March 2019

Country Ranking Trends  

  • March was another of the occasional months where there were no changes in Magni Country Scores.  

Shakespeare on Brexit: “Full of Sound and Fury, Signifying Nothing”  

  • The bard’s quote is applicable as much has happened, while nothing has changed except the date has been moved to April 12th 
  • Implications: Magni maintains its assessment of the situation. A Brexit with “no deal” remains the likely path, though few seem to want this. There is no clear majority in the Parliament for any specific path. Further, any compromises that might generate majority support in the Parliament are unacceptable to the EU. The “no deal” scenario will be disruptive for both Britain and the EU, though Britain is likely to be fine, eventually. For the EU, Brexit has been more of a distraction as serious challenges facing the EU still need to be addressed.  

Symbolic of The European Union’s Challenges  

  • Member states unanimously rejected a European Union money laundering and terrorist-financing blacklist that would have included Saudi Arabia and four U.S. territories. The decision was a rebuke of the European Commission and came after pressure from Saudi Arabia and other listed jurisdictions. Saudi Arabia, which is also a major buyer of EU weapons and other goods, had threatened EU countries with losing contracts. The European Commission put out the expanded blacklist as part of an update to its money laundering regulations after a series of scandals implicated EU banks in money-laundering lapses. This was the first list that the European Commission compiled based on its own methodology, which targeted more countries than those named by the Financial Action Task Force. Opponents said the process of drawing up the new list wasn’t transparent. The Commission will now have to draft a new list that takes the concerns of the member states into consideration.  
  • Implications: The long-standing promise of the EU continues to be contrasted with the less-than-optimal reality. Recent money-laundering scandals have highlighted deficiencies across the EU and member states. A slow, bureaucratic, and opaque response by the EU does not address the most pressing issues. While more symbolic than substantive, it highlights the challenges facing the EU as it attempts to address many issues and deliver on its original promise.  

Will a Complicated Scandal Reveal a Governance Issue in Canada?  

  • Jody Wilson-Raybould, the former justice minister and attorney general, is at the center of a complicated political scandal in Canada after accusing Prime Minister Justin Trudeau and members of his government of improperly pressuring her not to prosecute SNC-Lavalin, a prominent Quebec-based company. SNC-Lavalin was accused of paying millions of dollars in bribes to Libyan officials between 2001 and 2011. Wilson-Raybould declined to overturn a prosecutor’s rejection of an SNC request for an out-of-court settlement. Trudeau urged her to reconsider, and Wilson-Raybould says she was stripped of her position because of her refusal. A criminal conviction for SNC would mean it would be unable to do business with the Canadian government for a decade. Trudeau has insisted that neither he nor anyone else acted improperly, and it is unclear whether any laws were actually broken. Defenders of the government have said that it was appropriate to consider the consequences of a criminal conviction for the company. 
  • Implications: Canada currently has the highest Magni Country Score. Even the best-governed country in the world can have issues, though we are still learning about the extent to which this scandal is more about ethics or legality. If some systemic governance issue arises, it could lead to a downgrade of Canada. Given the relatively narrow spread of the top-scoring countries, Canada could lose several positions in the relative ranking from a downgrade. 

Is Bolsonaro a Brazil Reformer or Another Populist?  

  • President Jair Bolsonaro delivered his proposal to Congress to overhaul the country’s costly pension system. Brazil spends the equivalent of 13 percent of gross domestic product on social security and an aging population places great pressure on Brazil’s long-term financial stability. The proposed reforms change minimum retirement ages, implement individual savings accounts for younger workers, and bring rules for public-sector employees closer to those for private-sector workers. The government estimates potential savings of up to $320 billion over 10 years. However, given the failure of past reform efforts, there are doubts about Bolsonaro’s ability to secure congressional backing. The reforms are proposed as a constitutional amendment rather than a normal bill, meaning three-fifths majorities will be needed in both houses to pass the legislation. Given the lengthy approval process, under a best-case scenario, the bill is unlikely to be approved by lawmakers before August. The government might also have to make concessions that could weaken the reform’s fiscal impact.  
  • Implications: Reforming the pension system would be significant. Perhaps this effort is a leading indicator of other reforms. Multiple scandals over several years have hurt Brazil’s image internationally, though Magni has always seen Brazil as having governance typical of countries in the emerging markets; even when many were declaring Brazil as a huge success. Bolsonaro was elected as a populist. If he can channel his political power to make important reforms, he would be an example of a populist who improves instead of eroding governance.  

Is the Independence of the Philippine Central Bank at Risk?   

  • President Rodrigo Duterte has appointed his budget secretary, Benjamin Diokno, to be the next head of the central bank. Diokno’s prior political roles have made the appointment controversial. Previous governors typically had served in the central bank for many years; Diokno is the first to come directly from the president’s cabinet. As budget secretary, he oversaw an increase in government spending and played down the risk of rising inflation. He was also accused by opposition lawmakers of using his position to benefit a construction company owned by his in-laws. Diokno is seen as a technocrat who has worked under several presidents before Duterte came to power, but critics worry this is another example of Duterte politicizing an institution that is supposed to be independent. Diokno will need to build confidence that the central bank’s independence hasn’t been eroded.  
  • Implications: The Philippines ranks about even with Russia for its governance, though monetary policy is not one of the country’s biggest weaknesses. If this change diminishes the independence of the central bank, then the Philippines may well receive a downgrade. Conversely, if Diokno builds confidence about the central bank’s continued independence, perhaps Duterte can focus his attention on other reforms to help the Philippines and the country can follow the paths being made by India and Indonesia. 
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