Chinese Premier Keqiang plans tour to South America. Indian PM Modi prepares a visit to South Korea to discuss ties. The US Treasury Department considers market risks. Nigeria sets interest rates. The EU holds a summit in Latvia. All this in GRI’s Weekly Risk Outlook.
Chinese Premier to Tour Emerging Markets in Latin America
On Monday the 18th, Chinese Premier Li Keqiang will travel to four South American countries – Brazil, Colombia, Peru and Chile – to discuss investment and bilateral engagement between China and the major economies in the region.
Chinese officials have indicated that Premier Keqiang intends to conclude several agriculture, aircraft, and currency deals with the four countries in line with a January announcement from the Chinese government that it seeks to invest upwards of $250 billion in the region.
The four countries represent 57% of Chinese trade with Latin America and the China is looking to expand its trade with Latin America beyond agricultural and minerals commodities sector (and elevate trade in higher quality products).
China maintains free trade agreements with Peru and Chile, and would like to expand FTA discussions with Colombia and Brazil.
In the case of Brazil, such bilateral negotiations would be difficult. MERCOSUR obligations preclude any member state from unilaterally entering into free trade agreement negotiations with another country.
As Argentina and Venezuela would likely resist such a move, Brazil’s relationship with MERCOSUR will create a more difficult path to greater trade partnerships with China than South America’s Pacific Alliance partners.
Brazil has struggled to keep up with trade flows from the PA, particularly as Colombia, Peru and Chile maintain strong trade relations with the United States and European Union.
Modi Meets with South Korean Premier to Discuss Bilateral Ties
On Monday, Indian Prime Minister Narendra Modi will begin a two-day trip to South Korea to meet with President Park Geun-Hye.
The trip will follow a series of meetings between Prime Minister Modi and Chinese President Xi Jinping, where a several diplomatic trouble-spots – including China’s financial support for Pakistan and ongoing border disputes – have threatened relations between the world’s two most populous countries.
In India-China relations, Prime Minister Modi has announced a desire to achieve “incremental progress” on resolving disputes between China and India, in contrast to earlier hopes for more sweeping and permanent changes.
Prime Minister Modi has expressed strong interests in promoting Indian exports in Southeast Asia, and will likely press President Park to secure stronger trade ties between India and South Korea as well.
Between the China and South Korea trips, Modi will also visit Mongolia to meet Mongolian Prime Minister Chimed Saikhanbileg, and sign several bilateral agreements promoting nuclear collaboration, Indo-Mongolian cultural relations, air services, and cyber-security coordination.
U.S. Oversight Council to Discuss Market Risks
On Tuesday, the U.S. Treasury Department Financial Stability Oversight Council (FSOC), will hold an open session in Washington, DC to discuss the Council’s 2015 annual report.
FSOC will also discuss what the Council views as the most significant market and economic risk indicators for the upcoming year. FSOC was created as a transparent agency to explore potential risks to U.S. and international market stability, covering banking practices, security exchanges, and major markets including insurance, housing, and finance.
The agency may discuss a recent bill proposed by Senate Banking Committee Chair Richard Shelby (R-AL) which would raise the Systematically Important Financial Institution (SIFI) threshold from its current Dodd-Frank levels of $50 billion in assets to $500 billion, lifting numerous banks from the regulatory and capital requirements under which they are currently subject.
Ranking Member Sherrod Brown (D-OH) opposes the measure, and will likely draw significant Democratic opposition in both the House and Senate.
Africa’s Largest Economy Sets Interest Rates
On Tuesday, the Central Bank of Nigeria will make its interest rate decision for the month.
In an attempt to ensure the stability of the naira, as well as provide larger market stability with the oil price slump, the Central Bank has kept interest rates at 13% since November 2014.
The central bank increased rates in response to the collapse in oil prices, which has had the effect of placing inflationary pressure on the naira and caused the currency to lose 18% of its value against the USD in the past 6 months.
The fall in oil prices has led to significant macroeconomic and monetary pressures on the Nigerian economy, as president-elect Muhammadu Buhari prepares to commence his new term on May 29.
Buhari has pledged to enact significant spending cuts and macroeconomic adjustments to maintain market confidence in the Nigerian economy, and any further downward pressure on the price of oil will put pressure on both Buhari and the Central Bank to respond.
EU Holds Security and Economic Summit in Latvia
On Wednesday, the European Union will hold the Eastern Partnership Summit, which will bring together leaders from the EU as well as non-EU countries Ukraine, Moldova, Belarus, Armenia, Azerbaijan, and Georgia.
A number of topics will likely be discussed, including possibly expanding visa-free access to the EU for Ukraine (and perhaps Georgia), economic cooperation, and security.
Chief among the major policy issues to be discussed will be the conflict between the Ukrainian government and Russian-backed eastern rebels, which has prompted sharp criticism not least from Latvia’s neighbor Lithuania that Russia is strongly supporting the rebels and causing instability in Eastern Europe.
It is possible that Greek finance minister Alexis Tsipras intends to discuss the Greek standoff with its creditors with his colleagues at the summit, though this may be rebuffed given the security and Eastern European dimensions of the event.
The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Weekly Risk Outlook is written by GRI analyst Brian Daigle.
