The Week Ahead

The Week Ahead

U.S.-Russia relations fall further as U.S. Senate passes sanctions and Russia retaliates. Pakistan political environment falters as Prime Minister resigns and finance minister placed under investigation. PM Shinzo Abe works to stabilize support after defense minister resignation. India central bank set to lower interest rates. All in The Week Ahead.

U.S.-Russia relations fall further as U.S. Senate passes sanctions and Russia retaliates

With a new comprehensive Russia sanctions bill passed in the Senate by a vote of 98-2 and signed by President Trump, relations between the United States and Russia are approaching a nadir. In retaliation, and in response to the United States delaying the return of two confiscated Russian properties, Russia has ordered the United States embassy facilities in Russia to reduce their staff, and confiscated minor properties used by the U.S. government in Moscow. On Sunday, Putin ordered 755 American diplomats to leave Russia.

The sanctions bill, which includes sanctions against North Korea and Iran, is principally designed to prevent the White House from unilaterally reducing or eliminating certain sanctions. Despite a willingness by the President to forge closer ties with Russia, almost everyone in Washington is against closer ties, regardless of party. The secretaries of defense, state, and treasury, as well as leaders of both the CIA and FBI and Democratic and Republican intelligence lawmakers have all expressed a strong skepticism of closer ties with Russia and have opened investigations on the Russian interference in the 2016 presidential election. Despite the fair degree of unanimity in the United States on the sanctions package, the European Union has expressed strong skepticism over the bill. There is strong concern, particularly from Germany, that the new sanctions could prompt sanctions against investments in the Nord Stream 2 pipeline which is slated to bring natural gas from Russia to Germany. How this issue will be resolved remains uncertain.

Pakistan political environment falters as Prime Minister resigns and finance minister placed under investigation

Last Friday, Pakistan Prime Minister Nawaz Sharif resigned as prime minister after the Supreme Court ordered his removal as corruption allegations heat up. The allegations were due to the publication of the Panama Papers which, among other things, noted substantial property holdings of his own and his family in London. Sharif, who has led the ruling party Pakistan Muslim League to victory and has been prime minister on two other occasions, has been a mainstay in Pakistani politics for decades, and his removal from power could risk unbalancing a number of serious geopolitical concerns contingent on who is elevated to replace Sharif as leader of the Pakistan Muslim League.

Tensions with India are ongoing and have escalated recently with disputes in Kashmir and the execution in Pakistan of a suspected Indian spy. Additionally, a recent injection of billions of dollars in Chinese investments into Pakistan to support a trade and transportation network from China to Europe has created a stronger interest from China in maintaining political stability in Pakistan. The resignation of PM Sharif is likely to elevate opposition leader Imran Khan, though given elections are next year, momentum may not be sustainable enough to lift him and his party substantially. That being said, if the leader to emerge to replace Sharif is unable to maintain the delicate foreign policy balances for Pakistan, this may ultimately boost Khan.

PM Shinzo Abe works to stabilize support after defense minister resignation

Following a series of gaffes, PM Abe’s defense minister and political protégé Tomomi Inada resigned last Friday. Abe subsequently announced that foreign minister Fumio Kishida would absorb the defense portfolio to ensure continuity — North Korea on Friday launched a ballistic missile that may have landed in Japanese waters. The resignation of Inada occurred right before a planned cabinet reshuffle, and many in both the ruling and opposition parties have criticized Inada for a while. Prior to her resignation, Inada and PM Abe have been criticized for allegations of nepotism, covering up important logs on Japanese forces participating in a peacekeeping operation in South Sudan, and for a comment by Inada that the military wanted voters to support a candidate for public office.

Despite collapsing support for Abe’s ruling Liberal Democratic Party, as reflected by a vote earlier this month when the LDP lost over 50% of its seats in the Tokyo Assembly municipal elections, the opposition Democratic Party is suffering from severe internal division as its leader Renho resigned. The elevation of Tokyo governor Yuriko Koike, whose new party took power from both the LDP and Democratic Party in the Tokyo elections, could emerge as a force to be reckoned against Abe in the September 2018 elections.

With inflation low and reforms in the offing, India’s central bank is set to lower interest rates

This Wednesday, the Indian Central Bank is expected to lower interest rates from its current position of 6.25%. This will be the first rate reduction since last October when it lowered rates from 6.5% to its current position. One of the main reasons for the reduction expectation is the release of inflation figures showing India’s economy operating at around 4% inflation. Additionally, the release of a tax reform package by the Modi government in early July has helped boost investment interest in India.

With growth projections updated from 7.1% to 7.3%, foreign investor interest has picked up pace and has brushed up against Indian foreign investment controls. India currently has the strongest growth among major economies, and has outpaced Chinese growth for over a decade. India’s strengthening position relative to other countries has also improved its currency; since the beginning of the year, the rupee has risen over 5% in value against the US dollar.

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 Senior Analyst Brian Daigle.


About Author

Luke Iott

Luke currently works as an international development professional. He has extensive project experience in financial services and enterprise development across Europe, Asia and Africa. Luke holds a BA in international relations, cum laude, from Georgetown University and is particularly interested in the intersection of science, technology and international affairs. He is proficient in French, German, Spanish and Mandarin.