Research Highlights
RUSSIA: Russia accedes to WTO; US invokes non-application status
23 December 2011: At the World Trade Organization (WTO) Ministerial in Geneva on 16 December the trade body accepted Russia's WTO accession agreement, and Russia joined the WTO. All that remains for the process to be formally completed is for the Russian parliament and president to ratify the accession agreement. Because Jackson-Vanik legislation prevents the US from granting Russia permanent normal trade relations (PNTR), the Ministerial also saw the US and Russia invoke non-application status with regard to each other. US industry will be unable to avail itself of Russia's accession agreement until PNTR is granted, which requires Congressional approval. This approval will mostly likely come no earlier than during the 2012 lame duck session and will require political coverage for lawmakers by the Obama administration.
BRAZIL: Rousseff well positioned to push her reform agenda in 2012
22 December 2011: President Dilma Rousseff rounds up 2011 well positioned to push her congressional reform agenda in the first half next year. With her approval ratings showing remarkable resilience despite this year's economic slowdown, her base of political support is stronger than ever. We not only do expect her administration to conclude approval of a pension reform for new entrants to the public service in the first half of 2012, but sector specific reforms like a re-distribution of royalty taxes from oil production and the introduction of a new mining code will also advance. The positive surprise could be tax reform, although we are skeptical of its approval. Rousseff's strong standing should give her greater comfort to stick to a strategy of trying to restrain spending growth as a means to use the global economic slowdown as an opportunity to lower the country's perennially high interest rates.
INDONESIA: Land acquisition bill could boost economy
13 December 2011: Indonesia's parliament will likely soon pass a long-awaited law that addresses important regulatory and procedural hurdles in the acquisition of land for infrastructure projects. The new law will replace the patchwork of laws and presidential instructions that today make the process unwieldy and prone to delays in court over the valuation of land that is being expropriated for infrastructure projects. Passage of the bill will also help improve public support for President Susilo Bambang Yudhoyono, as it strengthens - even if only temporarily - reformist perceptions of the government.
PERU: Cabinet changes could increase protests
12 December 2011: A recent cabinet reshuffle reflects President Ollanta Humala's desire to have a tighter grip on the government, but is unlikely to yield any substantial shift in policy. If anything, it confirms Humala's commitment to investor-friendly economic policies. The cabinet changes probably suggest that the government will take a harder line towards protests against mining projects. This means the government will seek to protect mining investments and will neither fuel nor politically use protests against the mining sector, as some feared. Still, taking a hard line could generate additional instability by further fueling protests. Humala could lose some political support from leftist groups, but this is unlikely to significantly affect his ability to govern.
ISRAEL: Netanyahu, Likud primary and early elections
9 December 2011: Israeli Prime Minister Binyamin Netanyahu is considering calling an early general election but his decision to hold the Likud leadership primary in January 2012 should not be seen as an indication that he has made a decision; he is merely preparing the way for such a move. As a bonus, he is using the Likud primary as an opportunity to deliver a political blow to his long-time party rival Silvan Shalom, the current deputy prime minister. When making a decision on the date of the general election, we expect Netanyahu to assess a number of factors, the impact of which it is too early to judge, such as the course of the US election campaign and the popularity of US President Barack Obama within Israel, as well as the regional security environment.
CHINA: Sudan diplomacy challenges Beijing's non-interference policy
8 December 2011: In an unusual move for Chinese diplomacy, Beijing intervened to end Khartoum's suspension of oil exports from Southern Sudan last week. Beijing has announced that it will send its special envoy, Liu Guijin, to Sudan to "make efforts at mediation and conciliation". It will continue to put pressure on both Khartoum and Juba to reach a negotiated solution on transit fees and avoid additional oil export disruptions. China's actions will likely limit Khartoum's ability to use oil exports as a weapon against Juba, which will be positive for supplies. Over time, through increased exposure to such situations, Beijing's non-interference policy is likely to become untenable and undergo changes. But in the short term, such active mediation should not be expected in other countries. Sudan is a rare example in which Chinese commercial and diplomatic interests converge allowing for such decisive action. And in a year of political transition, China's conservative decision-makers are not ready to depart from the non-interference policy.
ARGENTINA: Cabinet changes signal continuity
6 December 2011: Recent cabinet changes signal broad continuity in policy and political dynamics. Finance Secretary Hernan Lorenzino will be the new Economy Minister. The key players in the economic team such as Planning Minister Julio de Vido, Interior Commerce Secretary Guillermo Moreno and Central Bank president Mercedes Marco del Pont will remain in their posts, so Lorenzino will have little power and is unlikely to gain much influence in the administration. He will remain in charge of financial policy, but he will be limited in this sphere as well. Overall, this bodes poorly for the economic policy outlook.
RUSSIA: Duma vote augurs poorly for investment climate
5 December 2011: The political setback suffered by Prime Minister Putin in the 4 December election will likely increase elite support for populist spending, empower opposition parties which oppose reform, and contribute to a slow but ongoing erosion of regime legitimacy. Putin might still develop and articulate a concrete reform strategy, which would help staunch negative trends. And the prime minister and United Russia remain reasonably strong despite the outcome. But the ruling elite seem increasingly prone to strategic mistakes and there is no sign that Putin is developing a plan; if Russia's political trajectory remains unchanged, both the economy and regime legitimacy will continue to muddle down.