The center right government of Argentine President Mauricio Macri, in power since December 2015, has been struggling to reverse 12 years of financial and economic mismanagement, under the former left-wing populists President Cristina Fernandez de Kirchner and her husband Nestor Kirchner.
Argentina, once the wealthiest country in the region,remains the third largest economy in Latin America, after Brazil and Mexico. However, it is quite evident that Colombia will slowly close the gap, unless Argentina adopts a more long term pro-growth model.
The full extent of the damage to the economy of Argentina, was somewhat obscured under the previous administration. This was due to the fact, that once the government had taken over the Statistics Institute (INDEC) in 2007, the political manipulation of the data, soon undermined its reliability.
Cristina Fernández and Néstor Kirchner occupied the presidency of Argentina for 12 years, him from 2003 to 2007 and her from 2007 to 2015.
By 2013, a number of foreign agencies, banks and investors, no longer had any confidence in the INDEC.
When Macri first took office, real inflation was running at an annual rate of at least 26%. Yet, the government was reporting a level, near half of that. During the first year of his presidency, Macri ordered a statistics emergency, allowing INDEC a year, to begin calculating more accurate figures.
In the meantime, private firms estimated that inflation throughout Argentina for the year 2016, likely exceeded 40%. This was to be even higher, than the presumed rate of 38% from 2014.
That inflation was going to be higher, during the beginning of the Macri Presidency, is coming at a high political cost. Even in 2017, the rise in prices was still near 28% and is expected to be about 23% for the entire year of 2018. As to be expected, the electorate is starting to lose patience, with the reformist fiscal and economic agenda.
Macri also made the difficult decision, concerning the Argentine currency. Once he allowed the peso to float, by removing capital controls, it devalued by 29% in short order. This dramatically increased the price of all imports, coming into the country, further fueling inflation.
Buenos Aires the capital of Argentina,is the 2nd largest city in South America. It is 1 of the only three “Alpha -” cities in South America & it’s the most visited city on the continent.
This comes on the heels of growth, that has been slow for an emerging market. Although the economy did grow 2.8% in 2017, it followed a recession from the previous year, where the economy contracted -1.8%.
There was 2.7% growth in 2015, but once again that followed a recession in 2014, where there was a -2.5% shrinkage of the economy.
Unemployment has fluctuated between 7% and near 9% since 2013. The present rate will not be reduced by much, until the economy is allowed to grow faster, creating more jobs.
As the financial crisis deepens with Argentina,real GDP (Gross Domestic Product) growth which was expected to be near 3.5%, has been reduced to just 1.4% this year and 1.5% to 2.5% in 2019. The World Bank in particular, has reduced a 3% forecast of growth in 2019, to just 1.8%.
Some emerging markets have been crushed, in 2018,mostly caused by a stronger USD (United States Dollar). Brazil‘s stock market lost -16% this year,Argentina’s is down -22%, and Turkey‘s is lower by over -25%.
Argentine agriculture is relatively capital intensive, today providing about 7% of all employment.
Argentina is a commodity dependent emerging market. Previous governments have almost consistently made the mistake, in attempting to artificially create a middle class, without modernizing the economy.
Despite previous governmental efforts, 25.7% of the total population is still considered poor. They are living on the equivalent of $130 USD or lower monthly. A full 35% of households, earn an income that falls below the poverty line.
Middle class people are getting by at $341 USD and the wealthy between $910 & $13,681 USD.
This means wealthiest 10%, earn 120 times the income of the poorest 10%.
The economy of Argentina is now in a trap, with all options likely to inflict pain on the electorate . In addition, time for Macri may well be running out, as frustrated voters lose patience.
Outside observers have identified two critical mistakes, the new government likely made.
The first was the premature lifting of all exchange controls. This was done before the reduction of inflation and a stabilization of the economy. It left the economy extremely vulnerable, to any reversal in international capital flows.
Argentina on a global map of South America.
The second was the policy of gradualism to the major economic in-balance inherited from 12 years of gross mismanagement, under the far more leftist and populist Kirchners.
The two most important issues now are the huge budget deficit and the external current account deficit.
If United States (U.S.) interest rates had remained exceptionally low, foreign investors may have continued to buy Argentine debt. However, with the U.S. Federal Reserve (central bank) tightening the money supply, and U.S. 10 year Treasury yields moving to 3%, investors are finding Argentina too risky.
Tightening monetary conditions elsewhere, have reduced global liquidity, putting the Argentine stabilization effort in jeopardy. The peso is now down by a third for 2018. This was despite the central bank selling USD in the foreign exchange market on a massive scale, in an attempt to support the peso.
The Argentine peso is now the worst performing major currency worldwide.
To help stabilize the peso in early May of this year, Argentina hiked the benchmark interest rate to 40%. In was a dramatic bid,to shore up the currency with 3 rate hikes in 8 days. No modern economy can sustain interest rates at these levels for long, without a resulting recession.
Chances of an economic recession have risen from 24.4% in April to 68.1% in May, according to one university study inside the country. If a recession arrives, it will be the fifth one in the past decade.
Inflation is currently running at about 28%. Argentine consumers are already losing confidence in their own currency, once again. There is a heavy rush of citizens already hoarding dollars, as the expectation is that the current financial and economic situation, will only worsen.
Historical economic growth of Argentina from 1961 to 2016.
Government inflation targets are 17% for 2019, 13% for 2020 and 9% for 2021. This means that consumer prices will continue to rise at a rapid rate, and interest rates will need to stay elevated in response.
At the same time, public debt continues to rise,both internally and externally. It increased from 43.5% in 2013 to 52.6%, at the end of 2015. Despite the change in government, debt continued to rise from 53.3% in 2016 to 57.1% in 2017. Although the total percentage is still relatively low, the rapid rate of increase, remains troubling to many investors.
The Argentine economy is already being battered by rising international oil prices and a prolonged drought, the worst in 50 years. Part of the decline this year, can be attributed to the severe drought in the Pampas grain belt. It will drastically reduce, the size of the corn and soybean harvest.
Soy field in Argentina’s fertile Pampas. The versatile legume makes up about half the nation’s crop production.
Given the importance of agriculture to both the domestic and international market, the effect will be felt throughout the economy. Argentina witnessed a 30.8% drop in the agricultural sector in April alone, due to poor weather conditions.
By the middle of May, Argentina’s peso had fallen to a record low. It had tumbled almost 7%, to 25 per USD. The currency has already fallen by 26% in 2018, the worst in emerging markets,as the IMF (International Monetary Fund) said it would not set any exchange-rate targets for a stand-by arrangement.
By June, the country was moving towards a crisis. Argentina was on the brink of a financial collapse, when the IMF had begun bailout negotiations,with the peso falling even further against the American Dollar.
Vineyard in Mendoza Province. Argentina is the 5th largest producer in the world
The Argentine peso can hardly recover, with the nation dogged by persistent budget deficits,high inflation & trade imbalances.
Foreign borrowing to finance the deficit, was causing the current account deficit to explode.
Later in June, the IMF agreed to give Argentina a $50 billion line of credit, to help the country out of a deep financial crisis, since the peso had dipped 20% versus the dollar, since late April alone.
The reliance on the IMF for a bailout remains controversial, since many politicians on the Argentine left, still blamed the 2001 economic crisis, on this international monetary agency.
Buenos Aires Central Business District
The month of June also saw the government of Argentina, moving to replace both its energy and production ministers, in addition to replacing the former Central Bank President Federico Sturzenegger, who had resigned.
In spite of the infusion of the IMF money in the form of SDR, the Argentine peso plunged another 7% in the first week of July.
The depreciating currency, along with the rapidly rising inflation, despite sky high interest rates, make a recession now far more likely. If the government budget deficit continues to widen, it will subsequently threaten the deal with the IMF.
Railway workers laying track on the Belgrano Railway, following state investment.
The government will need to find another $8.9 billion USD in further cuts in 2018, to meet the revised fiscal deficit target of 2.7% of GDP. This is down from an earlier rate of 3.2%.
The deficit was 3.9% in 2017. As part of the agreement with the IMF, it will need to drop to a shortfall to 1.3% of GDP next year and to zero by 2020.
To meet this fiscal goal, the federal payroll will need to be substantially reduced. Consumer subsidies will have to be drastically cut and fiscal transfers to the provinces, significantly pared.
Major infrastructure projected will either have to be postponed or possibly canceled.
Argentine stocks did reverse somewhat at the end of the second business quarter, after index provider MSCI, upgraded the country to its emerging markets index, a respite from months of dismal economic news. But this development will only provide temporary relief.
The Vaca Muerta shale oil field holds 16.2B barrels of oil & 308 cubic feet of natural gas. It is estimated to be the 3rd largest in the world.
If a recession occurs, the budget deficit will automatically widen, as tax collections decline. This will force even more stringent, spending reductions. These of course, will be politically unpopular. This will be the second recession, since Macri has taken office. Presidential elections are now drawing near, the next one is in 2019.
Although Macri’s party did well in the October 2017 elections, nerves and patience are beginning to fray. His popularity is still at 40%, but is under increasing pressure. It is also important to note, that President Macri lacks control, in either house of the Congress.
As usual, Argentine voters have the expectation that a new president and government, can simply erase decades of politically expedient, but economically ruinous policies.
The opposition left leaning Peronist party, continues to agitate for higher wages and is organizing strikes, to force the government to meet ongoing labor demands.
The General Confederation of Labor, the largest trade union in Argentina, called for a general strike on June 25th. It was in the protest of present government economic policies. The work stoppage brought the country, to a near standstill.
Argentina is one of global G-20 major economies.
Further labor disruptions can only be expected. If President Macri is forced to give into concessions, to partially satisfy worker demands, it will retard further progress with budget deficits and the rate of inflation.
Macri despite his pro-business pragmatism, may well be forced to reinstate capital controls.
He has pledged to gradually unwind the numerous government subsidies, that have distorted the market over the years. His goal was to attract a new wave of foreign investment to Argentina, which is now under threat, given the lack of financial stability.
The question now remains, can President Macri turn the economy around, before facing the voters again in 15 months? Or failing that, will the Argentine electorate give him more time, to reform the daunting financial and economic difficulties, still facing the country?
Presidential Candidate Andrés Manuel López Obrador
Mexico is now facing one of the most crucial elections in decades. It is the largest one in the country’s history, with more than 18,000 seats being contested at the local, state and federal level. Depending on the outcome, voters will either endorse fundamental and dramatic change or support continuity.
In addition to the presidency, the 88 million Mexicans eligible to vote, will be choosing 128 senators, 500 deputies in Congress, 9 governors, 1,600 mayors and who will occupy thousands of local and state offices. It is important to note, that for the first time in a century, the deputies and senators can be re-elected.
After years of government directed industrialization with an export focus,far too many Mexicans remain poor. More than 40% of the population remains impoverished.
GDP by State in US Dollars (2008)
The Mexican peso has fallen dramatically against the United States Dollar (USD). The downward movement has accelerated recently, due to trade tensions, with its northern neighbor the United States.
The threat made by the American President not to maintain NAFTA the (North America Free Trade Agreement) has been quite damaging to both the Mexican economy and stock market. The United States is Mexico’s most important market, with 80% of all exports being sold there.
The electorate has tired of the political establishment complacency, with widespread crime and ongoing corruption. Over 150,000 people have been killed over the last 12 years and thousands more are still missing. Mexican law enforcement and the judicial system seem to be inadequate and totally overwhelmed, with these rather dismal statistics.
Banner supporting López Obrador in front of the Palacio de Bellas Artes.
Out of desperation, a sizable portion of the population in Mexico, now seems willing to gamble on electing someone, who may well undo the hard won democratic reforms of the 21st century.
Polls show that former Mexico City mayor Andres Manuel Lopez Obrador, will likely win the presidential election on July 01. The most recent projection have him an average of 20 points, ahead of his three political rivals. He has the approval of at least 50% of the electorate.
Obrador is from the far left in his philosophy,as well as being a nationalist and populist. He is leading the leftist Regeneration Movement known as Morena (founded just four years ago), into the election and unlike previous occasions, has an excellent chance for success this go around. This is his third bid in running for the presidency.
National Regeneration Movement Political party
A number of political analysts are also now predicting that Morena may well win a majority of seats in the Congress. This of course, would strengthen Obrador’s hand, when he begins working on the reforms he has promised.
As a clear indication of the fraying institutions of democracy in Mexico, at least 130 politicians including 48 electoral candidates, have been murdered, since the start of the campaign season last September.
The mass kidnapping of the 43 students in Iguala on September 26, 2014 triggered a nationwide protest
Assassinations have been carried out in 22 out of 31 states. It is no wonder that, around 600 individuals have abandoned their candidacies, in the face of the rising mayhem.
The wave of non-stop violence, is due to the influence of various organized crime syndicates, many of which are involved in the drug trade, attempting to manipulate and exert control over local governmental officials.
The murder rate in Mexico was the highest on record last year, with 29,168 homicides, according to government data, which many suspect is understated. This has given the nation a bad reputation for rampant crime.
In addition to the rising violence, tens of thousands of ballots have already been stolen or destroyed.
Institutional Revolutionary Party Partido Revolucionario Institucional
The democratic institutions of Mexico can be traced back to 1928, when President Calles created the Institutional Revolutionary Party or P.R.I. The authoritarianism would continue, but would be limited to individual six year terms. Henceforth, the way to the power was through winning favor with the outgoing president and his circle of associates.
This system survived for the next 70 years. Other political parties would arise, but since the government held the elections and counted the votes, as well as holding the patronage of state and local positions, the political monopoly was strictly maintained by the P.R.I.
The end of the 20th century, brought a number of economic and political crises. Mexican voters finally rebelled. In the elections of 2000, a candidate from the center right National Action Party or P.A.N. put an end to P.R.I. ascendancy. After a six year term, President Vicente Fox would be followed by Felipe Calderon.
Enrique Peña Nieto 57th President of Mexico
The presidency would then be recaptured by the P.R.I. in 2012, with the election of Enrique Pena Nieto. At the time, Nieto was seen as a relative newcomer. He advocated for accountability and transparency. He had managed to beat the runner up Obrador, quite easily.
The past six years has seen a steady erosion, in the popularity of President Nieto. When he was elected, he was at a 54% approval rating. By the beginning of 2018, his support had dropped to just 17%, due to rumors of scandal. This cast a long shadow on the P.R.I. and has likely doomed its electoral prospects.
Jose Antonio Meade, a former finance minister, is the candidate representing the P.R.I.. He is well behind in the polls.
Democracy in Mexico although under strain, is still functioning. The Congress is comprised of various parties, with rather diverse constituencies. Freedom of expression is far more prevalent than in the previous century, as evidenced by the public awareness of the extensive corruption.
The Supreme Court remains independent and various national entities like the Mexican Central Bank and the National Electoral Institute, operate in a far more professional manner, than would have been possible in the 20th century.
2011 Mexican protests against cartel violence and government disregard.
The growing frustration on the part of the electorate is understandable, given the lack of government progress on perennial issues, that continue to plague the country.
Along with the corruption, that seems to permeate throughout the society,Mexican voters are dealing with rising violence, that is making a large segment of the society feel quite insecure.
Some private companies have even pulled out of a number of areas around the country, due to the lack of civil order.
The ruling elites have also failed to deliver on promised economic growth. Inequality and general poverty are consistent problems, that seem insurmountable in many parts of Mexico.
Citizens might be far more tolerant of government malfeasance in efficiency and honesty, if the economy was growing at a pace, where there was an obvious improvement in the standard of living.
Governments in Southeast Asia for example, have provided far more rapid economic growth, so the populace has been more tolerant, of the lack of accountability and openness, in the how public officials conduct business.
Ricardo Anaya President of the National Action Party.
Ricardo Anaya is the P.A.N. candidate and is in alliance with the center-left Party of the Democratic Revolution and Movimiento Ciudadano. Anaya is still trailing Obrador by double digits, in the most recent polls.
Anaya insists that a populist like Obrador, is a type of political rebel, that cannot really be trusted to manage the economy. In response, Obrador accuses both the P.R.I. and the P.A.N. of being part of the same mafia of power.
The electorate is also dealing with inaccurate and dishonest news, coming from social media. In one video, there is a supposed connection between the Venezuelan government and the Obrador campaign.
Over 100 polling stations will not be open for voting across Mexico, due to various forms of social unrest and violence.
Obrador has campaigned on defending the poor and disadvantaged in Mexico.
Although at the same time, there has been criticism directed at him, for his on-going shifting positions on a number of issues.
Andres Manuel Lopez Obrador (center) in San Baltazar Chichicapam, Oaxaca
Although fighting corruption is the central tenement of the Obrador platform, he is promising a better wage structure and to double the senior pensions. He is pledging additional aid to both farmers and students. These will not be achieved easily, given the present state of Mexican finances.
Obrador also seems to want things both ways. He states he supports NAFTA, but at the same time, insists the country will be fine without it. He is already calling for substituting agriculture and energy imports from the United States, with more homegrown ones.
Obrador is also giving mixed messages on investment. He says he wants to encourage more private and foreign investment, to replace government spending.
Mexico on a global map
However, conversely he is calling for a review of recent energy and public works contracts, given to both domestic and international companies. This will include the $9 billion USD airport, being built outside the capital of Mexico City.
In addition, the candidate is calling for a tougher stance in dealing with the United States. Such an approach may well endanger the cooperation with Americans on border security, crime prevention, immigration, environmental concerns and most importantly trade.
There also remains the concern that an Obrador Presidency, will look to further consolidate power in executive hands, as a way to better push through his reformist agenda.
This will over time lead to resistance, where the new President may well be tempted to further limit personal freedoms and the independent powers of other government entities and businesses. Allowing a stronger opposition, has been a facet of the new Mexico beginning in 2000.
Will Obrador continue this tradition? Or will he begin to dismantle, the very democratic institutions he is supposed to defend? The one true check on his power, is the single six year term. A word of caution for impatient reformers everywhere, these constitutional limits are being abridged in many countries on a global scale.
Newly elected Sooronbay Jeenbekov the 5th President of Kyrgyzstan.
Kyrgyzstan remains the only Central Asian country, that retains a functioning democracy. In the 27 years since the end of the Soviet Union, democratic institutions have been under siege in the region. As the smallest of the former Soviet Republics, Kyrgyzstan at just 6.1 million, held a competitive election last October. It may well be the last one.
Since independence, Kyrgyzstan has officially been a unitary parliamentary republic. It has continued to be one, despite ethnic conflicts, a number of revolts, transitional governments and ongoing political strife. The nation is also perceived, to be among the most corrupt in the world.
The 2017 presidential election, marks the first peaceful democratic transfer of power in Kyrgyzstan. The election came after a referendum in 2016, to change the constitution and shift power from the president to the prime minister.
Sapar Isakov the new Prime Minister of Kyrgyzstan
Theoretically this will mean, more political power will rest in the hands of Prime Minister Sapar Isakov. Unlike his predecessor Babanov, who was from an opposition party, the Prime Minister and the President are now, both from the Social Democratic Party.
Former Prime Minister Sooronbay Jeenbekov, was backed by outgoing President Alma Atambayev and his Social Democratic Party. The latter had been in power since 2011. Jeyenbek received 54.3% of the near 1.7 million votes cast,which made a run-off totally unnecessary.
Businessman Omurbek Babanov, the former Prime Minister, who headed the opposition Respublika Party, came in second with 33.4%. Babanov was originally conciliatory at his loss, urging both stability and unity for the country.
The election had involved 13 candidates and was indeed seen as an open contest, for a transfer in political power. Turnout was still low, at just 56% of 3 million eligible voters.
Location of Kyrgyzstan in green, on a global map
Jeenbekov was sworn into office as the 5th President of Kyrgyzstan, last November and has already begun, to undermine the very foundations of democracy.
The jailing of political opponents is already under way in Kyrgyzstan, as a mirror image of how the competition is dealt with, in other countries in Central Asia.
At the end of 2017, Omurbek Babanov the main political rival in the recent presidential election, felt compelled to vacate his parliamentary seat and leave politics altogether. He had already fled the country, after being threatened with a long term in prison.
The trumped up charges being brought against Babanov, are namely inciting ethnic unrest. So he decided exile, was preferable to spending an extended period in custody.
Ömürbek Babanov the former Prime Minister of Kyrgyzstan.
Kanatbek Isayev, a member of the legislature and supporter of Babanov, has received a sentence of nine years on charges of corruption. The case had been in limbo since 2011, but has since been actively pursued. He now faces the additional charge of plotting a coup, which will keep him imprisoned for many additional years.
Also last year, Omurbek Tekebayev another opposition candidate ,was abruptly accused of taking a bribe in 2010. He was then sentenced for eight years in prison. Of course, this prevented him from mounting any kind of political challenge, to Jeyenbek in the October election.
President Jeenbekov has touted that his nation is the first and only Central Asian country, with a functioning yet flawed, parliamentary democracy since independence in 1991. He is justified in saying this because twice before, protesters where able to summarily oust the government from power.
Askar Akayev 1st President of Kyrgyzstan, in office from October 1990 – March 2005
The first Kyrgyz president, Askar Akayev, was overthrown in what has become known as the Tulip Revolution. This took place after the parliamentary elections, in March 2005. He was forced to resign the following month, as the capital city of Bishkek was being looted by protesters.
A total of four members of Parliament, would be assassinated in the turmoil that followed. Although it was quite likely, that these legislators were involved in major corrupt business ventures.
Opposition leaders subsequently formed a coalition and a new government was created under President Kurmanbek Bakiyev, who in turn was forced into exile in April of 2010.
This came about as a result of corruption allegations, but his departure was induced, by rioters storming the presidential palace. He first fled to Kazakhstan and then later sought asylum in Belarus.
Kurmanbek Bakiyev former President of Kyrgyzstan August 2005 – April 2010
The 2010 protests once again, involved government corruption and the rapid rise in the cost of living. As they became violent, President Bakiyev imposed a state of emergency. The police and security services, then moved to arrest opposition leaders.
As the violence escalated, reports estimated that some 75 to 80 people had been killed and hundreds more injured. A new transition government was put in place, led by the former foreign minister Roza Otunbayeva, following the resignation of President Bakiyev.
Once again, Prime Minister Daniar Usenov would level accusations, that Russia was meddling in the political affairs of Kyrgyzstan. Of course this assertion would be denied, by then Russian Prime Minister Valdimir Putin.
A burned-down building in Osh, the 2nd largest city, a year after the ethnic clashes
In June of that year, came the South Kyrgyzstan ethnic clashes, between the predominant Kyrgyz and the Uzbeks. There were fears that the skirmishes, might well lead to open civil war.
Although President Otunbayeva appealed for military aid from Russia, to help quell the disturbance, the only troops sent, were brought in to protect Russian facilities. These included military installations.
Some 30,000 ethnic Uzbeks were reported to have fled their homes, to escape into neighboring Uzbekistan, as the violence mounted.
Later, President Otunbayeva accused relatives of former President Bakiyev, of formulating the ethnic trouble, in an effort to destabilize the government.
Interim President Roza Otunbayeva
In August of that year, party leader Urmat Baryktabasov was arrested on charges of plotting to overthrow the government.
A report on the South Kyrgyzstan ethnic clashes, was released the following year. It summarized that the entire situation, was caused by a large scale effort, towards splitting the country along ethnic lines and ending the political unity of the country.
Interim President Otunbayeva then announced, that she would not be running in the 2011 elections.
The presidential election held in November, was won by the then Prime Minister Almazbek Atambayev, the leader of the ruling Social Democratic Party. Omurbek Babanov was later appointed Prime Minister.
Russia maintains substantial influence in Kyrgyzstan. This is through economic, political and military means. The country remains a member of the Russian dominated, Commonwealth of Independent States. The latter, is the diplomatic successor to the now defunct Soviet Union.
A map of Kyrgyzstan
It must be noted that some 40% of Kyrgyzstan’s Gross Domestic Product (GDP), comes from remittances sent from the near 800,000 Kyrgyz migrants, who have employment inside Russia.
Western influence in Kyrgyzstan is largely through financial and economic aid. As the second poorest nation in Central Asia after Tajikistan, well over a third of the country, lives below the poverty line.
The Asian Development Bank, the International Monetary Fund (IMF) and the World Bank, have all been attempting to assist, with the development of Kyrgyzstan.
The capital city Bishkek’s main square, Ala-Too Square
Early market reforms had allowed the country to join the World Trade Organization (WTO) in 1998.
The original government decision made by former President Bakiyev, to close the American operated Manas Air Base in February of 2009, had been later reversed in June of that year.
After heavy lobbying and an increase in annual rent from $17.4 million USD (United States Dollar) to $60 million USD, it was agreed that the United States, would be able to maintain its last military installation in Central Asia.
Although its exports have become more diversified in their destinations, the country remains still quite dependent, on imports from China and Russia.
The overly large trade relationship, the country has with the aforementioned, will have an impact on the increasingly repressive political situation. The Communist Party dominance in China and the increasingly autocratic Russia, will not provide any support for the democratic institutions now under attack inside Kyrgyzstan.
South African President Cyril Ramaphosa since February 15, 2018
After repeated attempts of removal and growing controversy, the Zuma Presidency has now come to an end. The allegations of corruption and the ongoing criminal investigations, have eroded the base within his own political party. The ceaseless chaos within the ruling African National Congress (ANC), has seriously impacted the financial stability and economy of South Africa.
On the 13th of February, the national executive committee of the ANC, announced it had recalled President Zuma. This had occurred after the President had ignored senior leadership, to resign the week before. The underwhelming response Zuma then provided, was that he planned to leave office, in about three to six months.
The ANC share of the vote declined from 62% of the electorate in 2014, to 54% in local elections held in 2016. It was determined by political operatives, over the last few months, that the longer Zuma clung to power, the worse things would be for the party in the 2019 presidential elections. He was after all, term limited anyway.
Former South African President Zuma 2009 – 2018.
President Zuma came into office in 2009 and was re-elected in 2014. As the accusations against President Zuma and his cronies mounted over the years, he stubbornly refused to bring about any meaningful reforms.
Regardless of the court cases that had gone against him, or the ever growing mass public demonstrations, his determination to remain in power, remained resolute. Despite the fact, that two thirds of all voters and over half of his own ANC membership, thought he should resign, mattered little to him.
On the other hand, Cyril Ramaphosa who became the new leader of the ANC with a narrow vote in December, had been fleetly moving to combat the widespread corruption, that has proliferated during the tenure of President Zuma.
The moment President Zuma lost control of the ANC, his days became numbered. The South African parliament picks the president and since 1994, the ANC has dominated the legislature. Ramaphosa has now succeeded to the presidency, upon the forced departure of Zuma. This of course was a year ahead of the presidential elections, now scheduled for 2019.
Under the influence of the ANC, the police and prosecutors, are already coming after supporters of President Zuma, as his powerful system of patronage, begins to unravel.
Hours before, Zuma actually stepped down from power, investigators had raided a number of properties, belonging to the now infamous Gupta family. A total of five people were arrested,being accused of illegal activity, concerning a government funded dairy farm.
Leading prosecutors have already identified, the equivalent of $4 billion USD (United States Dollar) in assets, that they claim have been accumulated through illegal activities. Their aim is to recover these assets for the government.
Zuma Must Fall protests in front of the South African Parliament buildings in Cape Town.
The former President faces a total of 783 charges of corruption, which he has continued to either deny or ignore. This partly explains his earlier refusal, to step down from power.
The Supreme Court of Appeal had ruled last October, that the previous decision to drop the charges, was deemed to be irrational. Now out of office, Zuma is far more vulnerable to indictment, prosecution and ultimately, jail time.
By the second week of February, the ANC parliamentary caucus moved for a new motion of no confidence, if Zuma reused to resign. Knowing he was about to be impeached by his own party the following day, the former President had little choice, but to resign on the 14th of February.
Johannesburg, the economic capital of South Africa.
South Africa with a population of 55.9 million, is far worse off now, then it was a decade ago. From 2002 to 2008, the economy grew an average 4.5% yearly.
Economic growth has now come to a virtual standstill. The country actually dipped into recession in 2017, even as most of the rest of the world saw growth picking up.
Economic growth for 2016 was just 0.3% and last year was only 0.8%, with a rate forecast of only 1.1% for 2018. It has remained at one of the lowest levels, in sub-Saharan Africa.
South Africa is the second largest economy on the continent, after Nigeria. It remains the most industrialized nation in Africa. The nominal GDP (Gross Domestic Product) in the country at $280.37 billion USD, has actually been stagnated for years.
Farm workers in South Africa
Unemployment has skyrocketed to an alarming 28% and comes in even higher at 36%, if one includes those who have given up the search for work.
South African public debt has tripled under President Zuma’s tenure. Sovereign debt now at over 51% was downgraded to below junk status, by Western investor credit rating agencies. One more notch down by Moody’s for example, will drive South African debt, out of the benchmark indices.
Poverty rates have increased under President Zuma, as economic inequality widens.
Workers packing pears for export in the South African Ceres valley
Public services are in serious need of reform and increased investment. At the state owned power utility for example, electricity costs have increased five fold, over the last decade alone.
A number of structural impediments to growth, as in inflexible labor markets and a workforce that lacks proper education and training, will take years to reform.
Any progress in this direction during the Zuma era, had simply been derailed.
There is little doubt, the political corruption at the top echelons of government and society, have eroded public confidence, over the last few years. Instead of blocking judicial action against the perpetrators of these crimes, the former President is now far more likely to be compelled to answer the charges, now being leveled against his inner circle.
A protest placard depicting Atul Gupta at a Zuma Must Fall protest in Cape Town.
The allegations against his friends, business associates of himself and his son Duduzane, are now likely to be fully investigated. The three Gupta brothers are also likely to face increased legal scrutiny, as the noose tightens around those, who improperly influenced government appointments and contracts.
The most serious charge against the former president, is what prosecutors are calling state capture. That is Mr. Zuma and his friends, put state owned institutions and enterprises, into the hands of individuals that allowed them to be looted for personal gain.
It has been estimated by the former, but still reputable finance minster Pravin Gordhan,that anywhere between 150 to 200 billion rand, has been stolen. That is the equivalent of $11 to $15 billion USD.
Leaders of the BRICS nations at the G-20 summit in Hangzhou, China 2016. Former President Zuma is to the far right.
Worse yet, a number of companies that have global operations, have also been implicated in the scheme. Some of these are domestically based, others are foreign operated and controlled.
The process of state capture had been extended through law enforcement, the Revenue Service, the Treasury Department and even the Central Bank of South Africa.
President Ramaphosa will not find it easy to move against this pervasive corruption, that exists not only in the top ranks of the ANC, but right down to the local level. It is prevalent in the party and throughout state institutions.
He will ultimately be forced to gradually, weed out these individuals. If he were to move too fast to root out the vapid dishonesty, it would endanger not only his own power base, but the grip of the ANC on South African politics.
South African Constitutional Court in Johannesburg
The one public institution that remained largely free of the corruption, promoted by the former President, was the judiciary. The Judicial Services Commission charged with appointing judges,has a total of 23 members, of which only four are appointed by the President.
This fact alone, gives the opposition hope, that the crimes committed during the Zuma era, will finally be adjudicated.
Confidence in Ramaphosa to bring about change and reform, has already had an impact outside of politics. The South African rand has risen against the American dollar, to its strongest level in almost three years.
Former South African President, Nelson Mandela
In addition, there are feelings of hope, not seen since the inauguration of President Mandela in 1994. It has not been lost on the electorate, that Mandela himself, would of preferred Ramaphosa to succeed him.
Thabo Mbeki instead was elected President in 1999. Ramaphosa had not been ruthless enough it seemed, to consolidate power into his own hands. This is now working to the advantage of President Ramaphosa.
Ironically, Mbeki himself, had been forced to step down early from power in 2008, when Zuma had wrested control of the ANC, away from him the previous year. It seems a political cycle, has just been repeated.
For most South Africans, the end of the Zuma era, is viewed with a sense of relief. There is now hope that as the political mess is being cleaned up, the economy will rebound. Many commentators believe that as a stable government returns in South Africa, investors both domestic and foreign, will once again see the country in a more favorable light.
Germany, the leading economy in Europe, has been without a government since last September. Although the conservatives under Chancellor Angela Merkel remain the largest party, they cannot create a government without finding partners to form a coalition. Months have passed, where various aggregations and political comprises have failed, which was raising the specter of either a minority government or new legislative elections.
Germany has been in danger of joining the group of European nations, with relatively weak or minority governments like Italy, Spain and the United Kingdom.
The German Free Democratic Party Logo
Chancellor Merkel who would like to begin her fourth term in office, first attempted a coalition with the pro-business Free Democrats, which was a likely choice. Still short of an absolute majority under these circumstances, an accommodation with the environmental friendly Greens, would have become necessary as well.
After painstaking weeks of negotiations, the talks between the conservative Christian Democrats (CDU) and their sister party in Bavaria, the Christian Social Union (CSU), were unable to achieve a compromise with the Free Democrats and the Greens.
Frank-Walter Steinmeier the President of Germany.
Germany’s president Frank Walter Steinmeier, then pushed for a recreation of the previous coalition, that had existed before, the September elections. This would necessitate a new political alliance, with the now reluctant Social Democrats (SPD).
The SPD had originally ruled out another political coalition, with the conservative CDU/CSU, after the disastrous September election results. They had instead resigned themselves, to be part of the opposition.
After careful and difficult negotiations, an agreement between the political parties was finally reached in early February. All that remains now, is for 460,000 rank and file membership of the SPD, to agree to the terms of the deal struck. Results should be known by the 4th of March.
Another election will be difficult, in that voters at large are unsatisfied, with another Grand Coalition, between the center-right and the center-left. In fact, polls now suggest in a new election, both the conservatives and the social democrats, might well lose even more seats in the legislature.
Social Democratic Party of Germany logo.
There remains a strong possibility, that even together, they would now be unable to achieve a working majority, coming in with just 46% of popular support in the latest polls.
An outside observer might ask, how can voters be so disgruntled with a political arrangement, that has for years provided good financial management and economic prosperity?
The German economy grew by 1.9% in 2016 and 2.2% in 2017. Growth was faster last year, than it has been since 2011.
The world’s largest coherent chemistry plant BASF in Ludwigshafen, Germany.
Unemployment is now at a record low, since reunification in 1990. The jobless rate fell from 6.1% to 5.7% in 2017. December’s unemployment rate was just 5.5%. Workers are also witnessing a rise in real wages, further magnified by near record low inflation.
What is surprising is that Germany, unlike all other major industrial powers, is actually now running a budget surplus. The federal deficit has been at zero, for an amazing four consecutive years. If this situation continues, the Germans can begin to reverse the rising national debt, that almost all economically advanced countries are plagued with. German public debt is now at $2.497 trillion USD.
Debt as a percentage of GDP, has fallen below 70% and is now listed as 69.38%. It is important to note that other leading industrial powers, have rates of sovereign debt far higher. France is saddled with a GDP to debt ratio, of over 97%. Greece has debt in excess of 180%, Italy is at 136.81%, Spain is at 105.36% and the United Kingdom comes in with 85.72%.
Outside of Europe, the United States has a GDP to debt ratio of 108.14% and Japan, is just over a whopping 240%.
Frankfurt, the financial capital of Germany and headquarters of the European Central Bank
By comparison, the German government seems far more responsible, in the management of public debt. Analysts have repeatedly warned, about the serious financial dangers, when total debt surpasses GDP. It is a sage advice, that is taken rather seriously in Germany.
The massive trade surpluses, Germany continues to rack up year after year, are also politically popular inside the country. Although the surplus has notched down from a record high in 2016 of $305.4 billion USD to $300.5 billion in 2017, it was largely due to a surge in imports, not a decline in exports.
Germany remains the third largest exporter in the world.
It was the first small dip in the trade surplus, since the Great Recession of 2009. Only China has a larger trade surplus than Germany, at $422.5 billion USD. However, Germany has a population of less than 84 million, where China boasts a total of over 1.4 billion inhabitants.
By opening Germany’s borders to refugees fleeing Middle East, many critics have blamed Merkel for encouraging the mass migration into Europe.
The root for much of the present popular discontent, comes largely down to a single issue. That is unfettered and for a couple of years, seemingly out of control immigration.
Chancellor Merkel conducted an emotional response, towards an inevitable social and political issue. Her decision to allow the migration of over 1 million refugees from the Middle East and Africa, has created a backlash, not only within her own party, but across the political spectrum.
Her determination to maintain open borders in 2015 and 2016, allowed a huge number of unskilled and hard to assimilate migrants, to come to Germany. Although many of them were indeed fleeing war in their home countries, a large proportion were also coming to escape poverty.
By 2016, the number of people with an immigrant background in Germany, had risen 8.5% to a record 18.6 million. This translates to 22.5% of the population. Around 2.3 million in Germany now have family ties to the Middle East, an increase of 51%, since 2011. Near 740,000 have links to Africa, a gain of 46%, also since 2011.
Although the original judgment in allowing this mass migration was deemed to have hurt her conservative party in popular support, there was a belief that this phenomena had been largely reversed, ahead of the September elections.
The political reality was quite different. The boost that the anti-immigrant party Alternative for Germany or AfD, had received at the height of the migrant crisis, was prolonged through the September elections.
AfD has now entered the German legislature. One recent poll even has the party just two points away from the SPD in popular support, which itself has dropped to just 16.5%.
Mrs. Merkel twice before entered into a Grand Coalition with the SPD. These previous cooperative governments lasted from 2005 to 2009 and then again from 2013 to 2017.
The agreed upon framework in the new coalition, offers Germans continuity, rather than any real change. Knowing Merkel was running out of political options, SPD leaders could now afford to maximize their advantage.
Christian Democratic Union of Germany Christlich Demokratische Union Deutschlands
As a result, large portions of post reunification Germany’s carefully crafted record budget surplus, the equivalent of $55 billion USD, is now to be spent on various social causes. These include child benefits and pensions, but there is also money being allocated for infrastructure and even modest tax cuts.
In addition, the SPD was able to gain restrictions on short-term work contracts and a coming review, to investigate disparities between private and public health insurance.
Police intercepts refugees and potential illegal immigrants at Munich Central Station
Mrs Merkel was able to secure for stalwarts in her own party a rather large, but still a definite cap, on the number of refugees that can be admitted to Germany. At 180,000 to 220,000 annually, it likewise provides further ammunition to the AfD.
The deal also does limit family reunification numbers to just 1,000 a month, plus what are known as hardship cases. Once again, it is being viewed by many voters, as a way to continue higher levels of migration, than what much of the public actually supports.
In order to win over younger SPD supporters, the deal brokered includes a pledge of closer cooperation with the new French President Macron, on issues of defense and migration. There is a provision for increased contributions to the European Union (EU) budget and more political power to be given to the European Parliament.
Emmanuel Macron the President of France 2017-
There is also a rather vague promise in transforming the European Stability Mechanism, that had been set up in 2012, to deal with the sovereign debt problem, to an actual European Monetary Fund. This provision has been opposed by German conservatives for years, due to the fact that it may well lead to an actual European banking union.
The second overture to restive members of the SPD, was to offer an additional cabinet post. Not only will the socialists retain the labor and foreign ministries, but they have now been given the crucial and powerful finance ministry. This will be important, if the SPD is to have greater influence over EU policy initiatives.
In order to ease fears with their conservative partner the CSU, the interior ministry has also been sacrificed by the CDU, to their Bavarian allies.
Given these circumstances,one can easily understand, why many members of the CDU wonder about the actual benefits,in being the largest political party in the Germany. A number of leading conservatives around the country, have referred to the coalition agreement, as one of the worst negotiated settlements, ever created by an election winner.
Member states of NATO shaded in green.
The demand by some members of the CDU, that Germany meets it Western military commitment to NATO (North Atlantic Treat Organization) by raising defense spending to 2% of GDP,was not included as part of the final negotiations.
Angela Merkel has been Chancellor (Prime Minister) since 2005, and has now won a fourth term, if she is able to create a new government with the SPD. She will soon be the longest server leader of Germany,in post war history, with the exception of her former mentor and colleague Helmut Kohl.
Kohl had been chairman of the CDU from 1973 to 1998 and was in power as Chancellor, for a total of 16 years from 1982 to 1998. His skillful diplomacy in bringing about German reunification and the resulting afterglow, allowed him to remain in office, longer than many contemporaries would have expected.
German Chancellor Angela Merkel at the World Economic Forum
Merkel is likely to be the last conservative Chancellor, that will be able to ignore the AfD or the main reason why, the party has gained far greater acceptance, among the electorate. A great deal of the party’s present electoral strength, has come from bleeding voters away from both the CDU and the CSU.
The Chancellor has made what she herself refers to as painful concessions, in order to create a new government. These were necessary of course,if she is to serve a 4th term as Germany’s Prime Minister.
Although she insists criticism of the negotiated deal, with the SPD by members of her own party, are not a sign of her waning authority, open talks of an eventual successor prove otherwise. She is doing what she had pledged she would not do, years before when she distanced herself from former Chancellor Kohl. She is now clinging to power, even as her political effectiveness, is beginning to wane.
Angela Merkel at the signing of the coalition agreement for the 18th election period of the Bundestag, December 2013.
Her list of critics are growing. The Mittelstand (medium size exporters) bloc of voters inside the CDU and the CSU, form the backbone of the conservative parties and of the German economy. They have become increasingly vocal,in their disapproval of Merkel’s policies. They have been vehement in their opposition to both the ongoing bailout of Greece and the still simmering migrant crisis.
Martin Schulz the leader of the SPD,has already stated that he will step aside, so the party could begin the long painful process of self reflection and rejuvenation. He understood, that he has become out of touch, with an increasing share of the party base.
However, his endorsement of parliamentary floor leader Andrea Nahles as his successor, still did not sit well with many younger members of the party.
Since minority governments are not part of the German political tradition and Merkel is not in favor of one, it was no surprise, that she has indicated that if the SPD membership rejects the terms of the coalition,new elections are now increasingly likely.
Although, one might expect there would now be an attempt within the party leadership of the CDU to possibly force Merkel aside,or at least announce a transition period, that remains unlikely. There is no obvious successor and many of the probable candidates, are of the same age cohort and would garner even less popular political support.
Conservative leaders Angela Merkel, Spanish P.M. Mariano Rajoy and Hungarian P.M. Viktor Orbán meet at congress of European People’s Party in 2012
Merkel still maintains strong support, among conservative women and senior citizens. These are an important voting bloc, not only in the CDU itself, but throughout the country. Her steadfast and calm demeanor, still reassures many German voters, in an increasingly uncertain international environment.
Her international influence and prestige remain high, not just in Europe, but around the world. This will convince many otherwise wavering voters, that it is probably for the best, to allow Merkel to remain at her post for now.
The German political system is undergoing a dramatic transformation. In the past, the main parties dominated the scene and alternatively held power, in coalition with either the Free Democrats or later the Greens. The rise of the AfD and a number of other minor parties, is now ending that stability.
German unity was established on October 3 1990. Since 1999, the Reichstag building in Berlin has been the meeting place of the Bundestag, the German parliament.
Germany is now entering a post reunification era. It is no mere coincidence, that the wall that had divided the country from 1961 to 1989, has now been down longer than it stood. The events and individuals that were a product from that generation, are already beginning to pass from this date of reference.
The nation will look increasingly to new leaders, to deal with the challenges that Germans will face in the 21st century. It will be for future governments to decide, whether Germany should maintain its present sovereignty, or move ever closer to a more united European Union. These new leaders will undoubtedly need to find different solutions, to deal with the growing list of issues the country now faces.
Unha-3 space launch vehicle at Sohae Satellite Launching Station in North Korea.
The United States remains headed for a military confrontation with North Korea, as rhetoric on both sides continues to escalate. Criticism has been leveled against the new American President, that his bombastic tone, is intensifying the hostility between the two countries. In truth, the present crisis is the result of a failure in American foreign policy, towards preventing a nuclear breakout by North Korea.
The military threats emanating from North Korea, is increasing the insecurity in East Asia. After two missiles flew over Japanese territory earlier this year, the government there was finally prompted to buy American made long range missiles, for the first time ever.
Earlier this month the fear of war ratcheted up even further, when for 38 minutes, people in Hawaii through their cell phones, were told that the islands were the target of inbound missiles.
The decision by North Korea to accelerate its nuclear weapons program, was made in the early 1990’s. It occurred against the backdrop, of a relaxation in international relations. The Soviet Union had collapsed and China had just decided, to recognize the government in South Korea.
North Koreans bowing in front of the statues of Kim Il-sung (left) and Kim Jong-il at the Mansudae Grand Monument.
These developments made the North Korean government, under the control of the same man since 1948, feel increasingly anxious. The ending of the Cold War was a direct threat to the regime, because communism was now under attack, in various parts of the world.
As one regime after another imploded in Eastern Europe, where long time communist dictators, were either forced to resign or were overthrown, the founder of North Korea found himself increasingly isolated diplomatically.
Kin II-sung died in the midst of a standoff with the United States, over the development of nuclear weapons.
North Korean Vice Marshal Jo Myong-rok meets President Bill Clinton at the White House, October 2000.
Upon his death in 1994, power then passed to his son, Kim Jong-il. That same year, the Agreed Framework was negotiated and signed by the Democratic President Clinton from the United States.
The latter had been elected President in 1992, following his electoral victory, over the former Republican President George H. Bush.
The objective of the agreement was the freezing of the North Korean nuclear program. It was supposed to lead to a denuclearization of the Korean peninsula. It was also an initial peace agreement, between the governments of North Korea and the United States.
It was signed in the wake of North Korea’s advance notification, of its intended withdrawal from the Nuclear Non-Proliferation Treaty. The North Koreans suspended it after 89 days, just one day short of the required notice of intent.
The 5 MWe pilot Yongbyon nuclear reactor, made operational in 1986, showing the fuel access channels.
The Agreed Framework was never submitted to the United States Senate for approval, so it cannot be considered an actual treaty. It was neither a legally binding executive agreement. It was instead a non-binding political commitment between North Korea and the United States, submitted to the United Nations Security Council.
Although one can discuss the various merits and deficiencies of the agreement, three developments are mostly agreed upon. The first was suspension of the withdrawal of North Korea, from the Nuclear Non-Proliferation Treaty.
The second was the abandonment of a number of nuclear reactors either in use or under construction, that could be used to produce weapons grade plutonium.
Kim Jong-il talking with Russian President Vladimir Putin during their 2001 meeting in Moscow.
The third and most important long term result, was that the North Koreans proceeded to build an uranium enrichment facility. This was done in violation of the 1992 Joint Declaration, which was for the complete denuclearization of the Korean Peninsula.
It has been reported that officials under the Clinton administration, may well have agreed to the loose terms of the deal, only because they believed that the North Korean regime would soon collapse.
Area controlled by the Democratic People’s Republic of Korea shown in dark green; claimed but uncontrolled regions shown in light green.
At the same time North Korean officials suspected that the United States was anticipating an early demise of the government, since Kim II-sung had just recently died.
In the 1994 elections, the Republican Party regained control of the Congress. The party as a whole, did not support the Agreed Framework. Many of them looked upon the deal, as a policy of appeasement.
The lack of Congressional support, obviously weakened the agreement. Although the Congress would later agree to provide partial funding for the promised 500,000 tons of heavy fuel shipments to North Korea, the amounts allocated were often often insufficient.
This of course led to late deliveries, which may have contributed to the souring of any long term enthusiasm, by the North Koreans for the Agreed Framework.
Kim Jong-il official portrait issued after his death, 2011
It is likely Kim Jong-il agreed to nuclear freeze, primarily because the Clinton Administration had agreed to phase out American economic sanctions, that had been in place since the Korean War.
Once again, congressional opposition to the lifting of sanctions, made that presidential commitment largely unattainable.
International funding for the two light water reactors (LWR) promised to North Korea,as part of the agreement, had to be sought out. The Republican controlled Congress was largely unwilling to contribute to the project.
In addition to financial support issues,there were numerous delays in the approval and building process,further angering the Kim Jong-il regime.
By 1998, North Korea was warning that it would restart its nuclear research program, if the LWR plants promised, were not soon installed by the United States.
Kim Ok, Kim Jong-il’s personal secretary, with U.S. Secretary of Defense William Cohen, 2000
Although formal ground breaking had occurred already in 1997, significant spending on the project would not commence until 2000. It was an election year in the United States, and President Clinton had now run out of time, to fulfill the commitments he made to the North Korea government.
Administration officials had disingenuously testified in 1998 to the Congress, that the North Koreans were abiding by the Framework Agreement. Even though the State Department knew at the time, that Kim Jong-il’s government, was cheating on the highly enriched uranium aspect.
Robert Gallucci the chief American negotiator of the agreement, warned the whole edifice would collapse, if the United States did not fulfill its agreed upon obligations.
2002 State of the Union Address when President Bush identified the Axis of Evil.
President George W. Bush took office in early 2001. By the following year, he was labeling North Korea as part of an Axis of Evil, along with Iran and Iraq.
Later in 2002, an American delegation confronted the North Koreans, about their uranium enrichment program. Although the two governments have different accounts of what actually occurred, relations between North Korea and the United States would rapidly deteriorate.
Furthermore, KEDO (Korean Peninsula Energy Development Organization) tasked with the construction of the two reactors, was now far behind schedule. The original date for completion had been for 2003, but the project had been put on hold, already in late 2002.
Complicating matters, a number of Senators accused the Clinton Administration, of seriously underestimated the cost of the project. KEDO would cease work on the reactors, by the end of 2003 and would terminate the whole undertaking in 2006.
There is still some controversy how advanced the North Korean uranium enrichment program was, in the early 21st century. What is indisputable, is that there were not being fully forthcoming, about their nuclear program.
Oil shipments had already ceased in December 2002. The following month, North Korea announced its withdrawal from the Nuclear Non-Proliferation Treaty.
In early 2005, North Korea made it known, that it now had in its possession, manufactured nuclear weapons. They declared it was a nuclear deterrent, for self-defense only.
The North Korean capital of Pyongyang in 1989.
The following year in October, the regime conducted a nuclear test. At this time American intelligence agencies believed it was now likely, that North Korea had produced a number of simple atomic weapons.
Although the Agreed Framework had mostly broken down, North Korea did not restart work on the two production size nuclear power plants, that were frozen under the agreement. These two facilities together, could of potentially produced enough plutonium of weapons grade quality,for several bombs annually.
In addition, the Agreed Framework did stop plutonium production at Yongbyon for eight years. However, in the end, it totally failed to prevent a concealed highly enriched uranium program conducted by North Korea.
South Korean aid convoy entering North Korea through the Demilitarized Zone, 1998.
Discussions would now take place through the Six-party talks, in an attempt to negotiate a replacement nuclear agreement. Along with North Korea, the nations of South Korea, Japan, China, Russia and the United States collectively, sought a new type of accord.
In September of 2005, a preliminary understanding was reached. No mention was made of the fact, the United States had the contention that North Korea had a secret, underground enrichment program.
The new accord did require North Korea, to dismantle all nuclear facilities, not just specific plants as was the case under the former Agreed Framework.
The aim of the Six Party Talks, was to somehow find a peaceful resolution, to the security concerns that had arisen as a result of the expanding North Korean nuclear program.
Five rounds of talks from 2005 to 2007 produced very little progress, until the third phase of the fifth round. It was then that North Korea finally agreed, to shut down its nuclear facilities in exchange for fuel aid. A further condition was that both Japan and the United States, would take steps to normalize relations with North Korea.
A Korean People’s Army soldier pointing to the Korean Demilitarized Zone (DMZ)
Despite the endless discussions and negotiations, the goal of a nuclear free Korea would remain elusive. In the finality, North Korea would once again, back out of giving up its weapons program.
Despite the far harder line towards North Korea, in the end the Bush Administration, like the one before it, failed to forestall the ongoing development of the nuclear and missile projects.
Perhaps, too much energy and political capital had been invested in the Middle East, following the terrorist attacks on American soil. Invasions by the United States of Afghanistan in 2002 and later Iraq in 2003, consumed most of the first and second terms of President Bush.
Bush would leave office in early 2009, with the issue of a nuclear North Korea still unresolved. The problem would now fall into the hands, of the newly inaugurated President Obama.
Korean People’s Army (KPA) soldiers at Panmunjom.
In April of that year, the United Nations Security Council would condemn the North Korean launch of a satellite, despite its failure.
As a result of actions taken at the United Nations, the Six Party Talks would be discontinued the same year, when the North Korean government angrily announced the end to them.
North Korea then decided to resume its nuclear enrichment program, which would subsequently, boost the country’s military deterrent to attack. As a further demonstration of new resolve, all nuclear inspectors would subsequently be expelled from the country.
In May of 2009, North Korea made the further decision, to detonate a nuclear device underground. The test was widely condemned internationally.
Battle of Daecheong Daecheong Island (is number 2)
In November of the same year, the Battle of Daecheong occurred. Ships from North and South Korea would exchange fire. The North reportedly sustained heavy casualties, while the South emerged virtually unharmed.
The South Korean patrol vessel Cheonan-Ham was sank by a North Korean torpedo, launched from a submarine in 2010. This was established by an international team of experts, that came from Australia, Canada, South Korea, Sweden, the United Kingdom and the United States.
Later the same year, North Korea would shell Yeonpyeong island, which was part of South Korea. Two South Korean soldiers would be killed and a dozen injured. Civilians would flee the barrage and some 60 houses, were set ablaze from the attack.
Photo-realistic sketch of Kim Jong-un.
In 2011, there was a change in leadership in North Korea. Kim Jong-il would be succeeded by his son, Kim Jong-un. The former had passed away earlier in the year.
On February 29th 2012, in what has become known as the Leap Day Agreement, the United States agreed to provide substantial food aid, in return for a moratorium by North Korea on uranium enrichment and missile testing.
There would also be a return of the international inspectors to Yongbyon, followed by a resumption of the Six Party Talks.
The following month in celebration of the 100th birthday of the late Kim il-Sung, the North Koreans announced they were launching a new satellite. The other 5 members of the Six Party Talks condemned the declaration, leaving further dialogue among the participants in doubt.
In April, the satellite launch failed to achieve orbit. The operation was declared to be a failure by both South Korea and the United States.
North Korean soldiers saluting at the Revolutionary Martyrs’ Cemetery in Pyongyang, 2012.
As a test of missile technology, the launch was still seen as a provocative move by the United States. It subsequently forced the embarrassed Obama Administration, to suspend any further food aid to North Korea.
President Obama who was running for a second term in 2012, secretly sent officials to North Korea, in an effort to minimize disruptions to the United States presidential election.
In December of 2012, North Korea was able to successfully launch a missile, in contrast to the earlier failure. The United States once again condemned the action,believing the North Koreans were developing long range ballistic missiles, that would be able to reach the west coast of the United States.
Model of a Unha-9 rocket on display at a floral exhibition in Pyongyang North Korea, August 30, 2013.
The following year beginning in early 2013, Kim Jong-un would threaten the United States itself by stating that “rockets were ready to be fired at American bases in the Pacific“.It was supposedly in response, to the two B2 stealth bombers, that flew over the Korean peninsula the day before.
It was at this time, that the United States still had the ability and now the justification, to eliminate the North Korean nuclear threat, with a minimum of risk to American assets.
It would of required a massive and overwhelming attack, before the North Koreans would be able to use conventional weapons to destroy, the South Korean capital of Seoul.
No doubt some military strategists argued against it, concerned over what China and possibly Russia would do, in the face of an overpowering American assault.
People in Pyongyang watch Kim Jong-un on North Korean TV, 2015.
After Jong-un’s threat, the American military did call for an advance missile defense system to the western Pacific.
Although the United States Secretary of Defense, Chuck Hagel stated that North Korea posed a “ real and present danger“ to not only to the United States, but Japan and South Korea as well, nothing more was done.
Portraits of Kim Jong-un’s father and grandfather (Arirang Festival mass games in Pyongyang).
Later in the month, John Kerry the Secretary of State for the United States, made a number of comments that proved again to be empty in their promise. He said that “ North Korea will not be accepted as a nuclear power“ and that a missile launch by North Korea would be a “ huge mistake“ .
North Korea would now issue conditions, for which any talks would take place with South Korea or the United States. These would include lifting the United Nations sanctions and an end to all South Korean and United States military exercises...
The legislative elections that were held in Nepal on November 26th and December 07th was a landslide victory for a far leftist alliance, under the new constitution. It has been 3 weeks since the UML (Unified Maoist-Leninist) and the Maoist Centre together, ensured a communist led government for 2018.
The more centrist and liberal Nepali Congress party, had dominated the political scene for over a quarter of a century,as the days of monarchy spiraled down. They had become over these years, the default party of the government. The startling elections results practically annihilated, these more traditional politicians.
The electoral victory was made inevitable, once the Maoists made the rather late political decision, to abandon their previous coalition partner, the Nepali Congress.
It was the first parliamentary elections in Nepal since 1999, and the first time voters were to choose representatives to 7 provincial assemblies, following the abolishing of the monarchy in 2008. The latter had ruled Nepal for near two and a half centuries.
Gyanendra Bir Bikram Shah, the last king of Nepal.
Parliamentary democracy had already been introduced in 1951, but it was twice suspended by Nepalese monarchs in both 1960 and 2005. The ending of the Nepalese Civil War, resulted in a proclamation of a republic, and the end of the last Hindu monarchy.
The Nepalese Civil War began in 1996, when the Communist Party of Nepal started a violent campaign to replace the royal parliamentary system, with a people’s republic. More than 12,000 people would be killed, during the next decade of fighting.
The communist electoral win, is largely seen in Nepal as a result of the anger felt by voters, due to the five month long economic blockade imposed by India, in 2015 and 2016.
Given the geography of this mountainous landlocked country, and the fact that India borders the former kingdom on three sides, the 6 month blockade brought the economy, practically to a standstill.
2006 democracy movement in Nepal
Another reason for the success of the communists in the polls, was the electorate has grown tired of the ruling elite and their failed policies. The poverty rate even by the low standards of living in Nepal, is near 25%.
In addition,the communists were better organized this go around.
As neighboring India’s GDP (Gross Domestic Product) grows at 6.7% and China to the north, grows at a rate of 6.8%, Nepal continues to expand at a far slower pace. For 2017, growth is estimated to be an acceptable 4.1%, but this follows the dismal 0.6% level in 2016.
The hastily drafted constitution passed in 2015, which was created by a consensus among the top leadership of the major political parties, is not clear on the formation of a new legislature. There is also ambiguity, concerning the functioning of a new central government and in the seven provinces, as well.
The 15.4 million eligible voters in this nation of 29 million, were asked to vote in two phases for a mixed system of government. The lower house of parliament with 275 members, was elected through a first past the post system (FPTP) and through a proportional representation system.
Sher Bahadur Deuba Prime Minister of Nepal since June 7, 2017.
This was to be done at a 60% and 40% level respectively.
The two parts of the legislature are supposed to have equal powers, under the new constitution.
The new constitution in Nepal, was intended to decentralize power from the central government in Kathmandu, to the newly created seven provinces and local government units.
The communists were able to capture some 70% of the 165 seats allocated for the FPTP. The ruling Nepali Congress party, only came in with just 14% of the vote.
Khadga Prasad Oli Most likely the future Prime Minister of Nepal.
The election results will bring a foreign policy re-balancing, somewhat away from India and more towards China.
The likely new Prime Minister K. P. Sharma Oli is already moving towards, even better ties with China. When he was in power the last time in 2015, he signed both trade and transit agreements with the Chinese. This was the result of the Indian blockade.
However,the rhetoric can only go so far. The open border between India and Nepal have greatly helped trade between the two nations. It has also allowed millions of Nepalese to find work in India and elsewhere.
Bidhya Devi Bhandari President of Nepal since 2015.
Remittances from Nepalese living abroad, are equivalent to near 30% of the GDP of their home country.
One of the advantages in fostering an even closer relationship with China, is that the Chinese are far more able to provide extensive foreign aid and investment, than the Indian government is.
Despite, the canceling of the huge Chinese backed hydroelectric project,by the outgoing government, there will be a substantial push to have China fund new undertakings. These will include a number of new airports, highways and dams.
Lumbini, listed as the birthplace of Gautama Buddha by the UNESCO World Heritage Convention.
The Chinese themselves, are pushing for a railway that will terminate at Lumbini, the birthplace of the Buddha.
The most important scheme may well be a high altitude road, that will connect the capital of Nepal to the Chinese controlled territory of Tibet.
The hope of the new government is that the new passageway, will make the country less dependent on India. It will at least, give Nepal a better hand in bargaining, with their giant neighbor to the south.
Kathmandu, the capital of Nepal.
There are of course, dissident voices, that fear greater Chinese influence in Nepal. The concern is along with the infusion of fresh investment, there will be new political interference.
Some opposing leaders claim the new Nepalese government will soon attempt, to use some of the same aggressive Chinese tactics in dealing with dissent.
The incoming government, will need to strike a balance between both China and India. It will not be to the benefit of Nepal, if a political tilt goes too far one way,thus alienating and antagonizing their other neighbor.
Robert Mugabe, the 2nd President of Zimbabwe, in office 1987 – 2017.
The political end of President Robert Mugabe of Zimbabwe, came swiftly and unexpectedly. After leading the country since its independence from the United Kingdom in 1980, he was forced to leave office, once the military had consolidated control away from him.
The former 93 year old President had clung to power, even as his mental faculties began to fail. He was attempting to engineer a gradual transfer of power to his wife, when he lost control over events.
As the worlds oldest head of state, his grip on power had been tenacious, in the 37 years he had run Zimbabwe. He maintained his authority over decades, through widespread intimidation and repression. The ongoing election rigging and the jailing of opposition leaders, left Zimbabwe bereft of political options.
In the early years of his rule, Prime Minister Mugabe was known for expanding much needed social services. He brought about the construction of new hospitals and schools. Mugabe and a number of his contemporaries had won their independence, by promises of economic redistribution and reclaiming land back, from the then prosperous white minority.
At the same time, he was already engaging in a brutal crackdown, on his then political opponent the late nationalist Joshua Nkomo. The latter had been the founder of the struggle for independence, of what was then known as Rhodesia, from the United Kingdom.
Joshua Nkomo became one of the leading figures of resistance to white minority rule in Southern Rhodesia.
This power struggle identified as the Gukurahundi, was waged by forces trained by North Korea. It led to the death of some 20,000 people, most of them supporters of Nkomo.
It ended with the 1987 Unity Accord, between the political movements of ZANU-PF and PF-ZAPU.
Mugabe would assume the presidency the same year, and would maintain absolute political control of the country for the next three decades. The office of Prime Minister would be abolished. Mugabe had no intention, in sharing power with anyone else.
His hold on power continued, through a process of rigging the ensuant elections. These still controversial events, would spark violence as his supporters and paid henchmen, dealt with political opponents.
President Mugabe became increasingly authoritarian as years passed. He became far less patient, with those who did not agree with him. In addition, he became ever more obvious, that there would be no toleration of dissent.
The flag of ZAPU, which were largely eliminated by ZANU-PF in the Gukurahundi.
Much of the blame for the country’s subsequent economic collapse, can be attributed to Mugabe. His ignorance and indifference to the economic consequences for his political actions, cannot be underestimated.
He turned one of Africa’s richest countries, and the bread basket of the southeast, into an economic disaster.
In what he claimed to be the financial empowering of the black majority in Zimbabwe, his controversial and extreme land reform policies, turned the country from a net food exporter to that of an importer. It would only mark the beginning, of his mostly ruinous economic policies.
Although the majority of Zimbabweans might of agreed that there was a need for a land redistribution, the violent way it was done, has since become a contentious and divisive topic.
Many Zimbabweans now rely on humanitarian aid, such as this maize donated by Australia under the aegis of the United Nations World Food Program.
Veterans from the wars of liberation, would arrive on farms owned by white settlers, some which had been there for several generations, and simply take them over. Any resistance was met with violence, as thousands of white farmers were expelled and forced to flee to South Africa.
In this way, some 75,000 hectares or 185,000 acres of productive land was taken away from white owners, who had comprised just 1.5% of the population.
This government sanctioned action resulted in more than depriving the former possessors of their property, it had resulted in a calamitous economic consequence.
In many cases, the new owners were either ill equipped or unwilling to farm the newly confiscated land. In addition, local black laborers no longer would be offered employment opportunities, on these now defunct businesses.
In an experience repeated countless times across the country, the previous agricultural abundance would evaporate. There were now shortages of food, which soon began a rise in prices, that helped bring about the devastating hyperinflation.
Towards the end of the confiscation of the farms and the involvement in the Second Congo War, the currency of Zimbabwe became practically worthless.
During the height of the inflation from 2008 to 2009, the rate was estimated to be 79.6 billion percent in November of 2008. This made one American dollar equal to Z$2,621,984,228.
By 2009, Zimbabwe announced the cessation of domestic printing of money. The populace was already using currencies, from a number of other countries. In 2015, the country would announce the adoption of the United States dollar (USD) as the national currency.
A later similar Mugabe inspired law and economic growth killing measure, was what has become known as the indigenisation law. It required that all domestic firms, had to become majority owned by black Zimbabweans.
The flag of the Zimbabwe African National Union (ZANU)
The November military intervention, came about because of the upheaval within Mugabe’s own ruling ZANU-PF party. In a calculated move, Mugabe decided to dismiss the Vice President Emmerson Mnangagwa on charges of disloyalty. The latter was an ally of the army chief and one of the last remaining colleagues from the period of independence.
Mnangagwa had to go, because he was the obvious successor, to the now visibly failing Mugabe. In order to smooth the way for his wife Grace to assume the Presidency, Mugabe felt compelled to stamp out any last vestiges of resistance.
Emmerson Mnangagwa in 2015.
Even as the former Vice President was fleeing the country, the entire political maneuver would soon backfire. The army commander Constantine Chiwenga in less than a week, made it known that he would not tolerate, further persecution against former liberation fighters.
The ongoing purges of Mnangagwa allies, many of which were former war veterans, widened the political rift within the ruling party. There were feelings of betrayal by the former revolutionaries, who were stating that President Mugabe had turned his back on the movement.
On the 15th of the month, the army seized control of the state broadcaster ZBC, in the capital of Harare. Military forces also blocked off access to government offices. Although there were immediate claims that a coup was underway against Mugabe, Mr. Chiwenga would deny it.
Tens of thousands of people now demonstrating in the streets, accurately sensed the moment had arrived, to bring the Mugabe era to a close. They were soon demanding, that he step down from power.
Air Marshal Perence Shiri salutes President Mnangagwa at the inauguration.
On the 21st of November, as the legislature moved to impeach the beleaguered President, Mugabe finally acknowledged the inevitable and submitted his resignation.
He was immediately replaced by formerly fired Vice President, Emmerson Mnangagwa.
The problem with that transition of power, is that some see Mnangagwa simply as an extension of the former President Mugabe government. Others remain more hopeful, that there will soon be economic and political reforms of a country desperately in need of both.
Mnangagwa has a reputation in Zimbabwe, for oppressing political opponents and being part of the past rigging of elections.
Location of Zimbabwe (dark blue) in the African Union (light blue)
The new President Mnangagwa, will need to focus on stabilizing an economy in free fall. During the week that encompassed the actions taken by the military and the resignation of Mugabe, the main stock index plummeted 40%. This translated into a loss of $6 billion USD.
The fiscal deficit has grown to anywhere from 12% to 15% of GDP (Gross Domestic Product). The foreign debt stands at $9 billion USD. The situation is totally hopeless, without a definitive change in direction.
Foreign reserves will be exhausted in a matter of months. Inflation is somewhere between 25% and 50% as the dollar disappears from actual circulation. The banking system is being forced to conduct most business electronically, to hide the fact that there is an acute shortage of hard currency.
The infrastructure of the country is headed for collapse, as communications and transportation become increasingly unreliable. This is not just in the countryside, but in urban areas as well. The state of disrepair and neglect of public services, includes the capital of Harare.
Morgan Tsvangirai 2nd Prime Minister of Zimbabwe.
One of his first orders of business, will be to rebuild political ties with other world governments. President Mnangagwa will certainly need international help, in financing an economic recovery. This will necessitate, moving away from the authoritarianism of the Mugabe era.
The rupture in foreign relations came to a head in the 2008 elections. Mugabe had actually lost to Morgan Tsvangirai. Instead of accepting the decision of the voters, he instead sparked a new round of violence, that led to the deaths of some 200 political opponents.
The unity government that was created in 2009, called for major change. In the end, former President Mugabe reneged on the pledges that were made, during this period of crisis.
Foreign investors are unlikely to return, until the indigenisation law is rescinded. President Mnangagwa will also need to come to terms, with the legal owners of the more than 4,000 farms, that have been confiscated since 2000. The estimated value of this loss to the original farmers, is in excess of $5 billion USD.
Map showing the food insecurity in Zimbabwe in June 2008
There has to be a return of the rule of law. Property rights for all businesses must be guaranteed, if foreign banks are to be enticed, to lend the regime and the country any money.
Land reform will be exceptionally politically difficult. The majority of the ZANU-PF legislators cling to the belief that land should be leased, with ownership remaining with the state. President Mnangagwa was among them, who believes in a large state presence in land control.
Unfortunately, the new President’s mandate according to the constitution, will end in August of 2018. He is simply filling out the rest of term in office for Mugabe. Worse yet, if a fair election would actually be held, there is a good chance he would be defeated.
This is why many people seriously doubt Mnangagwa will permit such an events from occurring. He is far more likely to get the legislature to extend his tenure by two or three years. He will need a two thirds majority in both houses of parliament, which is doable at this point, since the ZANU-PF still predominates this branch of government.
Supporters of the Movement for Democratic Change.
The main leader of opposition is unsurprisingly, the electorally cheated Morgan Tsvangirai. His Movement for Democratic Change (MDC) party, will obviously oppose any extension in the presidential term.
However, President Mnangagwa as previously stated, is quite adept at dealing with opposing political leaders. Known as the crocodile, due to his ability to wait patently for the right moment and then attacking ruthlessly, he is more than a match, for the now cancer stricken Tsvangirai.
Mnangagwa will move to divide the opposition and is even likely to offer government posts to some of the senior leadership. This may well include Tsvangirai himself. The latter has already lost some of his political credibility, when he entered into the ill fated period of coalition, from 2009 to 2013.
A demonstration in London against Robert Mugabe. Protests are discouraged by Zimbabwean police in Zimbabwe.
It will take precious time, in order to restore the tattered reputation of Zimbabwe. A newly inaugurated President Mnangagwa, will have to repeal a whole set of repressive laws.
At the same time, he will need to recreate the corrupted electoral commission and to allow for future foreign observers of national elections. This will be the only way that he will gain standing and needed recognition from abroad.
President Mnangagwa will eventually have to allow the media and the opposition, to criticize his government. He cannot rely on security forces and the army to crush dissent.
Western nations are more wary of promises, since Mugabe failed to deliver on his earlier commitments. Mnangagwa will need to show almost immediate progress, if foreign aid is to begin to flow.
The future of Zimbabwe is now in a state of transition that is hamstrung by almost insurmountable economic, financial and political challenges. The question will remain is the continued leadership of President Mnangagwa, part of the answer?
Juan Orlando Hernández, 55th President of Honduras.
President Juan Orlando Hernandez has been in office since January of 2014. He is now running for re-election. According to the 1982 Constitution that action, would have been illegal. Two years ago, the Supreme Court of Honduras ruled the prohibition on term limits was to be lifted. The previous law was enacted to prevent a single person, from accumulating too much political power and attempting a dictatorship.
Public opinion polls puts the conservative Hernandez at 56%, that is 15% ahead of his main rival Salvador Nasralla, who is a sports broadcaster. Nasralla is representing the left-wing Libre and PINU parties in the election. He is making entrenched corruption, the main focus of his campaign.
The political opposition are connecting Hernandez himself, with widespread corruption, that permeates throughout the country.
The anti-Hernandez vote is further divided between Nasralla and Luis Zelaya, who is the candidate from the Liberal Party. The latter a former professor, has no real chance of winning, but is drawing away support from Nasralla.
Salvador Nasralla, presidential candidate.
Therefore, the re-election of President Hernandez, as the National Party nominee on November 26, is at this point almost inevitable. His party is also likely to gain seats, in the 128 member unicameral National Congress, which is holding elections at the same time.
Hondurans support President Hernandez for his success for reducing violence and ending the recession. He has delivered on both campaign promises, but claims there is far more work to be done. A recent poll identified that crime still remains, the top concern for 60% of Hondurans ahead of the election.
President Hernandez will succeed in his attempt to hold onto power, where others have failed. When the former left-wing President Manuel Zelaya tried to stage a public referendum, to do away with term limits in 2009,he was removed from power by the army. President Hernandez decided instead, to work within the system.
Location of Honduras on a global map.
As the leader of Congress from 2010 to 2013, Hernandez encouraged the dismissal by the legislature, of four Supreme Court judges. Their replacements would later invalidate, the constitutional prohibition against term limits. That set the stage for a consolidation of power by President Hernandez.
It is important to note that over 60% of the Honduran electorate opposed changing the Constitution, to permit presidential re-elections in the first place.
Even before his first inauguration, the Honduran Congress passed a series of laws, that would give the incoming President Hernandez, far more authority over government spending.
As a result, if tax revenues are higher than expected, the President has far more discretion in how the money will be spent. Often the amount of government income is intentionally forecast to be lower, to allow Hernandez more money to be allocated for political objectives.
It permits extra spending on infrastructure and social programs, that intentionally blurs the lines of distinction, between the government and the National Party.
This added access to funds, permits President Hernandez to have far more influence in the Congress, even though his center-right National Party, still does not have an absolute majority in the legislature.
During his presidency Hernandez has brought stability to public expenditures. He has raised taxes, but has also cut government expenditures on wages. In 2016, the Congress would approve legislation to formalize the new fiscal responsibility.
Bananas are one of Honduras’ main exports.
The budget deficit has been dramatically reduced from 7.9% of GDP (Gross Domestic Product) in 2013 to 2.8% last year. Credit rating agencies have responded with an upgrade on Honduran debt, which has translated to lower interest rates on sovereign loans.
As a consequence, the debt to GDP ratio has dropped from 42.93% in the first year of his tenure, to 38.45% in 2016.
The economic revival of the country is helping President Hernandez as well. The GDP is set to expand a total of 4% this year. Honduras is benefiting from the global economic recovery. This is providing more markets for a bumper crop of coffee and shrimp. There is also greater world demand for bananas, which has led to higher prices for Honduran farmers.
In addition, there has been a corresponding 10% surge, in remittances from Hondurans living outside the country. Some 600,000 Hondurans, which is near 7% of the population, have emigrated to the United States. This was due to previous economic difficulties, political instability and infrastructure damage from a number of storms.
Tegucigalpa, the political and financial capital of Honduras.
President Hernandez pledged before his first election, that he would clamp down on the high crime rate and general lawlessness throughout the country.
When he took the presidency, the murder rate in Honduras was the highest globally. Hernandez has reduced the level by nearly 50%. It has been cut from 79 per 100,000 people in 2013 to 42 this year. However, the present rate is still 50% above the average in Latin America.
To bring the number of murders down even lower, the government will need to replace the regular army, with a completely reformed police force, that will be able to do more investigations of crime. As recently as 2012, a total of 63% of the citizenry, thought the police were part of the epidemic in crime. This lack of public confidence is again, the highest in Latin America.
Honduran Coat Of Arms
The Hernandez Administration is attempting to win back the public trust. About 14,000 which is near 25% of the police force, has already been discharged from their positions.
The government is planning to double the size of the police force by 2022. A further reform is to make promotions within the police,to be based more on merit rather than seniority.
President Hernandez has nearly doubled the total budget for security during his first term. He has also sent the army in, to patrol the most dangerous communities and has strengthened overall supervision of the border areas.
Honduran Police in a rural area.
He is the first president to send criminals to the United States. He advocated for the change in the constitution, to allow extradition from Honduras.
Hernandez is more than willing to work with other countries, to reduce the crime associated with the drug trade. This has resulted with a reduction, in the amount of cocaine, that is being shipped through Honduras in transit to the United States.
However, President Hernandez has not been able to move the Honduran economy itself, away from the trade in drugs. The economic plan to encourage more tourism and get foreign firms to open up additional manufacturing plants, is having very limited success.
In fact, foreign direct investment actually fell by 30% to just $1 billion USD (United States Dollar) between 2014 and 2016. Furthermore, most of the money being invested, consists of corporate profits from companies already operating in Honduras.
Honduran children, are often malnourished.
Tellingly,with a population of over 9 million, the poverty rate in Honduras, remains above 60%. It remains the second poorest nation in Central America. This is despite a growing economy and a relative low rate of unemployment of just 4%. Inflation is a moderate 4.1% as well.
The problem rests more with low wages, that can be attributed to the lack of education and inadequate job skills of the workforce. There has been little done by the government to change this dynamic.
In Honduras, the support for democracy has declined to just 34%. There has been a 7% drop, this year alone. In reality, the ideology has the lowest rate of approval in all of Latin America. It seems the electorate prefers economic stability and social order, rather than maintaining democratic processes.
Lastly, working in favor of President Hernandez is the fact, that he just needs a plurality of votes, which his party’s base will provide. A majority will be unnecessary, to win the election. The allies of the President control the election tribunal and changes to the law, which now allows the National Party to virtually control the vote count at polling places. His re-election, is all but assured.
In Chile, the era of President Michelle Bachelet is entering its twilight. Her second term which began in 2014, will be ending on a sour note. Her center-left government, has failed to provide the economic growth, that her reforms were promised to bring. Now along with being tarnished with corruption, due to family scandal, her overall approval rating has dipped to just 23%.
Only 46% of those eligible to vote cast their ballots in the first round of voting, to choose a successor to the term limited President Bachelet. Chileans seem less than enthusiastic, about their present political choices.
Although the traditional center-right candidate Sebastian Pinera, did not do as well in the first round of elections on November 19 as expected, he is still favored to win the presidency in December. Polls had show him in the mid 40s, but he actually only garnered 36.6% of the vote. It is not a radical choice, the billionaire businessman held the office from 2010 to 2014.
His main challenger is the popular television journalist Alejandro Guillier. He is the political heir to President Bachelet, representing the center-left in the next round of voting. Mr. Guillier identifies himself as a political outsider, which is somewhat confusing for the electorate. His share of the vote was a dismal 23% of the ballots cast.
There was an emergence of a new political force, known as the Frente Amplio or Broad Front. The roots of this party can be traced back, to the student protests beginning in 2011. It is an anti-establishment movement, that is now being compared with the Podemos political party in Spain. Most of its followers can be identified, being on the left of center.
The Broad Front was led by the journalist Beatriz Sanchez. She came in with 20%, in the first round of voting. So although she will not participate in the second round of voting on December 17, her voters are more likely to support Mr. Guillier. This gives him 46%, which makes the upcoming election far closer than had been expected.
The other possible contenders were also eliminated in the first round of voting, deemed too radical in their approach, to be considered by most Chileans. There is little public appetite to really dismantle the liberal capitalist economic model, set up by the former President and dictator Augusto Pinochet, who ran the country from 1973 until 1990.
The reason for this reluctance, is the spectacular growth experienced by Chile, since the departure of Pinochet. Since 1990, the economy has increased by 300%, with the poverty rate sliding from near 40% to less than 10%. More than half the populace of some 18 million residents, is now considered middle class.
The nominal GDP (Gross Domestic Product) now exceeds $251 billion USD (United States Dollar), making Chile the 38th largest economy globally.
Chuquicamata copper mine
The political successors to Pinochet have been somewhat successful, in gradually diversifying the economy, away from the once total dependence on copper. However, this strategic metal still provides for nearly 50% of all Chilean export revenues.
The lower international price for commodities in general, including industrial metals like copper, is one reason why the economy of Chile has slowed somewhat in recent years.
Despite the push for change, by a number of leading politicians on the left, the central bank has mostly remained autonomous. It has continued its primary role, by keeping inflation in check.
Location of Chile in dark green on a world map of South America.
Unlike many other advanced economies in the world, the Chileans attempt to follow a fiscal rule, that requires the central government to balance the national budget over the longer term. This financial conservatism, has forced the country to make difficult choices, on what the nation can afford.
Germany alone, among the major industrial powers, has achieved a balance in their national budget.
This has also allowed Chile, to avoid the problem of unsustainable national debt. Yet the GDP to debt ratio, has still been increasing. From a low of 3.9% in 2007, it has increased dramatically to 21.3% as of last year.
Michelle Bachelet President of Chile
The first presidential term of Michelle Bachelet from 2006 to 2010, saw the national debt double during her tenure. The increase would slow considerably, under her more conservative successor. Her second term, has since seen the GDP debt ratio go from 12.7% in 2013 to 21.3% in 2016.
The present government deficit for 2017 is more than 3% of GDP, which has alarmed a number of Chilean economists. Bachelet has run a deficit every year of her second term and it has been rising steadily. It has gone from just -1.6% in 2014, to -2.8% in 2016.
This is partly the result of a slowing economy, along with the increasing government expenditures, on a number of new social priorities of President Bachelet and her New Majority political party.
The economic slowdown in general is attributed to a number of factors, that can be partly blamed on the present center-left government.
Five presidents of Chile since Transition to democracy (1990–2018), celebrating the Bicentennial of Chile.
There are two elements of this trend which were beyond the control of President Bachelet. These were the lower international prices for copper and the gradual aging of the workforce. The latter resulting in a greater proportion of the citizenry, now being retired.
What the government can be faulted for is rising taxes and increasing regulations, which have in turn both discouraged further investment.
One of the first pieces of legislation pushed through by President Bachelet, was the reform of the tax system. This was done to increase revenues for the expanded social services, she wished to implement. Once passed, it added near 3% of tax revenue as a percent of GDP.
The tax and spend pledge, was a key component of her political platform to reduce inequality in Chilean society. More money was going to be spent on the education system and other programs. It is estimated that 84% of high school students,now go on to some form of higher education.
Sanhattan, the financial district in Santiago de Chile, the political and economic capital of the country.
In reality, it raised the cost of doing business in Chile. Corporate taxes were increased and at the same time, a number of tax exemptions were closed. The former went from 20% in 2014 to 27% this year.
The Taxable Profits Fund (FUT) set up by the Pinochet government to encourage investment, was totally abolished. It had allowed companies to indefinitely defer tax payments on some of their profits.
President Bachelet insisted this tax arrangement, had cost the Chilean treasury some $50 billion USD in 30 years.
In addition, corporate dividends are now taxed on an accrual basis of a higher rate of 35%, regardless of an actual distribution, which had previously been the case. This change was levied against both domestic investors as well as foreign investors.
Chile is the fifth largest exporter of wine in the world.
A carbon tax was introduced at the same time, to raise more money and to fulfill a campaign promise on the environment.
What followed was exactly foreseen by business leaders and numerous conservative leaders. There was a precipitous drop in investment, both from domestic and external sources.
The economy responded accordingly, economic growth had averaged 5% a year since the 1980’s. The government forecast of 4.9% for 2014 was quickly reduced to 3.4% for the first year of the Bachelet administration.
Economic growth has remained lower, throughout her second term. From a rate of 4% in 2013, it dropped to just 1.9% in 2014. The following year it picked up a bit to 2.3%, but by 2016 it had dipped again, to a new low of 1.6%.
It will be not be easy. Many of the social services are provided for by private firms. Although this makes them more efficient, it also makes the recipients of them feel far less secure. There are many in the newly rising middle class, that feel the government should actually, be taking a more direct role in the distribution of services.
Chilean Government’s transitional logo.
The privatized pension system is an example of this. Although it is advertised in the West as a model to be emulated,the payout in benefits, has been lower than some retirees had hoped. Lower returns on investments and reduced economic growth, have taken their toll on the retirement funds.
The system is self sustaining and therefore outside of regular government expenditures. Among the advanced nations of the world, only the United Kingdom has a similar privatized scheme.
Last year, there were demonstrations and protests by tens of thousands of retirees, against the privately managed pension program. In the face of lower investment and growth in Chile, the only possible solution to their grievance, within the present rules,is to increase individual contributions for future pensioners. That is, unless the government wishes to become more directly involved.
2011–13 Chilean student protests
The advantage for Chile over the long term, is that unlike most of the Western world, the country is not facing huge unfunded retirement entitlements. In the United States for example, these costs are likely to run over $100 trillion USD.
There were similar demonstrations from 2011 to 2013, by students in reference to education. The private sector used to play a far large role, in schooling throughout Chile.
Keeping this in mind, was why one of the first priorities of President Bachelet beginning in 2014, was to turn state-subsidized for profit secondary schools, into non-profit foundations. Her goal was to eliminate any tuition fees and make attendance at universities, virtually free of charge, for those in the bottom half of the income scale.
Bachelet with Evo Morales from Bolivia and Lula da Silva from Brazil at a Union of South American Nations summit in 2008.
Bachelet also had the goal of increasing nursery attendance by toddlers from 17% to 30%, by the end of her term in office.
These reforms have become widely popular, because it makes higher education affordable, for most Chileans. However, the poor quality of education throughout the country remains a pressing issue. It cannot be solved easily and will cost significant amounts of money. Improving the quality of teachers will be an ongoing expense.
The billions of dollars in extra revenue raised to fund these educational reforms, have been inadequate, as witnessed by the rising government deficits. It will be next to impossible, to roll these expenditures back, once there is a change in government.
The Palacio de La Moneda in downtown Santiago. Office for the President of the Republic of Chile.
The distribution of income is more unequal in Chile than in any other advanced country, expect for Ireland. The relative recent changes in the tax system and the increased role of government in social services, did not alleviate the problem. President Bachelet will leave office with this issue largely unsolved. The problem is actually being magnified, by the overall slower economic growth.
The Bachelet plan to give more power to labor unions and maybe even change the constitution panicked investors. Overall fixed investment has now fallen for four consecutive years, the entire time of President’s tenure.
Candidate Guillier seems to have little to offer voters, except a consolidation of Bachelet agenda. He is unable to articulate, a new direction for the country. It is becoming increasingly clear to a growing share of voters, that more social spending will not be sustainable.
Returning the country to higher levels of economic growth, is what the Pinera platform promises. He is pledging to create more jobs and control the rising levels of crime. Pinera on the other hand, is unlikely to roll back the Bachelet reforms in education. Nor is he likely, to reduce the overall rate of taxation which is now near 20% of GDP.
Pinera does want to increase investment in Chile. He believes it can be achieved by cutting and streamlining corporate taxes. He also is looking at cutting, a number of unneeded business regulations.
Santiago Metro is South America’s most extensive metro system[
Pinera as President though, will not permit university tuition to be free for all students, which was the ultimate goal of the Bachelet administration. He is however, likely to provide more funding for the lower levels of education.
Pinera has committed himself to spend more in the health sector and on pensions. In addition, he has also mentioned a greater investment in infrastructure, that will be forthcoming.
How Pinera will fund these new initiatives, along with the Bachelet reforms remains unclear. He does reference inefficiency and waste, but these alone cannot provide the revenue needed.
Voters remember his term in the presidency, as a time of prosperity. This was partly due to the far higher price for copper. Economic renewal, seems to be what the voters are hoping for.
There will not be a dramatic shift to the political right. The electoral reforms put through earlier by the Bachelet administration, has now lessened the dominance of the major political parties.
National Congress building in Valparaíso.
Chile Vamos on the right and the New Majority on the left, are finding their influence reduced in the new legislature. This will make coalition building, far more important moving forward. The number of lawmakers that do not belong to traditional parties, has now increased from 3% to 17%.
The Broad Front alone, will control 12% of the 155 seat chamber of deputies or lower house of the Congress.
The legislative electoral changes now in place, will make governing far more challenging. If Pinera wins which still remains likely, he will not have a majority in Congress. Even a partial reversal of the more leftist policies of the Bachelet era, will not be easy to achieve.