Monthly Archives: October 2013

Honduras

Blogging note: Tegucigalpa

Leave a comment

DSC09607

I’m off to Tegucigalpa to do some original reporting in advance of the Honduran general elections that take place on November 24.el salvador

In the meanwhile, there may be fewer posts at Suffragio over the next week or so and the posts that I do write will invariably be about Honduras as I spend some time in the country and meet some of its people.  I’ll be looking to get a sense of what each of the three major candidates and their campaigns are doing, what academics, reporters and everyday Hondurans think about the election campaign, and the past, present and future of bilateral US-Honduran relations.

If any readers out there have any tips for how best to enjoy Honduras — especially Tegucigalpa and southern Honduras and/or Roatán and the Bay Islands, please do let me know in the comments.

Japan

Japan pushes forward with consumption tax hike

1 Comment

asoabe

Earlier this month, Japanese prime minister Shinzō Abe (安倍 晋三) moved forward with plans to increase the top rate of Japan’s consumption tax from 5% to 8%, effective as of April 2014 — and he is expected to allow the rate to rise further to 10% in autumn 2015. Japan

It was the first major policy decision since Abe led his party, the long-dominant Liberal Democratic Party of Japan (LDP, or 自由民主党, Jiyū-Minshutō) to a landslide victory in the July vote that elected one-half of the seats (121) in the House of Councillors, the upper house of Japan’s parliament, the Diet (国会).  That vote was essentially a referendum on Abe’s big-spending economic stimulus program — widely called ‘Abenomics’ — following Abe’s equally impressive victory in December 2012 in the elections for the House of Representatives, the Diet’s lower house.

It’s notable for three reasons. Continue reading Japan pushes forward with consumption tax hike →

Madagascar

Madagascar holds long-awaited election, prepares for December runoff

1 Comment

robinson

Though the main actors in Malagasy politics have all been barred from running in Madagascar’s presidential election, they still found a way to overshadow the actual candidates in the country’s October 25 election.madagascar-flag

Results are still trickling in four days after the vote, but with just over 25% of all votes counted, it seems almost certain that the race will head to a December 20 runoff between the top two candidates.

That the vote actually went forward four years after a political coup marks significant progress for Madagascar, which has been trapped in a political and economic crisis since 2009.  With a new constitution in place, however, the new president will hopefully close the door on the turmoil that began with the March 2009 coup that brought opposition leader Andry Rajoelina, then the mayor of Madagascar’s capital of Antananarivo, to power.  Rajoelina replaced Marc Ravalomanana, first elected president in 2002 and reelected overwhelmingly in 2006, following widespread riots over economic conditions, sparking concern from throughout the world, including donor countries like France and the United States.

The country has been essentially transitioning toward last weekend’s presidential election ever since.  Finally scheduled for July 24, the election was postponed to August 23 and, again, to October after repeated delays and clashes among Madagascar’s constitutional court, the electoral commission and the Rajoelina administration.

Last year, the European Union and the African Union brokered a deal whereby both Rajoelina and Ravalomanana agreed not to recontest the presidency, which appeared to clear the way for 2013 elections.  But when former first lady Lalao Ravalomanana declared her own candidacy, Rajoelina declared his candidacy as well, arguing that Ravalomanana’s wife was a sly stand-in for the former president.  For good measure, former president Didier Ratsiraka, who brings an additional set of baggage to Malagasy politics, threw his hat in the ring as well.

Over the summer, however, Madagascar’s electoral court banned all three candidates — Rajoelina, Ravalomanana and Ratsiraka — thereby clearing the way for an entirely new administration relatively untainted by the personal failures of the three men who have governed Madagascar for all but five of the past 38 years.

Among the 33 candidates in the first round, two candidates seem poised to face off in the runoff, and unsurprisingly, they are the two candidates who are supported by both Rajoelina and Ravalomanana.

The first is Jean Louis Robinson (pictured above with Lalao Ravalomanana), a physician who previously served as Ravalomanana’s health minister, who leads with 26.32% of the current vote total.  He has benefitted from the full support of both Ravalomanana and his spouse during the campaign, and his campaign platform involves returning to an updated Madagascar Action Plan (MAP) that Ravalomanana tried to implement in the mid-2000s.

The second is Hery Rajaonarimampianina, Rajoelina’s finance minister between 2009 and 2013, who is in second place with 15.16%.  Though Rajoelina, as sitting president, remains neutral in the race, it’s clear that he is supporting Rajaonarimampianina.  Rajaonarimampianina received a masters’ degree in finance and accounting in Québec in the 1980s, served as director of the National Business Institute in the early 1990s, and worked in the private sector in the 2000s as an auditor and accountant.

Both candidates have promised to take action to boost employment and reduce poverty.   Madagascar, a former French colony with a population of around 22 million, suffers from low growth after years of a relatively planned, socialist economy that flatlined after the 2009 coup, despite Rajoelina’s pledge four years ago to restore democracy.  While the eventual winner of Madagascar’s presidency can look forward to a boost from the resumption of international aid from the European Union and the United States, he will face the need to implement serious and fundamental structural reforms if the Malagasy economy is to become truly competitive globally.

No other candidate is currently polling more than 10% of the vote, but the next five candidates include a who’s who of Malagasy political figures, including other politicians who have held roles in Rajoelina’s government over the past four years:

Continue reading Madagascar holds long-awaited election, prepares for December runoff →

Costa Rica, El Salvador, Honduras, Panama

Chart of the day: Central American GDP per capita

10 Comments

Screen Shot 2013-10-29 at 1.00.45 PM

Central America holds its fair share of elections over the coming months, starting with the November 24 general election in Honduras, where voters will select a new president and all 128 legislators in the Congreso Nacional (National Congress).honduras flag iconPanama Flag Iconcosta_rica_flagel salvador

But that’s just the beginning — El Salvador holds the first round of its presidential election in February 2014, with a potential runoff in March 2014, Costa Rica holds a general election in early February 2014, and Panamá holds its general elections in May 2014.  Guatemala will hold off until autumn 2015 and Nicaragua and Belize will hold off until 2016, when president Daniel Ortega (yes, that one) may well attempt to cling to power.

What’s more, in each of the four Central American elections set to take place in the next seven months, presidential term limits prohibit the incumbent from reelection, so four countries with over 21 million people will make political transitions of some kind.

But what’s most staggering is that the issues in each of the four elections are massively different — GDP per capita varies widely.  Though you can see a slight variance in 1960 setting Panamanian and Costa Rican GDP per capita apart, Guatemala briefly overtook Costa Rica in the early 1980s and Nicaragua was also on essentially the same path as Panamá and Costa Rica before flatlining for a decade starting in the late 1970s (following the Managua earthquake and anticipating the fall of the Somoza regime) and actively falling during the 1980s and early 1990s when the Cold War-inspired civil war devastated the country.  Though El Salvador continued to growth at a slow, steady rate throughout its civil war, which raged from 1979 to 1992, its growth rate exploded in the mid-1990s, and pushed the country to appreciably higher standards of living than its neighbors.

Still, the greatest relatively gains have been made over the past two decades:

Screen Shot 2013-10-29 at 1.09.36 PM

Costa Rica, with its tourism (and its position as a regional hub for Intel microprocessors), and Panamá, with its canal revenues, banking and insurance sectors and, increasingly, also tourism, lead the way.  Panamá City long overtook Managua as Central America’s financial hub.

In short, Panamá and Costa Rica are becoming tropical extensions of North America, with GDP per capita approach $10,000, essentially equivalent to that of México, and just a little lower than Brazil, Argentina, and Chile.

The remaining four countries major countries (minus Belize) are languishing further behind, with some of the lowest standards of living in all of Latin America.

Especially in Honduras, which features the higher homicide rate in the world — a rate that’s more than doubled since 2005 from around 37 homicides per 100,000 to 91.6 in 2011.  The World Bank estimates that violence and crime levels cost Honduran economy about 10% of GDP annually.  Security dominates the election campaign, but it’s a real drag on the economy as well.

Nonetheless, the economy has grown steadily at around 3.5% for the past four years, in part due to the strength of its export economy, fueled by the passage of the Central American Free Trade Agreement (CAFTA-DR) among the United States, Honduras, the Dominican Republic and several other Central American countries.  That has boosted the maquila (assembly) industry, as well as other service and manufacturing sectors in Honduras — agriculture remains important, but bananas represent just about 3.5% of exports in the original ‘banana republic,’ and coffee amounts to just 10% of exports.  The economy remains incredibly tied to the United States — exports to the United States account for about 30% of Honduran GDP and remittances from the United States and elsewhere contribute about 20% of Honduran GDP.

But whereas economists and observers once joked that Honduras was so poor that it couldn’t even afford an oligarchy, it now has the highest Gini coefficient in Central America (57) and one of the highest in the world as inequality continues to rise.  About 60% of Hondurans live below the poverty line.  Moreover, corruption remains a real impediment to foreign investment — Transparency International ranked the country 133rd in 2012, again the lowest score in Central America (and just barely topping the more lowly ranked Venezuela).

In global terms, however, Honduran GDP per capita (around $4,600 on a PPP basis), is relatively wealthy — that’s still higher than in India, Pakistan, Vietnam, Nigeria, Kenya or Ethiopia.

Argentina

Despite lame-duck challenges, CPK and kirchneristas win Argentine midterms

1 Comment

(163) Plaza del Congreso

The big story from the Argentine midterm elections is the rise of Sergio Massa as the frontrunner for the 2015 presidential election and the likelihood that the era of kirchnerismo is coming to an end.  The fact that Argentine president Cristina Fernández de Kirchner has been absent from the campaign trail following emergency brain surgery earlier this month, which followed her party’s weak showing in August’s open primaries, only seemed to amplify the narrative that her presidency is entering its lame-duck phase.argentina

But amid the hype over Massa’s rise and the curtail calls for kirchnerismo, it may have escaped attention that Fernández de Kirchner’s ruling Frente para la Victoria (FpV, the Front for Victory) actually won Sunday’s midterm congressional elections.

Voters elected one-half of the 257-member Cámara de Diputados (Chamber of Deputies), the lower house of the Argentine National Congress.  Before the elections, Fernández de Kirchner and her allies control 132 seats — and that’s exactly the number they will control after the elections:

chamber2013

It helped that the Front for Victory was defending just 38 seats in the midterms, which certainly limited exposure and potentially greater losses for the kirchneristas.  But make no mistake — Fernández de Kirchner and her allies will continue to control Argentina’s legislative branch for the final two years of her presidency, even if it will become trickier to pass bills into law.

In absolute votes, the Front for Victory and its kirchnerista allies far outpaced any other broad coalition of parties at the national level, winning 11 of the country’s 23 provinces:

argentina2013

Two other blocs each won about a quarter of the vote. Continue reading Despite lame-duck challenges, CPK and kirchneristas win Argentine midterms →

Georgia

Margvelashvili wins Georgia’s presidential election, but all eyes are on Ivanishvili

Leave a comment

georgiandream

It wasn’t a surprise that Giorgi Margvelashvili won such an overwhelming first-round victory in Georgia’s Sunday presidential election.Georgia Flag Icon

Preliminary results showed that Margvelashvili, a relatively little-known academic and most recently Georgia’s minister of education and science, won 63.82% of the vote — an incredibly strong result for Margvelashvili and the coalition he represents, Georgian Dream (ქართული ოცნება).

But the real transition of power won’t be from outgoing president Mikheil Saakashvili to Margvelashvili — rather, it will be from the office of the presidency to the office of the prime minister.

Under constitutional reforms adopted two years ago, Margvelashvili will hold a vastly less powerful presidency.  When Saakashvili leaves office, many of the duties of the presidency will pass instead to the head of government — prime minister Bidzina Ivanishvili and the Georgian Dream coalition, which took power after winning the October 2012 parliamentary elections.  Georgian Dream won 85 of the unicameral parliament’s 150 seats, and it’s won over a few more Saakashvili supporters in the past year.

That means that the result of the presidential election isn’t as important as the fact that, upon Margvelashvili’s inauguration, Georgia will essentially transform from a presidential republic into more of a parliamentary republic.  While Ivanishvili and Saakashvili have held power jointly for the past year with a divided government, Ivanishvili will now control Georgia’s government in its entirety.

But it doesn’t mean Margvelashvili’s victory is meaningless — it’s a vote of confidence in Ivanishvili and the current government.  Georgian Dream won 54.97% of the national vote last year, so its win in the presidential election is a significant increase in voter support.

The bottom line is that the real transition from the Saakashvili era to the Ivanishvili era is only about to begin — and no one really knows what that entails, because there are more questions than answers at this point.

The first question is whether Ivanishvili will actually stay on as prime minister — he’s indicated that he would prefer to step down and appoint another individual to succeed him.  Ivanishvili is Georgia’s wealthiest businessman, and he came to frontline politics only last year after falling out with Saakashvili.  But if he steps down, he would do so at exactly the moment when the office of the prime minister is set to become the most important office in Georgia, and it’s hard to believe he would do so unless he could install a relatively pliable replacement.  There seems to be little doubt that Ivanishvili will continue calling the shots, either as prime minister or behind the scenes, and he will remain by far the most important political figure in Georgia due to his massive wealth and his role in founding Georgian Dream.

The second question is whether Georgian Dream can truly govern as a united force.  The coalition is an unwieldy melange of nationalists, liberals and populists and it includes both pro-Western and pro-Russian forces.  During the 2012 campaign, and even over the past year in parliament, opposition to Saakashvili was sufficient to keep its disparate elements mostly united.  But when Saakashvili is no longer in power, and Georgian Dream is responsible for coherent policymaking, it may prove more difficult to maintain that unity.  That could be especially difficult if Ivanishvili steps down as prime minister.  Continue reading Margvelashvili wins Georgia’s presidential election, but all eyes are on Ivanishvili →

Czech Republic

Czech election results: a fractured and uncertain Chamber of Deputies

1 Comment

zeman

In September, voters in some of Europe’s most economically stable countries (Germany, Austria and even Norway) happily turned out to support their incumbent governments.  But in October, the Czech Republic’s election demonstrates that most of Europe remains under incredible social, economic and political stress.czech

Czech voters selected members to the lower house of the Czech parliament between two days of voting on Friday and today.  The result is a fragmented mess — it’s the most fractured election result since the May 2012 Greek parliamentary election, which resulted in a hung parliament and necessitated a second set of elections in Greece just a month later.

Here are the results:

czech 2013

Seven different parties — ranging from free-market liberals to communists to political neophytes — won enough votes to gain seats in the 200-member Poslanecká sněmovna (the Chamber of Deputies), but it’s not clear who will be able to form a government.  Voters clearly rejected the previous center-right government’s approach to austerity and budget discipline, but split over what they want to replace it.  Turnout fell below 60% for the first time in over a decade.

In purely political terms, the result gives even more power to Czech president Miloš Zeman (pictured above), who came to office after winning the country’s first direct presidential election in January.  On the list of ‘winners’ and ‘losers’ in this weekend’s election, perhaps no one is a greater winner than Zeman, who is entitled to appoint the prime minister and therefore, will shape the first steps in the coalition negotiations.

Since taking office, Zeman has pushed to empower the Czech presidency at the expense of the Czech parliament.  After the country’s center-right government fell earlier this summer, Zeman appointed Jiří Rusnok as his hand-picked technocratic prime minister, but Rusnok’s (and Zeman’s) inability to win a vote of confidence led to this weekend’s snap elections.  Rusnok has served as a caretaker prime minister for the past three months, and he could wind up serving quite a while longer if no governing coalition can be formed.

The center-left Česká strana sociálně demokratická (ČSSD, Czech Social Democratic Party) technically won the election — but just barely, and with far less support than polls showed just a month ago.  Despite winning more votes than any other party, the Social Democrats won just one out of every five votes, and it’s the party’s worst result in two decades.  It’s not necessarily clear that the party’s leader, former finance minister Bohuslav Sobotka, will even have the chance to form a government.  There’s simply no credible case that the Social Democrats have a mandate for much of anything.

Though Zeman, a Social Democratic prime minister between 1998 and 2002, broke away from the Social Democrats only in 2007, the party remains divided over the extent to which it wants to associate with Zeman now that he holds the Czech presidency.  What’s certain is that the poor result will weaken Sobotka, who leads the anti-Zeman wing of the party.  That means Zeman could bypass Sobotka and appoint a friendlier Social Democrat as prime minister, such as deputy leader Michal Hašek or perhaps Jan Mládek, who was widely tipped to become the next finance minister.

The real winner in today’s election is the Akce nespokojených občanů (ANO, Action of Dissatisfied Citizens), founded in 2011 by millionaire Andrej Babiš, which nearly overtook the Social Democrats in terms of support — they will hold just three fewer seats than the Social Democrats in the new Chamber of Deputies.  Babiš is one of the wealthiest businessmen in the Czech Republic, and he’s led a ‘pox-on-all-your-houses’ campaign that rejects the mainstream Czech political elite as corrupt and dishonest.  Babiš owns founded Agrofert, originally a food processing and agricultural company, but now a conglomerate that’s the fourth-largest business in the Czech Republic.  Though his platform is relatively nebulous, he’s called for reforms to reduce corruption and end immunity for politicians from prosecution.

Think of Babiš as a cross between former Italian prime minister Silvio Berlusconi and Georgian prime minister Bidzina Ivanishvili, perhaps, and think of ANO as a more business-friendly version of Beppe Grillo’s Italian protest group, the Five Star Movement.  Given Babiš’s recent effort to buy a top Czech media company, the comparisons to Berlusconi have become particularly sharp:

A Czech tabloid recently nicknamed Andrej Babis, the new star on the Czech political scene, “Babisconi.” But, when compared with Italy’s Silvio Berlusconi, he quips: “I have no interest whatsoever in underaged girls.”

In third place is the Komunistická strana Čech a Moravy (KSČM, Communist Party of Bohemia and Moravia), which won about 15% of the vote, the party’s second-best result since the fall of the Soviet Union.  The party is the heir to the old Communist Party of Czechoslovakia, which governed the country from 1968 until 1990 as a Soviet-aligned, one-party state.  Though the Communists have moderated their approach somewhat in the 21st century, and though they were expected to participate in a Social Democratic-led government, the party remains unapologetically communist (unlike other former eastern far-left parties, such as Die Linke in Germany, which espouse a more moderate form of democratic socialism).  Given that the base of the Czech Communists was once older, rural voters, its comeback today says much about the economic despair in the Czech Republic these days.    Continue reading Czech election results: a fractured and uncertain Chamber of Deputies →

Honduras

Suffragio is going to Honduras to cover the campaign for the upcoming presidential election

Leave a comment

tegucigulpa

I will be in Honduras from October 31 to November 7, hoping to cover as much as possible of the campaign leading up to November 24’s presidential election.honduras flag icon

If you are in Honduras, or if you know anyone in Honduras (especially Tegucigalpa), I am welcoming all sources or leads to understand just a little more about the country — and its history, culture, economics and politics.

 

Luxembourg

Bettel now tipped to become Luxembourg’s next prime minister, ending Juncker era

Leave a comment

bettelschneider

The three parties that finished in second, third and fourth place, respectively, in Luxembourg’s October 20 election will begin coalition talks, which could bring to an end the 18-year premiership of Jean-Claude Juncker, thereby elevating the current mayor of Luxembourg City, Xavier Bettel as Luxembourg’s next prime minister — and the country’s first openly gay prime minister. luxembourg

Bettel’s party, the liberal Demokratesch Partei (DP, Democratic Party), made gains in the weekend’s election at the expense of Juncker’s center-right Chrëschtlech Sozial Vollekspartei (CSV, Christian Social People’s Party) and Juncker’s previous coalition partner, the center-left Lëtzebuerger Sozialistesch Arbechterpartei (LSAP, Luxembourg Socialist Workers’ Party).

The CSV still won more votes than any other party (as it has in every postwar Luxembourgish election except 1964).  But by banding together, the LSAP, the Democrats and the Gréng (the Greens) would make history by giving Luxembourg its first so-called ‘Gambia’ coalition, named after the three colors of the Gambian flag — green, red (LSAP) and blue (Democrats).  Together, the three parties hold 32 seats (each of the LSAP and the Democrats won 13 seats, while the Greens have six) in the 60-member D’Chamber (Chamber of Deputies), Luxembourg’s unicameral parliament.

But Luxembourg’s snap elections came about only because the LSAP refused to support Juncker in a key vote earlier this summer related to a scandal involving the country’s intelligence service, the Service de renseignement de l’Etat luxembourgeois (SREL).  Though Juncker wasn’t directly responsible for the SREL’s misdeeds, which included illegal surveillance of domestic groups within Luxembourg, he was determined to be politically liable for the oversight of the SREL, which even allegedly recorded a telephone conversation between Juncker and Luxembourg’s grand prince Henri.  Rather than face the humiliation of losing a vote of no confidence, Juncker instead resigned in July and called for snap elections.

Bettel, who leads the Democrats, already has a strong working relationship with the Greens and their leader, François Bausch, due to their cooperation governing Luxembourg City, the small duchy’s capital.  In preliminary discussions, LSAP leader Etienne Schneider (pictured above, center, with Bettel right and Bausch right) agreed that Bettel would lead any ‘Gambia’ coalition government.

The next step would be for grand duke Henri to formally invite Bettel to become the formateur of a new government at a meeting on Friday afternoon.  Thereupon, it would be up to Bettel to bring together the three parties in crafting an agenda to govern Luxembourg.

Though the three parties lie on different points of the ideological spectrum, their government would represent a massive change from decades of center-right CSV rule under Juncker and his predecessors Jacques Santer and Pierre Werner.  Bringing a new party — and a new generation of leadership — into power in Luxembourg could in itself mark a welcome rupture, breathing fresh ideas into Luxembourg’s government and turning the page from the SREL scandal, the roots of which go back to the 1980s.

Moreover, all three parties are more socially liberal than the CSV, which could result in looser abortion laws and could also clear the way for the recognition of same-sex marriage.  Though Juncker personally supports marriage equality and had been pushing for a vote on a marriage equality bill before calling snap elections, it remains contentious within the CSV.  A Bettel-led government would almost certainly pick up the legislative fight where Juncker left off.

The three parties might also find common ground on wage indexing and measures to curb unemployment.  While Luxembourg has one of the wealthiest and strongest economies within the eurozone, the country’s unemployment ticked up from around 5% a year ago to 5.8%, as of August.

It would also make Bettel, at age 40, one of a growing number of Europe’s young vanguard of leaders, alongside Italian prime minister Enrico Letta (age 47), British prime minister David Cameron (age 47) and Finnish prime minister Jyrki Katainen (age 42).  Bettel would also become the third openly gay head of government in Europe (after Belgian prime minister Elio Di Rupo and former Icelandic prime minister Jóhanna Sigurðardóttir).

Continue reading Bettel now tipped to become Luxembourg’s next prime minister, ending Juncker era →

Georgia

Ivanishvili set to consolidate power in Georgia with presidential election

1 Comment

bidzinasworld

Georgians go to the polls on October 27 to elect their new president — almost exactly one decade after the ‘Rose Revolution’ swept Mikheil Saakashvili to power.Georgia Flag Icon

But while everyone expects the candidate of the Georgian Dream (ქართული ოცნება) coalition, former education and science minister Giorgi Margvelashvili, to become Georgia’s next president, Georgian are really waiting to hear the next move of Georgian Dream’s leader and Georgia’s prime minister, Bidzina Ivanishvili (pictured above, with Margvelashvili in background).

That’s because under the reforms passed by Saakashvili in 2010, many of the significant powers of Georgia’s presidency will be transferred to Georgia’s parliament.  So when Saakashvili hands over power to his successor, his successor will be more of a figurehead and the prime minister will become the key figure in Georgia’s government.

That will give Ivanishvili political control over Georgia’s government, ending the divided government that’s ensued since the October 2012 parliamentary elections, when Georgian Dream won 85 seats to just 65 seats for Saakashvili’s United National Movement (ENM, ერთიანი ნაციონალური მოძრაობა) in the 150-unicameral Georgian parliament.  (In addition, 13 deputies have bolted the ENM since last year, leaving the ENM with just 52 seats today).

Over the past year, Saakashvili retained the power of the executive branch (the new reforms don’t take hold until after the new president is sworn in), while Ivanishvili has controlled Georgia’s parliament.  Though one of the highlights of Saakashvili’s decade in power was his graceful concession that his party had lost the 2012 legislative elections, Ivanishvili called on Saakashvili to resign shortly after the election, establishing the tit-for-tat aggression between the two leaders that’s dominated the past 12 months.

Ivanishvili, Georgia’s richest businessman, long ago supported Saakashvili.  But a falling-out between the two led Ivanishvili to create his own opposition coalition in 2012 and even Ivanishvili’s dominant win in last year’s election hasn’t brought much in the way of reconciliation between the two.  Earlier this week, Ivanishvili said that Saakashvili may be prosecuted after he leaves office — it’s a real possibility, especially considering the imprisonment of Ukraine’s former prime minister Yulia Tymoshenko in recent years.

In the best-case instance, the past year would have provided Saakashvili and Ivanishvili time to coordinate the full transfer of power that will take place following this weekend’s presidential election.  But the poor personal relations between the two leader means that Georgia’s transition hasn’t  gone as smoothly as possible.

The race for the presidency

Margvelashvili, like Ivanishvili, was a newcomer to high-level Georgian politics in 2012.  Margvelashvili came to government from the academic and nonprofit sector.  With a doctorate in philosophy from Tbilisi State University in 1998, Margvelashvili served twice as the rector of the Georgian Institute of Public Affairs, a joint Georgian-American institute, from 2000 to 2006 and from 2010 to 2012, after five years with the well-known US-based National Democratic Institute.  Saakashvili, missing no opportunity for a snide remark, compared Margvelashvili’s to Caligula’s horse (of all things!) in May:

“I will say nothing specifically about this candidacy [of Margvelashvili], but generally speaking, when the Roman Emperor decided to demonstrate his dominance over the Roman society, he appointed his horse to the senate,” Saakashvili told journalists in Poti where he attended opening of a new Orthodox church.

Recently, Margvelashvili (and Ivanishvili) has claimed that he will end his candidacy if the election goes to a second round (i.e., if no candidate wins a 50% majority of the votes).  As Bret Barrowman at The Monkey Cage explains, that seems like less of a sacrosanct promise than either an idle threat or bluster meant to to maximize Margvelashvili’s support.

One helpful goalpost is the previous 2012 election, when the Georgian Dream coalition won 54.97% of the vote nationwide.

While polling in Georgia remains somewhat imprecise, a September NDI poll shows Margvelashvili with a wide lead of 39% to 18% over the UNM’s candidate, Davit Bakradze, a Saakashvili ally and a former foreign minister in 2008 who tried to negotiate a settlement with the breakaway republics of South Ossetia and Abkhazia before the situation escalated into confrontation with Russia.  Bakradze subsequently served as speaker of Georgia’s parliament from 2008 to 2012.  In third place with 7% is Nino Burjanadze, a former Saakashvili ally who served as speaker of the Georgian parliament from 2001 to 2008, when she formed her own opposition party.

Whither Ivanishvili?

But a more baffling question is why Ivanishvili has been talking about stepping down as prime minister shortly after the presidential election — it’s all the more baffling given that after the presidential election, the prime minister will have most of the powers previously held by Saakashvili: Continue reading Ivanishvili set to consolidate power in Georgia with presidential election →

Argentina

Kirchner health problems complicate midterm elections campaign

Leave a comment

cristina

Even before her latest health scare, Argentine president Cristina Fernández de Kirchner was appearing increasingly like a lame-duck president.argentina

Prevented from running for reelection under the two-term limit in the Argentine constitution, Kirchner’s ruling Frente para la Victoria (FpV, the Front for Victory) was already struggling in midterm elections that will determine nearly half of the Argentine legislature.

But Fernández de Kirchner was rushed to the hospital for emergency surgery to remove blood from the surface of her brain, which followed a previously undisclosed subdural hematoma suffered after the president fell in August.  She was instructed by doctors to rest for 30 days, all but guaranteeing that the leading figure in Argentine politics would be on the sidelines as the country votes.

That might actually be good for the FpV’s chances, given the unpopularity of kirchnerismo these days — a decade after her husband Néstor Kirchner first won election, Fernández de Kirchner leads a government that’s struggling to stop inflation, slow rising crime and turn around a weakening economy.  The Argentine government’s dysfunctional exchange rate policy has led to the emergence of a black market for US currency.  Moreover, Fernández de Kirchner is still battling some of the holdout creditors from Argentina’s 1999-2001 debt crisis even as Argentina remains shut out from capital global markets, which has left the Argentine treasury sometimes grasping for liquidity.

Meanwhile, her former ally Sergio Massa is leading the charge against her in the province of Buenos Aires, by far the largest province in Argentina (it’s home to 15.5 million of Argentina’s 41 million residents). Massa, also a center-left peronista, served as the chief of the cabinet of ministers from 2008 to 2009 before winning election as the mayor of Tigre.  But he’s broken with Fernández de Kirchner in the midterm elections, and he’s founded a rival entity, Frente Renovador (Renewal Front).  As Tigre mayor, he’s focused on crime prevention, and as he looks to the national stage, he’s also emphasized reducing crime and corruption.  As a peronista alternative to kirchnerismo, Massa has defined himself as a business-friendly, center-left candidate, who’s embraced the push for greater social and economic justice over the past decade, but who prefers a less unorthodox approach to economic policy.

Massa’s Renewal Front defeated the Front for Victory in August’s open primaries — a sort of dress rehearsal for the actual midterm elections — by a margin of 35.1% to 29.7%, a gap that could grow on Sunday as Massa’s popularity has grown.

Argentines will choose determine one-half of the composition of the 257-member Cámara de Diputados (Chamber of Deputies) of the lower house of the Argentine National Congress and one-third of the composition of the 72-member Senado (Senate), the upper house.  Due to the staggered nature of elections, and the fact that the Argentine opposition did much better in the 2009 midterm elections than in the 2011 general election (when Fernández de Kirchner easily won reelection), the FpV will only be defending 38 of its 116 seats in the Chamber of Deputies.  So there’s still a wide chance that the kirchneristas will still control the legislative branch of government — in any event, the FpV will almost certainly remain the largest party in the Congress, and because of the regional nature of Argentina’s many opposition parties, the FpV will still probably win the largest number of votes in the October 27 midterms, notwithstanding its unpopularity.

But the once-high hopes that the FpV would consolidate its 2011 gains and win a two-thirds majority — enough to amend the Argentine constitution to allow Fernández de Kirchner to run for a third consecutive term — were long ago shattered. Continue reading Kirchner health problems complicate midterm elections campaign →

Israel

Horowitz loses bid to become first openly gay Middle Eastern mayor

Leave a comment

nitzan

As results come in from today’s municipal elections, it appears that Nitzan Horowitz will lose his bid to become Tel Aviv’s next mayor.ISrel Flag Icon

Horowitz (pictured above), a member of Israel’s Knesset from the leftist, secular Meretz (מרצ, ‘Energy’), appears to have come up short in his bid to unseat Ron Huldai, who has been the mayor of Israel’s most populous city since 1998.

Huldai, a member of the center-left Labor Party (מפלגת העבודה הישראלית), is a retired Israeli air force general, and his reelection campaign has been to stand on his 15-year record presiding over Tel Aviv’s transformation into a truly international city as a cultural and financial powerhouse, not just within Israel but for the entire Middle East.

A former Haaretz reporter and a television reporter for Israel’s Channel 10 news program, Horowitz was first elected to the Knesset in 2009.  Horowitz, who is openly gay, would have become mayor of one of the most LGBT-friendly cities in the Middle East, where even Huldai has long since learned to court the gay vote:

In his two terms, Huldai has become the community’s darling; he is photographed at every LGBT community event, voices support for the community, and opens the annual Pride parades.

“Undoubtedly Huldai has come a long way since his quote 15 years ago, when he said ‘two gays kissing disgust me like cockroaches,'” says city-council candidate Mizrahi, chairman of Meretz’s gay forum. “Still, I think we need more than parade openings. We need a group that will work and understand the gay community’s needs. Our candidates are very experienced on that front.”

Given the astounding economic growth in Tel Aviv, Horowitz emphasized the city’s increasingly unaffordable prices, and a growing divide between an affluent northern Tel Aviv with a less wealthy southern Tel Aviv, including relatively poorer Arabs in the old port of Jaffa south of the new city center.  Horowitz has campaigned on a plan to create a housing authority to deliver more affordable housing.

While there are plenty of Tel Avivis unhappy with the uneven pace of development, there are apparently more who have benefitted from Tel Aviv’s growth and are willing to stick with Huldai, who will become Tel Aviv’s longest-serving mayor when his new term concludes in 2018.

In the Jerusalem mayoral election, secular, centrist incumbent Nir Barkat, a former venture capitalist who entered Jerusalem politics in the early 2000s.  Barkat had the support of both Labor and Meretz, and he will defeat right-wing candidate Moshe Lion, the former chairman of the Jerusalem Development Authority, who has the support of the Likud / Yisrael Beiteinu coalition (הליכוד ישראל ביתנו‎) of prime minister Benjamin Netanyahu.

Czech Republic

Photo of the day: Flipping the bird to the Czech Republic’s president

Leave a comment

purplefinger

Just a couple of months after social democratic chancellor hopeful Peer Steinbrück flipped the bird on the cover of a top German news magazine, the middle finger is back at the heart of a European election campaign.czech

With the Czech Republic set to vote on Friday and Saturday in parliamentary elections, artist David Černý erected a 30-foot-tall purple hand with an outstretched middle finger and is floating it down the Vltava that divides Prague, the capital of the Czech Republic, pointed toward the presidential palace and Czech president Miloš Zeman:

Mr. Cerny said the monumental hand with its 16-foot-long outstretched middle finger, placed on a float facing the castle, was a “scream of alarm” against the state of politics in the Czech Republic, endemic corruption and Mr. Zeman, a former leftist prime minister, whom he accused of becoming intoxicated with power.  He said the sculpture, which he gave an unprintable title, was also aimed at the country’s Communist Party, which could gain a share of power in the coming elections for the first time since the revolution that overthrew communism more than two decades ago.

“This finger is aimed straight at the castle politics,” Mr. Cerny said by phone from Prague, the Czech capital. “After 23 years, I am horrified at the prospect of the Communists returning to power and of Mr. Zeman helping them to do so.”

Here’s a longer look at the circumstances leading up to the weekend’s snap elections.

Photo credit to Michal Cizekmichal/AFP/Getty.

 

Puerto Rico, United States

The next debt crisis in the United States may require a Puerto Rico bailout

2 Comments

CIMG0357

Washington may be enjoying some well-deserved rest from the brinksmanship of the dual crises over the US federal government shutdown and the possibility that the US Congress might not raise the debt ceiling.USflagPR

Though both crises ended last week, a new crisis may have been gathering steam while the world focused on the global implications of a seemingly dysfunctional American political system.

It’s Puerto Rico, where both finances and the economy seem to be spiraling out of control.

Bondholders are pressuring Puerto Rico

Investment vehicles that buy state and municipal bonds have long loved Puerto Rico’s bonds.  Although the bonds are rated BBB+ (by Standard and Poor’s), they are a tax-exempt hat trick.  Not only are Puerto Rican bonds exempt from all federal taxes (like all state and municipal bonds), and not only are they exempt from applicable Puerto Rican commonwealth and other local taxes (which is generally how most state and municipal bonds are treated in the state or territory of their issuance), Puerto Rican bonds are exempt from state taxes in all 50 US states.  So while Virginian bonds may be taxable under New York state tax, or Californian bonds may be taxable under North Carolina state tax, Puerto Rico’s bonds are exempt from state and local taxes everywhere.

Bondholders have typically shrugged away Puerto Rico’s ‘BBB+’ rating because the yields were sufficiently high enough (around 5%) and the tax advantages so pronounced that Puerto Rican debt looked like an easy way to goose returns for the average fund manager.  So Puerto Rican bonds became predictably popular, and many mutual funds and other investment vehicles are widely exposed to Puerto Rican debt.  Morningstar estimates that 77% of all muni funds hold Puerto Rican bonds to some degree, and they’re all now incredibly itchy about their exposure.

But when yields started climbing over the summer and early autumn to above 8% and even 9%, it spread alarm not only in San Juan, but in New York and other global financial capitals, as investors and analysts started thinking more deeply about the weakest geographic link in the US financial system, a ‘commonwealth’ with a much more fragile economic outlook that shares only some elements in common with the mainstream US economy.  Puerto Rico’s governor, Alejandro Garcia Padilla, and a slew of top officials have spent the rest of October in New York, Washington and elsewhere trying to calm markets and policymakers.

No US state has a debt outlook as poor as Puerto Rico’s, and its ‘BBB+’ rating is just one notch above junk debt status.  If any of the three major ratings agencies downgrade Puerto Rican debt further, it could trigger a number of adverse ‘death spiral’ consequences.  Puerto Rican bonds are already selling on the open market well below par, but if Puerto Rican debt hits ‘junk bond’ status, it would suddenly become much, much worse.

Mutual funds could be forced to sell their entire Puerto Rican portfolios, which would flood the market with bonds that would become almost immediately worthless.  Puerto Rico’s government could be forced to post additional collateral against those bonds, leaving its government even more strapped for cash.  That’s not even taking into account the effects of any credit default swaps related to Puerto Rican debt.

All of which means Puerto Rico is now a lot closer to insolvency than it was a month ago.

But unlike the city of Detroit, which filed for Chapter 9 bankruptcy earlier this summer, Puerto Rico is a sovereign (technically an ‘unincorporated territory’) and cannot file for bankruptcy as a matter of law.  To the extent there was any legal doubt about it, a federal court slammed shut the door in 2012 when it ruled that the pension fund of the commonwealth of the Northern Mariana Islands could not file for bankruptcy.

That leaves US president Barack Obama with the unpalatable option of having to consider a bailout of Puerto Rico — an option that some Puerto Rican officials were already discussing openly earlier this month:

In a meeting with bond analysts in New York on Monday, the president of the Puerto Rican Senate, Eduardo Bhatia, said officials in the United States Treasury and White House had been analyzing the situation carefully, “wondering how they can help Puerto Rico send a very strong signal of stability right now.”

Given that the Republicans who control the US House of Representatives are incredibly anti-debt, the fight to raise the debt ceiling would look like a cakewalk compared to the congressional fight over a potential Puerto Rican bailout.  If House Republicans seem unwilling to move forward on immigration reform, they seem even less likely to approve a bailout for a territory that pays no federal income tax, that elects no members to Congress and that has no electoral votes in the US presidential election.

Is Puerto Rico the Greece of North America?

The real horrorshow element to this is that Puerto Rico could wind up being to the United States what Greece was to the European Union — the canary in the coal mine that exposes wider state-level and municipal exposure.

The immediate possibility of a US debt default through political brinksmanship has now passed, at least until February 2014.  Furthermore, no one expects Puerto Rico to fall out of the ‘dollarzone,’ or face the idiosyncratic problems that the European Union faces, where monetary policy is set at the European level and fiscal policy is still set at the national level.

But if yields remain elevated, Puerto Rico won’t be able to borrow enough to finance its government.  Its leaders say that Puerto Rico is prepared to refrain from further borrowing through June 30 of next year and wait out the current debt scare, but that’s hardly a solution to the crisis.  Even if that estimate is correct, what happens in July 2014 if yields spike again?  What happens the next time bondholders start doubting Puerto Rico’s ability to meet its debt obligations?

Like Greece, Puerto Rico spent the 2000s on a debt spree — its debt load as a percentage of what Puerto Rican GNP increased from around 60% in 2000 to over 100% today.

It now seems clear that Greek debt was mispriced following its entry into the eurozone because debt yields converged among all eurozone countries.  That allowed Greece’s government to borrow throughout the 2000s at rates lower than its fundamental economic and financial performance would otherwise warrant.  Essentially, Greece continued to borrow at Greece-level amounts but with the benefit of German-level rates.

In the same way, investors have potentially mispriced Puerto Rican debt — no one actually treated Puerto Rico’s bonds as if they were one downgrade away from junk status.  That’s partly because the tax incentives were so favorable, but it’s also because no one really thought that the debt of a US territory was actually so risky.

But the debt ceiling fight highlighted the attention of world markets on the precariousness of US debt generally.  So while a run on Puerto Rico’s debt could end with Puerto Rico, it could also make mutual funds and global investors think twice about holding US municipal and state debt, especially in the wake of the debt ceiling fight and Detroit’s municipal bankruptcy.  There’s wide variance among the credit ratings of the 50 US states:

debtratings

According to S&P state-level credit ratings (as of January 31), while many US states have stellar credit ratings of ‘AAA’ (bright green in the map above) or ‘AA+’ (spring green), there are plenty of states with ‘AA’ (yellow) or ‘AA-‘ (orange).

Two of the largest states with a combined population of nearly 51 million have even more precarious ratings — California (rated ‘A’), despite the best efforts of California governor Jerry Brown to transform his state’s finances, and Illinois (rated ‘A-‘).  State debt loads vary considerably on a per-capita basis as well — this chart from the Tax Foundation shows that per-capita state-level debt ranges from $925 in Tennessee to over $11,000 in Massachusetts.

But it’s all worse in Puerto Rico, which has issued about $87 billion in outstanding debt, which comes out to over $23,000 on a per-capita basis.

Puerto Rico’s economy has been struggling for a decade

Meanwhile, no US state has an economy that’s in such poor shape as Puerto Rico does.

Puerto Rico’s unemployment rate is 13.9% (as of August), which is higher than the national average (7.3%) and higher than any other US state or territory.

Like Portugal and Italy, Puerto Rico’s economy was stagnant long before the 2008-09 global financial crisis — since the year 2000 (when it achieved 6.3% GDP growth), the Puerto Rican economy has been in contraction more often than it’s been in expansion.  Here’s a chart of the GDP growth of Puerto Rico against that of the United States between 1999 and 2012 — you can see that Puerto Rico entered a recession in 2005 that ended only last year, when it posted 0.5% growth:

Screen Shot 2013-10-22 at 3.01.14 PM

Puerto Rico’s economy outperformed the US economy only once in the past decade — it didn’t take the sharp hit that the United States suffered in 2008 and 2009.  But even that’s bad news for Puerto Rico, because it shows just how disconnected the island’s economy is from the mainstream US and global economy.

Moreover, Puerto Rico is already starting off far behind the US mainland in just about every economic indicator. Its median income of around $18,000 is far lower than the average income in the United States, and it’s about one-half of the poorest state median income (Mississippi’s median is around $36,000).  Nearly 41% of Puerto Ricans live below the poverty line, compared to just 16% within the United States.  Its regional GDP per capita is around $27,000, about half that of the United States generally.

Also like Portugal and the peripheral economies of Europe, Puerto Rico’s population (around 3.67 million) is in decline.  Its population peaked at just over 3.8 million people in 2004, and it’s dropped more than 4% in the past eight years, partly due to migration to the US mainland and partly due to a declining birthrate.  Just as in the peripheral economies of Europe, population decline means that there are fewer workers to support an increasingly unproductive and aging population.

Continue reading The next debt crisis in the United States may require a Puerto Rico bailout →

European Union, San Marino

Why San Marino (and other microstates) shouldn’t be a member of the European Union

Leave a comment

sanmarino

Voters in San Marino narrowly preferred to pursue an application for membership to the European Union on Sunday in the first referendum of its kind in the tiny Mediterranean republic.European_Unionsanmarino

But despite the narrow approval — 50.3% supported EU membership while 49.7% opposed it — supporters did not reach the threshold for a successful referendum (around 32% of all potential voters).  That’s just as well, because the European Union is not currently designed to admit microstates like San Marino — or Andorra, Liechtenstein, the Vatican City or Monaco.

San Marino is an independent republic that consists of around 61 square kilometers completely surrounded by Italy.  By comparison, San Marino’s population of around 30,000 residents is about 1/22 that of the population of Palermo, the capital of Sicily.

San Marino traces its sovereignty as a republic to the 4th century, and it survived the Napoleonic Wars, papal expansionism, Italian unification and both World Wars (technically neutral in both wars, though its government was controlled from the 1920s until 1943 by the Sammarinese Fascist Party) without being overtaken by the greater Italian state.  Its economy is based largely on banking and tourism, and its GDP per capita of around $36,000 provides the ability to fund generous welfare programs.

Proponents of San Marino’s EU membership argue that the tiny country is already subject to so much EU regulation that its membership would give it more at least marginal influence in making European policy in the future.  But that’s the same argument that pro-EU Norwegians use to make the case that Norway should join the European Union, and that’s not historically been enough to sway Norwegian voters to embrace membership.  It makes more sense in Norway’s case — though the Scandinavian country has just 5 million people, it also has one of the most powerful economies in Europe, and its combination of fiscal discipline and social welfare would make it a touchstone for policymaking decisions.  But no one thinks that we’d see an immediate Sammarinese impact on European regulatory matters if San Marino became the 29th EU member tomorrow.

microstates

The European Council recently considered the relationships between the European Union and the various microstates in a report issued in 2012 with recommendations for a more standardized approach to what is currently quite a helter-skelter set of arrangements:

  • Single market / trade.  San Marino, like Andorra, Monaco and Turkey, is party to a customs union with the European Union, but other states (like Liechtenstein) are actually part of the European single market, and the recent European Council report recommended that the European Union should work to integrate all of the microstates more fully into the European Economic Area.
  • Open borders / Schengen.  Liechtenstein is the only microstate that’s a full member of the Schengen area.  San Marino and the Vatican City have open borders with Italy, just as Monaco has an open border with France, but neither are technically members of the Schengen Agreement.  Andorra has neither membership in the Schengen Area or open borders with France and/or Spain, so maintains border checks with the rest of the European Union.
  • Eurozone / currency.  San Marino uses the euro because, like the Vatican, its pre-eurozone currency was tied to the Italian lira, and Monaco has a similar arrangement, given its prior monetary links to the French franc.  Liechtenstein uses the Swiss franc, while Andorra has a special agreement for issuance of euro coins with the European Union.

For San Marino, at least, its current relationships with the European Union and Italy mean that it has de facto or de jure access to the single market, benefit of the Schengen free-movement zone and participation in the eurozone. Continue reading Why San Marino (and other microstates) shouldn’t be a member of the European Union →