Americas: Macri’s first election test looms
Key Risks: policy continuity; political stability
In Argentina, the policies of President Mauricio Macri will face the first, albeit far from definitive, test in the 13 August nationwide legislative primary elections, which are compulsory and will serve as an indication of the potential results of the 22 October mid-term legislative vote. Attention will be on Buenos Aires province, where former president Cristina Fernandez de Kirchner is running for a Senate seat. Results will give an indication of the level of support enjoyed by Fernandez. She is expected to win a Senate seat, although it is not yet clear if her new political party Citizen Unity or the ruling Cambiemos alliance would secure most of the votes. The October mid-term election will be widely seen as a referendum on Macri’s first two years in office. The vote will be crucial to determine if the government’s reforms can deepen and consolidate over the coming years.
Asia-Pacific: North Korea vents fury in the wake of UN sanctions
Key Risks: external conflict
On 7 August North Korea’s official news agency KCNA vowed the country will wreak revenge ‘thousands-fold’ on the United States after the UN Security Council agreed to impose tougher sanctions on the rogue regime. The measures target North Korea’s exports of raw materials that sources suggest account for two thirds of its annual US$3bln export revenue. Given that it is estimated that 90 per cent of North Korea’s trade goes through China, that Beijing agreed to the UN sanctions is indicative of the great frustration it feels towards the Kim regime’s continued belligerence and provocative missile tests. While North Korea’s bluster is likely as substantial as government claims that former leader Kim Jong-un could change the weather at will, it may respond with more missile tests, further raising tensions on the Korean peninsula.
Eurasia: EU expands sanctions on Russia over turbine scandal, but Siemens avoids fallout
Sectors: energy; defence
Key Risks: sanctions
The European Union sanctioned Russia’s Deputy Energy Minister Andrei Cherezov, another Energy Ministry official Evgeniy Grabchak and Sergey Topor-Gilka, who is director of state power company VO Technopromexport, also sanctioned. Another related party to VO Technopromexport was also sanctioned, as was state-owned ZAO Interavtomatika. The moves came in response to Siemens’ allegations Russia shipped four power turbines to Crimea in contravention of sanctions and without its knowledge. Siemens has aggressively blamed Moscow to avoid being punished for the sanctions infringement itself, despite the fact Russian media widely reported the turbines would likely be shipped to Crimea as early as June 2015. Siemens is amongst Germany’s largest most influential businesses, and the fact that no investigation has even been formally announced into its actions in the scandal will weaken the sanctions regime.
Europe: Britain seeks to change narrative on Brexit talks but unlikely to succeed
Key Risks: political instability; trade barriers; frustration of process
British Prime Minister Theresa May’s former chief of staff, Nick Timothy, said May is prepared to walk away from Brexit talks with the EU without a deal. Timothy resigned in disgrace following the disastrous June snap election, but said he still remained in touch with May; he previously served as her closest advisor for decades. Criticism within the UK of May’s government over its handling of Brexit continues to mount. The UK government is due to release a series of white papers in an effort to change the Brexit narrative, which is unlikely to succeed. Meanwhile Irish Taoiseach Leo Varadkar backed a EU-UK joint customs union, although it is unclear whether there is support elsewhere in the bloc. No major progress on negotiations has been made thus far and the longer this remains the case, the more unstable the UK government will be.
MENA: Iraqi government success with US$1bln bond may herald more issuance
Key Risks: economic
The federal government of Iraq successfully sold a US$1bln five-year bond with a fixed yield of 6.75 per cent on 2 August. The bond was almost seven times oversubscribed, an important indication of appetite from international markets for emerging market bonds and approval of the Iraqi government’s limited progress with stabilising its economy even though it resorted to an IMF Stand-By Agreement of US$5.4bn in 2016. The sovereign is rated B- by S&P and Fitch ratings agencies. The bond is Iraq’s first standalone debt issuance since 2006, and its first fully-syndicated independently-sold bond. A US$1bln January 2017 issuance was backed by the US Treasury. 2016 and 2017 have been notable for the volume of Middle East-issued debt. The government may consider issuing more debt in the coming 18 months given the level of interest from international markets.
Sub-Saharan Africa: Kenya holds its breath ahead of general elections
Key Risks: electoral fraud; post-election violence
A decade on from the 2007 post-election violence, Kenya heads to the polls on 8 August to vote in general elections. According to opinion polls, the race between President Uhuru Kenyatta and opposition leader Raila Odinga is too-close-to-call; neither of the front runners look able to secure a majority. This indicates a second round run-off will be necessary. However, a first round victory cannot be ruled out, particularly given widespread concerns of electoral manipulation. Trust in the electoral system will be critical in assuaging the threat of violence. Around 180,000 police and security force personnel have been deployed across the country. While there are calls for calm, there are reports of people fleeing metropolitan areas for the countryside. If the election result is perceived to be rigged, there is a high risk of civil unrest and violent clashes. Personnel in Kenya are advised to avoid all large gatherings and protests, make contingency plans and monitor news outlets for the latest developments