By Yael Levine

On Sept. 16, the Kremlin's latest experiment in "managed democracy" ended in disaster when Russia's third-richest man, Nets owner and oligarch Mikhail Prokhorov, made his dramatic exit from the Right Cause party and exposed Russia's behind-the-scenes political dealings. In an abruptly called press conference replete with zingy one-liners, Prokhorov declared that representatives of the president's administration had mounted a raid on Right Cause. Cameras flashed and journalists tweeted as Prokhorov signed and displayed a document ordering the party's executive committee dissolved and its most prominent members fired. Less than a day later, he resigned. But far from auguring change, the hubbub will likely only encourage the Kremlin to consolidate around Prime Minister Vladimir Putin's United Russia party and forgo building even the façade of a multiparty system.

Right Cause was born in 2008 as the product of three liberal parties that had watched their popular support dwindle to 1 percent or less of the voting population by the end of Putin's presidency. When Prokhorov unexpectedly stepped up to head Right Cause in June, everyone assumed he was part of a Kremlin ploy to reinvigorate the party as an avenue for disaffected liberals to let off steam-harmlessly. As poster boy, Prokhorov's job was merely to provide the funds and cache the party required to mount a respectable campaign for the Duma elections this December.

So it was surprising to many when Prokhorov seemed to take being an opposition leader seriously. A Right Cause manifesto he published last month on the party's website (which has been "in reconstruction" since last week) and on his blog was harshly critical of Russia's authoritarian political system and hollow judicial one. He was likewise insistent about adding Yevgeny Roizman, a controversial anti-drug activist and former Duma deputy that the Kremlin disapproved of, to the party's ranks. And he reportedly planned to organize some sort of tent camp for Right Cause supporters -- a throwback to Ukraine's Orange Revolution and to what is probably Putin's worst nightmare. By the time the party congress came around, the Kremlin, it would seem, had had enough. During the first day of the party congress, a split emerged between the pro-Prokhorov faction (some of whom were literally locked out of the day's meetings) and the anti-Prokhorov faction (who seemed to have been sent expressly to hijack Right Cause).

The height of the drama came when Prokhorov called Vladislav Surkov (Russia's answer to Karl Rove) a puppet-master and said that he blocked real political competition. This affront to Russia's democracy "manager" likely went unnoticed by the bulk of the population, since only a sanitized version aired on television. But those who followed the events closely were among Russia's newspaper- and blog-reading elite -- precisely the constituency Right Cause was designed to placate. They watched as a Kremlin that thought it could have its cake and eat it too was chastened. And the Kremlin itself was surely paying attention as Right Cause, a party it had co-opted for public consumption, morphed into an embarrassment that needed covering up. Shaken by the fiasco, the Kremlin will be careful to limit its electioneering efforts in the run up to the Duma elections and to the presidential race in March to pumping up United Russia. 

Yael Levine is a member of Eurasia Group's Eurasia practice.

By Alex Brideau

President Viktor Yanukovych's government will face negative political, diplomatic, and economic effects from the Aug. 5 arrest of former Prime Minister Yulia Tymoshenko and the accompanying legal proceedings. Tymoshenko was detained on contempt of court charges during her trial for overstepping her authority as prime minister in concluding the 2009 gas import agreement with her Russian counterparts, and for pressing the local gas company Naftohaz Ukrainy to sign the contract. She could face up to ten years in prison if convicted.

Protests against the arrest and trial won't represent a threat to the government's short-term stability, but the arrest will help the opposition unify ahead of next year's parliamentary elections. It will also reinforce EU and U.S. views that the cases against Tymoshenko and her allies are politically motivated.

Tymoshenko's arrest is symbolically important because of the strong political overtones of the charges. Despite government claims to the contrary, investigations over the past year into corruption and misuse of government power have overwhelmingly targeted members of Tymoshenko's government, some of whom are still important opposition figures. Yanukovych's Regions of Ukraine party, which saw its support in June sink to only 11.7 percent in one poll and 16 percent in another, remains concerned that Tymoshenko could lead the opposition against them in the October 2012 parliamentary elections. If convicted, Tymoshenko would be automatically disqualified by law from running in the election.

Ongoing protests could grow if Tymoshenko is convicted and sentenced to prison. Yet protests are unlikely to grow to a size that would threaten order in the capital. Opposition parties do not appear to have the strength to sustain protests against the detention, and Tymoshenko's popularity -- polls show her support between 10 percent and 16 percent -- do not guarantee a large turnout. Furthermore, many of the capital's residents are on their summer vacation.

The arrest will nonetheless provide a rallying point for opposition parties ahead of next year's election campaign. Opposition parties aligned with supporters of the 2004 Orange Revolution have been divided since the 2007 parliamentary election, but local sources hint that they may work to overcome their differences and the arrest would make it easier.

The Russian Foreign Ministry's reaction may have the biggest impact in the short term. Moscow is unlikely to be overly critical of the Yanukovych government. But Russian officials do appear worried that the Tymoshenko trial is also an attempt to delegitimize the 2009 gas contract, and part of efforts to force its renegotiation.

Tymoshenko's trial is proceeding quickly, and it could end within the next month. With political figures and foreign governments believing that the case against her is politically motivated, the verdict in her trial will be viewed as a barometer of the trajectory of the Yanukovych government. A conviction could further strain ties with the West (and with Russia -- depending on how the government uses the verdict in gas talks). Yanukovych's supporters, on the other hand, might see acquittal as a sign that the president's power is weakening, which would hurt internal cohesion in the Regions party.

Alex Brideau is an analyst with Eurasia Group's Russia 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.

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.

By Ian Bremmer and David Gordon

Individual hackers and organized crime organizations have targeted businesses for years, but cyberattacks have rarely created political risk. They do now. The centralization of data networks -- both in energy distribution (the move to the smart grid) and information technology more broadly (the shift to cloud computing) -- is increasing the vulnerability of states to potentially debilitating cyberattacks. As governments become more directly and actively involved in cyberspace, geopolitics and cybersecurity will collide in three major ways.

First, new cyber capacity allows governments to project power in a world where direct military strikes are much more costly and dangerous. There have been plenty of stories about well-funded efforts from inside China to manipulate access to the Internet, but it's the almost-certainly state-sponsored Stuxnet attacks on Iran's industrial infrastructure that provide the clearest early glimpse of what tomorrow's carefully targeted state-sponsored attack might look like. When a missile is launched, everyone knows where it came from. Cyberattacks are a very different story.

Second, we'll see more cyber conflicts between state-owned companies and multinational corporations, providing state capitalists with tools that give them a competitive commercial advantage. China and Chinese companies are by far the biggest concern here. Throw in Beijing's indigenous innovation plans, which are designed to ensure that China develops its own advanced technology, and this is probably the world's most important source of direct conflict between states and corporations.

Third, there is the increasing fallout from the WikiLeaks problem, as those sympathetic to Julian Assange unleash attacks on governments and the corporations that support them in targeting WikiLeaks and its founder. In fact, the principal cybersecurity concern of governments has shifted from potential attacks by al Qaeda or Chinese security forces to radicalized info -- anarchists undertaking a debilitating attack against critical infrastructure, a key government agency, or a pillar of the financial system. Whether attacks are waged for power (state versus state), profit (particularly among state capitalists), or for 'the people,' (as in the WikiLeaks case), this will be a wildcard to watch in 2011.

On Friday, we'll talk about Top Risk no. 4: China -- and why its policymakers will frustrate much of the international community this year.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

The most obvious clue that Alexander Lukashenko's MySpace page is a fake is that it claims he has 315 friends. The Belarusian President has no friends -- at least none that can help him maintain his political footing. It's nice to have pals in Venezuela and Iran, but Hugo Chavez and Mahmoud Ahmadinejad have moribund economies of their own to manage. That's why Belarus could become the latest former Soviet republic to face an economic and political storm.

Elections are coming in Belarus sometime in the next six months, and it doesn't take a crystal ball to know who's going to win. The opposition remains badly divided, and Lukashenko still controls the levers of power. He probably didn't need to rig the polls in 2006, yet he did it anyway. The need for a boost is more obvious this time, and he's likely to cheat again. In 2006, the fraudulent result triggered large public protests and scattered violence on the streets of Minsk. This time it's likely to be worse, and Moscow, the only valuable ally Lukashenko has ever had, is highly unlikely to throw him a life preserver.

In fact, the Russian government has had it with Lukashenko because it considers him a freeloader and an ingrate. The Belarusian president has scored political points at home by criticizing Moscow. Belarus has provided asylum to ousted Kyrgyz leader Bakiev, another authoritarian president who has antagonized neighboring Russia. Lukashenko has held up establishment of a customs union with Russia and Kazakhstan with demands for continuation of cheap oil and gas supplies from Russia.

The Belarusian economy is vulnerable. The economic slowdown among major trading partners in Europe and the former USSR has stalled the country's growth. Its current account deficit stands at 13 percent of GDP. Rising energy costs add to the problem as Gazprom, Russia's state-owned gas monopoly, pushes Belarus closer to market prices for gas.

With elections looming, Lukashenko's government is highly unlikely to cut state spending. He's right to wonder how long he would remain popular if he cut subsidies to help consumers buy fuel, froze wage and pension increases, and ended state spending that protects jobs.

And in response to the phony election of 2006 and the state crackdown on demonstrations that followed, the United States and the EU imposed sanctions. There's little reason to think they won't do it again if Lukashenko turns to the same old tricks.

Moscow won't shed any tears as Lukashenko flounders. Russian media have opened up on him in recent weeks, portraying him as an obnoxious, narcissistic thug. Prime Minister Putin doesn't work very hard to disguise his contempt.

Moscow is in best position to make Lukashenko more uncomfortable. As his relations with Moscow have worsened, Russia has moved to sharply reduce the energy subsidies that fuel the Belarusian refining industry -- and the broader economy. This year, Russia imposed full oil export duties on supplies and threatened to charge netback parity prices for gas next year. When Russia cut gas deliveries by 60 percent, Belarus threatened to up the stakes by passing the pain onto Europe. Russia supplies a quarter of the European Union's gas demand and pumps about 20 percent of the total through Belarus. The Russians, who can simply reroute those supplies through Ukraine, were not impressed. The two sides reached a compromise on Moscow's terms.

Russian-Belarusian energy supply and transit contracts must be renegotiated by the end of this year. A fight over energy is likely, and Belarus may face more supply cuts and damage to trade relations in other sectors that could generate turmoil throughout the Belarusian economy -- in the dead of winter and the middle of an election campaign.

If Russia really wants to punish the Belarusian president, it could refuse to recognize the election results. Moscow is highly unlikely to push that hard, but Belarus certainly looks like the next former Soviet state that could see some dangerous upheaval in coming months.

By Nicholas Consonery

On Saturday June 19, Beijing shook Washington and global markets with a landmark announcement that its currency, the renminbi (RMB), would become more flexible. The move caught many by surprise, including yours truly. I thought -- and argued earlier on this blog -- that Beijing's concerns about the fiscal crisis in Europe (which still seems to be getting worse) would likely delay action on the RMB. I was wrong.

At the onset, I'll say that my fundamental understanding of the Chinese government's economic priorities has not changed. Beijing still has tremendous incentive to protect its export-focused industries in the short-term, and the leadership has already made clear that it is very concerned about the potential spillover of a financial or even sovereign debt implosion into the European real economy. This could threaten the strength of Chinese exports to the continent and risk slower growth in China. So even though the RMB has become a bit more flexible, I expect we will only see very slow, crawling-upward appreciation against the dollar this year for these very reasons.

But if Beijing is so concerned about the strength of its exports, why pursue even slow upward movement in the RMB -- which would make Chinese-made goods more expensive? Especially when the currency is already appreciating on a trade-weighted basis; up by 3.37 percent according to the Bank of International Settlements?

The short answer is that Beijing is not impervious to foreign pressure, and became convinced that the potential downside costs of doing nothing outweighed the risks behind a small move.

This leads me to the current discussion over whether Beijing was more motivated by political or economic factors in moving on the currency. I think it's a false paradigm, because both factors were at play, and in China, everything economic is political. To my mind, the decision was economic, but the timing was political.

Let me explain my thinking:

First, Beijing's move on the RMB might actually have done more to protect Chinese exports than if they had done nothing. In moving on the RMB, Beijing is seeking to avoid foreign policy turmoil that could disrupt its economic goals. In other words, it became clear to Beijing over the past few months that if they did nothing on currency, the Obama administration might not be able to hold back congressional pressure to impose concrete punitive measures against imports from China. Beijing's move on the RMB made it far less likely that these punitive steps are taken, and thus the outlook for China's ability to continue (mostly) unhindered exports to the United States remains strong.

Beijing must have sensed -- more than I gave them credit for -- the growing likelihood of a punitive response from the United States on currency, and they were aware that the more visible and direct the critics in D.C. became, the harder it would become for them to sell a move domestically (which goes back to the point of risking a much more confrontational trade relationship with the United States). So they timed the move to accrue maximum political benefit -- perfectly coordinated to coincide with the G20 summit in Toronto this week. And they gamed us all ahead of time by greatly lowering everyone's expectations -- making even a very small move that much more gratifying. In doing so, they have all but silenced the international criticism and (momentarily?) eroded any broader support for the more punitive moves called for by leading China skeptics in Washington.

But another important point is that I don't believe Beijing would have made any change in their currency policy unless at least some contingent in the bureaucracy was arguing that it was in China's best economic interest to do so. And this is exactly the argument that's been waged within the Chinese bureaucracy for the past six months, where we've observed a consistent back-and-forth between policymakers at the Chinese central bank (PBoC) and the Ministry of Commerce (MOFCOM) on whether and when to proceed with exchange rate reform.

PBoC officials have been arguing consistently that RMB reform must move forward, both because of its immediate function in combating inflation, and because of its longer-term role in promoting the economic restructuring discussed above. But MOFCOM officials have been generally opposed, citing the potential downside risks of appreciation for export-focused industry. At the end of the day, it looks like May's positive economic data -- which showed a nearly 50 percent increase in Chinese exports year-on-year and a slight uptick in consumer price inflation -- convinced the top leadership that the PBoC was right, and that the domestic economy could still benefit from a very gradual appreciation of the currency despite the ongoing fallout in Europe.

The final point is that China's economic priorities are not simply limited to protecting exports. It has been clear, especially for the past year, that Beijing is becoming more serious about taking steps to reduce the economy's reliance on export and investment-intensive growth. The crawling appreciation I'm expecting for this year won't help much in this regard, but in a longer-term sense, Beijing clearly needs a stronger, more flexible currency to accomplish many of its economic goals, from promoting domestic consumer spending to strengthening the ability of Chinese firms to purchase inputs abroad (like natural resources), and fostering the domestic financial industry. The rising generation of Chinese leaders is clearly focused on pursuing these adjustments. In late May, Vice Premier Li Keqiang (who will likely become the next Premier in 2012) promoted this kind of economic restructuring in a consequential speech published in the leading Chinese Communist Party journal Qiushi. In his speech, Li specifically discussed the role that the RMB reform could play in rebalancing the domestic economy. Next time I'll take his words (a bit) more seriously.

Nicholas Consonery is a China analyst at Eurasia Group.

On Thursday, my new book makes its debut. It's called The End of the Free Market: Who Wins the War Between States and Corporations? Here's the book in a nutshell:

A generation ago, the collapse of communism made clear that government can't simply mandate lasting economic growth. To fuel the rising prosperity on which their long-term survival will depend, political leaders in China, Russia, the Arab monarchies of the Persian Gulf and other authoritarian states have accepted that they have to embrace market-based capitalism. But if they leave it entirely to market forces to determine winners and losers, they run the risk of enriching those who will use their new wealth to challenge the state's power.

Instead, they have embraced state capitalism. Within these countries, political elites use state-owned and politically loyal, privately owned companies to dominate entire economic sectors -- like oil, natural gas, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochem­icals, and other industries. They finance all these institutions with the help of increasingly large pools of surplus foreign cash known as sovereign wealth funds.

In the process, the state uses markets to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival).

And with Europe in turmoil, a politically paralyzed Japan, and high unemployment with rising public anger in America, state capitalist China's robust recovery from the slowdown is looking awfully attractive for would-be imitators across the developing world.

Read on

By Roberto Herrera-Lim

The on-the-ground situation in Thailand is changing quickly at the moment, and unrest could persist for quite some time. Red shirts are building forts out of spears and rubber tires in the middle of Bangkok's commercial district. Anti-Thaksin yellow shirts are threatening to take back the streets. Multicolored shirts are demanding that the government take a tougher stand on the red shirts. But one thing's for sure: The key elites that have -- for better or worse -- dominated Thailand's political landscape appear to be as incoherent and uncoordinated as they have been in decades in dealing with the polarization in the streets. That's why, regardless of the near-term outcome of the current crisis, the prospects for long-term stability are weak.

The so-called red shirts, anti-government demonstrators who support former Prime Minister Thaksin Shinawatra, now in exile, have occupied parts of Bangkok for the past 25 days. Clashes between protesters and security forces have so far killed at least 26 people and injured more than 1,000. Their numbers have dropped in recent days, though some red shirts in the countryside have reportedly removed their colors to pass undetected through military checkpoints as they enter the capital looking for a fight. The protesters have demanded early elections; the government has refused. In short, the government is close to a point of no return.

King Bhumibol Adulyadej offered the clearest signal yet on Monday that Thailand stands perilously close to serious bloodshed. With his first public comment on the unrest that has plagued his country for the past month, the ailing 82-year old monarch appeared briefly on national television to call on a group of the country's judges to "do the right thing" in maintaining law and order. The monarchy has been deliberately vague in the past, to fulfill its perceived role of guiding the country while maintaining an apolitical stance. Unfortunately, the long-awaited message from the king did not directly address the protests themselves, a sign perhaps that the monarch, hospitalized for the past seven months, fears he no longer has the clout to back the red shirts down.

Meanwhile, the military leadership, while still nominally on the side of the government, has hemmed and hawed on how to best deal with the protesters on the streets, maybe a sign of some hesitation on the part of army commander Anupong Paochinda to take responsibility for what will likely be a bloody crackdown so near his September retirement. It also reflects some doubt on the part of senior commanders on whether the lower ranks will hold in the worst case scenarios; talk of watermelon soldiers ("green on the outside, red on the inside") is rife. For this reason, Anupong may be trying to hold off some of his more conservative deputies, who believe that Thaksin, and by extension the red shirts, should be removed from any political equation.

Prime Minister Abhisit Vejjajiva, British-born and Oxford-educated, has raised alarms of "terrorist behavior" by the red shirt protesters, and wielded the royalist flag by claiming that the current crisis involves a "plot to overthrow the monarchy." Normally, the test for a leader hit by a crisis that, on its face, has the support of significant segments of the population, would test his mandate through elections, rather than revert to bogeymen.

And finally Bangkok may no longer be the elite's stronghold. Some local residents have taken to the streets, many under cover of darkness, to give aid and comfort to the red shirts.

Ominously, the government's warnings are based on assumptions that the old relationships will work, and that the key players can deliver the government from the red shirts, either by outlasting them or beating them back. Maybe the government's strategy will work. If the king's call for calm can help restore order, as it did during anti-establishment protests in 1973 and 1992, serious bloodshed can be avoided. Or the red shirts, many of them poor, will fade away as their resources wane. His government might then survive another few months, but the divisions will remain, and the center of power will continue to fray. In this case, the red shirts will simply return to fight another day, and the next protest, the next round of volatility, will only be a matter of time.

Roberto Herrera-Lim is an Asia analyst at Eurasia Group.

Hugo Chavez will hold his congressional majority in September's legislative elections in Venezuela. His support base remains strong. His government still exerts plenty of influence in rural regions of the country that are disproportionately represented in congress. A new electoral law will maximize the value of every pro-government vote. Majority control of congress will allow Chavez to dominate the legislative agenda in the run-up to a presidential election in December 2012.

But beneath the surface, his popularity across the country is headed downhill as Venezuela's economy buckles beneath the weight of its internal contradictions and an overloaded electricity grid leaves much of the country in the dark.

Venezuela's GDP shrank by 3.3 percent in 2009 -- and by 5.8 percent in the last quarter of the year -- according to latest central bank estimates. The country remains mired in recession while its Latin American peers have begun to recover. The government is spending freely on the back of higher oil prices in a bid to stimulate the economy, but growth prospects are limited by supply-side bottlenecks and strong disincentives for private investment. Venezuela's mix of heavy government spending with strict price and foreign exchange controls continues to feed inflation, which hit 26.2 percent on an annual basis in March. To keep a lid on the problem, the government has taken over or threatened to nationalize retailers that pass higher import costs to consumers. This strategy will probably make scarce goods still scarcer and prove unsustainable.

But the single biggest challenge to Venezuela's economic health may well come from strains on the country's power grid. Power demand has risen 6 percent a year over the past decade, outstripping the rate of expansion in generation capacity. Officials began rationing power at the end of 2009 and implemented a plan in February to cut electricity for up to four hours every other day across the country (with the exception of Caracas). Nationwide outages will weigh heavily on the country's ability to recover from recession by slowing production for the manufacturing and service industries, which together account for more than 25 percent of GDP and more than 30 percent of jobs in the formal sector. A state takeover of the last three privately run power generation companies in 2007 has reduced incentives to add capacity.  

Hard times are already taking a political toll on the president. According to respected local pollster Datanalisis, Chavez's popularity slipped from 61 percent following his February 2009 referendum victory to 43 percent in February 2010. More than 65 percent of respondents in the latest monthly poll think that Venezuela is in a "critical situation." Chavez's approval ratings remain well above the lows of 2003, when he survived a coup attempt and his support dipped to around 30 percent. But with Venezuela's economy running on fumes and the government unable to turn things around, Chavez's numbers will probably sink further.

Chavez still has formidable political advantages. He holds a virtual monopoly on Venezuela's resources and will take advantage of both higher oil prices and the fiscal boost provided by January's devaluation of the country's massively overvalued currency to increase government spending in ways that limit the economic pain for low-income voters. His government has a formidable patronage-based reach into Venezuela's sparsely populated rural areas, which are disproportionately represented in congress. The government approved an electoral law last year that favors Chavez by weakening the proportional representation system and allowing the largest single group to effectively sweep the elections. Meanwhile, the government-dominated national election council recently redrew electoral boundaries to maximize the impact of government supporters' votes and limit potential opposition gains.

After the September elections, Chavez and his United Socialist Party of Venezuela will no longer have the full control of congress they've enjoyed for the last five years. In 2005, the opposition boycotted legislative elections. With Chavez weakened, his rivals won't make that mistake again, and if they can present a (more or less) unified front this time, they will probably make some limited headway at the ballot box. But they're unlikely to win more than 35 percent of seats. Even a weakened majority in congress will allow Chavez to run the government with few checks or balances, but his political standing will become steadily more precarious as the recession drags on.

The country's oil wealth won't help as much as it used to. Production, now between 2.2 million and 2.3 million barrels per day, will likely stagnate or continue to decline in the next several years as state-owned oil company Petróleos de Venezuela, S.A. (PDVSA) sinks under the burdens of its spending obligations and poor management. In addition to transferring a growing share of its revenues to the government in royalties, transfers, and direct social payments, PDVSA is being tasked with buying and distributing food to combat shortages, on top of financing recent power infrastructure upgrades.

Given Chavez's tendency toward confrontation with foreign oil companies, multinationals are unlikely to make major investment commitments, despite the Venezuelan government's latest efforts to court these firms to develop new projects in the Orinoco region. With the country's oil production in decline, price hikes will yield diminishing returns. In 2006, the government needed to spend about $2.5 billion to generate a single percentage point increase in GDP growth. By 2008, it needed to spend more than $13 billion to generate the same increase.

With less revenue to dull the economic pain, a rising cost of living, and shortages of vital goods, apathetic voters who support neither the government nor the opposition -- and who make up half the electorate -- could step off the sidelines and return to the polls for the first time in years. Chavez will resort to authoritarianism as his popularity sinks, setting the stage for a volatile 2012 election campaign.

It will be harder than ever for Chavez to control what happens next.

Patrick Esteruelas is an analyst in Eurasia Group's Latin America practice.

Remember the "colored revolutions," the mostly peaceful uprisings that were said to mark a turning point in the history of the post-Soviet space? In 2003, we had Georgia's Rose Revolution, which replaced President (and former Soviet foreign minister) Edvard Shevardnadze with a young U.S.-educated lawyer named Mikhail Saakashvili. In 2004, a fraudulent presidential election result was overturned by popular outrage in Ukraine, lifting Viktor Yushchenko past Viktor Yanukovych. In 2005, Kyrgyzstan's Tulip Revolution elevated Kurmanbek Bakiyev to the presidency. Georgia and Ukraine have since talked of joining NATO. Kyrgyzstan continues to allow American forces to use an air force base in its territory as a line of resupply for troops in Afghanistan.

Western media celebrated these events as victories for democracy, and the Kremlin fumed over what it considered further Western encroachment into Russia's sphere of influence.

Since then, Saakashvili has stumbled into a brief but costly war with Russia, and he faces a rising chorus of complaints at home. Yushchenko left the presidency with a single-digit approval rating, and Ukrainian voters have elected Yanukovych president. And now Kyrgyzstan's Bakiyev has come face to face with a depth of fury he was not prepared to handle.

We shouldn't be surprised by the trouble in the Kyrgyz Republic. Half the population lives below the poverty line. Remittances from Kyrgyz working abroad, a vital source of revenue, have not recovered from the global slowdown. Rising fuel and utility prices, a crackdown on media, and public anger over widespread corruption and nepotism add to the list of grievances. Bakiyev won elections widely considered fraudulent in 2007 and again in 2009. In 2007, he claimed his party had won every seat in parliament.

Whatever the cause of this latest bout of post-Soviet turmoil, we've reached an important point: The last of the colored revolutions has gone south, and Russia may soon regain more of its lost influence across this strategically important region.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)

By David Bender

On March 7th, Iraq will hold its second parliamentary election and the world will again see pictures of Iraqis' purple fingers. But these images of democratic participation may obscure more than they reveal: Iraq's democracy is in trouble. Currently, only 28 of more than 500 banned opposition candidates will be permitted to run in the election. Through clever political and judicial manipulation, the opposition has been eliminated before election day and left with no clear constitutional or legal recourse.

Since January, an aggressive campaign to ban more than 500 largely Sunni and secular Shia candidates -- mostly from Iyad Allawi's largely Sunni and secular Shia Iraqiyya Alliance for alleged Baathist links -- has started to undermine the weak democratic process that was beginning to take shape in 2009. The Iraqiyya Alliance presented a non-sectarian alternative to the increasingly unpopular Iraqi Prime Minister Nuri al Maliki; and as a pro-US, secular nationalist, Allawi is a nightmare for pro-Iran factions in Iraq. With Maliki's support, the Justice and Accountability Council (JAC), which is charged with de-Baathification and is run by two notoriously pro-Iran figures, Ahmed Chalabi and Ali Faisal al Lami, ordered electoral bans against many Iraqiyya candidates linking them to Baathism.

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I've been comparing notes with my colleague and close friend Nouriel Roubini on political and economic expectations for a few key regions in the year ahead -- a back and forth that's resulting in a global forecast for 2010. 

Today, we begin with Latin America.

Ian Bremmer: I do think we can expect a solid recovery in Latin America in 2010, as most governments in the region profited from sharply improved macroeconomic fundamentals to survive the slowdown with minimal damage. But a busy electoral calendar over the next two years, highlighted by Brazil's presidential election in October, will tempt policymakers to inflate their political popularity via heavy state spending. Governments like those in Brazil, Mexico, Chile, and Peru will benefit from the sound macroeconomic policies of recent years. Political officials in places like Argentina, Venezuela, and Ecuador may find their popularity built atop shifting sands. The Cristina Fernandez de Kirchner government in Argentina, faced with rising inflation and an increasingly hostile congress, will prove especially vulnerable.

The really interesting story this year is in Brazil, where oil wealth and President Lula's popularity have seduced the government into less disciplined macroeconomic policy and a more statist approach to foreign investment and strategic economic sectors. Lula's preferred presidential successor, Dilma Rousseff, should be considered a slight favorite to win. If she does, she'll deepen state involvement in Brazil's economy. If opposition candidate Jose Serra wins, we'll see less bias toward state-owned enterprises and tighter fiscal policy. Whoever wins, there is one obvious wide-open sector for foreign investment: transport infrastructure. There's a lot of work to do to prepare Rio for the World Cup in 2014 and the Olympics in 2016.

Nouriel Roubini: Latin America is divided between economies that follow market-oriented policies (while attentive to social issues) such as Brazil, Chile, Uruguay, Colombia, Peru, and more populist governments in Venezuela, Bolivia, Argentina, and Ecuador. The latter group maintained its political popularity and solid economic performance given that commodity prices recovered, but some of these regimes are fragile and weakening. Venezuela's recent devaluation is a signal of a seriously mismanaged economy; in Argentina, the popularity of the Kirchner duo is faltering and the next president -- whoever he may be -- is expected to be more moderate and market friendly; Ecuador's Correa populism is kept in check by the popularity of dollarization.

Even in market-oriented economies, important structural reform challenges remain. In Brazil, Lula maintained macro stability (sound fiscal policy and independent central bank but with some recent slippages in fiscal discipline), but he failed in implementing structural and micro reforms that would accelerate the potential growth of Brazil. Implementation of those reforms will depend on whether Jose Serra or Dilma Rousseff is elected president. In Chile, Pinera will have to work hard to ensure that more aggressive market-oriented reforms don't lead to a return to greater income and wealth inequality.

Throughout Latin America, democratic transitions require that presidents (i.e., Uribe, Lula, Correa, and Chavez) avoid tinkering with constitutions and electoral laws to seek endless terms in power. Otherwise, the nefarious regional tradition of strongmen and caudillos will return. Alternation of power is necessary to strengthen democratic institutions.

Ian Bremmer is president of Eurasia Group. Nouriel Roubini is a professor of economics at New York University's Stern School of Business and chairman of RGE Monitor.

By Ian Bremmer and David Gordon

By far the biggest purely geopolitical risk in 2010 comes from Iran. Its government now faces growing pressure on three fronts. At home, the regime has had a tough time since last June's presidential election; hardliners had initially consolidated, but are now under intensifying pressure as domestic protests continue. Regionally, Tehran has lost considerable influence, with elections in Lebanon turning against Hizbullah, rising Iraqi nationalism making it harder for Tehran to exert influence upon their principal historic competitors, and Iran's financial outpost in Dubai put at risk by the growing influence of Abu Dhabi.

Globally, Iran faces a considerably tougher sanctions regime over its nuclear program, a push spearheaded by the United States, Europe, and Japan, with even Russia and China unhappy over Tehran's aggressive rhetoric. A Western push for negotiations will continue, but divisive local politics and insufficient leadership coordination make it very unlikely that Iran's leadership could reach a negotiated settlement even if it wanted one. And it doesn't. Even under considerable domestic pressure, the hardliners in charge of the regime will continue to try to buy time to achieve their nuclear ambitions.

That's why the government is likely to overreact to sanctions when they hit. 2010 carries the highest risk to date of Iranian provocation in the region, in the form of harassment of shipping in and around the Strait of Hormuz, support for radical organizations in neighboring countries, and instigation of trouble for Iraq and other neighbors in demonstrations of muscle. The Iranian regime looks increasingly like a cornered, wounded animal. In 2010, it's likely to act like one.

Israeli military strikes have actually become less likely -- certainly for the first half of the year as sanctions are put in place. Faced with strong opposition from the Obama administration (even as it uses the threat of strikes to gain support for sanctions and to pressure Tehran), mounting intelligence challenges on the location of key Iranian targets, and recognition of the military limitations of Israeli strikes, some Israeli government officials now privately are beginning to discuss how to cope with an eventual nuclear Iran as much as the nature of its "existential threat." Still, the perceived Israeli national security issue is enormous. Looking toward the final months of the year, the Israelis remain an important question mark.

Over time, if the regime in Tehran remains in power, the Iran danger will become more diffuse and start to look more like North Korea. It's clearly a significant long-term negative for global stability. Though for Iran itself, by 2011, we'll probably see a bunch of countries start thinking about how they'd like to start investing there, even as the Western powers seek to prolong sanctions.

Next up: Fiscal issues in Europe

Ian Bremmer is president of Eurasia Group, and David Gordon's is the firm's head of research.