Americas: FARC resume disarmament and demobilisation process
Key Risks: insurgency; terrorism; political stability
In Colombia, the FARC resumed their disarmament and demobilisation process on 1 December following the Congress’ ratification of the 12 November revised final peace deal reached between the FARC and the government. The accord’s implementation will not be without challenges. The opposition continues to claim the agreement is too lenient on the rebels and are opposed its approval. President Juan Manuel Santos and the UN reiterated the need to promptly implement the deal to avoid a relapse into conflict. The FARC are expected to be in their concentration zones by 30 December and by 1 May 2017 they should have disarmed. Although uncertainty levels on the future of the peace process have somewhat decreased, developments over the coming weeks will be crucial to secure the process.
Asia-Pacific: Rio Tinto suspends shipments from Oyu Tolgoi
Key Risks: economic
Rio Tinto suspended shipments from Mongolia’s giant Oyu Tolgoi, following an increase in transport surcharges and a change in regulations at Chinese bordering crossings. The fees are relatively small, but Chinese authorities also insisted that copper consignments must use the same border crossing as exports of coal, creating long delays. While initial reports suggested that the decision was a response to a visit from the Dalai Lama to Ulaanbaatar last week, the FT suggests that the increase is an attempt by the local government to increase revenue and cover its debt repayments. While it is likely that the dispute will be resolved soon, particularly given the importance of Oyu Tolgoi to Mongolia’s economy, the controversy highlights the precarious position that the mine is in due to a lack of transport options and the power of Beijing to pressure Ulaanbaatar.
Eurasia: tensions with economic liberals rise in Moscow
Key Risks: currency inconvertibility
Eurasian currency markets could be in for significant volatility this week as Russian state-run oil giant is expected to issue more than 1 trillion worth of ruble-denominated bonds, worth some US$16-17bln. The last time Rosneft undertook a large domestic debt placement was in 2014 and the Central Bank allowed the notes to be used as collateral in its currency auctions, which allowed Rosneft to quickly turn them into dollars. The move caused the largest one-day collapse in the ruble’s value since the 1998 Russian financial crisis and subsequent default. However, Rosneft CEO Igor Sechin has recently demonstrated his influence through the arrest of Economy Minister Alexei Ulyukayev, reportedly on his orders, and it is unclear if Central Bank governor Elvira Nabiullina would be able to resist a demand from Sechin to again exchange the notes. Conversely, in Uzbekistan, President Shavkat Mirziyoyev has signalled he will begin a series of steps aimed at economic liberalisation following his election – effectively a coronation in the tightly controlled-state – on 4 December. The moves could see foreign investors look to return to the country.
Europe: markets initially calm but risk for long-term turmoil following failed referendum
Sectors: banking, finance
Key Risks: political instability, bailout
Voters in Italy overwhelmingly rejected a referendum on reforming the Senate and giving the prime minister additional powers, prompting Prime Minister Matteo Renzi’s resignation. The result is seen as a victory for populist forces, although the referendum also was opposed by members of Italy’s former technocratic government and some conservatives. Uncertainty over a new government, although likely to also be led by Renzi’s Democrats, and possible new elections – which will now likely require a new electoral law – may negatively impact the economy. The banking sector will face renewed pressure defeat for government supported constitutional reform. The most significant threat is to bank Monte dei Paschi di Siena, and the state may have to step in – potentially triggering increased losses for creditors. Following the referendum, Finance Minister Pier Carlo Padoan has stated Italy cannot commit to extraordinary budget measures given the post-referendum political environment. There are also increased doubts over a scheme to provide state guarantees for securitised bad loans and delays to reforms to streamline the civil litigation process to recover NPLs. Fears over early elections, and potentially even a referendum on Italy’s eurozone membership, will continue to weigh on the Italian financial sector.
MENA: government selection process in Lebanon continues
Sectors: banking, energy
Key Risks: political unrest, terrorism
In Lebanon the process of selecting a new government has been fraught. Parliamentary speaker Nabih Berri, a member of the pro-Hizbullah Amal Movement, took it upon himself to make a short speech laying out his faction’s policy priorities immediately after the election of President Michel Aoun, and appears to be holding the political elite to ransom over his policy priorities. He has refuted claims he is responsible for the delay, despite being unwilling to concede the Public Works ministry to another political faction in return for other ministerial portfolios it has requested from prime minister-elect Saad Hariri. The selection process is unlikely to take the months it did under former president Michel Sulayman, although once this process is over the government will face an enormous obstacle in the form of a new election law that will likely take months to negotiate.
Sub-Saharan Africa: no end in sight for South Sudan crisis
Key Risks: conflict
Over the past week the UN Commission for Human Rights in South Sudan warned that ethnic cleansing is taking place, while the World Food Programme revealed 3.6m people are facing severe food insecurity. Repeated attempts to broker a negotiated peace between President Salva Kiir and former first vice president Riek Machar have failed, with Kiir increasingly seeking a potentially catastrophic total victory. This has stoked fears of genocide among Machar’s Nuer ethnic group, although both sides are targeting civilians along ethnic lines and the conflict has now drawn in other ethnic groups as violence has engulfed the southern border states, known as Greater Equatoria. Government efforts to block the deployment of additional UN peacekeepers means that an arms embargo could be put in place later this week. Although halting the flow of arms won’t end the conflict, a yes vote from previously skeptical powers such as Russia could send a powerful signal to South Sudan’s warring factions and might temper some of the atrocities taking place there.