Weekly Risk Outlook

Weekly Risk Outlook

The Philippines goes to the polls. Russia and the West continue negotiations over Ukraine. Brazil closes in on impeachment proceedings. Key conferences take place in the Middle East and Latin America. All in the Weekly Risk Outlook.

Elections in the Philippines will determine presidential successor

On Monday, Philippine voters will head to the polls to determine which of the major candidates will succeed to the presidency. Rodrigo Duterte, who was polling at below 10%, has risen to be the presumptive frontrunner heading into the plurality-based system.

Duterte, a member of the center-left PDP Laban Party, has risen to prominence for his tough-on-crime stance as the longtime mayor of Davao City. But he has also been occasionally compared to Donald Trump for his brash rhetoric and somewhat destructive style, leading even the current president Benigno Aquino III to condemn his candidacy. The reaction of his opponents to his rise in the polls has also mirrored that of Trump’s opponents during the Republican primary election cycle. Some of the smaller candidates have been called upon to drop out of the race or ally with a more credible opponent.

Should Duterte emerge victorious in this cycle, it is uncertain whether he will be able to sustain a positive working relationship with the Philippine Congress, making his actual policy paths forward uncertain. The election cycle has drawn commentary of political violence and assassination attempts, and if Duterte is even 10% of Donald Trump’s bluster and bravado, the Philippines could be in store for an economically destabilizing post-election period.

In addition, in a notable trend that extends to a number of post-dictatorship countries, calls for the return of a “strongman” to restore order appears to have gained greater prominence in Philippine political discourse. Filipinos seem to yearn for a leader who is not so concerned about the process, legal or political. Not so worried about how things are done, many just want someone who can fix things, as Duterte claims he can. Fix he might, but that doesn’t mean markets will take comfort in the process.


Breaches in truce between Ukraine and Russian-backed separatist prompts Quad meeting

On Wednesday, the foreign ministers of Russia, Ukraine, Germany and France will meet in Berlin to discuss the flagging truce agreement reached between Ukraine and separatist forces to reduce tensions in the Donbas region in February. The EU was particularly frustrated when a monitoring mission from the OSCE to Ukraine was attacked, calling the act part of an “unprecedented level of violence” in Eastern Ukraine.

However, it is doubtful that any agreement, barring an unexpected significant diplomatic breakthrough, will lead to a sustained peace in the region. This is due to the fact that many of the pressures in the region have shown no sign of dissipating and power dynamics remain the same: Russia’s interest in the region has not changed, and with reduced attention on Russia’s part to actions in Syria, it can focus more closely on Ukraine.

Europe’s negative economic conditions from sanctioning Russia continue, and the Ukrainian government remains distracted by continuing corruption crises and unstable governments. While this meeting is worth watching to see if the two sides can make any progress, a watershed moment does not appear to be in the works.


Impeachment process steps closer to Brazilian President Rousseff’s removal

On Wednesday, Brazil’s Senate will convene to vote officially on whether to proceed with an impeachment trial of President Rousseff, following the Senate select committee’s recommendation last Friday in favor of impeachment.

President Rousseff has fiercely resisted these measures and has argued they are largely unconstitutional and amount to a “coup.” Nevertheless, should the Senate vote in favor of moving forward with a trial, President Rousseff will be suspended from office for the duration of the likely 6-month trial. Her second-in-command, PMDB leader, Michel Temer, has already made moves in the event of a transition, with analysts indicating he is already drawing up potential cabinet ministerial positions and has prepared remarks to note the transition.

Markets have reacted positively to developments in the impeachment process, with significant upswings following key Congressional votes. It remains to be seen, though, exactly how positive an impact Rousseff’s trial will have on Brazil’s macroeconomic environment. The significant economic reforms pushed through by her former finance minister Joaquim Levy faced fierce, cross-bench opposition in the Congress, leading to his resignation.

The notion that a President-designate Temer could push through the key economic reforms necessary while dealing with the ongoing Zika crisis, the upcoming Rio Olympics, and what is almost assured to be a totally unsupportive Workers’ Party, seems too optimistic.

Additionally, President Rousseff is certainly not the only one facing corruption investigations, with members of both houses of the Congress, including PMDB officials, facing their own corruption investigations. Most notably, Eduardo Cunha, the speaker of the lower house who has driven the Rousseff impeachment proceedings, was forced to step down last week by the Supreme Court due to corruption charges. President Rousseff’s impeachment will not end any of those investigations and could further deteriorate Brazil’s political and economic environment.


Arab Economic Forum to discuss development in the Middle East as low oil prices pinch the public purse

On Thursday, Lebanon will host government officials and members of the business class to discuss the economic environment of the Arab states. The three major themes at the Arab Economic Forum this year will include political instability, economic slowdown, and the fall in oil prices. All three have combined to form a dangerous cocktail in some states, with problems in one frequently feeding problems in another.

In Saudi Arabia, attempts at economic reform, in particular reducing the massive subsidies many Saudi citizens enjoy for fairly minimal taxation, has led to significant political opposition and may be hamstrung by structural limitations. However, compared to a few other countries in the region, Saudi Arabia is extremely well placed. Its foreign reserves have cushioned its currency and softened the blow of reforms, while other countries in the region including Libya, Syria, and Yemen are facing significant political instability crises that have likely moved back growth and development by decades.

Despite the uptick in prices from January to May from the mid-$20 range to its current price around $45, oil prices are still over a quarter reduced from where it was a year ago and more than 70% lower than the peak in 2014 at $151 a barrel. While most Gulf Coast states managed to maintain enough reserves during the good times to sustain their economies in the current poor environment, other major Arab oil producers like Libya and Iraq are reeling from low oil prices, exposing political fissures in Iraq that have already begun to spill over into the ISIS conflict.


Latin American Conference to discuss impact of Mexican constitutional reforms

On Friday, the Americas Society/Council of the Americas will hold the 2016 Latin American Cities Conference in Mexico City. The conference, which will bring together figures from both the public and private sector, will focus on the constitutional and policy reforms brought about by the administration of Enrique Pena Nieto.

These reforms are organized by the conference under four major categories: politics, taxation, energy, and telecommunications. In politics, the Mexican government will allow for the reelection of federal and local congressmen and mayors. Federal senators and deputies are also eligible for reelection but are term-limited. It will take years to determine whether this was a positive or negative policy change, with much debate in political science regarding the efficacy of term limits.

In tax policy, the Congress and Pena Nieto government increased taxes on sugary drinks and stock market profits to increase its overall revenue streams and decrease oil-revenue dependency . In energy and telecommunications, the Pena Nieto government expanded competition to both sectors, allowing foreign companies to invest in oil blocks in the Gulf and telecom markets. The telecommunications reforms will also crack monopolistic practices as well as promote competition.

Although many of these reforms came into effect in 2014, some effects may be limited. Learning best practices for crafting the right legislation and getting the right stakeholder engagements in place could prove to be very important for other Latin American nations attending the AS/COA conference.


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.

This Weekly Risk Outlook was written by GRI analyst Brian Daigle.

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