April 2020

Country Ranking Trends

  • Magni completed a review of laws and regulations related to the protection of shareholder interests in a company. Shareholder property rights are an important part of maintaining a business environment conducive to economic activity. Canada, Czech Republic, Finland, Germany, Hong Kong, Italy, Mexico, Saudi Arabia, Thailand and United Kingdom received small upgrades, while India was subject to a small downgrade.

The EU is Dealing with More Than the Pandemic

  • The issue of concluding a free trade agreement with the United Kingdom was always going to be difficult, but the onset of the coronavirus pandemic has further complicated this process. Prior to the global pandemic response of an economic shutdown, the UK had drawn a hard line insisting that there would be no extension to the Brexit transition time frame. However, there is growing concern about prospects for completing a broad deal by the end-of-year deadline. Despite two videoconference negotiations, the two sides remain far apart on key issues such as the EU’s demand for a level playing field that they say is necessary for fair competition. The transition period could be extended if both sides agree to do so by the end of June.
  • Another sign of the difficulties for the EU resulting from the pandemic involves the response to an EU report that found evidence of covert Chinese operations on social media. There are reports that the findings were watered down after pressure from the Chinese government, one of the bloc’s largest trading partners. The report was finally published after a delay and after some changes. Earlier versions of the report referred to false accusations made by the Chinese against French officials. In addition, a reference to Chinese disinformation was removed. The EU’s appeasement of China contrasts with the more confrontational approach of the Trump administration.
  • Implications: When added to the previously mentioned existential issues involving the fraying of the EU’s very fabric, it faces a lot of challenges that are over and above the pandemic response. The path forward remains unclear. A dissolution of the union would penalize the weaker countries far more than the strong countries. While nothing is imminent, Magni will be watching to see how the EU navigates the myriad issues.

A Rising Moon Over South Korea

  • President Moon Jae-in’s Democratic Party won a landslide victory in the parliamentary election, giving Mr. Moon the largest majority of seats in three decades. The election was widely seen as a midterm referendum on Mr. Moon, who was elected to a five-year term in 2017. Polls done before the global pandemic had shown Moon’s support falling, but public approval of the government’s aggressive coronavirus response turned the election into a referendum on perceptions of his successful crisis management. This is the first time in 16 years that left-leaning parties have secured a parliamentary majority and that majority is large enough to pass legislation without opposition votes. Among the policies that may now move forward are reforms to curb the disproportionate influence of “chaebol” conglomerates, and the establishment of an independent body dedicated to investigating high-level political corruption. Moon may also try to revive stalled diplomacy with North Korea. South Korea is one of the first countries to hold national elections amid the coronavirus pandemic, but despite the circumstances, voter turnout was the highest for a parliamentary election in 28 years.
  • Implications: South Korea is part of the emerging markets, though in many ways it is more consistent with a developed country. The potential reforms would increase the country’s governance score and strengthen the case for promotion to a developed country.

Bolsonaro is Not Improving Brazil

  • The Brazilian government was thrown into turmoil following the exit of Justice Minister Sergio Moro, one of Brazil’s most popular politicians. Moro oversaw the Car Wash anti-corruption investigation that uncovered billions of dollars of bribes. He said he was quitting the government because Bolsonaro had fired the chief of the federal police for personal and political reasons. Moro claimed Bolsonaro had told him he wanted a chief of police who would keep him abreast of investigations and compile intelligence dossiers at the president’s request. Several of Bolsonaro’s political allies (including two of Mr. Bolsonaro’s sons) are under investigation. The attorney general has asked the Supreme Court to open an investigation into Moro’s claims. Bolsonaro denies the allegations. The latest departure comes after Bolsonaro received criticism for his dismissive response to the coronavirus pandemic. He recently fired his health minister after the minister had advocated stricter social distancing measures, which Mr. Bolsonaro has derided.
  • Implications: Brazil remains a very corrupt country. All too often politicians who run on an election platform of eliminating corruption are really running on a platform to attack political opponents on corruption grounds, while protecting corruption among allies. It appears Bolsonaro is another such politician. Brazil’s low governance score does appear likely to improve.

Groundhog Day in Israel is Over… for Now

  • With less than two weeks before Israel would have had to call a fourth election, Prime Minister Netanyahu and Benny Gantz reached a deal to form a “national-emergency unity government”. Under the agreement each will serve as prime minister of a new administration for 18 months, with Netanyahu going first. Gantz cited the coronavirus pandemic for his willingness to govern with Netanyahu, but his decision was a reversal of his campaign pledge that he would never serve with a prime minister under criminal indictment. His decision to join a coalition with the prime minister led to the break-up of the Blue and White party that he had founded. The coalition agreement calls for focusing on coronavirus issues for six months and avoiding any controversial policy moves. The possible Israeli annexation of parts of the West Bank, as envisaged by the Trump administration’s peace plan, is not to be considered before July 1 at the earliest. Netanyahu’s trial on charges of bribery, fraud and breach of trust is to start on May 24. If the Supreme Court were to rule Netanyahu is barred from heading a government because of the criminal proceedings against him, the coalition agreement states that new elections would have to be called.
  • Implications: Given the complex political situation and a weak coalition, reform is unlikely to happen. Israel likely will continue to have one of the lowest governance scores in the developed world.