(by Felipe Albuquerque)
Brazil’s outlook for the year ahead looks austere. After the impeachment process of 2016, ousting Dilma Rousseff alongside the Workers’ Party (PT) which had held power for 13 years, Brazil’s political landscape remains unpredictable. The economy shows ambivalent signs of recovery. Whilst inflation and double-digit interest rates are gradually declining, high unemployment persists. Michel Temer’s government was able to reunite a majority of centre and right-wing parliamentarians to approve a harsh austerity bill that limits increases in government expenditures. Whereas the government argues a spending cap is much needed to balance the public budget, the opposition maintains it curtails funding for health and education. A pension reform may also be on the horizon. Aside from such hurdles, Temer strives to sell Brazil as a reliable country for investment.
In addition, Temer was unable to gain public legitimacy as his government is continuously engulfed in corruption scandals. Up until now, six ministers have resigned due to their entanglements in “Operation Car Wash.” This month, the Supreme Court judge in charge of the operation died in a plane crash. The grim scenario is also marked by a series of riots that left a death toll of more than 120 prison killings and raised fears of a sprawling war between drug cartels. In 2015 alone, Brazil saw more violent deaths than war-torn Syria. Additionally, last year saw an escalation in deforestation levels, which contradicts the country’s leadership in climate change. Moreover, a sense of paralysis in the political arena persists, an impression that is fuelled by ongoing uncertainty over the 2018 presidential elections. Beyond old names and new pretenders, the situation remains uncertain. All things considered, a lack of proper domestic foundations could tarnish Brazil’s image.
Brazil’s external overtures under Temer started with a thorough revision of the work of his predecessors. Needless to say, the current foreign minister, José Serra, nurtures presidential aspirations. Under his supervision, Brasília opted for a harsh tone with crisis-laden Venezuela, suspending Caracas from Mercosur, and pressed the country to pay its debts to Brazilian multinationals. While regional integration is sidelined, Brazil’s presence in Africa received less attention. The exception to this reverse trend is the BRICS grouping, which Brazil sees as a pragmatic way to gain access to Chinese officials. It may also bring back IBSA from the dead, having received lacklustre care from Dilma. By and large, the diagnosis is that Brazil punched above its weight during the PT years, damaging the country’s position in the world.
José Serra’s Itamaraty hopes to attract investors, re-negotiate trade agreements, revise Brazil’s South-South policies, and calibrate its relations with Washington and a post-Brexit European Union. Regarding Trump’s administration, Brazil is waiting to see how things unfold. With regards to the EU, Brasília seeks possible opportunities with London, as the awaited Mercosur-EU trade agreement is still in a quagmire. When it comes to China, Brazil’s leading trading partner, Brasília needs to develop proper strategies to deal with Beijing. Asia should be privileged, as recent visits of Temer to Japan and India demonstrate. The result of these options, though, remains to be seem.
In China, the 19th Party Congress, progress of economic reforms, as well as China’s response to US policy and its economic diplomacy will shape the Year of the Rooster.
The outcome of the 19th Party Congress, to be held in fall, will determine China’s policy direction for the following five years. Crucial issues are the expected leadership transition, confirmation of the main party line, and introduction of new ideological positions. Having reached the official retirement age of 68, a large part of the 25 members of the Politburo are expected to retire, including five out of seven Politburo Standing Committee (PSC) members, China’s top leadership body. The two leaders President Xi Jinping and Premier Li Keqiang will remain.
Xi’s elevation to ‘core’ leader at the Sixth Plenum of China’s Central Committee in October 2016, an honour previously granted only to Mao Zedong and Deng Xiaoping, enhances Xi’s power and gives him greater room to promote the people of his choosing.
These developments are decisive for China’s direction during Xi’s second term and determining China’s reform progress. While reform-minded appointments could influence Xi, quite a few of the current Politburo members are considered liberal minded, but they have had limited impact in the past five years.
Since President Xi announced supply side reform in early 2016, Beijing outlined five major tasks to tackle the Chinese economy’s structural problems, including overcapacity, overstocked products, and high debt levels. However, overseas commentators lament insufficient improvements due to the lack of clear direction. In contrast, the government affirms substantial progress and further deepening of reform in 2017, with priority given to merging and re-organising “zombie firms” in the steal and coal industries, and “de-stocking” over-supplied properties in the housing market.
Deviant voices point to continued slowdown of the economy and Beijing’s inability to achieve its strategic goals as a result of retreating foreign investment, the investment-driven growth model (particularly through real estate), and the resurgent debt level of state-owned enterprises. However, pro-government voices also predict increased uncertainty about this year’s reform outcome, largely due to challenges arising from US policies under the Trump Administration – one of the priorities for China’s foreign policy in 2017. Contentious issues include the conflict in the South China Sea, questioning the One-China policy, and economic policies.
While policy-makers in both China and the US recognise the dangers of a potential trade war, the US will likely introduce some new economic measures such as increasing tariffs. However, US protectionism presents a chance for China to present itself as the new leader of economic globalization. Negotiations over the RCEP (Regional Comprehensive Economic Partnership) between China and 15 Asian countries are accelerating and, with the US revoking participation in the TPP, possibly drawing (near) to conclusion.
Further Chinese-led initiatives such as “One Belt, One Road” (OBOR) and the Asian Infrastructure Investment Bank (AIIB) will expand: a forum for international cooperation on OBOR will be held in Beijing this May, and 25 new countries from Europe, Africa, and South America plan to join the AIIB later this year. Thus, there is a window of opportunity for China to take a leadership role in the global order, but 2017 will also show how much action will follow the rhetoric.
2017 marks a key historical date in Russia’s calendar: the hundredth anniversary of the February and October Revolutions. This provides, as Professor Richard Sakwa notes, an important moment to thrash out questions of national identity — against a mixed political and economic backdrop.
Domestically, political manoeuvrings for the upcoming regional elections, and preparations for the 2018 presidential election will provide plentiful column-inch fodder in the coming year. As 2016 drew to a close, anticorruption campaigner and long-time Kremlin nemesis Aleksey Navalny jumpstarted such discussions — in a sense putting the establishment on the back foot — with his declaration to run for president.
January has already ushered in new threats to human rights with the bill to decriminalise domestic violence. This undermining of legal protection for women continues and deepens the trend under Putin’s third term of the so-called “conservative wave,” alongside a constant narrowing of the civil space.
Of course, at the international level, Russia analysts are excitedly reading the horoscopes for what the Year of The Donald will mean for Russia-US relations, sanctions, and Russia’s position on the world stage. Despite the collective sigh of relief on avoiding a Clinton-curated foreign policy, Trump’s position as an unknown quantity may not result in a free hand for the Kremlin. However, with Putin positioning himself as a leader in international matters concerning Syria and the Middle East, a State Department under Trump may allow this role to flourish. Analysts will also be keeping an eye on the impact of a new US foreign policy for Russian interactions with frenemy China.
Further, German and French elections will reveal where the balance of power will lie on the continent, determining Europe’s stance towards its eastern neighbour. Instability in Ukraine’s Donbas region is now a firm fixture on the European geopolitical landscape and is likely to continue to rumble on, a useful scab for the Kremlin to pick when international leverage is sought.
In terms of Russia’s economic situation, slow recovery, but low economic growth, are on the cards after two years of recession caused by a combination of a lack of internal reform, a sharp decline in oil prices, and Western sanctions. The EIU forecasts 0.9% growth, the Russian Government 1.1%, and the World Bank 1.5%. Import substitutions together with stabilising oil prices have helped get the economy buck a little, but these can only do so much alongside a lack of structural reforms and low investment due to limited access to international capital markets. Further state budget cuts are expected, and so hopes that the necessary reforms will be carried out are not high.
Russia’s Economic Development Ministry says that living standards in Russia will not improve before 2035. Low growth in real wages, combined with a shrinking population, and long term growth rates under 2% paint a negative picture for decades to come. In general, Russia’s economy will be sensitive to external developments such as resource price shocks, political turbulence, or the global financial situation in the coming years — all in all a sobering economic profile in contrast with thes sense of confidence in the international political space.