Surveys, News, Events

Expect unexpected in Pakistan, Ukraine, Russia-Eurasia

Pakistan, Ukraine, Russia, Nigeria and Mexico are the places where unexpected political change could have the most impact on world markets in 2009, the Eurasia Group risk consultancy said in a report on Monday.

In a special report on the world's top 10 "fat tails" -- relatively low-likelihood but potentially high-impact events -- Eurasia Group identified the chance of a military takeover in Pakistan as the most potentially significant unexpected development that might transform global geopolitics.

Other risks outlined included unrest in Russia, collapse in Nigeria and secularists lashing out in Turkey -- almost all made more likely by the impact of the global financial crisis.

"Each of these scenarios remains unlikely," Eurasia Group president Ian Bremmer said in an e-mail.

"None of them represent our "call" for any of these countries. But in each case, the impact of the global economic meltdown... has dramatically increased the likelihood of (such scenarios) occurring from 2 or 3 percent six months ago to 10 to 20 percent -- or 30 percent in the case Pakistan -- now."

Recent "fat tail" events largely unpredicted by analysts would include post-election violence in Kenya early last year or the August war between Russia and Georgia, both of which had dramatic market impact.

Below are the key risk scenarios identified by Eurasia:

1 -- Pakistan (30 percent): In the face of global recession, rising extremism and political infighting, the Pakistani military decide to mount another coup and install a technocratic government.

While some markets might welcome the move, Eurasia warns the United States would likely halt aid, India would hold an army-backed regime at arms length and insurgency would grow. In the near term, the military would restore civil order a longer-term battle for democracy might boost instability.

2 -- Ukraine (15 percent): Ukraine's fractured politics lead to a failure to implement IMF loan terms, slowing the release of a $16.4 billion IMF loan. Prime Minister Yulia Tymoshenko's finds itself unable to help struggling companies and banks and turns to Moscow as anger spills out onto the streets. Moscow demands harsh conditions and Ukraine moves away from the West.

Talks with Moscow spark further backlash with President Viktor Yushchenko ordering an investigation into Tymoshenko's talks, deepening political divisions and worsening cooperation with the IMF. Reforms stall and prospects for Balkanisation of Ukraine along cultural, religious and linguistic lines grow.

3 -- Russia (20 percent): Unrest rises as unemployment soars as disposable income plummets. Politics takes an authoritarian turn as hardliners push out liberals, prompting more autarchic economic policy and an increasingly confrontational and unpredictable foreign policy.

4 -- Mexico (10 percent): Corruption involving a senior Cabinet minister or member of President Felipe Calderon's inner circle taking bribes from drug traffickers prompts opposition parties, governors and mayors to organise large-scale protests, prompting his resignation. A new government is less market friendly, stalls reforms and is even less effective against organised crime.

5 -- Nigeria (15 percent): Nigeria's fragile stability collapses as low oil prices and insurgency remove the financial glue that has kept Nigeria together. The federation disintegrates and begins to splinter into regional ethnic blocks of states.

6 -- Turkey (15 percent): Further contraction of the economy provides a window of opportunity for secularists to strike against the ruling Justice and Development Party (AKP). The AKP pushes too far against secularist forces, resulting in a lawsuit and a court ruling that ultimately bans the party.

7 -- Argentina (15 percent): In an increasingly difficult political environment, the government cannot respond to deteriorating economic conditions. The government loses in elections and Cristina Fernandez de Kirchner resigns from the presidency.

8 -- United Arab Emirates (10 percent): The weak institutionalisation of federalism and the increasing personalisation of Emirati politics lead to a disintegration of the UAE as the financial crisis ebbs.

9 -- Japan (15 percent): The ruling Liberal Democratic Party (LDP) loses elections, triggering the party's breakdown and policy paralysis. The political gridlock reduces Tokyo's assertiveness in the region and complicates efforts to improve security relations with the U.S.

10 -- Poland (10 percent): As Poland experiences a severe recession, populism and nationalism return to the political scene. The new populist ruling party's policy agenda becomes economically statist, culturally intolerant, and nationalist.

By Peter Apps, Political Risk Correspondent

Post-Crisis World Institute