Americas: Unprecedented peso rout triggers stricter fiscal deficit targets to contain crisis

Sectors: all
Key Risks: policy continuity; civil unrest; export taxes

 In Argentina, President Mauricio Macri announced a cabinet reshuffle and stricter fiscal deficit targets for 2019 following an unprecedented rout on the peso that led the central bank to raise its benchmark rate from 45 to 60 per cent on 30 August in an effort to contain exchange rate volatility. Macri’s announcements on 3 September came ahead of negotiations with the IMF to speed up the disbursement of the US$50bln Stand-By Arrangement agreed in June. Despite upcoming orthodox policies, further peso depreciation cannot be ruled out, adding pressure to the size of Argentina’s debt burden, with almost 80 per cent of total sovereign debt being dollar-denominated. The Fund is expected to agree to the early disbursement of funds. Further fiscal tightening could stoke unrest despite measures in place to try to contain its social and political costs.

Asia-Pacific: Kuala Lumpur and Singapore reach compromise on HSR project

Sectors: infrastructure
Key Risks: frustration of process

 On 3 September Malaysia and Singapore agreed to defer the High-Speed Rail (HSR) project linking Kuala Lumpur and Singapore until 31 May 2020 without incurring compensation from Kuala Lumpur. During this period, both sides will negotiate to reduce project costs. Prime Minister Mahathir Mohamad suspended the HSR project on 24 August after it emerged that it would cost US$37bln instead of the original US$24.5bln. Mahathir’s government initially sought to cancel the HSR project but reconsidered its plans after it emerged that an implication of unilateral cancellation would be more damaging than a postponement due to US$166m that would be owed by the government in compensation costs. Singapore has already spent US$182m on the project. The agreement between Singapore and Malaysia could be mirrored on other infrastructure projects under government review, such as the China-led East Coast Rail Link (ECRL) project.

Eurasia: Tensions in Ukraine after separatist leader killed, Belarus risks EU spat over journalists

Sectors:  all
Key Risks: conflict escalation; suspension of support

Alexander Zakharchenko, the leader of the Russian-backed separatist entity in Donetsk, eastern Ukraine, was killed in a targeted assassination at the Separ cafe in Donetsk. The leaders of the Donetsk People’s Republic (DNR) alleged that Ukraine was behind the attack and Russian President Vladimir Putin implied as much in his own statement, though he did not say so explicitly while Ukrainian authorities blamed separatist infighting, which has claimed the lives of dozens of other separatist leaders. There is an elevated risk the incident could cause an escalation. Meanwhile, Belarusian authorities continue their crackdown on media and ordered a number of journalists not to leave the country on 27 August, including a correspondent for Germany’s state-backed Deutsche Welle. Minsk has maintained a relatively good relationship with the EU since Brussels lifted its sanctions in 2015 but such incidents risk a response.

Europe: Far-right Sweden Democrats poised for success in 9 September election

Sectors: all
Key Risks: political stability; social tensions; protests

Voters in Sweden go to the polls on 9 September, with the election result expected to significantly re-shape the country’s political balance. The far-right Sweden Democrats, led by ‘populist hipster’ Jimmie Akesson, are in second place according to the polls, a position they have maintained for a number of months by displacing the centre-right Moderates. The poll numbers for the Moderates have improved slightly in recent weeks, but are nonetheless expected to record one of their worst results in years, as will a number of other parties including the Social Democrats that lead the current minority government. The Social Democrats are still expected to receive the largest amount of votes, however. The Moderates have indicated they could be willing to consider a government that includes the Sweden Democrats, which could prompt major protests.

MENA: Potential revision on Turkish central bank policy

Sectors: finance
Key Risks: sanctions

The Turkish central bank announced plans to adjust its monetary stance following the release of official data that showed consumer prices increase 17.9 per cent in August from a year ago. The inflation rate is more than three times the bank’s target. Inflation may well be substantially above the official number. The central bank has not given any details of what it will do, and its actions thus far to mitigate the crisis have been limited. President Erdogan has publicly opposed substantial interest rate increases, and has recently increased his control over the central bank. It is unclear whether the bank has the independence to substantially increase rates – and its actions during its 13 September meeting will be vital in assessing its freedom. The lira fell around 25 per cent in August, and is currently trading at around 6.5 lira to the dollar. Absent a sharp monetary tightening the figures are likely to fuel continued lira depreciation.

Sub-Saharan Africa: Saraki presidential bid could spell danger for Nigeria’s President Buhari

Sectors: all
Key Risks: change of government; political stability

Senate President Bukola Saraki announced he intends to challenge President Muhammadu Buhari in Nigeria’s February 2019 presidential election on the opposition People’s Democratic Party (PDP) ticket. Saraki, one of Buhari’s most outspoken critics even before he quit the All-Progressives Congress (APC) in July, is the most high-profile politician to declare his candidacy yet. Saraki is the top contender in the PDP’s October presidential primaries, and a potentially dangerous challenger for Buhari. The APC has been coming apart at the seams amid a wave of defections that has seen the party lose its majority in the Senate. The PDP, which ruled Nigeria since the country’s transition to democracy in 1990 until the APC’s victory in 2015, has teamed up with smaller opposition parties that have pledged to support it in the elections. If Saraki manages to secure the PDP’s backing, he stands a distinct chance of becoming Nigeria’s next president.