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Electoral Issues in Ecuador and Argentina

The Ecuadorian legislature will vote in December to remove term limits on all elected positions, including the presidency. The move will give President Rafael Correa the ability to run for re-election in 2017. Several organizations, including the Unitary Federation of Labor and the Confederation of Indigenous Nationalities, are going to protest during the fourth quarter to prevent the congressional vote. However, their multiple demands offer the government room to negotiate, and it is likely that the government will offer these organizations concessions to prevent their protests from gaining momentum ahead of the vote.

Argentina will hold the first round of presidential elections Oct. 25, in which Argentine voters will choose between left-wing candidate Daniel Scioli of the ruling Front for Victory and challenger Mauricio Macri of the conservative Republican Proposal alliance. If none of the candidates receives the required 45 percent of the popular vote, a second round will be held Nov. 22. Regardless of which candidate wins, Argentina faces a rough road ahead. With the Brazilian economy contracting, Argentine exports will remain low relative to previous years, and the country faces a potential trade imbalance. The risk of increased imports and further capital flight could make the next president reluctant to significantly loosen controls on repatriating currency or to ease restrictions reducing imports by private firms.

Even if the new president is considered more amenable to foreign investors and markets than the previous government, it is unlikely that negotiations with the holdout bondholders will progress significantly during the fourth quarter.

 

 

Peace Continues to Break Out in Colombia

During the fourth quarter, the Colombian government and the Revolutionary Armed Forces of Colombia (FARC) will continue negotiations to reach a peace agreement by 2016. With the signing of a transitional justice agreement in September, a significant step toward signing a peace deal has already been taken. Over the next few months, the national congress will discuss and attempt to pass legislation to implement the peace agreement. Discussions will also continue between FARC negotiators and the government concerning the nature of transitional justice courts, which will mete out non-criminal punishments to FARC members, and concerning the eventual demobilization of the FARC.

With the FARC very near to signing a peace deal, the smaller National Liberation Army (ELN) is likely to accelerate its attempts to open formal negotiations with the Colombian government. If the ELN opens negotiations with the government, the pace of its attacks against energy infrastructure and security forces — particularly in northeastern Colombia — could decline.

 

EAST ASIA

China Looks Inward

In the fourth quarter, China will experience continued economic weakness. Chinese stock markets peaked as China was entering the third quarter, forcing the government to engage in aggressive intervention. These interventions will continue throughout the fourth quarter, though likely at a reduced rate as their limitations become apparent. While taking care to ensure that volatility does not affect the currency, the Bank of China is likely to allow the yuan to depreciate further against the dollar as capital outflows continue. The depreciation will be managed and will not result in precipitous drops.



China in the fourth quarter will be inwardly focused, both politically and economically. The Fifth Plenum of the 18th Party Congress will be held during October and will occupy the attention of the Central Committee, the 205 highest-ranking members of the Chinese Communist Party. The focus will be on finalizing the 13th Five Year Plan, which will guide Chinese economic planning from 2016-2020 and is likely to include an expectation of lowered growth. The plenum will also set policy priorities for the next year, which Stratfor expects to include the new reform guidelines for state-owned enterprises. However, implementation of many of these policy priorities will begin in earnest next year.

China will also continue to experience economic woes in its housing sector. New home prices in cities outside the major conurbations of Beijing and Shanghai have remained stagnant in the face of oversupply. While prices did improve in so-called first and second tier cities, new land purchases are down by a third. Oversupply in housing stocks will mean third quarter measures to stimulate home buying will fall flat in the fourth quarter. The sum of this will stymie China's efforts to build up an inland consumption base during the quarter.

Also during the fourth quarter, China's anti-corruption watchdog is likely to initiate a third (and final) round of inspections for the year. This round of inspections appears to be aimed at addressing the market crash at the end of June and the Tianjin explosion of August. The targets, though not specifically identified, are said to include central government organs (likely with environmental and work safety portfolios), universities and the financial sector, which has already been subject to vigorous investigations from the police, judiciary and securities regulators. Meanwhile, the 26 state-owned enterprises that were investigated in the first quarter, many from the petroleum and electricity sectors, will push through "reforms" such as the divestment of excess vehicles and side businesses — reforms designed to demonstrate a commitment to Party discipline. On top of the Central Commission for Discipline Inspection investigations, the Ministry of Public Security will be carrying out a three-month campaign to crack down on underground banks, which appear to have facilitated the illegal transfer of billions of dollars out of China.

 

'Abenomics' Continue to Disappoint in Japan

A tough battle pushing security legislation through an extended Diet session in the third quarter has cost Prime Minister Shinzo Abe, pushing down his Cabinet's approval rating to a record low 38.9 percent. Thus, his administration will refocus its attention on its neglected domestic agenda.

Abe's reform drive, dubbed "Abenomics," continues to disappoint, primarily in its failure to achieve any kind of inflation, the first step to recovery. Some of last year's oil price drops coming out of the year on year figures might brighten the picture slightly. Nevertheless, the overall lack of inflation, the sluggishness of exports and the regional economic woes that have seen the yen drift upward will all encourage the Bank of Japan to undertake further monetary easing in the fourth quarter. A drop into negative interest rates cannot be ruled out.

 


Date: 2016-04-22; view: 508


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