AKE Ones to Watch, 4 September 2017

Americas: Guatemala plunges into political crisis
Sectors: all
Key Risks: political instability; civil unrest; corruption fallout

In Guatemala, the Supreme Court of Justice is expected to rule on whether to lift President Jimmy Morales’ immunity from prosecution. The Attorney General’s office and the UN-backed International Commission against Impunity in Guatemala (CICIG) requested the judgement citing alleged illegal financing of Morales’ 2015 presidential election campaign. Should the request be approved, Morales’ immunity could be revoked by a two-thirds majority vote in Congress. This would expose the president to potential criminal prosecution, forcing his exit from office. Morales took office in 2015 on the back of former president Otto Perez Molina’s resignation following Congress’ decision to strip him of his immunity over corruption allegations. Morales won the presidency pledging to fight rampant corruption in the country. Political instability and unrest associated to the case should be expected over the coming days, irrespective of the Supreme Court ruling.

Asia-Pacific: North Korea claims capacity to load a hydrogen bomb onto ICBM
Sectors: all
Key Risks: external conflict

North Korea conducted their sixth nuclear test and claimed that they successfully developed a hydrogen bomb that can be loaded into an intercontinental ballistic missile (ICBM). While Pyongyang’s claim should be taken with a grain of salt, the US defense department believes Pyongyang may have the capacity to attack the West Coast of the United States. Defense Secretary James Matthis warned that any North Korean threat to America or its allies would be met with a ‘massive military response’. President Donald Trump turned to Twitter and suggested implausibly cutting off trade with countries doing business with North Korea, potentially including China. Further provocations and bellicose rhetoric are likely, although Washington and Beijing have few options to deal with the North Korean threat.

Eurasia: Uzbekistan to launch currency reform, setting stage for additional market liberalisation
Sectors: all
Key Risks: currency inconvertibility, frustration of process,

Uzbekistan will lift restrictions on the amount of foreign currency that businesses and individuals can buy and abolish the som’s dollar peg tomorrow, 5 September. The current official exchange rate is 4,210 soms-to-the-dollar while the black-market rate is 7,500-8,000 som; the new rate will likely be around the black-market rate. Currency controls have been in place since 1996. In the early 1990’s Uzbekistan was a darling of foreign direct investment and is seen as having greater potential than neighbouring Kazakhstan given its larger population and also sizeable energy reserves, although investment effectively froze after the nationalisation of various businesses, rampant corruption and the restrictive rule of late president Islam Karimov. The move is the most significant economic reform undertaken by President Shavkat Mirziyoyev since he came to power last September. Further market liberalisations are likely, but will come slowly.

Europe: German debate highlights relative priority of Turkey and Brexit
Sectors: all
Key Risks: trade, frustration of process, geopolitical tensions

During a national debate ahead of the 24 September General election, German Chancellor Angela Merkel announced she would move to end Turkey’s EU accession talks. Martin Schulz, the chancellor-candidate of the Social Democrats (SPD), Germany’s second largest party, also vowed to do so. Merkel is highly likely to lead the next government and Schulz is the only other viable candidate. Turkey’s EU accession talks have been effectively frozen for years but a move to formally end the ties would further escalate EU-Turkey tensions. The two spent extensive time debating the best way to handle Turkey going forward, although there was little disagreement. In contrast, neither Schulz nor Merkel mentioned ‘Brexit’ once, highlighting that the issue carries little weight with German voters. Both, however, are strongly pro-EU and unlikely to waver from the current EU negotiating position, despite Westminster’s protests.

MENA: Anti-Islamic State efforts in Syria to begin reaping rewards
Sectors: oil; trade
Key Risks: terrorism; political violence; war on land

In Syria, the Syrian Tiger special forces unit of the Syrian Arab Army (SAA) successfully broke the siege of the 137th Mechanised Brigade artillery base in north-west Deir ez-Zor. The base, and others east of it, have been besieged by Islamic State (IS) since July 2014. IS has continued to launch counter-attacks against the special forces’ operation although new supply lines have reportedly already been established to the south. A smaller area south-east around Deir ez-Zor military airbase bordered by the River Tigris remains besieged. Syrian government forces and the US-led international coalition against IS, the Combined Joint Task Force for Operation Inherent Resolve, have separately increased efforts to prevent IS reinforcing its presence in territory bordering Iraq. Both offensives are likely to progress notably in the coming days.

Sub-Saharan Africa: Tensions continue to mount following Kenya Supreme Court ruling
Sectors: all
Key Risks: political instability; policy stasis; civil unrest

On 1 September, in a landmark ruling, Kenya’s Supreme Court annulled the result of the 8 August presidential election. The judgment was widely unexpected, without precedent either in Kenya or the continent. Nevertheless, it highlights a strong and independent judiciary and democratic consolidation. The decision also contrasts with the assessment of international observers and could presage a significant shift in electoral evaluation processes. President Uhuru Kenyatta has, albeit grudgingly, accepted the Court’s verdict, but branded them ‘crooks’ and vowed to ‘fix’ them if re-elected. Meanwhile opposition leader Raila Odinga ruled out a power sharing deal. Fresh elections must take place within 60 days, although this will prove logistically challenging given the criticisms mounted against the electoral commission. Prolonged political uncertainty and policy stasis can be expected during this period. The prospect for violent escalation ahead of and following the result will remain.