In Brazil, economic adjustment will have to come from within the ruling party after the October elections. Complex political coalitions and a shared national social policy agenda have created a decade-long political convergence, where opposing parties have failed to distinguish their platforms for economic change.
Two months after the end of the World Cup, Brazil will hold general elections, choosing state and national legislatures as well as the president. Many within the international business and financial community are hoping for a change in national leadership. Generally, business is rooting for the Brazilian Social Democracy Party (PSDB), a centrist party committed to fair markets without ignoring the social realities of Brazil.
This change in political leadership is unlikely to occur at the presidential level. The Workers’ Party (PT) incumbent, Dilma Rousseff, has a substantial lead in all presidential polls. Even if the PT does lose in the elections, the federal system and complex political coalitions holding local governments together will prevent PT policies from being eliminated at the local level.
Fiscal adjustment, bureaucratic effectiveness and further financial openness are unlikely. Deviating from the current social policy regime and reducing spending would affect widely supported efforts to reduce poverty in Brazil’s northern states.
The PT’s lead in election polls had recovered to 38% in the past month because of the national team’s success in the World Cup and because the PT national convention rally was held in late June (in May, the PT’s support had waned from around 40% to around 30%). Influential political figures from PMDB also endorsed the PT in the October elections. As the incumbent since 2002, the PT has more state resources on its side and is fully expected to use the party machine to bring a second presidential term for Rousseff. There is also the question of ideological convergence within the major parties.
The PT, PSDB, Brazilian Socialist Party (PSB) and PMDB are all vast. They each have different intra-party ideological tranches. For the average Brazilian voter, it is difficult to grasp the difference in economic policy objectives between a PSDB and a PT administration. Federalism also plays a large role in the Brazilian ideological convergence; each Brazilian state has its own government with limited autonomy. There are numerous coalitions in each state between the four mentioned parties as well as local and single-issue parties. While the PT and PSDB fight on the national scale, they are governing together in some localities.
Rousseff’s 38% approval rating is far lower than her predecessor, the beloved Lula. This is attributed to a variety of reasons, but mostly because the economy has taken a tumble since Rousseff came to power. The medium voter’s pocketbook has severely deflated since Lula left office in 2010 and voters have seen the state invest heavily in projects such as the World Cup, which are not aligned with the PT’s bottom-up, consumer led growth approach. The issue of misappropriated state funds is a crucial campaign issue and it has brought centrist parties such as the PSDB and PMDB as well as the leftist PSB back into the race for the presidency and key local government seats.
The PT has lost ground during the current Rousseff administration. High commodity prices surely boosted incomes across different industries during the first decade of the 2000s. But the years of easy state revenues have ended, alongside China’s reduced consumption and the EU’s stagnation.
If Brazil is to improve the investment environment, it will have to do so under the current political leadership. Business will have to learn to adapt to a Brazilian development trajectory that is less open than that offered by the Pacific Alliance countries. As the largest market in Latin America, Brazilian policymakers can take comfort knowing that its market size is large enough to attract investment in less than optimal economic conditions.
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When Chilean president Michelle Bachelet and her center-left coalition won the election last year, it was clear that reform was on her mind. President Bachelet and the National Congress have signed a deal that will put nearly all the proposed reforms into place.
The centerpiece of the compromise is an ambitious plan to raise $8.2 billion in tax revenue – 3% of Chile’s GDP – to fund public secondary education. The plan has been the largest response yet to the three year-long Chilean Winter student protests that decried the country’s income inequality and poor public education system. The leaders of those protests are now part of Bachelet’s legislative coalition. Chile’s inequality has decreased in its two decades of democracy but remains the highest in the OECD.
To pay for an expanded educational system, the compromise will raise corporate income tax rates from 20% to 27% and drop the Taxable Profits Fund (FUT), a favorite tax break of conservatives and business leaders.
Continuing Chile’s long-standing commitment to fiscal responsibility, the plan is largely budget neutral. Finance Minister Alberto Arenas forecasts that the structural deficit will disappear by 2018 under the reforms.
Just four months after her second inauguration, Bachelet has already made her presidency transformative. Within Chile and abroad, this period could turn out to be a blueprint for middle-income countries, although risks associated with Chile’s dependence on the copper industry could spoil the legacy of the reforms.
Bridging demands of students and business
President Bachelet’s decisive election did not give her the wide mandate expected. On one hand, Bachelet had embraced the leaders of the Chilean winter protests into her coalition. Their agenda was as left-wing as one would expect from a prolonged student demonstration, with some describing the leaders as further left than the Communist Party.
On the other hand, Bachelet and her center-left party are firmly rooted in pro-market, free-trade and low regulation ideology that Chile has followed since the 1970s. Despite its connections to the brutal Pinochet regime, a focus on low taxation and small welfare state have been a mainstay of Chile.
In her first days in office, Bachelet reassured markets she would not overhaul the system: “We’re still committed to public-private partnerships and the free market, we’re still open to foreign investment and free-trade agreements. None of that is going to change.”
Bridging the gap between these two groups took great political skill. The reforms have tried to address this. Investment has increased and tax schemes that were widely abused and ineffective have been eliminated.
If the expansion of public education is successful in building a strong economy, Chile has the potential to join South Korea and Taiwan as counties to emerge from the middle-income trap. The way that Chile would have done it may be easier for other countries to copy than previous models of ‘escaping’ the trap. It offers a plan that is relatively appealing to a broader range of the political spectrum. Countries from Argentina to Malaysia would be able to benefit.
Reforms success depends on copper and China
No discussion of the Chilean economy is complete without including the copper market. As much as 20% of the nation’s GDP is tied to copper mining and exports, with the massive Escondida mine producing 5% of the world’s copper.
With such a dependence on the commodity, major fluctuations in global demand have a magnifying effect on Chile.
There are two reasons for concern for the Chilean economy and Bachelet’s reforms stemming from the copper market: the financial health of the state-owned mining operation Codelco and the slowdown in the Chinese economy.
Recent leadership changes underline the uncertainty facing Codelco. Previous leader Thomas Keller was replaced after not being able to work closely enough with unions. More worrying, however, is the state of investment in mining infrastructure. Only 5%of profits are reinvested, compared to nearly 50% by the private sector. New equipment will prove vital to the long-term viability of the business as it will allow Codelco to extract minerals from deeper in the earth.
Above all other risks, the risk of a Chinese slowdown is most worrying for Chile. Because of China’s voracious need for copper in infrastructure and housing, Chile is more vulnerable than any other emerging market to a Chinese slowdown.
Given the impact of the internaitonal copper market and Chinese demand on Chile’s economy, the success of Bachelet’s new reform compromise will likely depend on developments out of her control.
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Indonesia’s new President Joko Widodo brings a fresh face to a nation still finding its way as a global economic player. His commitment to subsidy reform and infrastructure investments could help diversify Indonesian exports, fuel economic growth, and appease the nation’s growing middle class.
The rise of Joko Widodo from furniture salesman to Governor of Jakarta and President of the world’s fourth most populous nation stands out in this year’s political news, bringing a populist reformer to the forefront of an Indonesian civil scene long dominated by military officials and the political elite.
Widodo, universally known as “Jokowi,” will be only the second democratically-elected President in Indonesia’s history, marking the first time that one popularly elected leader has cleared the way for another. His opponent, former army general Prabowo Subianto, said he would challenge the vote in the country’s constitutional court, but experts say a case would likely be dismissed given a lack of misconduct and a fairly decisive victory.
Indonesian political parties are already showing signs of moving behind the president-elect. Members of Golkar, one of the nation’s largest political parties which had initially backed Subianto, said they wouldn’t remain in a losing alliance when Widodo assumes the presidency in October. Broader support could give the new leader majority control of parliament, which often blocked initiatives of outgoing President Susilo Bambang Yudhoyono.
But parties have historically broken away from majority coalitions in the face of politically unpopular reforms. Widodo inherits a nation rattled by inadequate infrastructure, corruption, and a national fuel subsidy that eats up billions of dollars from state budgets each year. As one of the world’s leading suppliers of mineral and agricultural materials, Indonesia has suffered from falling commodities prices, increasing its trade deficit and further straining state budgets. The World Bank expects Indonesia’s economy to grow by just 5.3% this year, down from 6.5% just three years ago.
“We need to get our economy growing. To do that we must have more investment and deliver in terms of infrastructure,” Widodo told Reuters in an interview. Convincing investors to return to Indonesia, however, requires reforms that solve the unique economic challenges previous rulers have been unable to address.
Reform will clear the way for growth
Indonesia is an archipelago comprising some 13,466 islands, creating a unique infrastructural challenge for an emerging economy with a population of over 250 million. The nation lacks adequate infrastructure to accommodate a growing middle-class, leaving its roads jammed, its ports full, and its electrical grid heavily strained.
Indonesia boasts perhaps the most geographically diverse terrain in all of Asia, yet has one of the lowest ratios of road and rail distance to land area in the region. Many foreign companies, including Blackberry and Samsung, have indicated they won’t increase investment or local production until they see action on infrastructure projects.
Widodo made infrastructural investments a key talking point in the run-up to the election, bringing some hope that new bridges, roads, and ports will clear the way for greater foreign direct investment. FDI in Indonesia stands at just 3% of GDP, lagging far behind its neighbor, Singapore, at more than 20%.
But to secure funding necessary for infrastructure projects, Widodo must rein in a costly fuel subsidy regime that has strained state budgets for decades. Fuel subsidies cost the Indonesian government at least 7% of its budget since 2005, exceeding 25% of total outlays in 2009. And while subsidies are intended to help the poor, shielding them from shocks in global energy prices, the upper and middle classes receive the majority of the benefit. Some 90% of fuel subsidies went to the richest half of households in 2012.
Although Widodo has expressed commitment to reform, the stakes remain high. Recent attempts to rein in fuel subsidies led to nationwide protests, when gas prices rose some 44% in 2013. For investors, the clearest sign of a rebound in Indonesian growth will be how quickly Jokowi acts on subsidy reform.
Reining in the subsidy regime will also allow Widodo to secure investments in manufacturing and non-commodity-based industries. Commodities such as palm oil and tin have dominated Indonesia’s export base for over a decade, leaving the nation exposed to shocks and busts in commodity values.
In order to diversify Indonesia’s exports, Widodo has committed to cutting political red tape, and offer tax incentives to foreign companies. Fortunately for the President-elect, there is still enthusiasm in Indonesia’s potential. Automotive companies including Nissan and Toyota have been expanding factories in Indonesia to market to its thriving middle class, and others are likely to follow suit.
Widodo’s election has struck a positive initial note with investors as well. Foreign direct investment in Indonesia rose 7.3% in the second quarter this year, suggesting improved confidence in the Southeast Asian nation’s economic future under the new President. Singapore was the nation’s largest provider of FDI in the second quarter, followed by the UK, Malaysia, and Japan.
Jokowi provides Indonesia with a breakaway from the political elite, bringing into power a President who built his career around honesty and commitment to reform. Should he make good on his promises, Jokowi means better days ahead for Indonesia.
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Afghanistan’s disputed presidential election results have once again provoked fears about the future of the country following NATO’s withdrawal.
Abdullah Abdullah, Afghanistan’s former Minister of Foreign Affairs, and Ashraf Gani Akhmadzai, the country’s former Minister of Finance, were both candidates in the second round of Afghanistan’s presidential election. Now, they have agreed to form a national unity government, although the details of the coalition remain vague.
Both candidates have continued to spar over the results of the second round. In July, a preliminary count indicated Gani had won, but Abdullah refused to recognize the results, accusing his opponent of discarding two million votes, while Abdullah’s supporters threatened to form a parallel government.
Gani expressed hopes that the vote count would be completed by the end of the month, alleviating some of the uncertainty surrounding Afghanistan’s future. Northern provinces of the country had threatened to declare independence if power-sharing was not achieved.
The first round of the presidential election reflected the continuing importance of ethnic politics in the diverse Central Asian state. The majority of ethnic Hazara and Tajiks cast votes for Abdullah Abdullah, while the majority of Pushtuns and Uzbeks supported Gani Akhmadzai. Neither candidate won 50 percent in the first round: Abdullah won 42 percent and Gani 37.5 percent, requiring a second round of voting. Despite the continuing importance of ethnic politics, turnout was around 58 percent, indicating that Afghans are developing faith in democratic systems.
A further cause for concern was tension between the presidential campaigns: Gani’s choice for second Vice-President, Abdul Rashid Dostum, a former Uzbek warlord who fought alongside the Soviet Union in the 1980s and who maintains close ties to Uzbekistan, is a bitter enemy of Atta Mohammed Nur, powerful governor of Balkh Province and a close supporter of Abdullah Abdullah. Nur had fought alongside the mujahideen against Dostum during the Soviet-Afghan War.
Economists have warned that the political impasse has already done great harm to the country’s economy, leading to capital flight, decreased trade and falling property prices, putting plans for Kabul’s urban redevelopment on hold and likely worsening budgetary shortfalls, which currently total 20 percent of total government expenditures.
Recent violence has highlighted the continuing threat that armed groups pose both to the stability of Afghanistan and the surrounding region. An attack by an Afghan soldier on American General Harold J. Greene and his German counterpart German General Michael Bartscher resulted in the death of Greene and the injury of 12 people. An attack by a suicide bomber in late July killed Khashmat Karzai, the cousin of Khamid Karzai.
The most destructive recent attack took place in June in Karachi’s Airport, when the Islamic Movement of Uzbekistan, a terrorist organization that has often used Afghanistan as a base of operations, killed 39 people, highlighting the threat that Afghanistan could again pose to Central and Southeast Asia’s stability.
Meanwhile, Afghanistan’s neighbors are closely monitoring the situation. The Collective Security Treaty Organization, an umbrella organization of post-Soviet states, conducted military exercises in Kyrgyzstan in August in preparation for potential spillover from Afghanistan, while Russia has carried out military inspections of its Central Asian Military District to highlight readiness for dealing with a post-NATO Afghanistan.
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It came as a shock to most, and certainly to markets, when Greek PM Antonis Samaras announced that presidential elections would take place on December 17th rather than in March 2015.
Athens benchmark stock index fell 12.8 percent on Tuesday after the announcement late Monday, and the tailspin has been ongoing since. As stocks have nosedived, the yield on Greek sovereign bonds has soared. It rose to 8.158 percent on 10-year government bonds that Tuesday, and at the moment of writing, the yield has reached 9.15 percent.
The motivation for elections is PM Samaras’ declining sense of control, as his pledge to evict bailout lenders by the end of 2014 is likely to fail. The way yields on Greek sovereign debt have climbed since October has shown that markets do not believe Greece is ready to finance itself without assistance and to carry out reforms.
Moreover, the Greek parliament failed to elect Samaras’ presidential nominee, Stavros Dimas, a pro-European candidate. Samaras’ basis for authority has crumbled. The election is his attempt to reassert himself.
The timing of this election is quite tricky, as the bailout program propping up the Greek economy runs out in two months. Samaras has had to accept a precautionary credit line, the details of which are being ironed out with international lenders, and he might have to stick with the IMF program as well, until March 2016 as planned.
The hope is that the election will sweep uncertainty about the future aside, and provide a clear signal that Greece “wants to be solid.”
Markets jitters have been caused not only by Greece’s questionable creditworthiness, but also by the rise of far-left party Syriza, headed by Alexis Tsipras. Syriza’s calls for erasing Greek debt and ending austerity measures have resonated with the Greek populace. Currently, Syriza is leading the polls, with a 40-point platform. Their policies include:
It is no wonder that Syriza has drawn votes from austerity-weary Greeks, and that this has worried the markets. Its platform is tailor-made to please, and it reflects no accounting for viability.
In the event that Alexis Tsipras and his party wins, there will likely be tremendous uncertainty about the future of Greece. Claims from debt holders could also become a major issue, seeing as Syriza intends to renegotiate Greek debt. It will be down to a choice between Grexit and debt relief and restructuring.
Jean-Claude Juncker, head of the EU Commission, stated during a debate that he does not want Syriza to assume power in Greece. “I think that the Greeks […] know very well what a wrong election result would mean for Greece and the Eurozone.”
Should Syriza gain power in the election, Greece’s EU membership could become questionable. Samaras seems to hope that the threat of financial chaos will prompt independent MPs and MPs from smaller parties to back him.
His coalition counts 155 votes, and he needs 180. Significant entities will go to great lengths to prevent Syriza rising.
Political powers outside Greece, the IMF and EU are very keen to avoid the prospect of election victory for Syriza. If Syriza is leading in the run-up to the final vote on December 29th, Samaras is likely to promise some version of international relief to win over voters.
Although this is only a presidential election for a post, which in most matters is ceremonial, there is a risk that the Parliament will be dissolved if it fails to appoint a President. In such a scenario, national elections would be necessary, and here too, Syriza is ahead of the pack.
Given the daunting prospect of political instability and financial uncertainty, a far-left victory is less probable but not impossible.
Pierre Moscovici, EU Economic Chief said, “I believe if Prime Minister Samaras chose this way it’s because he’s confident in his capacity to have a successful election.” But if voters were predictable and politicians well-informed of their expected behavior, elections would hardly be necessary in the first place. This one is not a given, either.
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With next month’s election looming, the ruling party in Ethiopia will continue to retain power. As the country experiences massive economic growth, it also plays a crucial role in the region. Political freedoms, however, remain dismal.
The Ethiopian People’s Revolutionary Democratic Front (EPRDF) is the ruling coalition of four political parties that has been in power since the overthrow of the Derg regime in 1991. An essential part of East Africa’s security cooperation, Ethiopia is also a center of economic and diplomatic activity.
Although the EPRDF finds its early ideological roots in Hoxhaism and Marxism, it has wholly embraced the China Model. The country’s economy is skyrocketing. GDP growth is expected to remain around 7% in 2015.
But as Ethiopia closes in on becoming a Middle Income country by 2025, the issue of human rights and democracy will continue to haunt it.
Following the passing of Prime Minister Meles Zenawi in 2012, human rights advocates hoped the transition would mark a possible opening of political freedom. Meles had overseen a period of economic reform and growth. Between 2004 and 2011, the Ethiopian GDP grew 10.6% per year, double that of the rest of Africa. The EPRDF under PM Meles is credited for providing the stability necessary for foreign investment.
The torch was passed on to the late PM Meles’s deputy prime minister, Hailemariam Desalegn, who gave assurances with regards to political reform. Described as a technocrat and a party apparatchik, Hailemariam was instrumental in the reorganization and expansion of the EPRDF in the wake of the 2005 post-election unrest. He is also the first PM from the Southern Nations, Nationalities, and Peoples’ Region (SNNPR) in a party that is largely made up of ethnic northerners.
Voting irregularities, intimidation, and fraud prompted demonstrations and a subsequent crackdown by security forces following the 2005 election. Approximately 200 people were killed and thousands of protestors and opposition members were arrested.
The EPRDF’s efforts to silence critics and sideline opposition were rewarded again in the 2010 elections.
The worrying trend is continuing. Last July, the government sentenced 10 bloggers to jail for allegedly plotting terrorist attacks. Eskinder Nega and Reeyot Alemu are two such journalists who are still languishing in prison. The widely condemned 2009 anti-terror law is used by the EPRDF to keep dissent at bay due to government fears of a “color revolution” or a replication of the Arab Spring uprisings.
The Semayawi (Blue) Party is regularly accused by the government of harboring radical Islamists. The new opposition party was founded in 2012 and is primarily enthusiastic young people connected through social media, one of the last places of refuge from government control. The older, more established opposition party, Unity for Democracy and Justice, has seen its sole MP ostracized and even ridiculed in the rubber stamp parliament.
Despite this, Ethiopia remains a strategic partner for the international community.
As East Africa’s regional military and diplomatic power, Ethiopia is an essential part of US security policy in the region. The country’s intelligence agency and military have been an ally in the fight against Al-Shabaab in Somalia. In 2010, a $50 million project upgraded the Arba Minch International Airport close to the Somali border as an expansion of the US drone base.
The Ethiopian military is also a part of AMISOM (African Union Mission to Somalia), with 4,000 troops as part of the peacekeeping contingent. Just as in 2010, the US government is not in any hurry to pressure the EPRDF into transitioning to genuine political pluralism and loosening restrictions on speech.
Ethiopia is one of the largest recipients of USAID’s Africa budget. It remains to be seen how ongoing USAID human rights programs at the grass-roots level will play out. $534.4 million was spent in 2014.
The capital of Addis Ababa is the headquarters of the African Union and PM Hailemariam is currently the chair of the Common Market for Eastern and Southern Africa (COMESA). Across Addis Ababa, construction projects are everywhere.
China is a close partner and has major investment and infrastructure development underway in Ethiopia. China’s manufacturing sector is taking off rapidly, despite a sometimes testy relationship with local workers.
In a recent sign of growing regional trust and cooperation, a $4.8 billion deal was struck between Ethiopia, Egypt, and Sudan for the water resources that would power the Great Ethiopian Renaissance Dam. The stability brought by the EPRDF has brought foreign aid and prosperity which, for now, ensures widespread public support.
The legacy of Singapore’s late Lee Kuan Yew has won praise internationally, but it is precisely this model of economic reform coupled with authoritarian tactics that is put into practice by developing countries. The demonstrations seen in 2005 could appear again after May’s parliamentary vote. The bleak aftermath of the Arab Spring, however, may have left many Ethiopians with little appetite for democracy.
As the Ethiopian ruling party celebrates their economic success ahead of May’s election, they should be mindful that the growth of the middle class comes with an increase in education, a population with a global outlook, and desire for a say in how to share the wealth. The EPRDF would be wise to begin implementing reform, whether it faces a color revolution next year or in 2025.
In the meantime, the region’s security needs and the coinciding economic boom will fail to make any attempt of political reform a reality.
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Although the subnational election results in March confirm MAS’s overall leadership in Bolivia, the close call serves as a reminder that MAS needs to do more to strengthen their control. Social and political changes must occur in order to prevent economic obscurity in Bolivia.
After nearly a decade of political domination, President Evo Morales’s Movement Toward Socialism (MAS) party suffered an electoral setback in regional elections for governors and mayors on March 29, 2015.
Popular uprisings helped paved the way to the 2005 election of Evo Morales, the country’s first indigenous president and a leader who promised to bring socialist and anti-imperialist changes to the indigent but resource-abundant nation. The campesino and indigenous movement leaders of the 2000s are mainly aligned with MAS.
Last October, Morales won re-election to a third term with 61% of the vote. Opposition candidates won the governor’s office in the La Paz region and the mayor’s seat in El Alto, the capital’s poorer sister city. La Paz’s opposition mayor, Luis Revilla, was re-elected.
Now, in early 2015, the governing MAS party is less popular and has been continually plagued with corruption scandals, critiques concerning heavy dependence on extractive industries, and high levels of violence against women.
With economic obscurity in countries like Argentina, Brazil, and Venezuela, and with the value of gas exports to major markets decreasing by almost 30% since 2014, Bolivia faces challenges that could bring about a decline in the nation’s agriculture business and manufacturing exports. Luís Arce, Finance Minister for Bolivia, recently lowered GDP growth projections for 2015 to 5%.
However, a continuous decline could some conditional transfer programs at risk, such as the two-month wage or doble Aguinaldo (compensation) granted by law in the last two years. In addition, the bonos (conditional cash grants) programs are financed chiefly through hydrocarbon profits, as is much of the state’s funding to subnational levels of Bolivia’s government.
New data from the International Monetary Fund states that economic growth in Latin America and, by extension, Bolivia has declined for the fourth consecutive year. Thanks to record-low global product prices and continuing political problems, growth isn’t expected to rebound anytime soon. A continued decline will surely add fuel to both political and economic instability.
The MAS government program ratified in last year’s election plans a major focus in the next period on manufacturing initiatives and an expansion of the domestic market to boost provisions and industrial self-sufficiency. Furthermore, the initiatives offer an alternative to current restricted programs concerning education and health by expanding upon nationwide programs. In order for the government to bring Bolivia out of economic obscurity, the ratified programs promised to the people need to be transparent and readily assessable.
Future success in Bolivia will require much-needed social and political changes that can expand a better-served democratic system, integrate engagement and advocacy practices, and help to overcome old and simplistic modes of thinking and action.
This particular mindset needs to be present, especially in social movements, so that the when the public meets with leaders from Morales’ MAS party, they have the right approach to discuss economic opportunities and the road ahead.
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The UK heads to the polls in a hotly contested election. The US Department of Labor releases April’s unemployment figures. Canada’s largest oil producing province votes on a new government. Opposition forces protest a perceived power grab in Burundi. All this in GRI’s Weekly Risk Outlook.
UK Election Likely to Produce Chaotic Bids for Supremacy
On Thursday, the voters of England, Scotland, Wales and Northern Ireland will cast their ballots for the expected 5-year UK parliamentary session from 2015-2020.
Although many have focused on the Conservatives amid allegations that the party will seek to reduce welfare spending after the election, and Labour, whose candidate has been deemed fairly lackluster, a significant degree of attention has turned to Scotland, where the Scottish National Party could pick up all (or at least a very high proportion) of Scotland’s 59 seats.
Should a true wipeout occur – and it seems likely at this point that while Labour will not receive a majority of seats, it would probably be able to secure a majority with the SNP – several high-profile MPs could lose their positions in the British Parliament.
Jim Murphy, leader of Scottish Labour, is projected to lose his East Renfrewshire seat. Deputy Treasury Secretary Danny Alexander is on track to lose his Inverness seat to the SNP, and Secretary of State for Scotland Alistair Carmichael may also lose to an SNP wave. Both former Chancellor of the Exchequer Alistair Darling as well as former Prime Minister Gordon Brown intend to step down from their seats.
Aside from placing initial negotiations in an extremely awkward position – Ed Miliband stated last week that he would rather not be Prime Minister than make a deal with the SNP – the loss of such significant heavyweights both for the Liberal Democrats as well as the Labour Party could make for more difficult negotiations beyond the 2015-2020 term.
U.S. Releases Unemployment Data
On Friday, the U.S. Department of Labor will release April unemployment figures. Expectations are that approximately 200,000 non-farm jobs were created with a slight drop in the unemployment rate from 5.5% to 5.4%.
This will be an increase in job support from March, where the unemployment rate remained the same and employment only rose by 126,000. Although the development is a positive one, it is unlikely to convince the Federal Reserve to alter its current dovish approach to raising interest rates.
Original projections of a March increase were moved to June, which have been moved to September. Some analysts suggest there will be no rate increase at all this year.
The release of data will follow a series of macroeconomic policy discussions in Washington, DC:
On Wednesday, Federal Reserve Chair Janet Yellen will deliver remarks regarding global economic growth with IMF Director Christine Lagarde.
On Thursday, the Securities and Exchange Commission will hold a closed-door meeting to discuss policy proposals.
On Friday, SEC Chair Mary Jo White will speak at the Investment Company Institute’s General Membership meeting.
Elections in Alberta Could Complicate an Already Difficult Energy Relationship
On Tuesday, Alberta, Canada will hold provisional legislative elections. The Progressive Conservative Party, which has ruled Alberta without interruption for 44 years, could lose its preeminent 70-17 legislative supremacy to both the more conservative Wildrose Party and the ascendant New Democratic Party (NDP).
Many commentators have pointed to a rapidly weakening economy as a chief problem for the oil-driven province: deficits are expected to exceed $4.1 billion this year as a result of the collapse in oil prices, and Premier Jim Prentice has carried out a series of unpopular tax increases that have avoided Alberta’s corporate sector and oil royalties.
In addition, the Conservatives have been roiled by scandal, and NDP leader Rachel Notley has been successful in expanding the NDP appeal beyond Edmonton to create a serious race between the three parties.
The effects of an NDP victory in Alberta could be significant in the energy sector. The region is Canada’s largest oil-producing province and a gateway of energy trade between Canada and the United States, and a chief proponent of the controversial Keystone XL pipeline running from Alberta to Louisiana.
Notley has indicated she will place less government resources behind “unrealistic” pipelines under lawsuit (like the Northern Gateway line to British Columbia), and will consider increasing oil royalties to fix budget gaps.
Additionally, an NDP government in Alberta would likely reduce pressure on the Obama Administration to move more quickly on the State Department review of the Keystone XL pipeline. Both countries have seen increased scrutiny on the safety of the oil industry, which has led to tightened regulations.
Protests Set to Continue in Burundi Ahead of June Elections
Last week, opposition forces gathered in Burundi to hold protests in the capital, Bujumbura, following an announcement from the ruling party CNDD-FDD that incumbent President Pierre Nkurunziza will run again for president on June 26. A 2-day cease to protests will likely end either Monday or Tuesday as opposition forces gather in the capital to denounce what is perceived by many in Burundi and the region as a power grab.
Although there is some dispute regarding whether or not Nkurunziza can run again, regional leaders like Tanzania’s President Jakaya Kikwete have urged President Nkurunziza to abide by the growing consensus that he is ineligible to run for another term and should step down. The President’s allies contend that his first term did not count in the 2-term limit, as he was appointed by Parliament.
The United States and several international organizations have warned that such a move would violate not only the Burundian constitution but the Arusha Accords as well, which ended a 13-year civil war in 2005.
Nkurunziza has held the position of president since 2005, and there are significant concerns that political protests could spark ethnic tensions (the Burundian government has labeled many protestors terrorists).
Over 20,000 Burundians have already fled to neighboring Rwanda and Tanzania in anticipation of significant violence, and any electoral instability could wipe away significant progress in Burundi attained since the civil war ended.
Violence in Burundi has taken a heavy toll on the Burundian economy. The nation was ranked in 2013 as the “hungriest” country in the world, and its commodity-heavy economy (34% of exports are coffee products, followed by 25% gold and 6.6% tea exports) has taken a hit by falling commodity prices and the slowdown of the Chinese economy.
The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Weekly Risk Outlook is written by GRI analyst Brian Daigle.
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With the new Liberal majority government in Ottawa, it is key for investors to look at the economic platforms of both opposition parties to see what was offered to voters to undo nine years of Stephen Harper’s administration.
After nine years of Conservative rule, there is substantial discontent in Canada with the ruling government and PM Stephen Harper, in particular. As of October 18th almost 70% of those polled have indicated that they are not voting for the incumbent Conservatives.
Canada’s first-past-the-post electoral system could have seen the Conservatives win a minority, yet the general consensus was that the Liberals – headed by Justin Trudeau (left) – looked most likely to form government, albeit also a minority. This in turn put the New Democratic Party (NDP), headed by Tom Mulcair (centre), in the kingmaker position to underwrite a Liberal government.
The commanding Liberal majority surprised many, especially given the similarities between the main left-of-centre parties. Consequenrtly, it is important to look at some of the economic policies that were on offer.
1. Taxation
Both parties proposed changes to the tax code in the name of protecting the middle class and jump-starting economic growth. Currently the Canadian economy is sluggish and flirting with recession. It is weighed down by low oil and commodity prices, and a lack of investment, with businesses sitting on CAN$680 million in ‘dead money’.
The main economic difference between the parties is that the NDP campaigned on balancing the budget in a platform based on refocused national priorities, while the Liberals will run several modest deficits at under $10 billion a year to invest in the economy and take advantage of low interest rates. Despite this difference, both seek to reduce Canada’s already low federal debt-to-GDP ratio from 31% to 27% by 2019.
The Liberals are touting a twofold federal tax rate readjustment: firstly, a reduction from 22% to 20.5% for individuals making between $44,700 – $89,401, and, secondly, increasing the top tax bracket to 33% for those earning over $200,000. This increase is projected to bring in $3.4 billion, yet some economists have voiced concern, as said increase would push the total tax rate to above 50% in many provinces.
The NDP in turn vowed not to increase personal tax rates, instead seeking to increase the corporate tax rate for large corporations from 15% to 17%, an increase – to 28.3% including provincial taxes – that keeps Canada under the G7 average of 29.9% and American rate of 39%. Both parties also pledged to reduce the federal corporate tax rate for small and medium businesses from 11% to 9%.
The NDP also sought to raise $500 million from closing the stock option tax loophole that allows executives to avoid tax on salary received as stock options. The Liberals have a similar stance, yet are exempting those who receive up to $100,000 in annual stock options; noting that such options are useful compensation tools for startups.
2. Infrastructure
A large part of the Liberal’s deficit spending will be focused on infrastructure revitalization and expansion. Specifically, Trudeau has promised a fourfold increase in transit spending, at $20 billion over ten years. In total, the Liberals are pledging to double national infrastructure spending to $125 billion over ten years.
This national spending drive will in part be facilitated by a new Canada Infrastructure Bank, which will use the federal credit rating to offer loan guarantees and small capital contributions to provinces and municipalities.
Similarly, the NDP presented its Better Transit Plan, which allocated $1.3 billion annually for 20 years. This is in addition to the $1.5 billion increase in annual provincial infrastructure transfer payments by 2019. Together the NDP’s investments were projected to create 54,000 jobs in transit and construction, and add $4.5 billion to Canada’s GDP per year.
3. Trans-Pacific Partnership
The TPP has become an election issue in Canada as both opposition parties have criticized the Conservatives for signing up to the deal whilst being a caretaker government, during an election. The secretive nature of both the TPP negotiations and the Conservatives have riled the Liberals and NDP: both parties rejected an offer by the Conservatives for a closed-door viewing of the deal’s details.
The Liberals have expressed their support of the TPP in theory, but are calling for greater transparency going forward. The NDP have come out more strongly against TPP, stating they will not be beholden to a deal signed by a caretaker regime during an election.
4. Natural resources and the environment
Both parties claim to reject the false dichotomy of either growth or environmental sustainability, and as such have proposed policies to promote a green economy. The Liberals have stated they will endow the Low Carbon Economy Trust with $2 billion to promote low-carbon growth.
Trudeau and Mulcair both proposed to introduce Green Bonds as a low-risk means to fund clean tech and alternative energy growth. Specifically, the NDP hoped to generate $4.5 billion for clean energy development via said bonds.
The parties do diverge on Keystone XL, with the Liberals in favour of the project, whereas the NDP has long been against it. The NDP argues against the export of refining jobs to the US, with Mulcair having traveled to Washington in 2013 to counter Harper’s promotional efforts for Keystone. It is important to note that both parties advocate sustainable oil sands development, yet are pledging to remove subsidies for oil companies.
Despite its Keystone XL stance, the NDP remains broadly in favour of developing Canada’s natural resources, having made a $1 billion commitment to fund environmental assessments and development of Ontario’s ‘Ring of Fire’ – a highly promising mining basin. The party also promised to extend the Mining Exploration Tax Credit to further spur investment in the sector.
A post-Harper Canada?
The Liberals and NDP have sought to frame the election as one about rectifying socioeconomic inequality, yet investors should be assured that these sentiments have not resulted in drastic pledges. That said there does exist a notable anti-austerity vein in the electorate after nine years of belt-tightening, as well as feelings that Harper’s pro-business tax breaks have failed to produce growth.
Hence, bipartisan promises of substantial increases in infrastructure spending offers opportunities for construction firms. Similarly, promises to boost transit could see lucrative rail and bus contracts emerge, aiding firms like Canada’s Bombardier. Moreover, fears about stagnation in the mining and oil sectors are overblown as both parties are interested in responsibly developing different facets of these sectors, albeit with a focus on further diversifying the economy.
This election was the longest in Canadian history since 1878 and was a three-way tie for most of that time: Monday night finally put it to rest.
The post Four key economic issues in Canada’s election appeared first on Global Risk Insights.
In this debate series, GRI asked whether the Democrats or Republicans have a less politically risk vision in the 2016 presidential election. Jeff Moore presents why the Republicans’ vision of free markets, reduced regulation, and lowered taxes are best for the United States. Read the Democratic side here.
Political party nominations for 2016 U.S. presidential candidates have started in earnest with the conclusion of the Iowa caucuses. But more than just selecting a candidate, the nominating system allows each party to begin to make a case for why their party is the best choice for America.
In the upcoming U.S. presidential election, voters must decide: Which party has the better economic vision?
In the search for an answer, one’s sights fix upon competing corporate and personal tax plans; conflicting proposals for business and market regulations; marked strategies to increase employment and elevate wages; and contrasting blueprints for economic growth.
However, it soon becomes apparent that when it comes to economic policy, the whole is greater than the sum of its parts. Indeed, combining the separate elements of tax, regulatory, growth, and monetary policies put forth by each party results in two distinct economic visions.
For the Democrats, that vision entails government-driven investment and demand, government mandates on wages, expanded regulation of businesses, and a ‘fair’ tax system aimed at redistribution of income and wealth. Democrats offer an economic vision of government control, predicated on central planning and a disregard for private property rights.
For the Republicans, that vision calls for market-driven investment, reduced and simplified regulation on businesses, stable and predictable monetary policies, and lowered taxes on the earnings of individuals and corporations designed to encourage sustainable, market-driven economic growth. Republicans offer a vision of economic freedom, founded on free market principles and a respect for individual rights.
A considered focus on these points reveals that Republicans have the better economic vision for 2016.
While observable examples of pure economic theory put into practice are elusive, the economic visions of the United States’ two political parties can safely be described as striving towards the ideals of either of two categorical systems: Keynesian ideals for Democrats, and Classical ideals for Republicans.
Keynesian economics, spearheaded by John Maynard Keynes in the 1930s, holds that economic activity is driven primarily by aggregate demand and that the volatile booms and busts of the business cycle can be moderated by state intervention. These interventions should take the form of direct fiscal and monetary stimulus by the federal government, including public works projects, infrastructure investments, and even direct payments to individuals.
Such Keynesian spending measures made up a great many of FDR’s ‘New Deal’ programs during the Great Depression. More modern examples include President George W. Bush’s (R) stimulus checks in 2001 and President Barack Obama’s (D) stimulus package in 2009. All were aimed at stimulating demand to soften major economic contractions. However, contrary to theory, evidence suggests that the practice of such state intervention not only failed to stimulate growth, they actually hindered genuine economic recovery.
Classical economics, on the other hand, posits that economic resources are best allocated according to the inclinations of individuals and businesses that own them, thus requiring a free-market system with little to no government intervention. By extension, in the face of declining economic activity the most stimulating measures the federal government should take are to reduce government expenditures and lower the tax burden on individuals and businesses.
Perhaps one of the best examples of this classic approach was the government’s reaction to the Depression of 1920-1921. After World War I, the U.S. economy fell into a severe deflationary recession. In fact, deflation was worse during this period than even the Great Depression, and unemployment spiked to nearly 12% in 1921.
In a dramatic response to the crisis, government cut spending by an incredible 65% in one year. They mostly left the rest up to the free market itself. Had they been around, Keynesians would have surely cringed. So what happened? The unemployment rate was nearly halved in one year, and by the next year had dropped to an astounding 2.3%. What followed was one of the most prosperous periods in U.S. history.
In general, the ideals of free-market, classical economics envisioned by Republicans produce the most vibrant and resilient economies; not the interventionism and government spending of Keynes and modern Democrats. Still, a few specifics warrant further inspection.
Both winners of the recent Iowa caucuses, Democrat Hillary Clinton and Republican Ted Cruz, include regulatory initiatives as part of their economic platform. The Democrats favor heavier regulation of Wall Street and big corporations, while the Republicans largely support reduced regulation on businesses to allow entrepreneurs to do what they do best.
From the Environmental Protection Agency, to Obamacare, to Dodd-Frank, there is no shortage of red tape regulating our economic lives. Democrats seek to bind businesses with even more layers, including mandated increases to minimum wages and further restrictions on banks.
However noble the intentions, overregulation actually hurts economic activity. This is especially true for small businesses — those the Democrats purportedly aim to help. The reason is that the cost of compliance is much more difficult to absorb for small operations and can even put them out of business, eliminating jobs and increasing poverty.
Larger corporations, by comparison, absorb these costs relatively easily, employing teams of lawyers and accountants to comply with new rules. Complex regulations actually benefit big business in this way, as they eliminate fledgling competitors and protect corporations’ market share.
In order to create an environment where businesses and jobs are easily created and give them the best chance to contribute to economic growth, reductions in regulation are needed. Taking scissors to this red tape, as proposed by Republicans, is actually better at creating a ‘level playing field’ for small businesses.
Higher levels of economic freedom dramatically increase prosperity, economic growth, and quality of life. Here again, the Republican vision for lowered regulatory burdens carries the day.
There may be no starker contrast between the parties’ visions than in their approach to taxes. Democrats favor an increasingly steep progressive system that taxes the highest earners at exponentially higher rates than others. Their argument is that the highest earners can most afford to pay more — and the lowest earners, less — so such a system is most fair. Further, Democrats argue for higher taxes on capital gains from investments in order to reclaim Wall Street’s ‘unfair’ advantage.
Republicans have some variance of progressivity in their income tax plans, but recent trends place lower, flatter income taxes firmly within their field of economic vision. Iowa caucus winner Ted Cruz proposes a flat tax. Under this system, all earners pay the same rate, and by eliminating a score of deductions and loopholes, tax bills are proportional to income. A Republican vision lowers taxes on capital gains and corporations to encourage investment and business growth.
So whose tax plans represent the better economic vision? By the laws of economics, the higher the tax on an item or activity, the less you will get of it due to natural incentives associated with production and investment decisions.
Consistently, studies have found that taxes have a negative relationship with economic growth. Moreover, study after study shows that lowering rates of corporate and personal income tax, especially, yields increases in growth.
Considering the wealth of evidence, there is no need to belabor the point: Republicans’ proposals for lowered corporate, personal, and capital gains taxes elicit increased economic growth, while Democrats’ higher rates inhibit growth.
There is perhaps no greater testament to the virtues of Republicans’ vision of economic freedom than the United States of America herself. Within the context of human history, the United States represents the most audacious experiment in codified individual freedom the world has ever attempted, resulting in the most prosperous nation the world has ever seen.
It is no accident that the opening words of the Declaration of Independence are of the joining of political and economic freedom, as they are inherently one and the same. Thomas Jefferson’s words describing an individual’s unalienable rights to “life, liberty and the pursuit of happiness” were in fact a simplification of George Mason’s words in the Virginia Declaration of Rights: “life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.”
The Founding Fathers understood that economic freedom is integral to individual sovereignty. Even barring the myriad of incursions, that core freedom has yielded the greatest economic growth engine of all time. Two-hundred and forty years later, the economic vision of Republicans – a projection of free markets, reduced regulation, and lowered taxes – most honors this principle. The greatest risk to economic growth in 2016 is that voters choose not to see it.
The post Why Republicans have the best economic vision for 2016 appeared first on Global Risk Insights.
Fadumo Dayib is the first woman to run for president of Somalia in the upcoming 2016 elections. Strongly influenced by patriarchate and clans, the country has been devastated by conflicts. Being an educated woman that fights against corruption, nepotism, and injustice puts a huge target on Fadumo Dayib’s back. Will she embody Somalia’s hope for 2016?
Fadumo was born when her family was forced to leave Kenya. She lived a nomadic life until 14 years old, when in the 1990’s, the permanent instability and deteriorating civil war on the Horn of Africa compelled her family to flee to Finland.
Illiterate until then, Finland gave her the opportunity to get an education. A governing principle of her campaign is that she wants to give Somalis the same opportunity Finland gave to her when she was a refugee herself.
She decided to run for president when she was working as a United Nations health specialist in Liberia. She saw Liberia as a true role model for post civil war reconstruction, and she asked herself why Somalia could not do the same.
“85% of the Somali population is under the age of 35 yet they don’t have a means of livelihood or the ability to visualize a better future for themselves”, Fadumo says in a promotional video. “The current situation in Somalia is really one that we cannot afford to continue maintaining.”
A bumpy road for the first female candidate
To be the Somalia’s first female presidential candidate comes with inherent difficulties. She bluntly declares that politics in Somalia is restricted to men with gray hair. As an educated woman, Fadumo’s campaign was not easily accepted, especially since her program mainly focuses on fighting corruption and therefore targeting the current government.
Today, she is facing threats that prevent her from campaigning in Somalia without endangering her life, and she does not have the financial means to guarantee her security. As a result, she mainly uses social media to raise awareness.
Fadumo has started an internet fundraising program where everyone can give according to their resources and where the distribution of money is fully transparent.
In contrast, she is facing undemocratic elections without universal suffrage. As in previous elections it is the Parliament that will elect the president, therefore excluding civil society from any political participation. This is a heavy blow for Fadumo who receives her principal legitimacy from civil society support. She will need to campaign hard to convince deputies of her own credibility and encourage them to take an interest in the issue of inclusion of women in the political decision-making process.
Another issue she is fighting is the clan-based system of Somali politics. Clan membership form the basis for political allegiance and is seen as one of the main causes for the conflict. Fadumo strongly encourages emancipation from the clans.
While she is willing to work with their leaders, she does not want to share power with the largest clans on the same level as today.
Dealing with Al-Shabbaab
Al-Shabbaab took advantage of the government’s weakness and the divided Somali society when they emerged in 2006 as a radical militant group seeking to establish a state ruled by Sharia laws. Since then, terrorist attacks against Somalis and foreigners have been common practice.
Their most infamous action came in 2013, when Al-Shabbaab attacked the Westgate shopping mall in Nairobi and killed 68 people. They have, however, also addressed real social and economic issues in Somalia.
The group promises recruits to earn a salary in a country where the unemployment rate for youth aged between 14 and 29 was 67% in 2012. For many young Somalis, joining Al-Shabbaab is synonymous with earning money and providing for their family, which they often cannot do by other means.
Stabilizing the region and establishing security requires including the Somali military and police forces in the national peace process. In order to guarantee the security forces’ efficiency, they need to be paid enough to provide for their families and avoid being drawn into corruption.
Furthermore, as a sovereign country, Somalis must address Somalia’s security issues. Western countries can provide advice and technical support, but the problem remains a national one, so the solution must ultimately remain in the hands of Somalis, according to Fadumo.
In her interview with Le Monde, she explains her intent to invite the Islamist group to negotiations. However, she underlines that this would be possible only if three conditions are respected.
First, the group must disarm, second, they need to renounce their affiliation with international terrorism, and third, they must stop perpetrating attacks in Somalia and abroad. If those three conditions are not accepted, she believes the group can be easily neutralized by targeting their recruitment channel through education. Educating the young people is key to Fadumo’s program to change Somalia’s structure as a whole.
Fadumo Dayib wants to start from the bottom and reconstruct a political system that is badly damaged by corruption. However, her ultimate goal is not to win, but rather to change mindset and offer opportunities that Somalis do not have today.
One way to reach this goal is to defy patriarchate and privileges that constitute the cornerstone of Somali’s power. Fadumo Dayib will perhaps not be the future president of Somalia, however, 2016 might certainly be a year for upcoming changes in Somalia.
The post A portrait of Fadumo Dayib, the hope of Somalia’s future? appeared first on Global Risk Insights.
The next Irish general election will probably see the current leader re-elected. But the potential for intense coalition negotiations is here and Ireland is set to move slightly away from fiscal rigor, thanks to its vibrant economy.
The European experiment is facing setbacks on a number of fronts, as the refugee crisis and UK renegotiation of its membership top the list of worries in Brussels.
Yet there is hope for a silver lining, as the Irish prepare to vote in a general election on February 26th. Last year, each of the countries that received a bailout in the depth of the euro crisis elected or gave rise to anti-austerity parties in general elections, resulting in political uncertainty and serious turmoil in markets.
EU officials hope to see this momentum reversed when the Irish vote on February 26. For that, they are counting on Ireland’s current Prime Minister Enda Kenny and his liberal-conservative and Christian democratic party, Fine Gael.
That said, a clumsy communication during the campaign and uncertain coalition talks resulting in short-term political uncertainty could cause a few scares in Brussels.
The few international headlines that have mentioned Ireland these past few years have mostly highlighted the strong economic recovery the country is experiencing. Since the current government took office in 2011, the country has become the best performing economy in the Eurozone with 6.9% GDP growth (the same as China) in 2015 and an expected 4.5% for 2016.
What is particularly impressive about this performance is that Dublin managed to expand economic activity while reducing its budget deficit by implementing the Brussels approved fiscal discipline — with spending cuts and tax increases equivalent to about a fifth of the economy. Even more remarkable are the job market figures, with unemployment expected to fall below 8% in 2017, well below the EU average.
Consequently, Ireland gives credence to Brussels’ fiscal medicine and offers an antithesis to the backers (namely the Greek, Italian and Portuguese governments) of growth-driven policies.
This has prompted ECB President Mario Draghi to label Ireland his model for economic recovery in the Eurozone, especially since the central bank’s monetary stimulus helped Ireland to borrow at a low cost, with the lowest 10-year bond yields in the Eurozone periphery. Similarly, Fitch recently decided to lift the country’s rating from A- to A, adding to the optimism.
Domestically, ahead of the election, it has been hard for opposition parties to challenge this record, if not for the disparity between Dublin and the rest of the country in terms of jobs and purchasing power.
However, austerity has also left scars in Irish society, with housing shortages and increasing homelessness. The government also came under criticism for its reform of the public water sector in 2014, when it introduced an individual tax that prompted protests.
More recently, violence in the streets of Dublin — with killings attributed to a gang war — have also undermined the governing party’s traditional reputation for being competent on security issues. Opponents attributed the killings to shortfalls in police budgets due to spending cuts.
Mr. Kenny is also considered to be presenting a poor campaign performance, as he failed to bank on his strong economic record with obscure arguments that are unconvincing to voters. His attempt to promise fiscal relaxing mostly failed when the leader introduced the “fiscal gap” concept, a rather vague and misunderstood argument that confused voters as much as politicians.
His main campaign pledges are now to abolish the Universal Social Charge and to create 200,000 jobs by 2020. Overall, it is a slight retreat from fiscal rigor that intends to soften the criticism of his social performance. Yet meanwhile, the PM points to the risks associated with potentially ousting his government and dramatically reversing current policies; noting the situation in Portugal, which is currently under pressure from Brussels over its deficit target.
What is striking about the Irish political landscape is the lack of a popular alternative. Fianna Fáil — the center-right party that ruled before 2011 — has lost credibility and saw its support collapse from 42 per cent in 2007 to 17 per cent in 2011 following the IMF-EU bail-out. A populist party, Sinn Féin, was expected since last year to be the main contender. But unlike in Greece or Portugal, the strong recovery has tempered the populist rise.
According to polls, Mr. Kenny should secure almost as many seats as in 2011, and would then have to form an alliance with another party. The coalition talks could be complicated, as his current coalition partner, the Labour party, is struggling in the polls, and Fianna Fáil seems to be grabbing the momentum once again.
Voters’ reaction to the recent violence in Dublin is also yet to be seen. In a televised debate on February 11th, Sinn Fein leader Gerry Adams was put under severe pressure by other party leaders due to his call for the abolition of the Special Criminal Court. Sinn Fein could thus suffer a blow ahead of the vote, and Mr. Kenny should take advantage of this.
That said, polls could get it wrong; and as with the surprising victory of David Cameron last year, an unexpectedly strong performance by the current ruling coalition would make the process quick and easy. But Mr. Kenny will probably have to negotiate with Fianna Fáil, a bumpy prospect considering the current fight facing both parties in their last efforts to convince voters.
There is also a risk that Ireland ends up being stuck in the same situation that Spain is currently experiencing, with no agreement between the major parties and political deadlock. But in all likelihood, Ireland should remain the EU’s latest success story, at least for another round.
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