Tuesday, January 6, 2009

Ian Bremmer's Top Ten Political Risks for 2009

Eurasia Group's Ian Bremmer just released the firm's top ten political risks for 2009. We will feature a panel discussing the ethical implications of these risks with Ian Bremmer, Michele Wucker, and Art Kleiner next week, on Jan. 13, at the Carnegie Council. Sign up for the event at gpievents@cceia.org.

Here is how Ian summarizes the top risks for the year:

First, we’ll see more state intervention in the global economy. Second, that intervention will be both reactive and uncoordinated by a series of local, regional, and national political actors who have decidedly non-global (and in many cases non-market) views of the cost/benefit equations that attend their policy decisions. In short, politics will drive the global economy more directly, and more inefficiently, in the coming year than at any point since World War II.

Below, we present a truncated excerpt of the ten risks:

1. Congress - Political risks have historically been most important for economic outcomes in emerging markets, but that’s not so this year. The current financial crisis has created an unprecedented space for government interference in economic affairs within developed states, as well. Nowhere is that more true than in Washington.

2. South Asia Security - The security environment in India, Pakistan, and Afghanistan will deteriorate significantly over the coming year, and the United States and Europe will find themselves more directly involved in conflicts in all three states, with little benefit to show for it, by the end of 2009.

3. Iran/Israel - The likelihood of the United States launching strikes against Iran has diminished considerably over the past two years, due both to internal policy wrangling between Vice President Dick Cheney and others within the Bush administration and the election of Barack Obama as president. But 2009 is the critical year for conflict (both direct and through proxies) between Iran and Israel.

4. Russia - We enter 2009 with Russia in play in a way we haven’t seen in decades. The relevant comparison isn’t 1998, when the Russians engaged in default and devaluation but remained within the bounds of their existing political and economic system (as Lenin said, two steps forward, one step back). The history to consider is 1989—as key aspects of the Russian system could change for the worse.

5. Iraq - Frankly, Iraq at number five is a good news story. With about 140,000 American troops remaining on the ground and no serious evolution of the Iraqi political model, it’s a testament to the relative improvements of security that Iraq has managed to claw its way away from a risk that keeps the world on edge.

6. Venezuela - President Hugo Chavez has made a habit of miscalculation over the years, but this may be the big one. His plans for a referendum in the coming month to reform the Venezuelan constitution and abolish term limits (which would allow Chavez to run again for the presidency in 2012) show little likelihood of success. Then the Venezuelan president will have a real political fight on his hands.

7. Mexico - While Colombia’s President Alvaro Uribe has effectively won his country’s war against the drug cartels, the same can’t be said of Mexico’s President Felipe Calderon. The security situation there has worsened and is almost certain to deteriorate further over the course of 2009. Well armed and well financed narco-criminals have effectively declared war on the state of Mexico—increasingly singling out elected government officials, bureaucrats, and the armed forces and police for their attacks. As the government continues to rely on the military to go after the drug lords, the bloodshed will continue.

8. Ukraine - As I mentioned, Ukraine isn’t likely to spur the kind of direct military conflict we saw last August in Georgia. But it merits a slot in our top risks because of the government’s inability to deal effectively with the severe challenges posed by the current financial crisis and economic downturn—and one certainly not helped by its volatile relationship with Moscow.

9. Turkey - Speaking of internal distractions, Turkey is essentially defining the problem. The country has all sorts of factors in its favor—a diversified economy, strong demographics, an extremely favorable trade route geography, and solid ties with both western countries and its Middle Eastern neighbors. Yet the fight pitting secularists in the judiciary, military, and industry against Islamists in government is becoming a serious obstacle to economic advancement. And the AK party leadership, feeling that it increasingly carries the weight of popular support on its side, is unwilling to compromise—instead, casting out potential dissent from within the party (and losing critical bureaucratic competence as a result). To make matters worse, the AK party has long lost its reformist spirit and has embraced a more nationalist attitude, making it more difficult to find a solution to the thorny Kurdish question.

10. South Africa - Rounding out the top risks for 2009 is South Africa. Upcoming elections will dominate the news, but it’s more political context than electoral results that will cause concern. It’s pretty clear that the African National Congress (ANC) will keep its majority in parliament, though the emergence of a new splinter party will reduce its numbers. In principal, that’s not a bad development; popular concerns over the ANC’s abuse of power should be reduced accordingly. But the transition is going to be hard on the ANC leadership—with South Africa’s legislators having to accept the need to cooperate with political opponents, rather than using political influence to force would-be dissidents into line. The initial reaction is likely to be a lack of patience and tolerance, undermining public confidence in South Africa’s political institutions...and providing little comfort to investors.

Notice China instability, the Persian Gulf, and climate change are not on the list. Ian sees these as either red herrings or, in climate change's case, longer term developments.


Devin Stewart said...

Some of the comments from Ian Bremmer and Art Kleiner from their talk on WNYC this morning with Brian Lehrer:

- Bubbles are related to short term profit maximization. What about a US Treasuries bubble with so much US debt? If the dollar falls as a result, what does it mean for the management of world politics? We are responding to the debt problem with even more debt.
- A bubble is a loss of perspective; you can’t clearly see around you. Ethics is about seeing the implications of your actions. Hard to know what living right means if you cannot see clearly.
- China and Europe may misconstrue US regulations for protectionism and spark a protectionist cycle.
- Governments will not respond to global warming in the short term because they will be busy with the financial crisis; but this delay will create more long term risk.

Prasanna said...

I believe "Congress" should read "USA"? At the very least it will be consistent! Nevertheless, an interesting list.