Americas: Rio Olympics begin; ELN peace talks, Nicaragua’s increased political tension
In Brazil, civil unrest and crime will remain key risks throughout the upcoming Olympic Games in Rio de Janeiro beginning on 5 August. Opposition demonstrations are expected in Rio on that date. Further unrest will remain likely at least until the Games end on 21 August. Heightened security is expected to mitigate the risk of violent incidents, although these cannot be ruled out. On 1 August Rio’s government announced plans to increase its police force by a third to guarantee security. The measure came days after fresh data indicated an uptick in criminality ahead of the Games, particularly against foreigners. It should also be noted that despite the militarisation of the city the risk of a lone-wolf or small cell terrorist attack will remain high throughout the duration of the Games.
In Colombia, the government will likely increase efforts to launch formal peace talks with the ELN. Former ELN leader Carlos Velandia was released from prison days after being appointed as mediator to resume stalled formal peace talks between the guerrillas and the government. President Juan Manuel Santos on 27 July appointed Velandia and Gerardo Bermudez, both former ELN leaders, as peace promoters to try to unfreeze the talks. Both parties agreed in March to launch formal negotiations after more than a year of informal talks. However, formal talks are still to be launched mainly due to the ELN’s refusal to refrain from kidnapping. The appointment indicates the government’s willingness to find ways to unblock the peace process.
In Nicaragua, political tensions are set to increase following the government-controlled Supreme Electoral Council’s decision on 29 July to unseat the 28 opposition lawmakers from the unicameral National Assembly. The unprecedented move effectively granted President Daniel Ortega full control of the legislative power. The decision came ahead of the November general elections in which Ortega will seek a third consecutive term in office. The opposition denounced the measure as a ‘coup on the legislature’ while several businessmen urged the government to respect the Constitution and avoid further concentrating power. Tensions should be expected in the lead up to and after the upcoming elections.
Asia-Pacific: Thailand’s charter vote; Nepal’s political rebuilding; mining in the Philippines
Thailand will on 7 August vote on the junta’s proposed new constitution, with the highly contentious referendum unlikely to resolve the country’s protracted political malaise. The charter is extremely unpopular, even among those on the same side of Thailand’s political divide as the junta. Critics say it would curtail the power of elected officials and legalise future military coups. There is an outside risk of limited civil unrest if there is a ‘yes’ vote in dubious circumstances, but the most likely implication is yet another extension of the uncertainty over how and when Thailand will return to civilian rule.
In Nepal the political situation also remains fragile. The leader of the country’s largest Maoist party has just been installed as prime minister and faces the daunting task of achieving stability amid persistent controversy over the country’s first republican constitution, signed in 2015. The ex-rebel leader Pushpa Kamal Dahal, also known as Prachanda, will become Nepal’s 24th prime minister in 26 years. His predecessor KP Oli quit on 24 July after his coalition collapsed. However, Prachanda’s new coalition will also comprise many small parties, making it vulnerable. Renewed political instability is possible, particularly if the government tries implementing controversial constitutional changes.
Uncertainty also lies ahead in the Philippines, this time over mining policy. The newly elected President Rodrigo Duterte has installed an anti-mining environmentalist as minister for natural resources. On her first day in office Gina Lopez ordered audits of every mining firm in the country. She has since demanded seven domestic nickel-mining firms suspend operations over non-compliance with regulations, promised to cancel an exploration licence newly issued to an Australian firm and expressed her opposition to the long-stalled US$5.9bln Tampakan copper-gold mine. Foreign and local mining firms will likely experience significant operational disruption during Duterte’s six-year term.
Eurasia: Armenian political crisis ends while Moldovan banking crisis continues
In Armenia, the country’s two week-long political crisis was eased after gunmen from the radical nationalist group Sasna Dzrer agreed to abandon their takeover of the Erebuni police station in southern Yerevan on 31 July. Two days later, Prime Minister Serzh Sargsyan called for the formation of a national unity government. Sargsyan explicitly stated ‘terrorists’ should not be included in the government, apparently referencing opposition politicians who joined protests during the 17-31 July stand-off. Shortly after the statement three opposition leaders were sent to pretrial detention on charges of organising mass disturbances. There remains a risk of further civil unrest.
In Moldova, the country’s long-brewing corruption scandal over the disappearance of more than US$1bln from its banks in late 2014 and early 2015 continues to dominate headlines. One of the leading suspects, billionaire and Orhei mayor Ilan Shor, saw his pre-trial detention expanded while Kobalev Platon, an associate of power broker and powerful oligarch Vladimir Plahotniuc, was arrested in Kiev although many have claimed that Platon’s arrest is in fact an attempt to silence him and stop him from collaborating with foreign authorities against Plahotniuc. The various parties are continuing efforts to shore up their images by taking nominal action against suspects in the case but it remains unlikely that the corruption issues at its core will be addressed in the foreseeable future. Moldova’s economy, which has been starved of international aid as a result, is likely to continue to suffer.
In Turkmenistan, opposition media reported that the Central Bank had suspended currency convertibility for private companies and that any firms seeking to trade in foreign currency would have to apply to President Gurbanguly Berdymukhamedov for permission to do so. While Turkmenistan has allowed businesses to set up bank accounts denominated in foreign currencies in recent years, it is unclear how widely these are used. The moves could lead to delays in payments by Turkmenistani companies while it could also foreshadow a further devaluation of the Turkmenistani manat, which was last devalued at the beginning of 2015.
Europe: banking stress test highlight concerns despite MPS rescue package
The European Banking Authority released the results of ‘stress tests’ on major EU financial institutions. Overall, the sector was relatively stable. Unicredit, Barclays, RBS and Deutsche Bank were among those with low capital buffers. The results may also overstate EU banks’ strength, as the test excluded Portuguese, Cypriot and Greek banks and was less thorough than similar US exercises. The past week also saw a continued downturn in European banking stock prices. As expected, Italy’s Banca Monte dei Paschi di Siena performed worst, but the Italian government arranged a last minute EUR5bln private-sector recapitalisation plan, reducing the risk of short-term mass outflows from the institution. While the move may stave off short term concerns regarding the bank itself, it does not address the fundamental issue of non performing and underperforming loans in Italy which is unlikely to be mitigated in the foreseeable future. Italy will be particularly prone to political risks as well during this period, most notably the upcoming October national referendum on constitutional changes. Prime Minister Matteo Renzi has said he will resign if the referendum does not pass. While polling indicates it will narrowly pass, the result remains in doubt with the growing popularity of the 5 Star movement, which opposes the changes as structured.
MENA: Yemen potential agreement; Iraqi parliamentary chaos; Lebanese political talks
Stability in Yemen remains elusive, although the UN-sponsored peace talks in Kuwait may end at least one phase successfully in the days ahead. On 30 July, the UN envoy Ismail Ould Shaikh Ahmad proposed a settlement which would entail the Huthi movement withdrawing from the three major cities, including the capital Sanaa, which it has held since 2014, and a government formed of both sides. The Huthi delegation refuted the agreement, although the anti-government coalition which includes former president Ali Abdullah Salih is likely to acquiesce around the deadline of 7 August. Further necessary negotiations will be long, drawn out and may exacerbate the deteriorating security situation fueled by al-Qaida in the Arabian Peninsula (AQAP) taking advantage of its distracted opponents.
Although the corruption protest movement in Iraq has begun to dwindle in the last few weeks, parliamentary politics remains dramatic. Prime minister Haidar al-Abadi needs to select a new cabinet, although like several months ago, his choices will be hindered by the political posturing by different groups in the chamber, which will be exacerbated by the vengeful claims of corruption. Defence minister Khalid al-Ubaydi’s claimed the speaker, Salim al-Jaburi, and a number of other elected colleagues had engaged in corrupt activities while refuting similar allegations within his own ministry. Abadi’s attempts to rout out corruption and bring political stability will continue to be undermined by in-fighting that will likely escalate in the coming few days.
In Lebanon, protests in downtown Beirut are expected to coincide with the national dialogue sessions of political parties being held at the residence of parliamentary speaker Nabih Barri. The sessions are an attempt to resolve the stagnated political status quo. A package deal is reportedly being considered which would see parliamentary elections under a new electoral law, with the chamber then electing a new president later. The progress of such a deal is uncertain, and is likely to be stilted at best, although protests over the coming days will do little to galvanise political actors.
Sub-Saharan Africa: economic malaise to see incumbents come under pressure in elections
Ghana’s parliament overwhelmingly rejected a core condition of a US$918m IMF aid deal, breaching the terms of a three-year programme. The lawmakers passed the Bank of Ghana (BoG) Amendment Bill to enable central bank financing of the government’s budget deficit up to a ceiling of 5 per cent of the previous year’s total revenue, instead of the zero financing demanded by the IMF. Ghana’s economy is marked by high public debt, which is also likely to complicate its plans for Eurobond issuances as investors express concern about the government’s commitment to fiscal targets ahead of the December elections.
Poor economic performance is also likely to lead to losses by the African National Congress (ANC), as South Africans vote in local elections today – in what could amount to the biggest defeats since the party came to power at the end of apartheid. The municipal elections come at a time of economic stagnation, while President Jacob Zuma has been embroiled in repeated corruption scandals. Opinion polls suggest a close race in Pretoria, Johannesburg and Port Elizabeth, where the opposition Democratic Alliance (DA) are expected to perform strongly.
In Zambia, President Edgar Lungu cautioned that he would implement “draconian measures” if violence continues ahead of the 11 August election. Narrowly winning a snap election in January 2015, President Lungu has come under increasing pressure as the Zambian economy has felt the strains as a result of the falls in copper prices, increasing national debt and the possibility of an IMF bailout. The United Party for National Development (UPND), led by Hakainde Hichilema are expected to perform strongly – in what is likely to be a very close presidential election.