Argentina continues pro-market blitz. Cyber and digital come to the fore. Federal Reserve releases minutes. The SNP faces Brexit. Bank of England hits the road. All in The Week Ahead
Argentine government continues international pro-market blitz
On Monday, Argentine Finance Minister Alfonso Prat-Gay will discuss reform efforts and debt sales at the Official Monetary and Financial Institutions Forum at Columbia University. This will be followed on Wednesday with President Macri speaking at the Business Development Institute’s “Bridges to the Future” annual conference, also attended by Central Bank President Federico Sturzenegger.
Argentina’s political and economic shift following the election of PRO lawmaker Mauricio Macri has turned out to be one of the most significant political shifts in Latin American politics in years. Argentina had previously worked as a bulwark for the left-wing of South American leftist populist movement, and the removal of that lynchpin with the Macri government has limited the ability of left-leaning governments in Brazil, Venezuela, and Uruguay to act as a united front in foreign affairs or economic and trade policy. President Macri’s administration has focused relentlessly on economic reform and political centrism, which in part tempers some potential criticism by not focusing on polarizing issues, although energy bill hikes have proven to be quite controversial. This is no doubt assisted by Peronist lawmakers in the Congress.
However, President Macri’s high approval ratings, in spite of Argentine pessimism over the direction of the economy, appear to mark a historical shift in Argentine politics: only one non-Peronist president has been elected since the original Peronist governments, and there was persistent pessimism that a president with such a limited number of lawmakers in both houses of Congress would be able to get much done or retain the support of the electorate. However, the “change” narrative advanced by the administration, as well as troubles in the FpV and particularly former president Cristina Fernandez de Kirchner, has diminished what would ostensibly have been a powerful political opposition force to the Macri government.
Cyber and digital issues take increasing prominence in global economy
On Monday, Singaporean Prime Minister Lee Hsien Loong will begin Singapore’s International Cyber Week. The event is expected to focus on cyber security, both for government as well as the private sector. On Wednesday and 8,000 miles away, EU Commissioner Gunther Oettinger is expected to speak on the digital economy at Stanford University’s Center for Internet and Society.
The rise of the internet has both enriched the global economy but also exposed it to new risks. The rise of international banking, the establishment and strengthening of global supply chains, and the growth of e-commerce have all been facilitated by rapid internet adoption. This has, however, created a number of problems. Sensitivities and vulnerabilities in the cyber system has exposed thousands of people to lose their private financial and personal information in damaging hacks, most recently the Yahoo hack that may have hit as much as 500 million accounts.
A recent report by Brookings attempted to quantify the economic costs of an internet shutdown, with some, both government-created and unexpected shutdowns, costing hundreds of millions of dollars for domestic economies. Governments have had secret and security information leaked, or hacked, by hostile governments and independent actors. This has created a set of seemingly contradictory objectives; how to expand internet access and the exchange of internet-related goods and services, while protecting the privacy and security of those who use the internet.
Federal Reserve to release minutes from September meeting, may establish roadmap to December interest rate decision
On Wednesday, the Fed will release the FOMC’s September 20 meeting, when the members decided not to raise interest rates. It will likely provide the biggest of the tea leaves as attention turns to whether or not any interest rate hike will occur for the duration of this year.
Last week, the Department of Labor announced that the U.S. economy had added 156,000 jobs — below the expected 175,000 gain — for the month of September, as the unemployment rate ticked up to 5% with more people looking for work. Wages also rose slightly, giving some Fed members comfort that the U.S. economy is approaching full employment, though perhaps not providing strong enough numbers to initiate a rate hike. Although not likely discussed in the meeting minutes, the political uncertainty surrounded the presidential election is almost certainly a factor in its decision, if for no other reason that the economic uncertainty surrounding a potential Trump presidency is enormous.
Much like the Bank of England’s decision to lower British interest rates following the Brexit vote, and the recent collapse of the pound following the announcement that negotiations would begin in March, a geopolitically jarring event like that would likely weigh on the Federal Reserve as markets become less confident and businesses become more conservative in their decisions with hiring being one of the most important. Regardless, the Fed meeting minutes should provide at least a snapshot of the degree of confidence the Fed has with both the U.S. economy and the world economy.
SNP begins party conference in Glasgow as party digests Conservatives firming up Brexit plans
On Thursday, the Scottish National Party will begin its three-day conference in Glasgow, following the Conservative Party conference last week in Birmingham. The Tory conference was notable for a wide array of reasons: Prime Minister Theresa May pledged to move her party in a more populist direction, saying she wanted the Conservatives to represent the working class and that it was the Labour Party that had become the “nasty” party; that businesses should reveal the foreign workers that work for them; and Home Secretary Amber Rudd announcing significant new restrictions for foreign students on work visas, including a “controlling migration fund.”
Naturally, given the left-leaning ideology of the SNP, most of these ideas are practically terrifying for the party, and for Scottish voters in particular. Scotland voted overwhelmingly against leaving the European Union, in part due to generally more favorable views of the benefits of immigration, particularly from SNP voters. That being said, the SNP doesn’t appear to have many levers to pull in this situation: their ostensible partner in opposition to the Conservatives, Labour, is still reeling from the divisions that have opened up with the election and reelection of Jeremy Corbyn as leader and has yet to forge a cohesive response to the Brexit plan being crafted by the Conservatives. Without a focused major opposition partner, the SNP has essentially had its wings clipped in Westminster. And in Edinburgh, the Conservatives are nipping at the heels of the SNP, having displaced Labour as the second largest party in Scotland in the May 2016 parliamentary elections — an astonishing turn of fortunes for a party long associated with the Thatcher government, which was and is deeply unpopular in Scotland.
Additionally, the May government has signaled that it has little intention to treat the Scottish government as a particularly significant partner in the Brexit negotiations, which could fail to represent Scottish interests as the UK negotiates with the EU. From a longer-term perspective, if an image begins to emerge that the May government is refusing to effectively represent Scottish interests, particularly on Brexit, and Brexit itself creates outcomes viewed to have been to the severe detriment of Scotland, this could create an anti-Thatcher 2.0 movement where Conservatives are painted as being at best dismissive of, and at worst purposely antithetical to, Scottish interests.
Bank of England travels across England to determine how best to serve British interests
On Friday, BoE Governor Mark Carney as well as his deputies will travel to the English cities of Birmingham, Derby, Dudley, Leicester and Nottingham to figure out how one of the world’s most important central banks can better serve British society, with a special focus on improving trust and understanding, helping students understand the Bank’s role in the economy, supporting vulnerable members of society, and understand the challenges facing large companies. This may prove a tall order, particularly given political opposition to the central bank, mostly among some of the harder-right Conservatives.
Despite this, the Bank of England, and Governor Mark Carney in particular, were praised following the Brexit vote, even from some opponents, for calming markets and announcing quick contingency plans that had been planned for months — in contrast to the Cameron government, which obviously did not have contingency plans in the event of a Leave vote, as revealed by Prime Minister Cameron’s announcement of his eventual resignation, whose date was moved several times and eventually settled on immediately.
Following the sessions, the Bank with convene a plenary session in Birmingham called the “Future Forum” to explore these issues with an audience. This will be followed by the Bank’s publication of its survey of credit conditions and bank liabilities.
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.
