International Trade Club of Chicago - Global Issues to Watch - July 2012 by ISA

Global Issues to Watch - July 2012 by ISA - International Strategic Analysis

July 03, 2012 4:17 PM | Deleted user

Syria's Teetering Government (2012-07-24)
As fighting in Syria’s intensifying civil war spread to that country’s two largest cities, it has become clear that Syrian President Bashar al-Assad and his government are losing their grip on power. Moreover, defections and attacks from within have raised the possibility of an internal coup that sweeps President Assad from power. Finally, rebel forces are making larger territorial gains, a development that will allow the rebels to establish bases of power within the country that they can use to rearm and regroup, a development that is likely to turn the tide against the Assad regime.

Until recently, the fighting that has escalated into a full-scale civil war in Syria had not reached that country’s two leading cities, Damascus and Aleppo. However, that has now changed as rebel forces have launched major attacks against government targets in both cities and have taken control of some quarters close to the heart of both of Syria’s largest cities. Moreover, the recent assassination of high-ranking government and military leaders in Damascus has highlighted the growing rebel infiltration of the highest levels of power in Syria, a development that may convince President Assad that his time in power is coming to an end.

Despite the recent gains by the rebels in Syria, the Assad regime still has a number of powerful tools at its disposal. Until recently, Syria’s armed forces have refrained from using the country’s substantial air power against the rebels out of fear that this could provoke intervention by foreign military forces. Furthermore, Syria has large stockpiles of chemical weapons, a fact that concerns both the rebels and foreign powers with a stake in Syria. Nevertheless, recent developments have shown that the momentum is firmly behind the rebels and, if they can maintain their unity, they stand a strong chance of ousting President Assad before too long. However, the fighting is likely to grow much more intense, and the death toll is likely to rise much further, before the Assad regime can be once and for all driven from power.

Democracy in Jeopardy in Central and Eastern Europe (2012-07-18)
Following the collapse of communism in Central and Eastern Europe more than two decades ago, democracy swept across the region until nearly all of the countries in that region could be described as full democracies. However, apart from the wealthier countries of Central Europe or the Baltic region, democracy has struggled to fully take root and, in many countries, has been rolled back by rising authoritarianism and unrest. With the region’s economic future looking increasingly worrisome, the fate of democracy in this region is in severe jeopardy.

In the late 1990s and the early 2000s, almost all countries in Central and Eastern Europe could be described as having fully democratic political systems. However, many countries in Southeastern Europe and in the European areas of the former Soviet Union have seen their democracies weakened in recent years as power as been concentrated in the hands of national strongmen or as political turmoil has weakened many political systems. In countries such as Russia, Ukraine, Belarus and even Hungary, power is now concentrated in the hands of a dominant political leader. Meanwhile, political unrest in countries such as Bosnia, Albania and now Romania has weakened the desire for democracy in those countries.

There are many factors that threaten the future of democracy in Central and Eastern Europe. First, much of the region is in the midst of a severe economic downturn and much of the popular blame for this downturn has been placed on the governments of the region. Second, as the European Union has failed to deal with its own economic crisis, its ability to enforce or support democratic reforms in the region has been severely reduced. Finally, many of the region’s democracies themselves are severely flawed due to an unwieldy number of ever-changing political parties or the domination of a single political party. As a result, apart from a few countries (such as Poland), democracy in the region is likely to suffer more setbacks in the years ahead.

The Implications of China's Slowing Economy (2012-07-17)
China’s economy has continued to slow in recent months, raising fears that this key engine of growth for the global economy will experience even lower rates of growth in the second half of 2012. Much of this slowdown was the result of a weakening of key export markets, particularly in crisis-hit Europe. However, China’s fast-growing domestic market has also recorded lower rates of growth in recent months and this has the potential to cause major problems for the global economy and for exporters counting on China for a large share of their growth in the coming months and years.

GDP growth in China slowed to 7.6% on an annualized basis in the second quarter of 2012, the lowest rate of economic growth in China since early 2009. With export growth slowing sharply in recent months, and with China’s real estate market slowing more signs of weakening, it was no surprise that economic growth in China continued to fall. Growth would have been even lower had it not been for higher levels of investment growth as the Chinese government began to enact a new round of stimulus projects designed to bolster the flagging Chinese economy. Nevertheless, growth could continue to slow in the second half of this year, with major implications of the global economy.

As China has become a vital cog in the integrated global economy, it is increasingly exposed to external economic risks, while China itself plays a greater role in the economic performance of countries around the world. It was this exposure to global economic risks that contributed heavily to the recent slowdown in China, with export markets weakening in Europe and in other regions. However, it is China’s weakening domestic market that poses the greatest threat to the global economy, as China is now a leading destination for exports from economies in all regions of the world. Should China’s domestic market downturn continue, an already-struggling global economy could experience a much sharper fall in growth than has been forecast.

Political Islam Ascendant (2012-07-11)
The greatest beneficiaries of the Arab Spring have been Islamic political parties that have used to spread of democracy across the Middle East and North Africa to gain power in a number of countries in the region. Moreover, with the political situation in many countries in the region remaining highly unstable, there is a potential for more Islamist political parties to rise to power in the region in the coming years. From the outside, this may appear to be an Islamist tide sweeping the region, but deep divisions within the ranks of the Islamist movement must be overcome for this to lead to more unity for the region.

Since the start of the Arab Spring in late 2010, long-ruling governments have been ousted in four countries in the Middle East (Tunisia, Egypt, Yemen and Libya). In the Egypt and Tunisia, moderate Islamists parties associated with the Muslim Brotherhood have gained power, although they currently share power with other parties or the armed forces. Moderate Islamists are also in power in Turkey, where the AKP-led government has been used as a model by many of the region’s nascent Islamist movements. Furthermore, Islamist movements are active in many other countries in the region, most notably Syria, where they are playing a key role in the battle to remove President Bashar al-Assad from power.

As democracy spreads across the region, it appears increasingly likely that the religious-secular divide that has come to dominate Turkish politics in recent years will emerge in the region’s other democracies as well. However, the deep rift among Islamist movements in the region between the relative moderate groups (such as the Muslim Brotherhood) and the more radical elements (such as the Salafists) could prevent Islamists from consolidating power in the region. However, should the new Islamist-led governments in the region prove successful, they could serve as a model (like Turkey) for countries such as Algeria, Morocco, Jordan and the countries of the Arabian Peninsula, where democracy has yet to fully take hold.

What ASEAN Can Learn from Europe's Crisis (2012-07-10)
No other group of countries have thus far reached the level of political and economic integration as the European Union, but one group of countries, Southeast Asia’s ASEAN group, is widely considered to be the next in line. However, the ongoing debt crisis in the European Union has raised questions about the desirability of such deep integration in ASEAN. Moreover, in many ways the disparities between the member states of ASEAN are even greater than those of the European Union, and it is such disparities that are at the root of the crisis in Europe.

While the European Union was created in large part to attempt to prevent Europe from continually being dominated by external powers (the United States and the Soviet Union), so to was ASEAN created in large part due to the overwhelming power of external powers (the United States, China and potentially India). Originally, the European Union was made up of mostly wealthier export-oriented economies, but over time, the EU has added mostly poorer countries, leading to larger disparities in wealth and economic policies among the EU’s member states. In contrast, ASEAN was, from its inception, a grouping of economies that had wide variations in terms of wealth and economic development.

Prior to the European debt crisis, the EU was seen as a model for integration for Southeast Asia. However, ASEAN member states are now aware that the creation of a common currency is not possible without the deeper political and economic integration of the organization’s member states. Fortunately for ASEAN, it has a much younger population than the EU and is not burdened by unsustainable social welfare systems that are reducing Europe’s export competitiveness. Moreover, with 600 million people and a high level of export competitiveness, ASEAN has the potential to be not only a leading exporting-region in the world, but also one of the world’s fastest-growing domestic markets. With the political situation improving in key ASEAN countries such as Indonesia and Myanmar, the outlook for the region is brighter than ever, but it must avoid the pitfalls that face regional economic alliances.

The Advantages of New World Economies (2012-07-03)
While much of the developed world faces the prospect of long-term economic stagnation, a handful of developed economies are likely to experience relatively strong economic growth over the longer-term. These developed economies are the so-called New World economies, the largely English-speaking former colonies of Britain located in North America and the Pacific region. Thanks to the number of crucial factors, these New World economies have the potential to avoid many of the pitfalls that have trapped many of the world’s leading developed economies in a cycle of stagnation and decline.

There are four so-called New World economies that are poised to continue to experience healthy levels of economic expansion in the coming years and decades (the United States, Canada, Australia and New Zealand). While much of developed Europe and Asia faces economic decline as a result of shrinking populations and a lack of investment in research and development, these New World economies have the potential to continue growing in the future. This is due to the fact that these four economies are each boosted by rising (and relatively youthful) populations, higher levels of investment in technology, as well as large amounts of land and resources.

While most of the world’s exporters have turned to giant emerging markets such as China and India for their growth in the future, these four New World economies will also provide exporters with major growth opportunities in the 21st century. Combined, these four countries have a population of more than 375 million people and their total population is forecast to grow to more than 550 million people by the middle of this century. Moreover, these New World economies continue to attract the bulk of the world’s high-skilled migrants, allowing them to be hotbeds of innovation and entrepreneurship. As such, these New World economies will enable developed economies to maintain a major role in a rapidly changing world.

The New President of Mexico (2012-07-03)
As expected, the candidate of the once-dominant PRI party, Enrique Pena Nieto, won this month’s presidential election in Mexico, ending the PAN party’s 12-year control of the Mexican presidency. President-elect Pena Nieto takes charge of Mexico at a time while that country’s drug war continues to destabilize large areas of the country and the global economic slowdown threatens to hold down economic growth in Mexico. Meanwhile, the runner-up in this year’s presidential election, left-wing candidate Andres Manuel Lopez Obrador, has challenged the election results, just as he did in the previous presidential election in 2006.

The PRI party’s Enrique Pena Nieto won Mexico’s presidential election with 38.2% of the vote, a slightly lower amount of the vote than had been expected. The leftist opposition candidate, Andres Manuel Lopez Obrador, finished in second place for the second consecutive election, winning 31.6% of the vote. In third place was the candidate of the ruling PAN party, Josefina Vazquez Mota, who won a disappointing 25.4% of the vote. Meanwhile, the PRI made gains in the parliamentary and state elections that took place at the same time as the presidential election, giving the party that ruled Mexico from 1929 to 2000 almost total control of Mexico’s political system.

President-elect Pena Nieto will face a number of major challenges as he prepares to take office. The most pressing challenge facing the president-elect will be Mexico’s ongoing drug war as major drug gangs such as the Zetas have extended their control of many areas of Mexico and infiltrated many segments Mexico’s government and security forces. On the economic front, falling oil prices and slumping export markets will dampen Mexico’s economic outlook over the near-term, while Mexico will need to do more to boost its export competitiveness to ensure longer-term economic success. Finally, President-elect Pena Nieto must convince a majority of Mexicans that his PRI party will not return to its old ways after 12 years out of power, a task made more difficult by Mexico’s many challenges and Mr. Lopez Obrador’s refusal to recognize the election results.

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Reprinted from ISA Report published July 3, 2012 (updated July 24, 2012), International Strategic Analysis,http://www.isa-world.com/main.php

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