What Can Macri Do to Transform Argentina?
My article was originally published by Mercado Popular on 15 January 2016.
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Maurício Macri, o novo presidente da Argentina, tem atraído a atenção de investidores internacionais com seus planos de criar ambiente mais favorável ao empreendedorismo na Argentina. Mais investimentos trariam maior crescimento e produtividade para o país – aumentando assim, a renda dos trabalhadores argentinos. Além de vender os ganhos de longo prazo para seus compatriotas, seu maior desafio será ter um plano de transição adequado para que ele mantenha suficiente capital político para conseguir implementar reformas.
No início de seu mandato, Macri começou rapidamente a implementar reformas. Tal rapidez, somada à duvidosa decisão de usar decretos para implementar algumas mudanças, tem prejudicado seu apoio entre os argentinos. Em um ambiente político de extremos (Macri ganhou as eleições com apenas 51,4% dos votos) pequenas flutuações na popularidade importam – pois a perda de apoio doméstico vai limitar sua capacidade de implementar as reformas prometidas e transformar a Argentina em uma economia moderna integrada com mercados globais.
O presidente argentino tem cumprido suas promessas de campanha. Em menos de um mês, ele começou uma transformação radical da política econômica argentina. Ele eliminou a proibição de que estrangeiros tirem seu dinheiro do país (em economês essa proibição é chamada de “controle de capitais”), as tarifas de exportação, reduziu impostos e trocou a diretoria do Banco Central. Por isso, o país, que não tem acesso a mercados financeiros desde a moratória de 2001, hoje passa a ser reconsiderado como potencial destino para investimentos.
As políticas de Macri são completamente distintas de sua predecessora, Christina Kirchner, que esteve no poder por quase dez anos. Além de levar adiante diversas intervenções estatais, a Presidenta Kirchner nacionalizou a petroleira YPF em 2012, o que praticamente elminou qualquer possibilidade de investidores internacionais levarem seu dinheiro para Argentina. Isso, somado à moratória, aumentou significativamente o risco político para investidores estrangeiros – e afugentou fluxos de capitais do país platino.
Frente a esse status quo de políticas ruins para o investimento, a mensagem reformista de Macri tem sido bem recebida no exterior. Afinal, a Argentina tem promissores recursos humanos e naturais. Se o devido ambiente de negócios for estabelecido, investidores internacionais estarão dispostos a ingressar no país e gerar riqueza e empregos em busca de vultuosos retornos para suas empreitadas. Por exemplo, o campo de gás de xisto de Vaca Muerta é maior que a Bélgica e tem o potencial de transformar a economia argentina caso ela se abra ao capital estrangeiro.
A capacidade de Macri em implementar reformas vai se tornar mais difícil nos próximos meses. Até o momento, a oposição às suas propostas foi primordialmente ideológica. Contudo, algumas de suas reformas terão um impacto negativo de curto prazo para muitos argentinos.
Por exemplo, a desvalorização do peso já tornou importações mais caras – e esse efeito de aumento de preços deve reverberar na economia nos próximos meses. Parte da classe média vai sofrer até que o ajuste cambial arrefeça e os mais pobres serão afetados pelo fim dos subsídios sobre energia. Além disso, maior competição de produtos importados pode incomodar exportadores nacionais.
O desafio de Macri é convencer os argentinos que esses custos de curto prazo serão compensados por ganhos de médio e longo prazo. Por isso, ele precisa de um plano de transição que amenize os efeitos sobre os grupos mais vulneráveis. As escolhas vão ser difíceis, já que a disponibilidade de recursos do governo é limitada.
Macri deve também assegurar que não somente sua base ou uma pequena elite tirarão proveito das reformas. Um aumento exacerbado da desigualdade agiria como combustível para as críticas de que as mudanças não beneficiarão o país.
Uma escolha natural é ser seletivo nos cortes e assegurar que os mais pobres sejam menos afetados por eles. Por exemplo, é razoável tornar a eliminação de subsídios gradual para que ela aconteça concomitantemente aos ganhos econômicos esperados pelas reformas iniciais.
O desafio de Macri em convencer os investidores internacionais a voltarem para a Argentina, portanto, é o de demonstrar que as reformas atuais serão duradouras – e não efêmeras. Por agora, mesmo com muita boa vontade do governo, ainda há muita incerteza quanto a se Macri vai conseguir manter uma base de apoio ampla para seu pacote de reformas.
Tornar a Argentina um destino para investimentos internacionais aumentará o estoque de capital do país e, com isso, a produtividade e salário dos argentinos – melhorando a vida da maioria dos trabalhadores. É esta a mensagem que Macri precisa levar à população. E ele só conseguirá manter apoio para seu programa se, também no curto prazo, os custos sociais de seu ajuste não forem insuportáveis.
Despite political change, tycoons still play major role
My article was originally published by The Bangkok Post on 18 November 2015.
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Myanmar’s elections show how rapidly the country is changing. Some aspects of the country will be less quick to transform, however. From a business perspective, powerful tycoons from the military era will continue to play an important role. Foreign investors should expect to enter into transactions with these individuals, but they must be careful; some tycoons present significant sanctions risk.
Myanmar’s political development over the last several years has been turbulent, although positive. Notwithstanding significant shortcomings, the recent elections represent an unprecedented level of civilian involvement in politics. This opening has come with economic gains: foreign investment has ballooned, and major companies like Coca-Cola and GE have entered this former pariah state.
Despite these advances, Myanmar remains a deeply troubled market. It is still, for instance, the lowest-ranked Asean member in terms of ease of doing business, according to the World Bank. In Asia overall, only Afghanistan, Bangladesh and Timor-Leste rank lower. Myanmar lacks adequate physical and financial infrastructure, which poses pragmatic hindrances. Security is also an issue, as swaths of the country remain off-limits to investors because of ethnic tensions. Corruption is a further concern.
Another major cause of unease is the presence of tycoons, or prominent businessmen who run large, multi-sector conglomerates. These individuals often rose to prosperity under Myanmar’s previous military-dominated government. Some have backgrounds in black market trading. These issues taint tycoons’ reputations and have resulted in some of them being sanctioned by Washington. This acts as a powerful disincentive for foreign investors, since working with sanctioned individuals damages reputations and severely hinders access to US financial markets.
Only one tycoon has so far been successful in removing himself from US blacklists: Aung Win, who has interests in timber, rubber, energy and construction. He also serves as chairman of the consortium developing the new Thilawa Special Economic Zone. After being delisted, Aung Win urged the US government to delist other prominent Myanmar businessmen. “If they can create more business, they can create more job opportunities,” he said.
Aung Win is right that tycoons play an important role in Myanmar’s economy. Despite the compliance risk they pose to foreign investors, tycoons are some of the most competent local counterparties. They are also experienced in vital sectors, such as construction, logistics, energy and financial services — all of which are logical points of entry for investors seeking to come to Myanmar.
Tycoons’ dominance will continue despite Nay Pyi Taw’s official preference for dispersing market power amongst new players. Although new market entrants may eventually serve as competitive local counterparties for foreign businessmen, as a general rule they currently lack the experience and knowhow to compete with tycoons. Also, in a country where personal ties significantly affect business prospects, the tycoons’ legacy of working with Myanmar’s elite lends them a significant advantage.
To adapt to Myanmar’s reform process, tycoons have already begun courting the National League for Democracy (NLD), the opposition party that recently made headlines by winning a landslide victory. Tycoons have furthermore framed themselves as advocates of the reform process and have engaged in philanthropy. For all of these reasons, the tycoons’ relevance seems set to last into the new era.
When working with tycoons, foreign investors should be careful to avoid sanctions and other types of compliance and reputational risk. As such, investors should scrutinise all local counterparties’ affiliations, not just individuals or companies publicly known to be connected to tycoons. Due to their ubiquitous business interests, tycoons can be tied to local counterparties in informal ways that do not show up when conducting standard due diligence.
As a cautionary tale, investors should look to Credit Agricole, the French banking giant that was fined $787 million (28.3 billion baht) for having made transactions on behalf of Myanmar and other countries and entities subject to sanctions. Investors must remember that even though Washington’s relationship with Nay Pyi Taw is thawing, US sanctions are in still in place and violating them is still a punishable offence.
That being said, sanctions affecting Myanmar are rapidly changing. Aung Win’s delisting earlier this year was shortly followed by the delisting of Tay Za’s wife. In 2013, the US issued a licence for some of Myanmar’s biggest banks — two of which were controlled by blacklisted tycoons. Washington said easing sanctions would help promote Myanmar’s social and economic growth. Investors should monitor these delisting developments. Tycoons are risky but useful partners, and they should be approached as such.
Myanmar’s Ethnic Parliamentarians May Be 2016’s ‘Kingmakers’
My article, co-written with Hunter Marston, was originally published by The Diplomat on 7 November 2015.
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Sunday’s elections are an important opportunity for Myanmar’s ethnic minorities to attain meaningful political empowerment. After the elections, minorities could become “kingmakers” whose support will enable the larger factions to gain legislative advantages. Myanmar’s ethnic minorities can learn how to leverage their newfound position, by looking to the parallel case of the Kurds in Turkey.
In the last decade, during a shift to civilian rule, the ruling Justice and Development Party (AKP) courted the votes of Kurds, Turkey’s long-marginalized ethnic minority. The need for votes forced the AKP to meet the demands of the sizeable Kurdish population. Other major parties in Turkey have followed suit, and Kurds are now recognized as a valuable voting demographic. Myanmar’s major political factions will likewise begin to recognize the importance of ethnic minority parties as allies in the country’s newly civilianized political system.
Similar to the case of Myanmar’s ethnic minorities, before the advent of civilian-controlled government, Kurds were frequently repressed by Turkey’s military since the country’s founding. The Kurdish Workers’ Party (PKK), a Kurdish militant organization, has waged an intermittent insurgency against Turkish authorities since the 1970s. This interminable conflict is reminiscent of the constant low-level warfare between the Myanmar government and ethnic militias that has plagued the country since World War II.
In the newly civilianized political system at the end of military rule in Turkey, the PKK and the government entered into a ceasefire. Now Kurds can openly proclaim their heritage, something that was previously an offense worthy of imprisonment. It is possible that in Myanmar, like in Turkey, the need for ethnic minority votes will lead to such ceasefire and cultural empowerment.
In Turkey, the Kurds’ advances in civilian-dominated politics have not been without their setbacks, and this will likely be the case for Myanmar’s ethnic minorities. Violent clashes with the Turkish government resumed in recent months, after Kurds formed a party that won enough votes to take away the parliamentary majority that the AKP had enjoyed since 2003. In response, the AKP reinitiated the military campaign against the PKK as a way to bring the Kurds to heel. Essentially, the ceasefire with the PKK was a tool used by the AKP to ensure Kurdish support in elections. When the Kurds stopped voting for the AKP, the AKP ended the ceasefire. Major political factions in Myanmar may likewise try to manipulate ceasefires to ensure ethnic minority support in elections.
Keeping in mind Turkey’s experience, Washington can leverage its burgeoning relationship with Myanmar to promote the development of civilian politics that empowers ethnic minorities. It should cultivate relationships with all of Myanmar’s major political factions and encourage them to reach out to ethnic groups. As has been the case for Turkey’s Kurds, the major parties will seek to form alliances with ethnic minorities in order to build voting blocs in Parliament. Washington should also indiscriminately provide political party training and election monitoring support. The American Embassy in Rangoon already hosts international elections experts and communicates with Myanmar’s electoral commission. Washington should continue to promote voter education and political party training, coordinating its efforts with the plethora of international development and non-governmental organizations in Myanmar.
There will be great pressure in the United States to maintain strong ties with the National League for Democracy (NLD) of Aung San Suu Kyi, favored in Washington as a promoter of human rights and democratic values. The United States should not, however, lose lines of communication with the current majority Union Solidarity Party and Development Party (USDP). Despite its origins in the previous military junta, the USDP is instrumental in the success of the country’s peaceful, democratic transition.
Ironically, although Myanmar’s military has long feared territorial fragmentation along ethnic lines, the USDP may be at the forefront of reaching out to minorities. Because the NLD appears set to win more than 50 percent of the vote in the upcoming November election, the USDP will likely need to consider new ways to strengthen its influence. One of its key strategies may be to reach out to ethnic political parties in the next Parliament. Outreach will be especially critical to voting on a new president. Myanmar’s Parliament nominates two presidential candidates, while the military nominates one, and the combined legislature votes for the president and two vice presidents.
As in Turkey, ethnic minorities may eventually become more than just “kingmakers.” The United States should also be ready to help prepare Myanmar for the potential emergence of ethnic minorities as an independent political force. Although Myanmar’s various minorities are more fragmented than Turkey’s Kurds, they may someday learn to consolidate their agendas and act as a unified political force to be reckoned with. The emergence of a strong ethnic minority political force, as has occurred in Turkey, could lead to a backlash by the major parties, causing them to break ceasefires in an attempt to reestablish control. Myanmar could learn from Turkey to avoid such instability: ethnic empowerment should not lead to the ending of ceasefires. This will only aggravate underlying tensions and force ethnic groups to seek other means outside of politics, such as militias, to express their will.
The Turkish example illustrates how not to implement a ceasefire. In Turkey, the ceasefire was a tool used by the AKP to ensure Kurdish political support. When this arrangement floundered, the conflict against the PKK resumed. In Myanmar, ceasefires must be broad-based enough so that they are not mere instruments of any political faction to ensure minority votes. It is a tough task, but the United States should try to promote the inclusion of as many segments of society in peace talks as possible. This will make ceasefires more durable – although admittedly more difficult to negotiate – and less prone to fall prey to politics.
In Myanmar, as in Turkey, underlying ethnic tension is a deep-rooted problem that is difficult to weed out. There is no simple cure for eliminating ethnic strife in Myanmar, but the United States can try to improve the situation by encouraging inter-ethnic dialogue whenever possible. Poverty and inequality have also exacerbated ethnic tensions, so the U.S. should try to promote inclusive economic growth. In these efforts, Washington must make efforts to not show favoritism toward any ethnic group.
Although there will certainly be bumps along the road, the upcoming election has the potential to set the stage for a more pluralistic future that will benefit all of Myanmar’s ethnic groups. Policymakers and political leaders there should look to lessons from Turkey to ensure the same mistakes are not made while taking inspiration from the instances of success. The U.S. should actively support these efforts, but remain cautious about perceptions of its role.
China must avoid repeating US mistakes in the Middle East
My article was originally published by Nikkei Asian Review on 2 November 2015.
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Reports of Chinese naval activity near the Syrian coast in September triggered speculation that Beijing might be preparing to step up its role in the Middle East. This development and others — the seizure by Islamic State militants of a Chinese hostage, growing indications of Beijing’s concern over domestic Islamist terrorism, and China’s clear determination to build on its presence in Afghanistan — raise the question: what are China’s plans in the Middle East?
So far, China’s most significant involvement in the region has related to energy. The country is the largest importer of Iranian oil, and until earlier this year, Saudi Arabia was China’s largest supplier. China has made several investments in Iranian oil fields. With Saudi Arabia, it has exchanged investments in the refining sector.
Despite growing involvement of major powers, China has managed to stay out of direct intervention in Middle Eastern conflicts. It has supported non-intervention in Syria and has not publicly condemned the Islamic State group. As usual, it has steered clear of the Israel-Palestine conflict, and has withheld criticism of regional Middle East governments since the Arab Spring took root some years back.
Traditionally, China has expressed a strong preference for non-interference through its diplomatic engagements. In the 1950s, China’s foreign policy was shaped by the so-called “Five Principles of Peaceful Coexistence,” an assurance at the time that China would not try to bring other developing countries under its influence. Today, China uses these principles to contrast its actions with those of the U.S. Beijing’s message is that it will not act as the world’s police force and judge other countries’ domestic affairs.
Mixed signals
China has managed to maintain this balanced approach in the Middle East, even as it has initiated a broader diplomatic offensive worldwide that ultimately undermines its ability to appear neutral. This aspiration to be a bigger foreign policy actor was evidenced by President Xi Jinping’s recent high-profile visits to Washington and London.
In the Middle East, also, China has signaled interest in increasing its diplomatic presence and involvement — for example, through growing interaction with the Arab League, it has begun high-level meetings with regional governments, and has recruited several Middle Eastern countries into its Asian Infrastructure Investment Bank.
As China steadily expands its presence in the Middle East — just as it is doing in almost every other region of the world — the potential grows for Beijing to become mired in regional conflicts. For this reason, China needs to take care that it does not end up unintentionally supporting some regimes over others. Specifically, China needs to avoid falling into the trap of favoring either side in the Iran-Saudi Arabia “Cold War,” as both Middle Eastern countries vie for regional influence.
Essentially, China should learn from the mistakes made by the U.S. For over 30 years, Washington has supported Riyadh over Tehran. After Iran’s Islamic Revolution of 1979, Tehran’s relationship with Washington broke down completely. During that period, the U.S. alliance with Saudi Arabia became stronger. This preference for Riyadh over Tehran corresponded with a time of intensifying diplomatic competition between the two Middle Eastern capitals.
This partisanship hurts Washington’s interests in the Middle East. Tehran’s nuclear ambitions led to the U.S. imposition of sanctions, which disallowed American businesses from investing in one of the Middle East’s biggest economies. Conversely, this antagonism has damaged Washington’s reputation in the eyes of countries and populations aligned with Iran. Furthermore, troubled relations with Iran constrain strategic options for the U.S.; the fight against the Islamic State group in Iraq and Syria, for instance, is hampered by Washington’s inability to openly cooperate with Tehran.
Washington is just now realizing that it needs to change its foreign policy approach in the Middle East. As a result, it recently initiated a thaw in its relations with Iran, which, unsurprisingly, led to a cooling of relations with Riyadh. In effect, Washington’s revised calculations have had the unintended consequence of destabilizing the Middle East; regional governments are rethinking their relationships with outside powers, as evidenced by Russia’s dramatically increased support for the regime of Syrian president Bashar al-Assad and the Iraqi government.
China should learn from the experience of the U.S. and stay out of the Middle East’s Cold War. Maintaining that approach, particularly now that the Middle East’s balance of power has been tipped, will be increasingly difficult. Both Iran and Saudi Arabia will be particularly sensitive about the apparent preferences among foreign powers for one side over the other.
Given this context, Saudi Arabia will, therefore, be apprehensive of signs that China and Iran are deepening ties. Tehran has indicated that with the removal of Western sanctions, it wants to strengthen its partnership with China, which is already Iran’s largest trading partner. After meeting with his Chinese counterpart in October, Iran’s Minister of Economic Affairs and Finance Ali Tayebnia stated that the removal of sanctions could lead to “expanding mutual economic relations.” In the last several months, Iranian officials have specifically noted that they intend to improve cooperation in fields such as nanotechnology.
Beijing has responded favorably to these overtures, notably on military issues. Last year, Chinese warships docked in Iran to take part in a historic joint naval exercise. In August, international media reported that China was contemplating selling fighter jets to Iran. In mid-October, a Chinese admiral visited Tehran and stated that his country wished to deepen cooperation on military matters.
Beijing needs to ensure that its improved relations with Tehran do not come at the expense of alienating Riyadh. Chinese policymakers should make sure that any deepening of ties with Iran corresponds with a similar strengthening of cooperation with Saudi Arabia. China should learn from the past experience of the U.S., and avoid falling into the trap of supporting one side over the other in the Middle East’s Cold War. It is an easier trap to avoid than to escape.
Beyond Sanctions: Minimizing Beneficial Ownership Risk in Iran
My article was originally published by Risk Assistance Network + Exchange on 28 October 2015.
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The historic nuclear deal with Iran and subsequent lifting of some sanctions may well usher in a new age of commerce. But Western investors considering entering Iran will still face serious compliance and reputational risks, and they should conduct thorough due diligence on any potential transaction.
Of particular concern will be local counterparties’ ties to the Iranian Revolutionary Guards Corps (IRGC), a semi-autonomous, uniquely powerful branch of the armed forces that has more than 100,000 members and maintains extensive business interests in the country. On a basic level, an IRGC-affiliated counterparty, depending on its relationship with the IRGC or other sanctioned IRGC-affiliated entities and individuals, may present sanctions risks to investors.
Yet even if sanctions specifically targeting the IRGC or its affiliated entities and individuals are fully removed – which in any case will not occur for years to come – working with an IRGC-affiliated counterparty will continue to pose normal corruption and compliance-related risks. These risks are no different than those that exist in any jurisdiction. Working with government-affiliated counterparties abroad is a risk factor that has heightened in recent years with the rising prominence of Western compliance frameworks that prohibit corrupt activity abroad, such as the U.S.’s Foreign Corrupt Practice Act (FCPA) and the U.K.’s Bribery Act.
Beyond these sanctions- and compliance-related risks, investors in Iran will also face significant reputational risks back home for working with IRGC-affiliated counterparties. In the West, the IRGC has a largely negative image, which is mostly driven by its sponsoring of militant groups and regimes in the Middle East, such as Hezbollah in Lebanon, the Badr Brigade in Iraq, and the government of Bashar al-Assad in Syria.
Savvy investors should conduct due diligence to know how, and to what extent, their counterparties are connected to the IRGC. This is easier said than done, however. Identifying beneficial ownership is difficult even in economies where Western businesses are used to operating; the European Union, for instance, is only now in the process of implementing an anti-money laundering directive that will require companies to list their beneficial owners in a centralized registry. In the U.S., where company registration requirements vary from state to state, corporate anonymity continues to be abused.
Iranian companies know that, in order to take advantage of new foreign capital inflows, they will need to reduce the compliance and reputational risk that they pose to Western investors. For this reason, they will likely try to obfuscate any IRGC connections. Knowing that such obfuscation exists, but not taking appropriate measures to learn about such potentially hidden threats, is a significant regulatory risk in and of itself that investors should be aware of before entering Iran. As such, they would be wise to make attempts to identify counterparties’ true beneficial ownership.
There are three tried-and-true methods that businesses around the world use to conceal beneficial ownership, and Iranian counterparties are likely to use these techniques.
- First, owners can hide their true identities by hiring lawyers or using registered agents to sign their names in incorporation documents. These agents are often sworn to protect the identities of beneficial owners.
- Second, beneficial owners can appoint close friends, family members, or confidants to nominally lead their companies. In these cases, the connection between the beneficial owner and the company is informal, unlike the case of using a registered agent or lawyer.
- Third, elaborate and convoluted corporate structures may be built to conceal beneficial ownership. Webs of shell companies can be exceedingly complex, and – even if full corporate registration information is accessible – they can be very difficult to deconstruct.
Given all of these factors, investors considering putting their capital in Iran should conduct significant background research before contemplating any deal; at the moment, the mere act of meeting with potential counterparties could lead to unintentional sanctions violations. Even before conducting pre-transactional due diligence, therefore, investors should work with sanctions experts to make sure that they do not unintentionally meet or interact with Iranian counterparties that are linked to sanctioned individuals and entities. At the very least, this step should include open-source research that cross-references potential counterparties against publicly available lists of individuals and entities that have been sanctioned by the United States, the European Union, and the United Nations.
After investors have cleared this initial hurdle and have begun interacting with a potential counterparty – but certainly before a transaction takes place – investors must conduct more comprehensive due diligence to identify beneficial ownership. This requires more intensive open-source research, as well as analysis of corporate structures according to information available in registries.
Even this will not suffice, however, as the obfuscation techniques mentioned above may hide counterparties’ IRGC connections. It is therefore advisable for investors to also conduct investigations that are based on discreet in-country inquiries, as well as broader social and political monitoring projects. This helps investors to know if there are unofficial indications of IRGC connections. It also helps investors understand the risk exposure posed by counterparties’ networks.
Iran’s opening to the West seems likely to continue, short of a violation of recent agreements or radical shifts in the stances of either the Iranian or Western governments. Opportunities will abound for investors willing to enter Iran, and it would be senseless to avoid considering Iran altogether for fear of sanctions and compliance risk. That being said, investors must carefully examine potential counterparties’ beneficial ownership and possible links to the IRGC. Those who do so stand to reap significant returns without incurring long term legal or reputational damage.
Choosing Energy Sectors: Mexico or Brazil
My article was originally published by O Globo on 4 October 2015.
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Investidores da área de energia estão considerando redirecionar seu capital do Brasil, que passa por um escândalo histórico de corrupção, para o México, que vem abrindo seu setor energético numa escala sem precedentes. Quando se compara o crescente risco de governança no Brasil à onda de reformas no México, compreende-se porque alguns investidores consideram tal estratégia. E, no entanto, o Brasil continua sendo um destino de investimento que vale a pena, sobretudo para empreendedores que são menos aversos a riscos e planejam a longo prazo.
É verdade que o Brasil está sendo afetado pelo escândalo do petrolão. Há mais de um ano, procuradores federais investigaram e identificaram uma crescente e longa lista de executivos da Petrobras, autoridades governamentais e empresas de energia, infraestrutura e outros setores implicados em comportamento indevido. A Petrobras estima que perdeu bilhões de dólares devido aos esquemas de propina. A presidente Dilma Rousseff, que já integrou o conselho da Petrobras, enfrenta cada vez mais clamores de impeachment.
O questionável status do Brasil como destino de investimentos foi reforçado pela recente decisão da Standard & Poor’s de rebaixar o rating de crédito em setembro. Se outra grande agência de risco fizer o mesmo, os investidores americanos podem decidir redirecionar o grosso de seu capital para o México, uma região mais próxima, que é considerada mais familiar e fácil para os negócios.
Em contraste com o Brasil, o setor energético do México apresenta um panorama positivo. Com o presidente Enrique Peña Nieto, o setor passa por reformas radicais, sobretudo no segmento de petróleo: o governo está quebrando o monopólio da estatal mexicana Pemex e leiloando áreas de exploração.
Após uma década de queda na produção petrolífera e fraco crescimento do PIB, há agora apoio decisivo no México para estas reformas, como forma de melhorar o desenvolvimento geral do país. Neste ambiente, os investidores estrangeiros são bem-vindos de uma forma inédita.
O México não apenas abre espaço para petrolíferas estrangeiras, mas também estimula o desenvolvimento de outras infraestruturas de energia. Isto é particularmente verdade no que se refere a gasodutos. O México quer aproveitar a proximidade do gás natural barato americano, construindo uma rede de gasodutos através da fronteira. Em junho, as autoridades mexicanas anunciaram projetos de energia avaliados em US$ 10 bilhões, inclusive um gasoduto submarino avaliado em US$ 3 bilhões, para transportar gás natural do Texas a Veracruz. Haverá muitas oportunidades aos investidores estrangeiros nestes projetos.
As narrativas dominantes sugerem que o Brasil está se tornando mais arriscado; e o México, mais atraente. A realidade, porém, é mais complexa.
A corrupção no México continua sendo um problema relevante, mesmo sem o escândalo do petrolão. Acordos por baixos do pano e propinas são usuais, o que cria riscos de governança para os investidores americanos. Não só este comportamento é generalizado, como difícil de ser descoberto devido à obscura participação de contrapartes locais: os verdadeiros proprietários usam estruturas laranjas para camuflar sua participação. Isso pode levar os investidores a se expor inadvertidamente.
Crime e violência também é uma questão séria no México, que eleva o custo de se fazer negócio no país. Grupos do crime organizado concorrem com o governo pelo controle de certas áreas, como ficou evidente no início do ano, quando um cartel derrubou um helicóptero militar com um foguete. Dois meses mais tarde, o chefe do cartel de Sinaloa, Joaquín “El Chapo” Guzman, escapou de uma prisão de segurança máxima.
Outra questão que os investidores devem considerar é o exagero potencial sobre as oportunidades que se apresentam com a abertura do setor energético do México. Embora haja de fato espaço para investimento estrangeiro, pode haver menos capacidade de absorção do que se prevê. Os investidores que escolherem o México terão que disputar com outros empresários estrangeiros, atraídos pela maior reforma do setor energético da América Latina em anos recentes.
Assim, o México não é tão atraente quanto parece inicialmente. Do mesmo modo, a situação no Brasil é mais promissora do que parece a princípio.
Embora o Brasil certamente será afetado a curto prazo pelo escândalo do petrolão, é importante manter em mente que, desde que o escândalo não leve a uma implosão total como a dos anos 1980, o Brasil deverá sair com uma legislação mais sólida. O escândalo é traumático, mas está provocando um oceano de mudanças na cultura de impunidade do Brasil em relação à corrupção. Políticos, agentes locais e empregados tenderão a evitar ações criminosas no futuro.
Além disso, a desvalorização do real, que tem sido parcialmente causada pelo petrolão, torna mais vantajoso entrar no mercado brasileiro. Se os investidores estiverem dispostos a comprar ativos, eles poderão obtê-los a preços de barganha, apesar do forte valor desses ativos. Quando a poeira baixar e a economia do Brasil retomar o crescimento, os investidores que compraram os ativos obterão lucros significativos, supondo que os preços do petróleo se recuperem.
The renewed Turkey-PKK conflict has shattered the illusion that Kurds can participate legitimately in Turkey’s political system
My article, which I co-authored with Egemen Bezci, was originally published by the London School of Economics – EUROPP on 22 September 2015.
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Clashes have taken place between Turkish authorities and the Kurdistan Workers’ Party (PKK), with the violence escalating ahead of parliamentary elections scheduled for 1 November. Egemen Bezci and Nicholas Borrozwrite that the renewed hostilities, following a period of relative peace between the two sides, has undermined the notion that Kurds can legitimately participate in Turkey’s political system. They argue that with both sides becoming polarised, the conflict could ultimately lead to the fragmentation of the Turkish state.
The renewed clashes between Turkish authorities and the Kurdistan Workers’ Party (PKK) that have taken place in recent months are reminiscent of the 1990s, when a full-scale insurgency was waged by the PKK. During the last ten years, decreasing levels of violence had made peace seem close at hand, but this is no longer the case. Incidents of violence are now covered on a daily basis in the Turkish press, and some commentators have already drawn comparisons with the previous era of conflict.
In fact, this time around, the war between the PKK and Ankara will be very different. It will likely be more intractable, less military in nature, and may eventually lead to Turkey’s fragmentation. In terms of the new conflict’s long-lasting nature, its seeming insolvability is now more confounding than ever. Kurds thought in the last decade that there was a chance to participate in Turkey’s political system as a legitimate way to advance their interests. The recent breakdown of the PKK ceasefire shatters that illusion.
Although the reasons behind Ankara’s decision to resume hostilities are contested, it is widely acknowledged that one of the causes was Kurds’ increasing independence within the political system. Over the course of the last decade, Kurds were granted increasing political and societal freedom by Prime Minister-turned-President Recep Tayyip Erdoğan, and in return he received their electoral support.
This platform of Kurdish support was one of the factors that enabled Erdoğan to consolidate the power of his Justice and Development Party (AKP). Since 2003 until the recent June elections, the AKP had held an absolute majority in parliament that allowed it significant capacity to exert its political agenda. In the June election, however, the Kurds’ new political party, the Peoples’ Democratic Party (HDP) garnered nearly six million votes, depriving the AKP of its ability to rule with an absolute majority. For this reason, many commentators argue that the Turkish government launched an attack on the PKK, which is widely regarded to be linked to the HDP.
Many Kurds will now be reticent to participate in a political system that they perceive will never allow them to advance their interests. Whereas before, during the 1990s, Kurdish political representation was unimaginable, Kurds have now had their hopes of attaining meaningful political representation raised and then dashed. This latest experiment in allowing Kurds access to political power has failed. Many will likely seek to express their will through organisations deemed illegitimate by the state, such as the PKK.
Another striking difference compared to the 1990s is that the PKK is now employing different strategies. The PKK was previously based out of Turkey’s southeastern region, which is mountainous and sparsely populated. Although Turkish military forces were able to establish tenuous daytime control of much of this region, at night, the PKK reigned and soldiers were forced back to their barracks.
This poses a greater threat to Turkish authorities than in the 1990s, when Turks in Istanbul rarely witnessed, and sometimes even knew very little about, the conflict between their government and the PKK. From a purely logistical perspective, it will be harder for the Turkish government to combat the PKK if it is able to blend into urban populations. The government will likely continue to impose curfews, particularly in Kurdish towns, but this strategy will only augment Kurds’ sense of marginalisation.Now, the PKK is able to launch attacks from within cities and throughout the country. In fact, its primary base is in urban areas, primarily due to Turkey’s overall trend of urbanisation. Istanbul, for instance, is likely the Turkish city with the largest Kurdish population. A recent PKK attack on a police station in Istanbul, carried out during the light of day, indicates the PKK’s increased ability to carry out urban strikes.
Both the PKK and the Turkish authorities are also now focused on foreign conflicts, which will distract them from launching large-scale attacks against each other inside of Turkey. Turkey is focused on preventing the expansion of Kurdish zones of control in Syria, as well as combatting Islamic State, which poses a serious terrorist threat to Turkey. The PKK, in turn, is devoting resources to helping Kurds in Syria and Iraq defend themselves against Islamic State.
In the 1990s, the PKK briefly tried to expel Turkish forces from southeastern towns, such as Semdinli and Cizre, by using hundreds of fighters to create “liberated areas”. This time around, no such sieges will take place. Violence will continue, to be sure, but it will comprise small-scale attacks that number dozens, not hundreds, of PKK fighters. Shows of force will largely be symbolic, as evidenced by recent reports of PKK fighters boarding and searching vehicles in rural areas, setting up local “courts”, and establishing security patrols.
As is often the case in guerrilla war, this fight will be about gaining popular support. Thus, the main strategy of the PKK will be to foment divisions between the local population and the government, thereby accelerating the alienation of the Kurdish population from the rest of the country. The HDP’s elections results, which are a proxy indicator of popular support for the PKK, show that the group has followers throughout the country.
Ultimately, the factors described above may lead to an eventual fragmentation of the Turkish state, although this fate is by no means certain. The HDP will likely continue its attempts to participate in legitimate political channels, although its efforts will be severely hampered by societal divisions. Already, nationalist mobs have carried out attacks against HDP offices throughout Turkey. The HDP’s connections to the PKK mean that party leaders will no doubt soon begin facing legal difficulties for their ties to a “terrorist” group that is actively fighting the state.
Throughout all of this, the HDP may try to continue calling for an expansion of Kurdish rights. Buoyed by its recent electoral success, it may potentially even call for increased regional autonomy in Turkey’s southeast. The Turkish public, however, will have no appetite for such requests, which will feed into nationalist fears of Kurds’ secessionist ambitions.
As nationalist rejection of Kurdish ambitions become stronger, and as the PKK weakens the state’s authority in areas under its control, there may come a point when the Turkish house is broken, and the two sides cannot find an agreeable situation for cohabitation. It is in this way that the resumption of violence could ultimately lead to territorial fragmentation, albeit such an outcome would admittedly be decades away.
To avoid this fate, or at the very least to avoid years of lawlessness that seem set to ensue, both sides need to make serious efforts at reconciliation. But such a suggestion seems doomed to fall on deaf ears, given the circumstances.
America’s Estrangement from Thailand
My article was originally published by Bangkok Post on 18 September 2015.
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The American public increasingly thinks of Thailand as unstable, a perception fueled by official criticism of Thailand’s politics. Although this criticism is partially driven by developments in Thailand, it is also a result of uncoordinated and reactionary foreign policy.
A recently released movie, No Escape, features an American family desperately trying to flee from an anonymous Southeast Asian country undergoing a violent revolution. The blockbuster shows how it is no longer just Washington wonks and policymakers who are criticising Thailand. Everyday people with no interest in geopolitics are beginning to wonder: Just how safe is the Land of Smiles?
No Escape is not offering direct commentary on Thailand’s political developments — great pains were made to not specifically identify the film’s shooting location as Thailand — but it does reflect an increasing perception in the United States of Thailand as unstable.
Discussions about the movie frequently lead to debates about whether or not it accurately reflects instability in Thailand. A recent thread on a movie review website, for example, asked: “Is Thailand dangerous for Americans?” On YouTube, users argue both sides. “[Thailand] goes through… uprisings monthly,” said one user. Another disagreed, saying the movie “gives an extremely inaccurate depiction of Thailand”.
This growing concern is partly fuelled by Washington’s official criticism of Thailand following the military’s taking control of government last year. In January, Daniel Russel, the US Assistant Secretary of State for East Asian and Pacific Affairs, urged Thailand to lift martial law.
The following month, the United States and Thailand participated in their annual bilateral military cooperation drill, Cobra Gold. Notably, though, Washington scaled down the exercise, a signal of its displeasure with Thailand’s military rule.
In April, US President Barack Obama nominated Glyn Davies, a former US Special Representative for North Korea Policy, to serve as the American envoy to Thailand. It was difficult for Bangkok not to be irked by the nomination of an official who is known for having dealt with a pariah state.
Washington’s criticism of Thailand does not appear to be based on an arbitrary assessment of Thailand’s domestic political situation. This is particularly obvious if one looks across the border at Myanmar, which, despite recent reforms, is still firmly under the control of the military.
US officials’ responses to Myanmar’s setbacks are notably more sympathetic than their reactions to political developments in Thailand. Last week, Mr Russel spoke to the think tank community in Washington, acknowledging that Myanmar suffers from obstacles to progress. He heavily caveated this acknowledgement, however, by pointing out that Myanmar has made momentous advances in the last few years, and that the United States is committed to helping Myanmar continue along its path towards democratisation. The mood of his speech was cautiously upbeat and positive, a stark contrast compared to his January statements against Thailand’s military rule.
What accounts for this strong difference in messaging? Two factors: Fear of China’s expansionism in Asia, and foreign policy priorities.
The United States’ “pivot east” is largely driven by its fear of China’s expansionism. Washington is concerned with strengthening its cooperation with Japan and responding to Beijing’s activities in the South China Sea. Both of these are components of a strategy to limit China’s regional influence.
Strengthening ties with Myanmar, is a lesser, though also important, component of this strategy. Myanmar has indicated, albeit sometimes rather indirectly, that it is willing to reduce its dependence on China, should the United States be willing to step up to the plate. Washington has responded by forging ahead with gusto in its efforts to strengthen its relationship with Nay Pyi Taw.
Thailand’s relationship with China, on the other hand, is regarded in Washington as more troubling. Thailand is perceived as cosying up to Beijing, as evidenced by recent announcements that it will purchase Chinese submarines, and also that China will help develop its railway networks.
These contrasting stances towards China partially explain why the United States is more lenient towards Myanmar than towards Thailand.
Another factor that determines Washington’s distinct responses to Thailand and Myanmar is its foreign policy priorities. Mr Obama is invested in leaving a legacy of improved relations with formerly alienated countries, such as Iran, Cuba and Myanmar. Obviously, in this context, criticism of Myanmar’s setbacks cannot be overly vocal.
In contrast, Washington’s policy towards Thailand is languishing. Whereas the approach towards Myanmar is proactive and thought out, the attitude towards Thailand seems uncoordinated and reactionary.
Although US officials usually make a point to highlight the sacredness of the Thailand “friendship”, the relationship frankly lacks import in Washington. In Southeast Asia, Myanmar and Vietnam capture more attention and are the focus of policymaking.
That the United States has inconsistently responded to political developments in Thailand and Myanmar should not be surprising. All countries’ international relations are based upon self-interest. Ideological justification for foreign policy is useful, but it is certainly not necessary.
US officials are not locked into criticising Thailand. They can change their stances if Washington decides to place higher priority on improving its relationship with Bangkok.
If official criticism continues, it will continue fuelling general perceptions that Thailand is unstable, even if the security situation in Thailand is not threatening. Ultimately, this could lead to an estrangement between erstwhile friends.
Removal of Sanctions on Iran Could Benefit Asia
My article was originally published by Nikkei Asian Review on 16 July 2015.
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The historic agreement reached between Iran and six world powers on July 14 to limit Iranian nuclear activity in return for easing international sanctions portends a new era — with mixed implications for the rest of the world.
U.S. conservatives have warned that the deal will “embolden” Iran and pariah states such as North Korea. The U.S. Congress has 60 days in which to consider the deal, though President Barack Obama has said he will veto any attempt to block it.
Analysis of the broader impact of the Iran deal has so far focused mostly on Tehran’s relations with the West. However, the easing of sanctions on Iran will also lead to significant gains for Asia.
China, in particular, stands to advance its rapidly growing interests in Iran, while India and Japan will undoubtedly launch a push to reap their respective benefits. More generally, Asian economies will stand to gain from increased investment opportunities and Iran’s higher hydrocarbon production.
Ultimately, reduced sanctions will allow Iran to export more oil and gas. This is important for Asia, which is the world’s largest petroleum-consuming region. China, Japan, India and South Korea alone account for one fifth of global oil demand. Despite an economic slowdown, China still remains the second-largest oil consumer in the world after the U.S. Conversely, as China tries to reduce its greenhouse gas emissions, its demand for natural gas will also rise.
Iran is an important supplier that can help meet Asia’s growing demand for oil and gas. It has the largest proven reserves of natural gas in the world and also has vast oil reserves. Despite crippling international sanctions over the years, Iran has remained the world’s seventh largest oil producer, according to the U.S. Energy Information Administration.
Under the deal agreed by the so-called “P5+1” — the five permanent members of the United Nations Security Council and Germany — Iran is hoping to draw vital foreign investment that will help its hydrocarbon production. Iran has said that its energy industry needs $200 billion for revitalization. Once sanctions are eased, Iran could attract the investment needed to boost oil production initially by about one third to more than 3.6 million barrels a day, according to estimates by Iranian officials.
In the past, Asian economies have been willing to buy Iranian fuel, sometimes ignoring potentially negative consequences. As late as July 2014, for instance, the U.S. was forced to extend oil sanctions waivers to China, India, and South Korea, all of which were unwilling to stop importing Iranian oil.
The thaw in relations with the West could also help Asian businesses invest more easily in Iran. For countries such as Japan, looking for outward growth, Iran with its cheap but educated labor force could be an ideal place to invest.
Asian investment in Iran may be further spurred by the nascent battle for influence in the Middle East between Japan, China and India.
In the lead-up to the nuclear agreement, all three countries upped their game in Iran. China for one confirmed in April it is considering funding a natural gas pipeline linking Iran to India’s rival, Pakistan.
India meanwhile signed an agreement in May with Iran to develop the Chabahar port along Iran’s southeastern coast. That same month, Japanese officials told Iranian media that Japanese companies were studying potential investments in Iran, and had visited a petrochemical plant and shipbuilding yard near Chabahar.
These investment plans reflect the scramble for power and influence between the three Asian countries. China is already ahead of the pack as Iran’s largest trading partner. In value terms, nearly a quarter of Iran’s $144 billion of trading activity in 2014 was conducted with China.
Chinese companies will also have a distinct advantage over their Western counterparts, which must still grapple with sanctions-related barriers. Other sanctions against Iran related to sponsoring terrorism and human rights abuses will remain for now, and are bound to impede Western companies contemplating investing in Iran.
It is also worth noting that Chinese companies are more tolerant of compliance risk in foreign jurisdictions than Western businesses, which face heavier regulation at home. Western companies are under greater pressure to avoid working with politically-connected individuals in countries that face sanctions.
In Myanmar, for instance, despite the easing of many Western sanctions over the last few years, multinational companies are still reluctant to invest big money for fear of ending up inadvertently connected to individuals on the U.S. Treasury’s so-called “black list” of people suspected of wrongdoing or who allegedly benefited under the former military junta. These compliance risks are of little concern to China, which continues to dominate investment into Myanmar.
A similar scenario is likely to emerge in Iran, where Western companies will remain nervous for now of fully entering the market. For instance, the Iranian Revolutionary Guards Corps is a military organization with vast business interests that acquired control of many state-owned entities under former President Mahmoud Ahmadinejad’s privatization program. Companies affiliated with the Guards will be difficult to avoid for no other reason than their omnipresence.
Iran’s reintegration into the global economy will not happen overnight. Years will pass before it is able to normalize its economic relations. Asian countries could help lead the charge — and reap the rewards of bringing Iran back into the community of nations.
China’s Expansionism My Benefit Southeast Asia
My article was originally published by Myanmar Business Today on 25 June 2015.
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China’s building of islands, pipelines, and railroads in Southeast Asia may facilitate the region’s economic development. Although many commentators focus on how these activities will lead to Southeast Asia’s subservience to China, they may in fact spur more foreign investment and advance regional integration. In order for Southeast Asian countries to reap these benefits, though, they must present a united face.
Two primary obstacles hinder Southeast Asia’s economic development. The first is a lack of investment, particularly in infrastructure. Southeast Asia needs capital, but regional institutions have been unable to provide it and governments have been unable to attract it. The second obstacle is Southeast Asia’s lack of a common vision for regional integration. Competing regulatory frameworks and other trade barriers make doing business across multiple jurisdictions extremely cumbersome.
Between 2001 and 2011, China’s share of trade with the Association of Southeast Asian Nations nearly tripled from 5 percent to 13 percent. During that same time, the US, Japanese, and European Union share of ASEAN trade dropped from 45 percent to 29 percent. China’s recent establishment of the Asian Infrastructure Investment Bank means that China will likely further deepen its economic inroads in Southeast Asia.
In terms of foreign investment, some Southeast Asian economies have already learned that they can leverage China’s growing influence to gain more assistance from the United States and Japan. Japan recently announced that it will funnel an additional $110 billion into Asian infrastructure projects. Tokyo and Washington are also negotiating the Trans Pacific Partnership to deepen trade ties with several ASEAN countries.
So far, Thailand has proven itself particularly adept at fostering investment competition amongst foreign benefactors. Both Beijing and Tokyo, which are Bangkok’s two largest trading partners, are vying to build contending railroads in Thailand. For the military junta, which came to power last year, advancing these two large projects would allow it to advertise substantive development that has occurred under its rule.
Similar counterbalancing is occurring in Myanmar and Vietnam. Myanmar has opened its doors to Western investors, and annual foreign direct investment in the country has multiplied 25 times since 2010, the year its military ceded power to civilian rule. Vietnam is likewise looking to join the TPP, which represents a radical shift for the communist country. Given that Vietnam has by far the lowest GDP per capita of potential TPP member countries, it stands to benefit the most from the trade deal’s realisation.
The second way that China’s expansionism may facilitate Southeast Asia’s economic development is by spurring regional integration. From an economic perspective, ASEAN is already attempting to increase cooperation amongst member states, although it is doing so slowly. From 2001 to 2011, inter-ASEAN trade only grew from 22 percent to 24 percent of the regional organisation’s trading activity. Later this year, ASEAN will announce the establishment of the ASEAN Economic Community, a project intended to harmonise regional economies. Critics question, however, whether ASEAN member states have the capacity, and more importantly the will, to meaningfully advance economic integration.
The threat of China’s expansionism could help to consolidate ASEAN member countries’ belief that integration, both economic and political, is necessary. In April of this year, ASEAN released its most strongly worded statement yet against Beijing’s island-building in the South China Sea, saying that it was concerned that these activities may “undermine peace, security, and stability.” This statement is notable given that it was issued under the chairmanship of Malaysia, which maintains some of the best relations with China of any Southeast Asian country.
The potential for China’s expansionism to spur regional integration, however, is heavily caveated. At the moment, political solidarity amongst Southeast Asian countries is very weak. For instance, while Vietnam has vociferously criticised China’s island-building projects, Thailand has deepened its relationship with Beijing. As long as such diverse foreign policies are pursued, Southeast Asia will remain divided over how it interacts with China. This contrarianism will likely continue as long as ASEAN lacks a strong political and foreign policy component, which is partly a result of the regional organisation’s founding principle of non-interference.
In some circles, particularly in Washington and Tokyo, China’s expansionist activities may appear more worrying than they actually are. This is not to say that Beijing’s island-building and regional infrastructure development projects pose no threat to Southeast Asian countries’ sovereignty. There is certainly a real danger that these countries may someday fall firmly under Chinese dominance. With an appropriate response, however, subjugation need not be an inevitable outcome. Southeast Asian countries can leverage China’s expansionism as an opportunity to maximise foreign investment and advance regional integration, ultimately creating a bloc that can withstand Chinese influence.
Nborroz 
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