Moody’s rates South Africa. Venezuela’s crisis deepens. Gibraltar complicates Brexit negotiations. Paraguay weighs term limits. All in The Week Ahead.
South African’s Zuma replaces finance minister again, markets react negatively (again)
This week, Moody’s will decide South Africa’s rating. Last Thursday, South African President Jacob Zuma fired finance minister Pravin Gordhan, to be replaced by Home Affairs minister Malusi Gigaba. He made that plan earlier in the week, and was opposed by half of his senior ANC party officials. The uncertainty of the position of the finance ministry has previously done havoc to the South African rand, and the country’s currency is already taking a beating from this new development. Having four finance ministers in a two year period typically does not signal government stability or confidence to markets, and market skepticism towards the Zuma government has persistently deceased market confidence in one of Africa’s largest economies.
The next signal for global market confidence in South Africa’s economy and government will be this week’s Moody’s South Africa ratings decision, which may adjust its ratings to the new finance minister. The instability and legal clouds hanging over President Zuma’s administration have taken a steady toll on the South African economy, as major infrastructure and energy projects (particularly the plans to commission several nuclear power plants) became swept up in cabinet and executive infighting. This new appointment — particularly considering finance minister Gordhan was viewed by many as a steady hand and minister Gigaba is relatively unknown in strictly finance circles — will likely confirm this trend.
Venezuela heads towards political chaos as Supreme Court usurps power of the Assembly
Last week, the Venezuelan Supreme Court (which is packed with socialist supporters of President Maduro) usurped the power of the Venezuelan Assembly by indicating it would take responsibility for policy, or it would delegate that authority to any body it designates. The Supreme Court has been acting as an effective veto over any Assembly legislation from the moment the legislative body secured a 2/3 majority of non-Maduro party (PSUV) supporters in the last election. With the usurpation of the power of the Assembly, virtually any check on the Maduro government’s crumbling governance of the major petro-state has been lost.
The move has been described by many as a coup, and led to swift condemnation from the OAS as well as the withdrawal of Peru’s ambassador to Venezuela. Meanwhile, the food shortage crisis has become so perilous that the government has requested UN aid, and the introduction of a new currency measure with a new currency exchange rate was promptly ignored by both businesses and consumers. The political situation in Venezuela is extremely tenuous right now, and the situation could quickly move in several directions depending on the behavior of the Venezuelan army and the government. The government has moved to smooth over tensions by asking the Supreme Court (which is ostensibly independent from the government) to “reconsider” its position to “maintain institutional stability.” However, even if the Supreme Court revokes its order and returns power to the legislature, the damage will have been done and Venezuela’s political instability will only be strengthened by it.
EU political groups set Brexit goals as tensions emerge immediately
This week, the political coalitions of the European Parliament will meet internally to discuss their goals in the EU-UK Brexit negotiations. The common thread across all parties is likely to be the protection of rights for EU nationals in the UK, but there are likely to be party-specific (and country-specific) concerns too. One concern that has already become prominent is the position of Gibraltar in the Brexit negotiations.
Last week the EU released part of its opening negotiating position, which including a component that provides a choice of reaching an agreement between Spain and the UK over the EU position of Gibraltar, providing Spain with the ability to exclude Gibraltar during the transitional single market between the UK and EU as the former exits the market (“no agreement between the EU and the UK may apply to the territory of Gibraltar without the agreements between the Kingdom of Spain and the UK.”). This has already led to a firestorm of controversy both in the UK and on Gibraltar, which voted 96% to stay in the EU.
The Gibraltar clause of the opening negotiating document implies there will be some very complex and contentious points of negotiation, where every EU state will fiercely contest its position. This includes the Republic of Ireland and the free flow of goods and people to Northern Ireland, France and the Calais customs port (which may not be as difficult given the UK’s preexisting exclusion from the Schengen area), agricultural protection across the EU, and the protection/promotion of new financial centers (Paris, Frankfurt, Dublin, and possibly Brussels and Rome). The EU political parties’ opening position will signal just how aggressive the political groups intend to be as negotiations move forward.
Paraguay attracts political chaos as Congress set aflame in Asuncion
Last Friday, the Paraguayan Congress was set on fire in protest to a secret Senate vote in favor of amending the Paraguayan constitution to allow president Horacio Cartes to run for reelection (currently presidents are limited to one term). The secrecy of the vote led to many comparisons to the collapse of the country’s dictatorship, which ended in 1989. Several politicians and members of the press were injured as protests and riots continued across major cities.
However, this vote is not entirely a desire by President Cartes’ supporters to gain another term; a number of left-wing members of the Senate and House have expressed support for the measure as a means of bringing back former left-wing president Fernando Lugo, now a senator. Lugo was removed in 2012 under still-controversial means, as Lugo claims his impeachment and removal did not provide him with sufficient time to craft a defense. The future of the bill is uncertain in the lower house given the firestorm of opposition, though it appears to currently have substantial support.
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.
This edition of The Week Ahead was written by GRI Analyst Brian Daigle.