October 2019

Country Ranking Trends

  • Magni completed a review of Pakistan. The country has made less progress than previously believed in implementing reforms to improve its market integrity. High market integrity in a country means that companies can conduct routine transactions efficiently with little risk from corrupt influences. The downgrade causes Pakistan to fall below Peru in the relative ranking of countries.

A Second Brexit Referendum Packaged as an Election

  • On the one hand, events are occurring so frequently that the specifics change every day. On the other hand, the essence of what is happening changes slowly. The EU granted the United Kingdom’s request for a Brexit deadline extension with a new date of January 31st. The delay is the third change to the deadline. Prime Minister Johnson reluctantly complied with parliamentary legislation requiring such a request in the event no Brexit deal was approved. In response to his failure to achieve his oft-repeated promise to leave by the previous October 31 deadline, he asked parliamentarians to vote to authorize an early general election. After some maneuvering and posturing, there will be an election on December 12. Political parties appear likely to run on platforms based on the respective party’s preferred resolution to Brexit:

    Conservative Party to support the revised deal with the EU
    -Labour Party to support either a closer relationship with the EU through an even more revised deal or to undo the referendum and remain in the EU
    -Both the Liberal Democrat Party and Scottish National Party to support remaining in the EU
    -Democratic Unionist Party to align with the Conservative Party, however they find any special requirements for Northern Ireland unacceptable (e.g., a “backstop” provision that only applies to Northern Ireland cannot be allowed)
    -Brexit Party to support leaving even if there is no deal

  • Implications: Polls currently show the Conservative party with a plurality, but not a majority. Chances are high that no party will have an outright majority so a coalition government will be required. The exact composition of the coalition government will likely determine the country’s approach to Brexit.

Canada’s Justin Survives Election

  • Justin Trudeau has won reelection as Canada’s prime minister, but his Liberal Party lost around 30 seats in the Parliament and came short of a majority. The Conservative Party received the second largest number of seats; however, they won the largest share of the popular vote. Trudeau has ruled out forming a coalition and will instead lead a minority government. He had to overcome a damaged reputation following several scandals, including a government ethics watchdog which found he had tried to interfere in the criminal prosecution of a Montreal engineering firm. Also, during the campaign, photos of him wearing blackface as a young man were published. Without his party having a majority he will have to rely on support from other parties to pass legislation. The New Democrats, his most likely partners, are politically to the left of the Liberals and are likely to demand action on their priorities, such as increased social spending.
  • Implications: Canada’s governance has stagnated for a while. None of the other very well-run countries have been able to displace Canada at the top of the list. Canada’s likely continued stagnation, given the scandals and a minority government, means that there is an opportunity for a country to overtake Canada.

No Time for Brazil’s Bolsonaro to Rest on His Laurels

  • Brazil has finally approved long-awaited pension reform for both civil servants and private-sector workers. Last year, pension spending accounted for almost half of the federal government’s budget and nearly 10 percent of Brazil’s GDP, leaving little for infrastructure and other priorities. Brazil expects that it will save about $190 billion over the next decade as a result of the reform. Pension reform is seen as crucial to stabilizing Brazil’s public finances, and it should prevent the government’s debt ratio from rising over the coming years. The new pension law sets a minimum retirement age of 65 for men and 62 for women, up from averages of 56 and 53 respectively. The reform also plugs loopholes that allowed many workers, mostly in public service, to retire as early as in their late 40s, often with a full salary.
  • Implications: Pension reform is a very important success, yet it merely sets the stage for additional reforms required for Brazil to live up to its potential. Countries with similar overall governance scores, such as Indonesia, India, and Malaysia, are moving forward with reform agendas. Achieving additional reform successes helps Brazil consign the recent corruption scandals to history.

Still Groundhog Day in Israel

  • After this year’s second inconclusive parliamentary election, Israel is still living a version of the movie “Groundhog Day”. The rerun of the election was necessitated because Prime Minister Benjamin Netanyahu had been unable to form a coalition following the first election. Netanyahu was again given the first opportunity to form a governing coalition. However, after a month of effort he was unsuccessful and had to return his mandate to the Israeli president. The president then gave Blue and White party leader Benny Gantz another 28 days to try and form a government. For than a decade Netanyahu had been the only one authorized to form a government. The Blue and White party has said they would like to join with Likud to form a national unity government, however Gantz instead of Netanyahu would be prime minister. Netanyahu faces possible indictment by December on fraud and bribery charges. He enjoys limited immunity while prime minister, so he is likely to be reluctant to give up his position. Given the contradictory demands and imperatives of the two parties, unless one or the other compromises from their stated positions, a third election will likely be held.
  • Implications: Given the potential criminal charges, Netanyahu may be okay with continuing Groundhog Day. We will see how long the voters keep the current stalemate as they are forced to vote in successive elections. Whatever the eventual outcome, reform is not high on anyone’s agenda. Israel will likely continue to have a relatively low score among the countries of the developed world.