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The national Diet will endorse a new prime minister at an
extraordinary parliamentary session on 4 October, following Liberal
Democratic Party (LDP) leadership elections on 29 September. Given
the LDP's majority in the lower house, whoever is elected LDP
president is effectively certain to be endorsed as prime minister.
A general election is due in November, and prospects for the
LDP-led coalition retaining a majority in the lower house remain
strong. All the frontrunners have called for economic stimulus to
support businesses following extended coronavirus disease 2019
(COVID-19) virus pandemic-related restrictions, with Fumio Kishida
pledging a USD300-billion package. Sanae Takaichi said she would
also prioritize increased government spending to support the
economy, rather than upholding the current government's goal of
reaching a primary balance surplus by fiscal year 2025. Current
requirements for foreign investors to seek government approval
before share acquisitions in sectors deemed significant to Japan's
national security (i.e., energy and telecommunications) will
continue, regardless of the election outcome. Existing foreign
investment legislation is increasingly likely to be expanded to
other sectors, including rare metals and related industries. Among
the contenders, a government led by Takaichi is more likely to take
a hard-line approach on national security issues. Although all
candidates will pursue the current administration's decarbonization
goals, a Taro Kōno cabinet would be more likely to push for the
phasing out of fossil fuels in favor of increased renewable energy
use. Decarbonizations would be more likely to be delayed under
Kishida or Takaichi, who would probably favor expanding nuclear
energy use alongside renewables.
Peru's constitutional court replacements
Peru's opposition-controlled congress is scheduled to start on 1
October the process for the election of new members of Peru's
Constitutional Court (Tribunal Constitutional: TC), who serve for
five-year terms. The TC has the final say on the constitutionality
of legislation and lower court rulings. The terms of six of the
seven magistrates of the TC expired in 2019 but they remain
members, as the previous congress was unable to reach an agreement
on appointing their replacements. However, the death of Magistrate
Carlos Ramos on 21 September should increase pressure for congress
to elect new members within the next few months. Although the TC
only requires a quorum of five magistrates to hold sessions,
without Magistrate Ramos, it faces a greater risk of tied decisions
with no deciding vote. Prior to Ramos' death, the TC was split
along ideological lines, with three magistrates (including Ramos)
who typically voted in favor of more progressive issues and three
who typically voted in line with conservative opinion, and
Magistrate Manuel Miranda switching between the two sides and
providing the deciding swing vote.
Indicators to watch:
The opposition is likely to appoint more conservative members:
if successful, this would potentially limit or block the policy
agenda of President Pedro Castillo and his left-leaning Peru Libre
party, including constitutional changes.
A more conservative court would have the ability to oppose
changes to labor laws and any potential tax changes that are deemed
confiscatory, as allowed by the constitution.
Further sanctions on Ethiopia
Prime Minister Abiy Ahmed will be sworn in on 4 October after
his party won parliamentary elections in June. In a 16 September
statement, the White House declared that the swearing in before the
newly elected parliament provides an opportunity for Ahmed to
signal a different approach to the Tigray conflict. US President
Joe Biden signed an executive order on 17 September empowering the
US Treasury and State departments to sanction Ethiopian and
Eritrean officials engaged in the armed conflict in Ethiopia's
Tigray region, in efforts to push those involved to move toward a
ceasefire. However, it is unlikely that Ahmed will alter his
approach or seek a ceasefire. This implies that the US is likely to
impose financial sanctions on Ethiopian individuals involving
freezing their assets (if any are held in the US), a travel ban and
a prohibition on individuals and related firms from doing business
in the US. Those affected are likely to be part of or linked with
the Ethiopian Amharan regional, and Eritrean governments, or the
Ethiopian armed forces or Tigray defense forces, with sanctions
likely before the end of the year.
Indicators to watch:
If there is no progress towards a ceasefire after November, the
US is increasingly likely to threaten to withdraw Ethiopia from the
African Growth and Opportunity Act (Agoa), which allows duty-free
access to the US market.
If the deadlock continues beyond 12 months without progress, it
would become increasingly likely that the US would reduce or
withdraw its support for Ethiopia in international financial
entities, potentially blocking US International Development Finance
Corporation financial support to Safaricom - the first and only
private telecoms operator in Ethiopia.
Iraq's legislative elections
Iraq will hold early legislative elections on 10 October (after
these were delayed from June 2021), meeting a central demand of
protestors engaged in anti-government demonstrations in Baghdad and
southern Iraq since late 2019. Prime Minister Mustafa al-Kadhimi,
an independent, is not running and has not expressed any ambition
to continue in his post. No political party or bloc is likely to
receive a majority of seats in Iraq's parliament, but the following
established Shia blocs are once again expected to receive the most
significant share of the vote: Fatah Alliance (led by Hadi alAmiri
and representing some of the resistance factions of the Popular
Mobilization Units (PMUs)); State of Law Coalition (led by former
prime minister and ally of the PMUs Nuri al-Maliki) and Sa'eroun
(the coalition led by Shia cleric Muqtada al-Sadr). The elections
are likely to be followed (as previously) by several months of
bargaining between factions to agree on a mutually acceptable
candidate for prime minister; approval by Iran is an unofficial
precondition for a candidate to be selected. Given increased
polarization among the Shia parties, specifically Shia cleric
Muqtada al-Sadr and the resistance factions committed to forcing a
withdrawal of all US forces, the process is likely to be
particularly drawn out and fractious. On balance, IHS Markit
expects a strong showing for the political wings of the PMUs and
al-Maliki, and a potential reduction in seats for the Sadr
Movement. This is likely to entail the selection of a prime
minister closer to Iran and the resistance PMUs than Kadhimi. In
turn, this will reduce the likelihood of planned projects in the
energy sector proceeding in partnership with Saudi Arabia and the
UAE, with China well-placed to fill the gap.
Indicators to watch:
Following a decision by the protest movement to boycott the
elections, further low voter turnout (in 2018 only 44% of eligible
voters participated) would translate into an increased share of the
vote for the Sadr Movement and PMU-affiliated parties and further
increase their influence across political and security
institutions.
Should the Sadr Movement perform less well than expected, this
would increase the risk of fighting between Sadr supporters and
those of his rivals (whether rival militias or Maliki loyalists)
and assassinations of respective militia commanders.
Ecuadorian president to meet with
opposition
Meetings will take place on 4 October between Ecuadorian
President Guillermo Lasso and the indigenous umbrella organization,
the Confederation of Indigenous Nationalities of Ecuador
(Confederación de Nacionalidades Indígenas del Ecuador: CONAIE).
CONAIE will present multiple demands to the president, including
freezing fuel prices, offering credits to businesses, and halting
mining expansion Given that mining expansion and the removal of
subsidies are major policy priorities for Lasso, it is unlikely
that he will accede to all CONAIE's demands. CONAIE has announced
that it would call for nationwide demonstrations if its demands are
not met. Under the leadership of Leonidas Iza, who has links to a
number of social organizations, CONAIE has gained strength and
capacity to mobilize the public. Lasso has shown limited
willingness to accept the demands of social organizations, and if
the dialogue is unsuccessful, protest risks will rise across
Ecuador. Protests are likely to involve demonstrations of up to
1,000 people on major roads in Quito and marches from indigenous
areas, in particular Cotopaxi and Azuay, to Quito. If dialogue is
unsuccessful, CONAIE is also more likely to seek more protests in
response to government efforts to pass new legislation during at
least the next 12 months.
Indicators to watch:
Unions announcing support for CONAIE protests would increase
the likelihood of those unions calling on their members to join the
protests by carrying out national strikes.
Proposals for government legislation focused on mining
expansion would further increase protest risks for mining
companies, especially in indigenous areas.
Posted 07 October 2021 by James Petretta, Country Risk Director, Economics & Country Risk, IHS Markit and