggesting the party could gain more than 1,000 council seats. Prime Minister David Cameron's Conservative Party is expected to suffer big losses, possibly as many as 900 seats. The LDP meanwhile could lose control of around half of the 22 councils it is defending, possibly including prized possessions such as Bristol, Hull, Newcastle, and even Sheffield, where party leader Nick Clegg's seat is located.
In such a scenario, Nick Clegg will have to contend with disgruntled party members (mainly from the left of the party), who may step up their criticism of the coalition and he may even have to fight a leadership challenge. But there is no viable replacement and he will continue as party leader. To recover, Clegg is likely to champion (with the prime minister's consent) an accelerated reform for the House of Lords, push ahead with his social mobility agenda for higher education, and fight for changes to the National Health Service.
The Liberal Democrats will not, however, leave the coalition. The party would cede all credibility if it were to walk away. Also, the LDP is down in the polls, which provides no incentive to provoke an early election. Neither will the Tories be tempted to end the relationship. They are unlikely to win a parliamentary majority in a snap election. But it will not be business as usual after 5 May. Clegg's party will strike a more independent tone, reminding the Conservative Party that it owes the LDP for its ability to govern.
Wolfango Piccoli is a director in Eurasia Group's Europe practice.
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By Roberto Herrera-Lim
Thailand will return to the headlines soon in what will likely be a heated election campaign ahead of the July parliamentary vote. The Democrat Party-led coalition government of Prime Minister Abhisit Vejjajiva is in a race against the opposition For Thais (PT) party and the more well-known Red Shirt movement identified with former Prime Minister Thaksin Shinawatra. Despite speculation about an opposition victory triggering a possible military coup, the ruling coalition has a good chance of holding its ground. Its local party machinery appears stronger than that of the exiled Thaksin, and February constitutional amendments have tipped the party-list race in its favor.
A Democrat Party victory would return some stability to Thailand, at least for the near term, as it would resolve the legitimacy issue that has brought the Red Shirts out into the streets on several occasions over the past few years. The Democrats have been historically inept at maintaining power. But, absent another shock (an economic crisis or the death of the king), they are likely to win and hold on to power for the next few years. And challenges to their subsequent control will come from mainstream politics rather than the streets.
Two factors could make a Democrat win less likely: increased voter dissatisfaction with the economy and the opposition's ability to recast the elections as a referendum on Thaksin. Economically, the Democrats are most vulnerable on inflation, but they are mindful of this challenge. The government will also cut oil taxes (a gift to Thai farmers) and the Thai central bank is among the most hawkish on inflation in the region. Thaksin will meanwhile do his best to cast the elections as a personal referendum in the hope that voters will vote based on their affinity and loyalty to him, rather than on local issues.
But even if the Democrats win, Thailand's structurally weak political system maintains the risk of ongoing volatility and unrest. Thailand is nominally a democracy, but the competition for real power takes place between several key players: the monarchy, the Bangkok business community, the military, republicans and, more recently, the Red Shirts. The Red Shirts have a legitimate grievance about the Bangkok-centric politics that have largely deprived the groups they represent (the north-eastern rural poor) a voice in national policymaking. Meanwhile, the four other players compete in a shifting web of alliances, depending on their agendas and perceived weaknesses. If Thailand is to avoid further periodic eruptions of unrest, it will need to build up its democratic institutions. However, none of the major players are currently willing to accept the loss of power that would entail.
Roberto Herrera-Lim is a director with Eurasia Group's Asia practice.
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The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.