Weekly Political Compass 9.20.22 | Teneo


Self-proclaimed republics in the east Ukraine will hold bogus referendums. That US President appears to be signaling a move away from “strategic ambiguity” over China. The voters go to the polls Italy. Cabinet announcements in Kenya may be further delayed.

Meanwhile, the leaders of South Korea and Japan consider holding a summit, attention in the United Kingdom will return to fiscal policy, Argentina Vice President will remain in the political spotlight, and Angola The new president has appointed his cabinet.

chart of the week

Governments across the EU are responding to the energy crisis Measures to protect consumers and businesses from rising prices. These include reducing VAT on electricity in most countries, as well as a more controversial windfall tax for energy companies being introduced in Italy and Spain. But a week after the European Commission outlined its own proposals – including an unexpected tax – countries continue to differ on how to respond to the crisis, partly due to differing energy market structures and national energy dependencies. At the same time, amid rising inflation and tightening monetary policy, governments face tougher economic compromises than during the pandemic. While politically pressuring them to spend, any fiscal easing at a time of tight labor markets and high inflation could prompt central banks to tighten monetary policy even further.

Something to see

Russia/Ukraine

From September 23-27, the Moscow-backed governments of the self-proclaimed Lugansk People’s Republic (LPR) and Donetsk People’s Republic (DPR) will hold fake referenda on joining Russia. Similar votes are likely to be announced in Ukraine’s Kherson and Zaporizhia regions, which are partially occupied by Russia. As in Crimea in 2014, the fake referenda are likely to be used by Russia as a pretext to formally annex these territories. Such a move would represent a major escalation, and the Kremlin could invoke the need to “maintain Russia’s territorial integrity” to explain full or partial mobilization or to justify the use of heavier weapons. Amendments to the Criminal Code passed by the State Duma today suggest Moscow may lay the legal foundations for declaring martial law and mobilization. The annexation would also complicate any peace/ceasefire talks, as the Russian constitution prohibits the cession of territory.

USA/China

US President Joe Biden made it clear that the US military would come to the aid of Taiwan if the island faced an attack from China, in what appears to be a departure from Washington’s longstanding policy of “strategic ambiguity.” As with Biden’s previous comments on the issue, a White House spokesman said the president’s comments do not signal an official policy change, but Biden’s comment could deepen concerns in Beijing that Washington’s one-China policy is eroding.

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Italy

A right-wing bloc led by Georgia Meloni’s brother of Italy (FdI) is expected to win majorities in both houses of parliament in the September 25 elections. While the new government is unlikely to seek a confrontation with the EU, its plans for the economy will cause some tension with Brussels. While the right-wing coalition is expected to secure a comfortable parliamentary majority, personal rivalries and political differences within the bloc will cause turbulence.

Kenya

Inaugurated President William Ruto’s cabinet announcements could be delayed by a few days. He is now expected to announce his cabinet following his trip to the UK for Queen Elizabeth’s funeral and the UN General Assembly in New York. Meanwhile, Ruto’s Kenya Kwanza coalition and Raila Odinga’s Azimio La Umoja coalition are vying for a parliamentary majority. In the National Assembly, Azimio has 174 MPs versus Kenya Kwanza’s 162. Ruto’s side claim they have won majorities in both houses, but the question is whether MPs who have switched allegiances since the election technically remain Azimio members.

At the horizon

ASIA-PACIFIC

Japan

The Bank of Japan’s Monetary Policy Committee is due to announce its latest monetary policy decision on September 22, but there are no signs that it will back away from its long-term, highly accommodative stance. With the yen already at a 24-year low against the US dollar, there would be even greater downward pressure on the Japanese currency if the Fed hikes rates again on September 21 and the BOJ sticks with it.

South Korea/Japan

President Yoon Suk Yeol and Prime Minister Fumio Kishida are reportedly considering holding a summit in New York on September 20 or 21 on the sidelines of the UN General Assembly, which would be the first such bilateral meeting since 2019. Yoon is eager to mend icy Seoul-Tokyo ties amid a deteriorating regional security environment, but Kishida may want advance assurances that South Korea’s Supreme Court will not enforce the liquidation of Japanese companies’ assets related to wartime forced labor .

EUROPE

Czech Republic

On September 23rd and 24th, voters will go to the polls to elect local councilors and one-third (27) of the members of the Senate (upper chamber of Parliament). While the parties in the Together governing coalition are expected to retain a majority in the Senate, the election will serve as a test of voters’ sentiment during the cost of living and energy crises. Currently, the governing parties occupy 20 of the 27 Senate seats up for election in single-seat constituencies. The ruling coalition parties are also expected to do well in local elections as the main opposition party, Action of Dissatisfied Citizens (ANO), has no significant regional presence.

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Turkey

The central bank is expected to keep interest rates on hold at 13% on September 22 after the bank made a surprise rate cut last month amid skyrocketing inflation in the country. The recent significant surge in capital flows of unknown origin to Turkey is making it easier for the authorities to continue the unorthodox monetary policies dictated by President Tayyip Erdogan.

United Kingdom

After Queen Elizabeth II’s state funeral, attention will return to fiscal policy. Chancellor Kwasi Kwarteng is expected to present his much-anticipated emergency budget on September 23. The Government will mainly outline Prime Minister Liz Truss’ plans for a £150bn economic support package. But in addition to the withdrawal of tax increases that has already been announced, the Chancellor could surprise with further handouts or tax cuts.

LATIN AMERICA

Argentina

Vice President Cristina Fernandez (CFK) will remain in the political limelight this week as her defense team deliver their closing arguments in the road infrastructure embezzlement trial known as Vialidad. CFK itself was able to take a stand on September 23. The defense claims that CFK is a victim of political persecution and that the opposition is guilty of worse corruption. Such an unruly legal strategy makes it unlikely that a dialogue will materialize between Peronists and the opposition; Kirchnerists have called for talks to defuse tensions arising from the trial, which led to protests in late August that culminated in the failed assassination of CFK on September 1. CFK currently has immunity from prosecution, and even if she is found guilty, subsequent appeals would mean nothing would stop her from running for office in 2023, likely as a senator, assuming she doesn’t seek the presidency again.

Brazil

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President Jair Bolsonaro will address issues that could affect elections at home when he addresses the United Nations General Assembly today. He will focus on his government’s achievements, such as: For example, bringing down inflation and improving economic growth prospects for 2022. The speech follows his trip to the UK for the funeral of Queen Elizabeth II, where he addressed supporters from a balcony at the Brazilian Ambassador’s residence in London in full campaign mode, attacks on the left, abortion and gender “ideology”. The President therefore continues to focus on issues that will not attract votes from undecided voters. He is always more than 10 percentage points behind former President Luiz Inácio Lula da Silvia in the polls. Nearly 80% of voters say they will never change their vote. Lula has reached 50% of the valid votes and can win in the first round on October 2nd depending on how broad alliances he can make.

MIDDLE EAST AND AFRICA

Angola

After being inaugurated for a second term, President João Lourenço swiftly appointed his cabinet on September 16. He retained many ministers, particularly in the economic departments, including Vera Daves, who remains responsible for the Treasury. Lourenço also appointed provincial governors, including for Luanda, where opposition party UNITA overtook the ruling MPLA in this year’s elections. UNITA has refused to honor the election results but will take its parliamentary seats hoping to make gains in the pending local elections and win the national election in 2027.

South Africa

Load shedding escalated to “level 6” over the weekend and “high levels” of voltage sags are expected to continue this week. The recent power crisis has forced President Cyril Ramaphosa to curtail his trips abroad, but his government will struggle to announce additional quick fixes or reform measures for struggling energy supplier Eskom. Increasing plant outages combine unfavorably with high diesel prices, on which Eskom has already spent most of its entire 2022 budget. To further insult customers, energy regulator NERSA will open public hearings on proposed 32% tariff increases for 2023-24.

The views and opinions contained in these articles are solely those of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion, and not as legal, financial, accounting, tax, or other professional advice or advice.



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