Weekly Risk Outlook

Weekly Risk Outlook

Mercosur leaders meet. U.S. energy policy takes effect. Taiwan Presidential Candidates debate. Central African Republic votes for president. All in the Weekly Risk Outlook.

Mercosur Heads of State Meet in Paraguay

On Monday, the heads of state of the Common Market of the South (Mercosur/Mercosul) will convene in Asuncion, Paraguay for the rotation of the six-month chairmanship to Uruguay.

This will mark the first formal meeting of the respective heads of state of the six Mercosur countries (Venezuela, Argentina, Brazil, Uruguay, Paraguay, and Bolivia) since center-right candidate Mauricio Macri became the first Argentine president to not hail from Peronism or the Radical Party.

It will also mark the first major international meeting for Venezuelan President Nicolas Maduro since his party fell to 1/3 of the representation in Venezuela’s Congress as opposition parties coalesced to form a majority.

This meeting of the six heads of state is important for two reasons: first, President Macri is relatively untested on the international stage, and his ability (along with that of his foreign minister Susana Malcorra) to forge consensus with political figures with divergent views can determine his ability to shape policy across South America.

Secondly, the member states of Mercosur have traditionally adopted a protectionist policy in terms of trade, both externally and internally.

But with pressure on Brazil to open its markets and President Macri unilaterally doing the same in Argentina, a new and conflicted dynamic may emerge between those countries that would benefit from and push for greater market openings (Uruguay, Argentina, and possibly Brazil and Paraguay), and those that would prefer a more protectionist policy (Venezuela and Bolivia).

During the Kirchner and first Rousseff administrations, the countries of Mercosur moved in relative lockstep on both political affairs and protectionist economics.

But with the downturn of the Brazilian economy, a new Argentina president, and a newly constrained Venezuelan president, Mercosur may turn its attention to opening up trade barriers, particularly with the European Union.


Major U.S. Energy Policy Takes Effect Following COP21

On Tuesday, the U.S. Environmental Protection Agency’s finalized Clean Power Plan, is set to take effect, and it has not had an easy start. The goal of the power plan will be to reduce carbon dioxide emissions by 32% from 2005 levels by 2030. It does so by limiting emissions for energy producers, and fining them in the event they exceed their alloted pollution.

The Clean Power Plan has been pilloried by some members of the U.S. Congress as leading to job loss and overly burdensome regulations. The attorneys general of 27 US states have brought legal action against the EPA in order to overturn the Clean Power Plan. However, Supreme Court precedent suggests they may lose that fight, as many of the laws that serve as the statutory basis for the EPA’s policies grant broad power and scope to regulate harmful pollutants.

This regulation, along with several others, has marked a significant shift in U.S. policy regarding the regulation of emissions.

One influential energy analyst has marked four significant energy and emissions developments during the Obama administration that have shifted energy production away from coal and more towards renewables.

First, the 2009 stimulus package included over $90 billion in funding for clean energy production; second was an rise in fuel efficiency standards for US vehicles; third was a major effort to reduce mercury emissions (leading to the closure of hundreds of coal plants); and fourth was the Clean Power Plan.

Although many have pointed to the coal power plant closures as being the most important of the four in reducing US emissions (and strengthening the negotiating position of the United States during the Paris COP21 talks), the Clean Power Plan will likely have the greatest impact in setting the regulatory and legal trajectory for the next president to pursue more aggressive climate change measures.


Taiwan’s Presidential Candidates Hold First Debate Ahead of January 16 Election

On Friday, the three major candidates for Taiwan’s 2016 presidential election will hold their first public debate.

The candidates, Democratic Progressive Party’s Tsai Ing-wen, the Kuomintang’s Eric Chu, and People First Party’s James Soong have offered starkly different perspectives regarding independence and Taiwan’s relationship with Mainland China, though the DPP’s Tsai Ing-wen has offered a more nuanced and cautious perspective.

DPP candidate Tsai is viewed as the frontrunner, in part due to a series of political missteps on the part of the ruling Kuomintang.

Their initial presidential candidate selection, Hung Hsiu-chu, was de-selected by the party after her repeated comments on Taiwan’s future ties to China alarmed many Taiwanese.

Additionally, the November summit between China’s President Xi Jinping and current Kuomintang President Ma Ying-jeou may have done more harm than good for the ruling party by tying the Kuomintang too closely to President Xi, who has been viewed warily by some Taiwanese.

Most opinion polls suggest the Tsai Ing-wen is likely to win the Taiwanese presidential election, even after the KMT replaced their party’s controversial candidate. Should that be the case, relations between China and Taiwan are likely to deteriorate.

Although Tsai Ing-wen has been widely lauded as a competent and technocratic candidate, the DPP has met strong opposition from President Xi particularly given its stance that the independence of Taiwan is up to the Taiwanese.


Central African Republic Holds Presidential Elections

Following a successful referendum that crafted a new constitution, on Sunday, voters of the CAR will vote for president and parliamentary representatives.

Among the presidential candidates are Anicet Dologuele, who previously served as a prime minister of the CAR and President of the Development Bank of Central African States, and Martin Ziguele, another former prime minister (successor to Dologuele), who went into exile in France when Bozize took power.

The political history of the CAR suggests that whoever emerges as president and whichever coalition secures a majority in parliament, there will be tremendous sectarian, economic, and regional pressures that could quickly turn violent.

Of the seven heads of state the CAR has had since its independence in 1960, only one – President Andre Kolingba – has voluntarily stepped down to be replaced by an elected president.

There have been at least four successful coups that have removed a CAR head of state (including one that brought Kolingba to power). Moreover, growing conflict between Christians and Muslims, urban and rural populations, and widely divergent ethnolinguistic groups has created significant space for opposition movements regardless of who succeeds to the presidency. The leader of the opposition Seleka movement, Nourredine Adam, has already declared the northeast independent.

The next head of state will need to move very cautiously in order to avoid a reemergence of conflict in central Africa, particularly given its spillover effects into other unstable countries in the region, such as the DRC and South Sudan.


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 was produced by GRI analyst Brian Daigle.

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