<?xml version="1.0" encoding="UTF-8"?><rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:wfw="http://wellformedweb.org/CommentAPI/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:atom="http://www.w3.org/2005/Atom" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:slash="http://purl.org/rss/1.0/modules/slash/" > <channel> <title>2021 – The Musings Of A Politics Junkie & Closet Economist</title> <atom:link href="https://kurtdavisjr.com/tag/2021/feed/" rel="self" type="application/rss+xml" /> <link>https://kurtdavisjr.com</link> <description></description> <lastBuildDate>Tue, 17 Aug 2021 18:41:52 +0000</lastBuildDate> <language>en-US</language> <sy:updatePeriod> hourly </sy:updatePeriod> <sy:updateFrequency> 1 </sy:updateFrequency> <generator>https://wordpress.org/?v=6.7.2</generator> <item> <title>Covid-19, Political Unrest, and Economic Challenges: Five Countries To Watch Closely in the Second Half of 2021</title> <link>https://kurtdavisjr.com/covid-19-political-unrest-and-economic-challenges-five-countries-to-watch-closely-in-the-second-half-of-2021-south-africa-india-thailand-brazil-lebanon/?utm_source=rss&utm_medium=rss&utm_campaign=covid-19-political-unrest-and-economic-challenges-five-countries-to-watch-closely-in-the-second-half-of-2021-south-africa-india-thailand-brazil-lebanon</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Tue, 17 Aug 2021 16:36:24 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[2021]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Brazil Elections]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Cyril Ramaphosa]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Enoch Godongwana]]></category> <category><![CDATA[India]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Lebanon]]></category> <category><![CDATA[Prime Minister Narendra Modi]]></category> <category><![CDATA[South Africa]]></category> <category><![CDATA[Thailand]]></category> <category><![CDATA[Tito Mboweni]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=491</guid> <description><![CDATA[On a global scale, people are angry at the current health and economic environment with protests becoming increasingly prevalent. The question for political analysts and investors is whether the anger and unrest boils to an unsustainable level for some countries....]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img fetchpriority="high" decoding="async" width="1024" height="683" src="https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-1024x683.jpg" alt="" class="wp-image-492" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-1024x683.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-768x512.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-1130x753.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-750x500.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic.jpg 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Pro-democracy protesters hold up the three-finger salute during an anti-government rally in Bangkok. <br>(Photo Credit: Lillian Suwanrumpha/AFP via Getty Images)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em><em><em><em>Can these five countries fix their current situations?</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>At the start of the year, vaccines and feelings of hope could have been the theme.</p> <p>Yet rising covid-19 numbers and a growing number of variants has elevated the tensions over vaccines (and mask mandates) while slowing economies have struck at the hope (or aspiration) for V-shaped recoveries.</p> <p>The lack of turnaround would be ‘okay’ per se if the failure of full-blown recoveries did not also appear to be weakening the social and political fabric of many emerging market countries.</p> <p>On a global scale, people are angry at the current health and economic environment with protests becoming increasingly prevalent. The question for political analysts and investors is whether the anger and unrest boils to an unsustainable level for some countries.</p> <p>Below are five countries to watch closely in the remaining months of 2021.</p> <p class="has-medium-font-size"><strong>Lebanon</strong></p> <p class="has-normal-font-size"><em>Not catching a break with a sovereign default, port explosion, and covid-19 in the last 18 months…</em></p> <p>If the world was not grappling with covid-19, Lebanon would be the big economic storyline. The economic situation, simply put, is a disaster with the World Bank writing, “the Lebanon financial and economic crisis is likely to rank in the top 10, possibly top three, most severe crises episodes globally since the mid-nineteenth century.” Lebanese have witnessed the country’s currency plummet 95% against the dollar with the Lebanese pound now trading at 22,000 to the dollar on the black market. The government is running out of hard currency to subsidize staple products, including medicine and gas, with shelves empty in pharmacies and long queues at the gas station. The exit of Saad Hariri and entrance of billionaire businessman Najib Mikati sadly cannot fix the sectarian nature of politics in the country and the lack of foreign financial support. Now discussions of an army unable to pay its soldiers highlight the slow deterioration of public institutions in a country once viewed as the cosmopolitan haven of the Middle East. The world will continue to look to France, Saudi Arabia, and the U.S. for support…yet those three countries may not be aligned on next steps. If the usual allies do not help and international financial institutions sit on their hands, the admired Lebanese hope and perseverance that found its revival in the 1990s following the end of a brutal civil war may die. To be fair, that hope has fought a port explosion, economic collapse, and a covid-19 pandemic in the last 18 months. </p> <p class="has-medium-font-size"><strong>South Africa</strong></p> <p class="has-normal-font-size"><em>Covid-19 is exacerbating economic challenges and disparities…</em></p> <p>The road to fixing the economy in South Africa was always going to be hard for President Cyril Ramaphosa. But the protests last month initially motivated by the jailing of ex-president Jacob Zuma demonstrated the political and economic challenges of the country. The protests quickly escalated to mass looting and the destruction of business and personal property underpinned by pent-up anger and frustration from many South Africans whose lives have economically snowballed downward. Many are jobless, poor and view their government as corrupt. Covid-19 exacerbates the situation with lockdowns punishing the poorest South Africans as wealthier South Africans has space at home to work and money to buy goods. The ban on selling alcohol felt maternalistic with wealthier South Africans hosting parties with alcohol in their gated communities. The economic disparity is not new (nor unique to South Africa) but covid-19 shined a light on the traumatic and disparaging effect of it. And things may only get worse before they get better. The appointment of Ramaphosa’s close ally Enoch Godongwana to succeed Tito Mboweni felt like a shakeup but it is believed that the former Central Bank governor Mboweni was ready to leave the job. Mboweni’s exit has some parallel symbolism to the feelings of international investors (who have slowly exited the country). The path forward for the country will be fraught with struggling commodity production, weakened African financial markets, and a battered private sector plus a potential influx of foreigners from struggling neighboring countries. So it goes…the Rainbow Nation really needs the storm to stop and the rainbow to return.</p> <p class="has-medium-font-size"><strong>Brazil</strong></p> <p class="has-normal-font-size"><em>Maybe a presidential race in 2022 can spur some change…</em></p> <p>President Jair Bolsonaro is facing his biggest challenge as covid-19 endures in South America’s biggest country. The protests against masks and fights over lockdowns poorly mask (no pun intended) the increasing economic challenges in the country with federal social spending unable to solve for slow growth and lack of a pandemic solutions. The spending under the <em>auxilio emergencial</em> program, which provided monthly payments of R$600 to roughly 68 million Brazilians during the pandemic with single mothers receiving R$1,200, helped to win support initially during the covid-19 pandemic. The payments were later cut by 50% in September (with families receiving R$300). The smaller payments and lack of turnaround in the economy gradually weakens Bolsonaro’s political position as each day passes. The return of former Brazilian President Luiz Inacio Lula da Silva only frustrates the situation as economic angst and anxiety will be fueled by the conspicuous emerging political race between Lula and Bolsonaro. A presidential race usually spurs the necessary change with the current president attempting to demonstrate results and the opponent emphasizing the shortcoming in the current system…in Brazil, there is little indication that Bolsonaro will make drastic policy changes simply because Lula is attempting to reclaim the presidency. Thus, Brazil may remain in the social and economic doldrums in the short term with more covid-19 deaths (only second to the United States) and stunted economic growth.</p> <p class="has-medium-font-size"><strong>Thailand</strong></p> <p class="has-normal-font-size"><em>Covid-19 may be emboldening protesters…</em></p> <p>Thailand is symbolic of the challenges with covid-19 in Asia. Things were under control and then the country attempted to open the borders through controlled tourist zones. But the Delta variant is spreading amongst a population that is less than 10% vaccinated (with two doses) and dependent on the return of tourists. Accelerating vaccinations seems all but impossible at this stage, at least in regards to stemming the current onslaught of health (and economic) pain. The Thai government will continue to support debt relief and focus on all attempts to stimulate local and foreign consumption. But with Asia facing an uphill battle as a region, the country cannot expect much external support (as other Asian countries attend to their internal covid-19 problems) and will mainly hope non-Thais are willing to bear the risk in visiting the country. The latest data suggest that strategy is not working with GDP growth expected to be 0.7%-1.2% this year, which is an approximate 50% reduction from the 1.5%-2.5% predicted in May by the National Economic and Social Development Council. The council blamed the drop in expected GDP growth on the “flareup of the [covid-19] outbreak in April” with no insurance to the public that this would not continue to be a problem. The recent Thai protests are ultimately the epitome of this deteriorating situation with local Thais basically saying they have lost faith in the system, which includes both the monarchy and non-monarchy leadership for Thais.</p> <p class="has-medium-font-size"><strong>India</strong></p> <p class="has-normal-font-size"><em>The lack of protests indicates a significant amount of quiet suffering…</em></p> <p>Covid-19 has been detrimental to the social and economic fabric of India. Yet Prime Minister Narendra Modi has impressively avoided the protests witnessed in the other countries on the list. The country has recorded more than 431,000 cases out of the nearly 30 million people who have contracted the virus. While the country of 1.36 billion people has reported fewer deaths than Brazil and the United States, numerous experts (as well as Modi critics) continue to argue that the positive case numbers and fatality numbers are underreported with data collection quite underwhelming outside a few major cities. The stories from locals suggest that there is some truth to underreporting. That aside, if the physical destruction of life was not too much, the underwhelming economic turnaround leaves many families unable to care for the sick and the healthy. At the start of the year, IMF expected the country to grow by more than 12% this year, but recently reduced that estimation to 9.5%. Early consumer spending data and a spike in the Delta variant in the country suggests that this number may decrease again. In a country where many individuals live on daily wages, these slowdowns (and shutdowns) ultimately reverse Indian gains against poverty, according to the World Bank, with the effects on human life lingering for a generation. Prime Minister Modi recently renewed his pledge to spend more than $1 trillion on infrastructure to boost the economy and create jobs. The pledge is an effort to allay concerns that covid-19 is becoming the perfect storm of a health and economic crisis for India, particularly amongst the most vulnerable in the population. Sadly, if the current rate of economic pain persists, the gains of the 2010s against poverty may be wiped out by the pandemic despite the country having an ability to internally produce the vaccine.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> <item> <title>Lebanon’s Search For A Solution in 2021</title> <link>https://kurtdavisjr.com/lebanons-tragedy-economy-politics-covid-19-solution/?utm_source=rss&utm_medium=rss&utm_campaign=lebanons-tragedy-economy-politics-covid-19-solution</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Fri, 08 Jan 2021 10:31:25 +0000</pubDate> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[2021]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Israel]]></category> <category><![CDATA[Lebanon]]></category> <category><![CDATA[Politics]]></category> <category><![CDATA[Port Explosion]]></category> <category><![CDATA[Saad Hariri]]></category> <category><![CDATA[Syria]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=396</guid> <description><![CDATA[Lebanon has long swept its challenges under the rug and celebrated its successes. But the explosion back on August 4th in the port area of Beirut—the capital of Lebanon—, in a figurative and physical sense, unveiled a tomb of hidden treasures and misfortunes of years past. Yet the tragedy of the blast was it not only took so many lives, but its revelations of treasures and misfortunes were not exactly new...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large is-resized"><img decoding="async" src="https://kurtdavisjr.com/wp-content/uploads/2021/01/Lebanon-FT.jpg" alt="" class="wp-image-398" width="580" height="326" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/01/Lebanon-FT.jpg 700w, https://kurtdavisjr.com/wp-content/uploads/2021/01/Lebanon-FT-300x169.jpg 300w" sizes="(max-width: 580px) 100vw, 580px" /><figcaption> (Photo Credit: Hamzeh/EPA/Shutterstock)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em>Dispersing with the political and economic remnants of civil war</em>…</strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>This is not Lebanon. This is Lebanon. Maybe both statements are true.</p> <p>The hope, the destruction, and the hope again…or is it the destruction, the hope, and the destruction again?</p> <p>Lebanon has long swept its challenges under the rug and celebrated its successes. But the explosion back on August 4<sup>th</sup> in the port area of Beirut—the capital of Lebanon—, in a figurative and physical sense, unveiled a tomb of hidden treasures and misfortunes of years past. Yet the tragedy of the blast was it not only took so many lives, but its revelations of treasures and misfortunes were not exactly new.</p> <p>The treasures of Lebanon are its people and culture, and the resilience that keeps the people and culture fastened together. It is hard not to know these treasures or hear about them if you are to know Lebanon and have Lebanese friends. The fears are also known—political induration, economic and financial crisis, and the unavoidable foreign influence—yet they are danced around and skipped over in many conversations. Thus, the mystery of the entire situation is how does anyone, after the explosion, pretend the treasures easily outweigh the misfortunes (especially as the people continue to exit for other countries).</p> <p>More than four months later, the Lebanese diaspora has returned home for the holiday season to find a country still searching for a new way. Many visiting Lebanese diaspora are young(er), employed and idealistic, looking out at a local public that is increasingly old(er), unemployed, and decreasingly optimistic. This is not how their parents described Lebanon in its past days. The stories of today describe a grim reality on the ground…thus what is to be changed in the country if the stories are to resemble the past optimism of their parents’ tales.</p> <p class="has-medium-font-size"><strong>A Civil War Chameleon</strong><strong></strong></p> <p class="has-normal-font-size"><em>The Civil War That Never Ended But Adjusted</em></p> <p>More than 45 years ago, in April 1975, the Lebanese civil war broke out. The war lasted 15 years, taking more than 150,000 lives, injuring more than 300,000, and leading to the mass emigration of Lebanese. The end of the war was equally catastrophic with both Israel and Syria making best efforts to control the country. A series of political assassinations and the continuous picking at old political scabs fueled further instability in the country. It was the assassination of former Lebanese Prime Minister Rafiq Hariri on Valentine’s Day in 2005 by a suicide truck bomb in Beirut that ultimately made Syria quit its occupation of the country. A senior member of Hezbollah was convicted for the planning of the assassination by an UN-funded special tribunal in the Hague back in July last year. A new war with Israel would erupt in 2006…for many Lebanese (and Israelis), this was only a continuation of the strained relationship that has soiled regional peace efforts for decades. The uprising in Syria in 2011 further picked at old wounds as Syrian refugees flooded into Lebanon for safety.</p> <p>Elections and protest movements are equally both synonymous with Lebanese politics and can function as a never-ending extension of the Lebanese civil war. The country existed without a president for about 29 months until October 31, 2016 when the Lebanese Parliament elected Michel Aoun after 40 failed attempts to fill the post. Various political parties undermined previous efforts to fill the vacancy with boycotts that prevented the necessary quorum for a vote. Following the 2016 election, President Aoun reappointed Saad Hariri as prime minister. Hariri previously served as prime minister from 2009 to 2011. He would unexpectedly resign on November 4, 2017 in a televised statement from Saud Arabia with unabated references to Iran and Hezbollah’s interference and influence in the greater Middle East politics and fears of assassination. </p> <p>Then Hariri, after a series of maneuvers and failed attempts to leave Saudi Arabia, would find his way to France to meet French President Emmanuel Macron and then back to Beirut where he suspended his resignation on November 21<sup>st</sup> and fully rescinded it on December 5<sup>th</sup>. Hariri would later announce another resignation in October 2019 following a series of street protests by the Lebanese public against a lack of transparency and accountability in government. He would leave office when Hassan Diab, the former education minister, was appointed to prime minister on January 21, 2020 and then be reappointed as prime minister on October 22<sup>nd</sup> after Diab resigned following the aforementioned explosion at the port. </p> <p>Lastly, the most recent parliamentary elections due for 2013 did not happen until May 2018 with the March 8<sup>th</sup> coalition, a coalition of political parties and independents united by a pro-Syria stance and allied with Hezbollah, taking a majority share of the power. The March 8 Alliance and the March 14 Alliance—a coalition of political parties and independents united by an anti-Syria stance—both formed in 2005 are manifestations of the ongoing alliances from the civil war codified into contemporary Lebanese politics.</p> <p class="has-medium-font-size"><strong>The “Slicing the Cake” Nature of Lebanese Politics</strong><strong></strong></p> <p class="has-normal-font-size"><em>Political Power Sharing and Patronage</em></p> <p>So many in Lebanon grew up being told that Lebanon’s political system was necessary to protect the country. The UN-brokered Taif Agreement and related agreements following the end of the civil war was explicit in terms with a pre-assigned number of seats in the Lebanese Parliament to each of the different religious groups and sects. Unsurprisingly, political parties have been designed around these groups to ensure political power and mobilize voting blocks. Thus, although more religiously diverse than its Middle Eastern neighbors as well as having a very sizeable Christian population, Lebanon cannot escape the very palpable Sunni-Shia sectarian divide that permeates the politics of other predominantly Muslim nations in the region. </p> <p>Furthermore, the selection of candidates and subsequent voting is filtered through the same religious lens. Candidates are generally selected along religious fidelity with repeat selection of candidates for parliament by elder Lebanese which generally frustrates young Lebanese. The patronage system for cabinet posts, jobs and so on consequently remain dominated by specific families. Voters, especially younger voters, complain about the results, but the rules generally ensure the same outcome or, at least, prevents things from changing. The “system” also finds strength through continued emigration of talented Lebanese, who, in a figurative sense, are invited to send and spend money in Lebanon to support a fragile economic state but should stay out of politics. As a result, the protestors on the street are increasingly younger and mobilized by weakened social services and a troubled economy, ultimately exhibited by the country’s sovereign default last year.</p> <p>The apportionment and later subdividing of the spoils of patronage is a rather limited course of action for reversing the sectarian challenges. In other words, the “slicing the cake” style of politics has created an outwardly image of a functioning political system while mistrust percolates among religious sects and the greater Lebanese population. And, as the economic cake and associated positions of political power shrink, it is increasingly hard to find agreement on how to share responsibility and rewards. The pie is also shrinking as state-owned enterprises labor through economic turmoil caused by both mismanagement and the economic demise of the state. In the past, the state could financially engineer higher returns for investors and citizens willing to lend their dollars to the state. Today, both markets and Lebanese citizens are backing away.</p> <p class="has-medium-font-size"><strong>The IMF is Not a Miracle Worker</strong><strong></strong></p> <p class="has-normal-font-size"><em>The Deeper Problems and Challenges</em></p> <p>Lebanon’s economic challenges are not new. The country has regularly walked a tightrope with its sovereign balance sheet and avoided collapse with some form of financial sticky plaster from Middle Eastern neighbors or the market at the last minute. Yet the sovereign default last year completely exposed the bleeding in the system, with a shortage of foreign currency, an unclear strategy for attracting additional foreign currency, and an unceasing impatience and disdain from the public for the financial system in its entirety. A number of economists inside and outside the country supported the country defaulting on its debt with one common theme underlying their thinking: Lebanon needed to start over from scratch.</p> <p>Now, from “scratch” is hard unless you can blow up the entire system which is complicated for several reasons. First, decades of extracting income from rent-based sectors, including banking, real estate, and remittances to fund imports and consumption has emptied the coffers of the government as well as frustrated that small group still willing to fund the government. International markets have turned off the tap while neighboring countries show some willingness to finance the country only if that money can come with some political fidelity which Lebanon cannot offer within today’s politics. Secondly, the financial sector, in particular the banks, cannot find the usual support from the Lebanese population. Local Lebanese have lost significant wealth and buying power with the plunge of the Lebanese pound to roughly 8,000 to 9,000 pounds per dollar (versus the peg rate of 1,500) and have been hammered economically by covid-19 at home. Lebanese diaspora outside the country struggle to bet on the resilience and recovery of the country and choose to safekeep their money elsewhere across the globe. </p> <p>The IMF accordingly will struggle to employ the normal tactics in its reform toolbox. Currency devaluation… already done. Shrink the public sector…that could work but the local population is already combating inflation near 60% and struggling to pay for basic goods and services. Thus, the stripping of subsidies on energy and gasoline alongside food products ostensibly seems impossible today. Lastly, the focus on fiscal consolidation is not necessarily an easily digestible medicinal pill for a country that requires real economic growth, i.e. beyond infrastructure spending at the government level or inflow of dollar bank deposits from Lebanese both of which are unlikely in the short term in today’s environment</p> <p class="has-medium-font-size"><strong>“Falling on the Sword” to Save the Country</strong><strong></strong></p> <p class="has-normal-font-size"><em>Looking Back at Turkey in the 2000s and De Klerk in the early 1990s</em></p> <p>Lebanon may require the most extreme series of reforms. That said, the likely initiator of such reforms will likely not have long-term political survival. Consider the case of Turkish economic crisis in 2000s. The IMF provided more than $11 billion in loans while the state sold 51% stake of Turkish Airlines with advertisements placed in newspapers to attract buyers. Lebanon will require major loans to fund economic growth as foreign investors—similar to the experience in Turkey in the late 1990s—are reluctant to return to the country today. That said, Turkey became indebted to the IMF and, in the view of some critics, was placed at the mercy of the IMF’s political <em>and </em>social willpower. Additionally, some treasured Turkey state assets were no longer fully owned by the state…privatizing Lebanese state assets is already a delicate subject. </p> <p>Despite all these efforts in Turkey, the ruling party could not prevent the landslide victory of the AKP led by current Turkish President Recep Tayyip Erdoğan in 2002. This point is to say the system may need its F.W. de Klerk reform moment. De Klerk remains a controversial figure in South African history. He was the leader of the Afrikaner ethnic National Party (disbanded in 1997) yet he also later dismantled apartheid with universal suffrage to the South African population. He would win the Nobel Peace Prize for figuratively falling on the sword for the National Party’s historic wrongs and upending the system that maintained its white-minority rule. Lebanese politics may require several De Klerk moments…absent that, a new inflow of foreign capital or sale of state assets may not be enough to calm the angst of the young Lebanese and beyond, especially if an economic recovery only ultimately reinforces the old political system. Every party runs out of cake to eat and share at some point…or better said, a political system that sustains itself solely on perfectly allocating the spoils of war is bound to continuously falter and ultimately fail unless it can evolve and change (the jury is still out on Lebanon).</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> <item> <title>Top 10 Economies to Watch in 2021</title> <link>https://kurtdavisjr.com/top-10-economies-to-watch-in-2021-brazil-uae-thailand-portugal-turkey-japan-italy-peru-ghana-malaysia/?utm_source=rss&utm_medium=rss&utm_campaign=top-10-economies-to-watch-in-2021-brazil-uae-thailand-portugal-turkey-japan-italy-peru-ghana-malaysia</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 21 Dec 2020 10:56:26 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[2021]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Ghana]]></category> <category><![CDATA[Italy]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Japan]]></category> <category><![CDATA[Malaysia]]></category> <category><![CDATA[Marcelo Rebelo de Sousa]]></category> <category><![CDATA[Nana Akufo-Addo]]></category> <category><![CDATA[Peru]]></category> <category><![CDATA[Portugal]]></category> <category><![CDATA[Recep Tayyip Erdogan]]></category> <category><![CDATA[Shinzo Abe]]></category> <category><![CDATA[Thailand]]></category> <category><![CDATA[Turkey]]></category> <category><![CDATA[UAE]]></category> <category><![CDATA[Yoshihide Suga]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=387</guid> <description><![CDATA[The distribution of vaccines is changing the economic outlook in 2021 with most politicians and investors forecasting a continued recovery. Yet the political and economic risks that preceded the covid-19 pandemic remain alongside the lockdown measures necessary to combat the virus. The year will be turbulent for some countries as public confidence and investor sentiment vacillates with optimism and skepticism on vaccine acceptance rates and economic output numbers. Several countries are likely to be bellwethers for the markets, or at least, provide some directional insight on the global economy’s recovery...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img decoding="async" width="288" height="221" src="https://kurtdavisjr.com/wp-content/uploads/2020/12/OECD-Growth.jpg" alt="" class="wp-image-388"/><figcaption> </figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em><em><em><em>The bellwether economies for 2021…</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>The distribution of vaccines is changing the economic outlook in 2021 with most politicians and investors forecasting a continued recovery. Yet the political and economic risks that preceded the covid-19 pandemic remain alongside the lockdown measures necessary to combat the virus.</p> <p>The year will be turbulent for some countries as public confidence and investor sentiment vacillates with optimism and skepticism on vaccine acceptance rates and economic output numbers. Several countries are likely to be bellwethers for the markets, or at least, provide some directional insight on the global economy’s recovery.</p> <p class="has-medium-font-size"><strong>Brazil</strong></p> <p class="has-normal-font-size"><em>Is this a pro-market or socialist administration…let’s see what happens in 2021</em></p> <p>Brazilians may be looking to 2021 as much as anyone. The covid-19 pandemic has killed more than 185,000 Brazilians, which is more than 11% of the total deaths worldwide. President Jair Bolsonaro was vehemently attacked by his critics for not mandating masks and not taking the virus seriously enough. Amid the criticism, Bolsonaro—the right wing, pro market “Trump of the Tropics—won the support of Brazilians with the biggest welfare program in Brazil’s history.</p> <p>Despite his economy minister, Paulo Guedes, originally proposing to spend no more than R$5 billion ($1 billion), which is about 0.2% of the budget, to combat the pandemic, the reality of everyday Brazilian life changed the direction of this conservative government. The Bolsonaro administration ultimately decided, as part of the <em>auxilio emergencial</em> program, to provide monthly payments of R$600 to roughly 68 million Brazilians during the pandemic with single mothers receiving roughly R$1,200. The payments were cut by 50% in September (with families receiving R$300) but extended through the end of the year. This fiscal response, including the job-retention schemes, amount to about 8% of GDP. The federal spending is winning supporters in the streets. That said, it is also worrying many investors who see a country with a public debt quickly approaching 100% of GDP.</p> <p>Furthermore, the Bolsonaro administration is seemingly walking into 2021 in an ideological wilderness of some sort with big economic challenges and few options for solutions. The administration could reduce welfare spending to pre-pandemic levels and retake its conservative, pro-market stance, but the Brazilian economy remains extremely fragile. Unemployment is 14.6%, which is a record for the country, with incomes not recovering anytime soon, and GDP is tracking for a 5% decline in 2020. The administration could spend more, but Congress will have to raise the constitutional ceiling on spending…that would normally go against the ideology of this administration but there is still a pandemic. Bolsonaro could use a second wave of the covid-19 pandemic to advocate for major spending and economic changes, building off momentum from his pension reform success. Global vaccine distribution and uptake by the public, however, may dictate the timeframe for a bold move as the economic parameters underpinning any Bolsonaro decision will be constantly shifting. It almost seems too early for rumors to be floating around on the Bolsonaro administration’s desire to raise interest rates in a post-pandemic world…then again that may be the necessary rumor to keep investors enticed by the country.</p> <p class="has-medium-font-size"><strong>United Arab Emirates (UAE)</strong></p> <p class="has-normal-font-size"><em>Will the UAE demonstrate its resilience again?</em></p> <p>The UAE commenced 2020 with threats of attacks from Iran following the U.S.’s assassination of Iranian General Qasem Soleimani and is now ending the year with formal relations with Israel and crowded beaches (largely consisting of Europeans escaping the lockdown measures in Europe). That summary, on the face of it, sounds positive but massages the reality of the economic challenges. The country will see its economy contract 6.6% in 2021, according to the International Monetary Fund (IMF), and is expected to grow slightly above 1% in 2021. The IMF argues that low oil prices, geopolitical issues, and covid-19 lockdown measures will underpin low growth for the UAE and the larger GCC region. The reality of the IMF storyline is there is a new oil price norm, which the region is adjusting to, and the geopolitical issues are overstated, excluding issues with Iran. That said, the covid-19 lockdown measures in the region and across the globe will undercut an economic rebound for the UAE. For example, Dubai, which is roughly 90% expat, and functions as a financial hub for the region, needs international travelers and businesspersons to start boarding flights and passing through Dubai. The sight of Europeans on the beach during the Christmas holiday gives hope to (but does not substantiate) that vision.</p> <p>The UAE will benefit from an inflow of Israeli capital and ideally tourism. Yet the country will suffer from the exodus of expats, estimated at roughly 10-12% of the population since its peak in 2020. Can it attract remote workers (per latest advertisements across European tv)? Can it make potential tourists find comfort in the country’s rather superb testing capabilities and the insurance offerings by Emirates Airlines? The various questions are hard to answer today with so much unknown about the global market. The UAE leadership nevertheless will not sit idle and are actively employing different strategies. Still the realities of the country’s economic system suggest that absence global travel and business or, at least, regional travel and business, the UAE could be in for a long 2021. Scheduled for October 2021 (after being postponed this year), Expo 2021—which involves companies and institutions across the globe coming to Dubai to showcase their products, services, and related projects—is a bet on a revived and traveling world. That said, if the date moves again in the first half of 2021, consider that a bellwether for the tough times to come. Skeptics would say the empty restaurants and bars in the Dubai International Financial Center (DIFC) and across the country already indicate 2021 will be tough. But the UAE track record demonstrates that it is too early to write-off this rather resilient country.</p> <p class="has-medium-font-size"><strong>Thailand</strong></p> <p class="has-normal-font-size"><em>When will tourism return?</em></p> <p>The Thai economy suffered during the early days of covid-19 as lockdowns decimated exports and tourism for southeast Asia’s second largest economy (after Indonesia). GDP crashed 12.1% in the second quarter, which was the highest contraction since the second quarter of 1998 when the country registered a 12.5% decline due to the Asian financial crisis. The 6.5% growth in the third quarter of 2020 accordingly provides a glimpse of hope. It is important to note that the growth comes without foreign tourists. It is the increasing domestic tourism and slight revival in exports driving these numbers.</p> <p>Similar to the UAE, the country will be closely watching the rollout of the vaccine. Widespread distribution of the vaccines will take time and does not necessarily guarantee a return of public confidence in traveling. The optimistic case for Thailand may be a return of foreign tourism by the second half of 2021…in this scenario Thailand potentially attracts one-fourth of the tourists seen in 2019. Without an inflow of foreign spending, the country will be dependent on export growth to fill the gap. Exports are unlikely to rebound to 2019 numbers before the fourth quarter of 2021…it will most likely take longer. Thus, the Thai government will struggle to underwrite ongoing debt moratoriums through June 2021 and other measures to stimulate consumption (e.g., welfare allowances, tax rebates, etc.) if tourism has its issues. Political observers and investors will also have to be cautious if political unrest and protests remain a concern.</p> <p class="has-medium-font-size"><strong>Portugal</strong></p> <p class="has-normal-font-size"><em>Overcoming low tourism in 2021 would be hard…</em></p> <p>Portugal partially fell under the radar this year. The country escaped the pernicious impact of the covid-19 crisis seen in other EU countries, in particular Italy and Spain. The pandemic and the associated lockdown measures, however, devastated the economy with a 18% crash in the first half of 2020 and an estimated 8% to 9% contraction for the entire year. The Bank of Portugal is forecasting a 5.4% growth in 2021, compared to 2.2% in 2019. The fragile nature of the EU economy and the ongoing reality of a pandemic suggests that a big economic recovery in 2021 may be hard for Portugal. The Portuguese economy is already more vulnerable than others in today’s partially lockdown world. The country has a significant tourism sector, which suffers with the current lack of travel, and depends significantly on exports, which also have not performed well this year. The country’s economy also relies heavily on family owned businesses that have struggled (and ultimately closed) across the globe amid the pandemic. Nothing suggests Portuguese family owned business will perform better than the average thus the impact on 2021 may be greater than forecasted with more than expected businesses already closed and new ones not exactly taking their spot.</p> <p>Further complicating the Portuguese story is the 2021 election. To be fair, Portugal’s incumbent President Marcelo Rebelo de Sousa, supported by Christian-democrats Centro Democrático e Social (CDS) and the centre-right Partido Social-Democrata (PSD), should win. But elections, in the midst of pandemics and economic recessions, always add an extra dynamic to the situation. That said, the election is in January thus the hoopla should be over early and the country will quickly turn to reviving the economy…though no one can be too sure how Portugal does this without a global rebound in tourism and consumption of Portuguese products.</p> <p class="has-medium-font-size"><strong>Japan</strong><strong></strong></p> <p class="has-normal-font-size"><em>Covid-19, the Olympics, and the changing of the guard in Japanese politics…2021 will be interesting</em></p> <p>Japan has had a volatile year…though many observers may not appreciate that when Japan is viewed against other markets. First, the country’s longest serving prime minister, Shinzo Abe, announced his second resignation in September 2020, citing health concerns related to his ulcerative colitis. Abe established 8 years of political stability with landslide victories for the Liberal Democratic Party (LDP) in 2014 and 2017. Recently elected Prime Minister Yoshihide Suga is not guaranteed the same support and political backing from those within his party let alone those outside his party. Politicians and businesspersons have long found comfort in the consistency of Japanese politics and its leader thus the change naturally creates some worry amongst the Japanese public.</p> <p>Secondly, Japan has generally managed the covid-19 pandemic like a superstar with less than 2,800 deaths (for context, the United States is currently recording that death toll on a daily basis). The luster, however, is dimming with the Japanese public as the country recorded its highest number of covid-19 cases last week. Critics have panned Suga for poor leadership and his “Go to Travel” campaign, which he quickly suspended. Poll numbers suggest his approval numbers are in the 40s, compared to mid-60s when he took office. Suga is surely watching these numbers and will feel pressure to respond to them with the LDP party presidential race to take place before the end of September 2021, which will be more competitive than the quick September 2020 party race. He needs to win the party leadership race to stay prime minister.</p> <p>Suga is reportedly debating more localized lockdowns to curb the spread of the virus but also weighing this against jumpstarting the economy. The government is forecasting 4.0% GDP growth for the country, which is higher than the 3.0% to 3.5% coming from local economists. The growth numbers should be buoyed by the Olympic Games, as the International Olympic Committee has officially ruled out postponing the games for a second time. Still, it is not clear if the global public will attend the Olympics. The absence of tourists would be detrimental to economic growth numbers. Japan should have a view of attendance by early spring. If the country starts to recalibrate attendance numbers and economic growth numbers, then politicians and investors will likely have to take the same approach.</p> <p class="has-medium-font-size"><strong>Turkey</strong></p> <p class="has-normal-font-size"><em>The country that always survives…</em></p> <p>It has been a turbulent year for Turkey (per the usual in some investor’s eyes). The country’s politics naturally find their way into most global discussions. Turkey has long backed the Libyan interim Government of National Accord, led by Prime Minister Fayez al-Sarraj, as well as allied with the Syrian National Army in Syria. Turkey found its way into the Azerbaijan conflict with Armenia. And now the country faces sanctions from the U.S. over the purchase of the S-400 missile defense system. Despite the political storylines, the Turkish economy is what consumes political analysts and investors.</p> <p>The Turkish lira has struggled this year, losing 45% of its dollar value…only the Argentinian peso has had a tougher year. The lira unexpectedly found some reprieve with the departure of President Recep Tayyip Erdogan’s son-in-law Berat Albayrak, following the sacking of Murat Uysal as the central bank governor and the installation of Naci Agbal as his replacement. Lutfi Elvan, a former deputy prime minister, has replaced Albayrak as the Minister of Finance. Markets will be closely watching to see if Uysal will be supplying the “bitter pills” to the Turkish economy, as described by President Erdogan. So far, Agbal appears to be walking lockstep with Uysal with market friendly comments on the currency and the economy though investors will likely want more than words to completely buy into the ‘new’ Turkey.</p> <p>Investors will also be monitoring the country’s foreign currency reserves that have been decimated this year. However, it is partially a catch-22 situation where the country needs to attract more foreign capital, i.e. the country needs to woo the same foreign capital currently watching from the sidelines to see if the foreign currency reserve levels increase. Uysal and Agbal will also have to convince Turkish citizens to trust the lira and use the currency. That may be the tougher than convincing foreign investors to come back to the party.</p> <p class="has-medium-font-size"><strong>Italy</strong></p> <p class="has-normal-font-size"><em>Been here before…is that good or bad?</em></p> <p>Italian Prime Minister Giuseppe Conte recently reiterated a focus on expansionary policy for the Italian economy: “While preserving the sustainability of debt, the approach delineated in the 2021 budget will remain strongly expansionary […] a faster reduction of the budget deficit right now would risk jeopardizing Italy’s economic recovery.” Italian public debt is already projected to reach approximately 160% of GDP by year’s end, compared to 135% of GDP last year (only Greece will have a higher debt to GDP ratio in the EU). Despite the debt situation, Conte is prepared to double-down on spending to strengthen the economy, which is expected to contract roughly 9% this year The estimated 6.1% growth in 2021 remains a precarious projection subject to Italy (and the rest of the EU) returning to a sense of day-to-day normalcy. That is hard considering the localized lockdowns and timeframe associated with vaccine distribution across the region.</p> <p>Italy is expected to receive 196 billion euros in recovery funds from the EU, generally earmarked for a transition to a greener economy. It is not clear how this money will exactly plug holes and fill gaps when Conte is trying to re-underwrite the entire Italian economy. Maybe some spending on transport and digital infrastructure can be a quick boost to an ailing economy. That said, the greater focus should be on creating confidence and diversification in the Italian economy. This vision on fixing Italian economics has been the request of investors, lenders, and citizens for a long time yet the country consistently misses the target or outright resists certain demands. Thus, it is only appropriate that the market will be watching Italy with angst and a sense of opportunity.</p> <p class="has-medium-font-size"><strong>Peru</strong></p> <p class="has-normal-font-size"><em>Political and economic malaise must end at some point?</em></p> <p>Peru has had a lousy year…that honestly may be an understatement. Martín Vizcarra, Peruvian president since March 2018, was removed by Congress on November 9<sup>th</sup> for rather flimsy corruption charges. Protests in the streets followed and led to the new acting president, Manuel Merino, resigning less than a week after taking office. Most of his ministers would follow him out the door. Current President Francisco Sagasti is doing his best to maintain the peace (or, at least, calm) until the April 2021 presidential election. He has a hard road ahead of him for multiple reasons. First, the political tension and instability of Peru is not new and traces back to the 2016 election when Pedro Pablo Kuczynski defeated Keiko Fujimori, daughter of former President Alberto Fujimori—who was sentenced to 25 years in prison in 2007 for corruption and crimes against humanity—by the slimmest of margins with 50.1% of the vote. Kuczynski would resign in March 2018 but only after surviving an impeachment attempt in December 2017, pardoning Alberto Fujimori three days after the failed impeachment vote, and having allies, including his lawyer and Kenji Fujimori (brother of Keiko), caught on video attempting to buy a vote against impeachment from one official. Peruvian politics sadly are too clouded by distrust, questions of legitimacy, and constant impeachment scandals. Sagasti will have to walk a tightrope to keep the political boat afloat until April.</p> <p>The second challenge for Sagasti is the economic malaise across the country. The IMF is projecting the economy to contract 13.9% this year and grow 7.3% in 2021. The decline is easier to believe than the expected rebound. The country is dependent on fuel exports and mining, including copper and gold. External demand and prices will recover in 2021 but probably not to a level necessary to fund Peruvian stimulus spending measures. Agricultural exports will also lag in 2021. Thus, Sagasti or his potential successor are more likely to face a struggling economy with significantly less than normal to spend on welfare programs. The former Finance Minister Maria Antonieta Alva, who resigned in November, claimed that the government’s spending measures in the third quarter prevented the economy from crashing more than 20% this year. Peruvian officials, at the end of the day, will have to find a way to work together to carve out spending for welfare programs and business support in 2021…if they wait for the spoils of a global rebound to trickle down to Peru, every day Peruvians will lose and the country will look more like a distressed sovereign in 2021 more than a rebound candidate.</p> <p class="has-medium-font-size"><strong>Ghana</strong></p> <p class="has-normal-font-size"><em>President Nana Akufo-Addo may have won re-election this year but is now on trial for his economic policy…</em></p> <p>President Nana Akufo-Addo of the New Patriotic Party (NPP) won re-election on December 7<sup>th</sup> with more than 51% of the vote, defeating his predecessor John Dramani Mahama of the National Democratic Congress (NDC). His 2020 campaign built on the 2016 campaign vision: “Ghana Beyond Aid”. Back in 2017, in response to a local journalist’s question and to the shock of many observers and the visiting French President Emmanuel Macron, Akufo-Addo stated, “we can no longer continue to make policy for ourselves, in our country, in our region, in our continent on the basis of whatever support that the western world or France, or the European Union can give us.” This Akufo-Addo manifesto to end African dependence on foreign aid and the West, however, will now face its ultimate test.</p> <p>As stated in the 2020 Manifesto, the Akufo-Addo administration has made “significant progress in restoring economic stability, improved macroeconomic conditions that affect the lives of Ghanaians and the successes of businesses” and was “on schedule to maintaining our momentum for progress before the Coronavirus pandemic’s (COVID-19) major disruptions in every aspect of our national life”. Many African countries, including Ghana, have generally dodged the damage and carnage previously expected when covid-19 hit the continent. Yet, they will still encounter an economic environment that will ultimately culminate in a 1.6% contraction of the sub-Saharan African economy in 2020, according to the IMF.</p> <p>Furthermore, while Ghana may avoid economic contraction this year with about 1% to 2% growth, it will require significant investment to escape the potential economic traps of 2021. The economic waivers on utilities have hurt state-owned power companies and drained the government’s coffers alongside the spending on free meals, employment support and a national election. Once the end of the year numbers are released, Akufo Addo will likely have to take a view on whether to concede to increasing external financial support to fund infrastructure investment and support local businesses. That said, it is not that political question that puts him at greatest risk…rather, it is may be the question of how quick oil prices and other commodity prices rebound, both of which depend on the global economy regaining steam. As if there is not already enough pressure on Akufo-Addo, investors will probably scrutinize and over-examine Ghana’s performance for some insight into Africa’s recovery in 2021.</p> <p class="has-medium-font-size"><strong>Malaysia</strong></p> <p class="has-normal-font-size"><em>How agile and diversified is the Malaysian economy?</em></p> <p>The economic news coming out of Malaysia is positive with the IMF forecasting the country’s economy to grow by 7% in 2021 after 4.5% contraction in 2020. Exports were propped up in 2020 by the production of personal protective equipment (PPE) and electronics, which should continue in 2021. Malaysian officials expect a rebound for external demand of Malaysian products. They also remain committed to stimulus spending, as needed, with high confidence in their ability to direct spending to those sectors and manufacturing verticals least affected by social distancing and covid-19.</p> <p>The concern for Malaysia may be its national balance sheet and the money in its coffers. Revenue for the country is expected to fall to 15% of GDP. This decline in revenue collection will give rise to concern amongst officials and investors as the country’s debt approaches 60% of GDP. Prime Minister Muhyiddin Yassin also intends to spend to protect the poor and bolster healthcare amid this pandemic based on the recent budget. His critics will say this spending is putting Malaysia on an unsustainable path. Yet a lack of stimulus spending could crash the domestic economy thus Yassin, like many leaders, will be looking to a global recovery to underwrite his covid-19 spending outlook. The good thing for Yassin is that Malaysia’s economy is more agile and diversified to navigate the more probable slow start to the first half of 2021. If Malaysia struggles, then investors can expect many other economies to be in trouble.</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> </channel> </rss>