The Week Ahead

The Week Ahead
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Brazil forges consensus against Venezuela. Third Spanish election looms. US presidential debates continue. Conservative Party conference takes on Brexit uncertainty. IMF and World Bank meet in Washington. All in The Week Ahead. 

Brazilian president tries to forge South American consensus against Venezuela

On Monday, newly-officially inaugurated Brazilian President Michel Temer will conduct his first official foreign visit as president, travelling to Argentina and Paraguay. President Temer is expected to meet with Argentine President Mauricio Macri and Paraguayan President Horacio Cartes to discuss the position of fellow Mercosur member Venezuela, particularly given its precarious position as the rotating head of the South American trading bloc.

Last month, the center-right governments of Brazil, Argentina, and Paraguay agreed that Venezuela would not hold the rotating presidency, given concerns over the democratic rule of law. Venezuela responded by claiming it had the rightful position as head of Mercosur, though this did not carry much weight among the member states or even other South American countries. The recent political shift in both Brazil and Argentina (and even the non-Mercosur state of Peru) has removed many of the key allies in the region that embattled Venezuelan President Maduro had previously relied upon to support his presidency and prevent any significant oversight of his administration. Without a major South American government (aside from Chile) at least marginally aligned with the left, ideological solidarity no longer remains an effective selling point for President Maduro in his domestic battles with the opposition-led Congress.

One of the other major issues facing the South American bloc has been its position toward trade. South America has typically accounted for a smaller proportion of world trade than its GDP and population would suggest due to an array of protectionist measures. With the rise of more pro-trade administrations and the marginalization of protectionist Venezuela, Mercosur could move more forcefully to liberalize trade barriers and increase trade opportunities both for consumers and businesses.


Spanish court to look into People’s Party fund as talk of third election looms

On Tuesday, a Madrid court will explore allegations that the functionally ruling party of Spain, the center-right People’s Party, acted illegal by operating a slush fund between 1990 and 2005, and that the treasurer destroyed 2 laptops in connection with the fund. Six members of the party are under investigation, which has created a persistent cloud under Prime Minister Rajoy’s administration and has hindered his party’s ability to work with other political parties.

Although most major parties have had corruption allegations lobbed against them, the PP corruption allegations have stuck in part due to the slush fund and revelation of the destruction of two laptops. This, along with Prime Minister Rajoy’s insistence on remaining leader of the PP, prevented Ciudadanos from joining the PP coalition following the first indecisive election. The continuing public media presence of the PP’s alleged corruption in the form of this trial will likely weaken the PP’s negotiating position with other parties, as other political parties (particularly the anti-corruption Ciudadanos) are loathe to have their own parties tarnished by the perception of corruption.

Meanwhile, Spain’s political environment currently remains in stasis; talk of a third election in December is flying, although the Socialists are fiercely divided over whether a third election would do them any good and the party may be starting to split over this division.

 

Vice presidential and presidential debate further flesh out both campaigns

Following last week’s first presidential debate between Secretary of State Hillary Clinton and Donald Trump, which was largely viewed as a major victory for Secretary Clinton (with a subsequent boost in polls), vice presidential candidates Senator Tim Kaine and Governor Mike Pence will debate on Tuesday in Longwood University in Virginia.

The two VP candidates will have to defend both their own records and square them with their presidential partners; for Governor Pence this will be particularly complicated. Donald Trump’s ideological stances have frequently put him in conflict with the more traditional wing of the Republican Party (on trade policy, entitlement reform, immigration reform, and LGBT rights), meaning Governor Pence will need to somehow mesh the seemingly disparate camps given his own position in the traditional wing of the party. For Senator Kaine, he will have to articulate how both Governor Pence’s stances on certain issues (particularly on LGBT policy) do not match with the wider electorate, while also attacking Donald Trump’s campaign and defending Secretary Clinton’s record.

It will be a very difficult debate for either candidate, but given it is the vice presidential debate, perhaps the limited likely audience will be a relief. Secretary Clinton and Donald Trump will also hold their second debate on Sunday, a town hall-formatted debate in Missouri.


Conservative Party conference may flesh out Brexit but uncertainty is just as likely

Throughout the week, British Conservatives will meet in Birmingham to discuss the direction of the party. On paper, the Conservatives are in remarkable shape: in the most recent elections, the party won sufficient support to drop its junior coalition partner the Liberal Democrats to govern as a majority in its own right. The Labour Party suffered major losses, particularly in Scotland where nearly 40 seats flipped to the insurgent Scottish Nationalists (and even within Scotland, the Scottish Conservatives emerged as the second largest party following the most recent Scottish Parliamentary elections). In addition, the Labour Party has been wracked by division, with Jeremy Corbyn reelected as Labour Party leader despite massive defections from his shadow cabinet and a challenge from Welsh MP Owen Smith. The Liberal Democrats have nearly disappeared in Westminster, and Ukip has 1 MP in the House of Commons (out of 650).

However, the one issue that is likely to define not just newly minted Prime Minister Theresa May and her party, but also potentially the SNP, Labour, and Lib Dems, is the one issue that will likely be discussed both publicly and privately throughout the conference: Brexit. Without providing a timeline for the invocation of Article 50 (aside from not this year), businesses and governments from all over the world are essentially in a holding position until the British government makes its first move and negotiations can begin.

European governments have been adamant that being in the free trade zone while restricting the free movement of peoples is incompatible with the European project, which has put the British government in an awkward position of effectively publicly negotiating with the Europeans behind a veil while businesses around the world wonder whether or not (and when if so) to shift operations to continental Europe. This uncertainty, while not creating a bottoming out moment for the British economy, has nevertheless created its own headaches for the British economy, such that the BoE has reduced interest rates and has given every indication its intends to further reduce them at some point in the future.


IMF and World Bank annual meeting to be held in Washington

Starting Friday, the International Monetary Fund and World Bank will hold their annual meeting, discussing ongoing global macroeconomic developments, including growth prospects, interest rates, and economic stability.  The 2016 annual meeting of the International Monetary Fund and the World Bank is held in Washington and will feature Managing Director Christine Lagarde as well as several central bank governors and finance ministers and directors. World Bank President Jim Yong Kim is expected to discuss eradicating extreme poverty, and other major issues, including Brexit, slowing growth in China, and political and economic shifts in Brazil, Argentina, Nigeria, and the Philippines are likely to be raised (if not publicly, at least privately) among the leadership of the two organizations.

The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

The Week Ahead is written by GRI analyst Brian Daigle.

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