Ones to Watch, 20 August 2018

Americas: Lula’s presidential candidacy formally submitted; likely to stoke further controversy

Sectors: all
Key Risks: policy continuity; political instability; civil unrest

On 15 August in Brazil, the leftist Workers’ Party (PT) formally registered imprisoned former president Luiz Inacio Lula da Silva as its presidential candidate for the upcoming 7 October general elections. Over the coming weeks Brazil’s top electoral court is set to rule on whether Lula can run despite serving a 12-year prison sentence for corruption. Rulings for or against Lula could fuel protests by supporters and detractors in an increasingly polarised country. Lula continues to poll as the frontrunner, but his candidacy will likely be challenged by the ‘Clean Slate’ law which bans those convicted of criminal offenses by an appeals court (Lula’s case) from running for office for eight years. Whether or not Lula is at the top of the ticket could affect voting for other parties. A polarised presidential runoff is likely to take place on 28 October.

Asia-Pacific: US to step up pressure on Myanmar after imposing sanctions on military

Sectors: all
Key Risks: sanctions

The United States is seeking to up the pressure on Myanmar’s military to stop human rights violations after it imposed sanctions on four members of the military and police force and on two army units. The sanctions most notably relate to the military’s violent crackdown on Rohingya Muslims that led to an estimated 700,000 fleeing to Bangladesh last year, although the army is also accused of atrocities in Kachin and Shan states as well. The move follows the EU’s decision to impose sanctions in April and June this year. However, the US government stopped short of imposing sanctions at the highest levels of Myanmar’s military and did not label the anti-Rohingya campaign as crimes against humanity or genocide, as has been debated within government in recent weeks. The sanctions will be followed by a State Department report detailing the abuses against the Rohingya and any continued violations will see further sanctions imposed.

Eurasia: IMF to review restarting Ukraine bailout this September

Sectors:  all
Key Risks: debt sustainability

The IMF announced on 14 August that it would carry out a working visit to Ukraine from 6-19 September, the result of which will play a key factor in determining Ukraine’s sovereign default risk over the short and medium term. If the Fund does not resume the delivery of bailout tranches, Ukraine faces a significant risk of sovereign default in 2019. If the Fund agrees to resume only limited handouts from the US$17bln bailout – roughly half of which has been given to Ukraine already – and Kiev does not agree to long-overdue reforms to natural gas pricing, the risk in 2019 will be mitigated somewhat but will remain very high over the coming one-to-two years, though Ukraine could under present circumstances likely stave off major concerns until at least 2021-2022. Even under the most optimistic scenario, the risk will remain quite high. Major reforms are unlikely to pass as the 2019 election approaches

Europe: Greece exits bailout but concerns remain

Sectors: all
Key Risks: debt sustainability; political instability; protests

Greece formally exited its third international bailout programme on 20 August, a symbolically important step towards economic normalisation. Athens will have to cover its deficit and debt repayments through accessing markets, although it still needs to meet primary deficit targets from official sector creditors and continue with structural reform to ensure debt relief. The economy is slowly recovering from an almost decade long economic crisis, with growth hitting 1.4 per cent last year, but poverty rates are high, the banking sector remains weak, and despite promises of debt relief, the country’s fiscal position remains precarious. The centre-right New Democracy is still the favourite ahead of next year’s elections, due to be held by October 2019, but forming a government could prove a challenge. In the interim, Greece will remain at risk of being affected by rising US interest rates and concerns over developing markets.

MENA: Further US sanctions on Turkey possible as dispute rumbles on

Sectors: finance
Key Risks: sanctions

A senior White House official told the media that the Trump Administration has rejected an offer from Turkey to release Pastor Andrew Brunson in exchange for the US dropping an investigation into Halkbank. A former executive of Halkbank, one of Turkey’s largest state banks, was convicted by a US court in January for helping Iran evade sanctions. The bank has also been accused of failing to comply with US legal processes, and it could face massive fines. Both governments have been negotiating over Halkbank, but discussions have stalled. The Trump Administration appears unwilling to negotiate until Brunson is released. If Brunson is not released, Washington could impose further sanctions on Turkey in the coming weeks. There are few obvious incentives for the Trump administration to negotiate, given that the harms of the dispute with Ankara, at least in the short term, are asymmetric. A potential positive, assuming the report is accurate, is that Erdogan looks willing to back down from his absolutist position on the release of Brunson.

Sub-Saharan Africa: Mistreatment of MPs to fuel anti-government sentiment in Uganda

Sectors: all
Key Risks: protests; political instability; government crackdown

On 13 August the motorcade of Uganda’s President Yoweri Museveni was stoned by opposition supporters. Several MPs were subsequently arrested, including the increasingly popular musician turned independent MP Robert Kyagulanyi – also known as Bobi Wine. In the days since, reports have emerged that Wine and another MP were severely beaten during their arrests and possibly tortured thereafter. The incident is indicative of the government’s concern at Wine’s rise to prominence and the violent episode sparked protests in several towns around the country. In Kampala, a Reuters photojournalist was beaten by the police while in Mityana one person was shot dead by the security forces. The incident has served to galvanise anti-government sentiment and further protests are likely in the coming days, foreshadowing what is likely to be a violent and bitterly divisive election campaign in 2021.