Boris Johnson leads Tories to historic general election win. Gamble of triggering snap poll to unite Brexit vote pays off, decimating Labour’s support. (The Guardian)

U.S. settles on outline of elusive China trade deal. The president met with his economic advisers on Dec. 12 as the United States and China moved closer to finishing a trade pact. (NY Times)

Trump aides and Democrats agree on trade pact with Mexico and Canada. The new provisions, solidified after months of negotiations between House Democrats and the Trump administration, would strengthen the trade deal’s protections for workers. (NY Times)

Lebanon turns to IMF as Fitch sounds alarm on default. Fitch Ratings downgraded Lebanon on probable default as the central bank has been rationing U.S. dollars amid unrest. (Bloomberg)

EU leaders prepare for Brexit after Johnson win. European leaders charged EU negotiator Michel Barnier on Dec. 13 with negotiating a close trade deal with Britain, after Prime Minister Boris Johnson’s apparent election win set the stage for an orderly Brexit. (EurActiv)

Scotland’s Sturgeon calls for fresh independence vote after UK election landslide. In Scotland, the Conservatives lost seats, while the Scottish National Party performed well. (CNBC)

Emerging markets cut rates with Russia following Turkey, Brazil. Emerging markets from Russia to Turkey are cutting interest rates, providing a potential fillip to the global economy as the Federal Reserve holds off easing monetary policy further. (Bloomberg)

Argentina’s new government to avoid confrontation with creditors. Finance minister Martín Guzmán pledges to avoid “brutal adjustment” of predecessors. (Financial Times)

Tariffs, trade policy rise on list of concerns for risk officers. A recent slowdown in global growth has prompted U.S. businesses over the past year to grow more cautious, with some retailers moving factory operations out of China as tariffs on clothing and other imports take effect. (HSN)

Jitters over China’s local defaults start to spread offshore. Growing participation by Chinese investors in the dollar bond market has led to concentration risk, with such buyers now dumping their holdings at the first hint of trouble. (Bloomberg)

Zimbabwe’s President Mnangagwa: One year later. Following the ousting of late-President Robert Mugabe, Zimbabweans hoped for a real change. One year into the administration of his successor, Emmerson Mnangagwa, there are mixed emotions; while macro indicators indicate Zimbabwe’s economic troubles are slowing, there are few signs of the necessary paradigmatic change that needs to occur for significant growth. (Global Risk Insights) 

Brazil’s economic stars align, turning 2020 into 'make or break' year. Conditions for buoyant economic growth in Brazil have rarely, if ever, been better, making 2020 a “make-or-break” year for Latin America’s largest and long underachieving economy. (Reuters)

At the end of the Second World War, there was an assertion that much of the impetus for this catastrophic conflict was rooted in economics. The rise of German resentment, the revolution in Russia, and the weakening of colonial empires all had to do with economics and the crisis of the Great Depression.

In response, the leaders of the world called a meeting at Bretton Woods and created the “sisters”: The International Monetary Fund (IMF), World Bank and the General Agreement on Tariffs and Trade (GATT). GATT would later metamorphose into the World Trade Organization (WTO). It was determined that lack of an arbiter on issues of trade led to major abuses and ultimately exploitative trade practices and isolation.

The WTO is facing the gravest threat in its history as the Trump administration seems bent on its destruction. The assertion has been the WTO rules against the U.S. far too often. The facts do not support this assessment. The majority of the case brought before the WTO process has been settled in favor of the U.S. for the most obvious of reasons. The U.S. has been at the forefront of free trade for much of the last six decades and many other nations have been far more protective and discriminatory. Under President Donald Trump, the U.S. has shifted away from free trade but toward protectionism and criticism of the WTO has intensified.

The tribunal that rules on these cases will soon lose two of its members, ending its ability to make decisions. The Trump White House has refused to approve new appointments since 2017. As of Dec. 10, there is no longer a process to deal with trade disputes, and there is nothing to stop nations from pursuing trade policies that attack other nations. The expectation is that subsidies will dramatically expand along with dumping of product, discriminatory regulations, tariffs and every other kind of trade restriction that can be conceived.

The nation that will be most harmed by the end of the WTO is the U.S. because its economy is the most thoroughly globalized. One example of the impending impact involves Boeing and Airbus. The WTO has just ruled that EU support for the airplane manufacturers violates the rules of the WTO—a big victory for the U.S. and Boeing. That decision will be rendered null by the lack of an effective WTO, and Airbus will be free to gather up as much subsidy and support as it desires at precisely the same time that Boeing is reeling from the 737Max controversy. The future suggests two major airplane makers Airbus and one from China. Boeing will fade.

The presidential election held on Oct. 20 was shrouded in controversy from the start, owing to the dubious legal grounds on which Bolivia’s top court had determined that the incumbent, Evo Morales, was eligible to stand for a fourth term. Thus, when the process was marred by irregularities that cast doubt on the legitimacy of Morales’ claim of a first-round victory, his opponents immediately took to the streets in large numbers to protest. 

The EU, the U.S., and regional heavyweights all called upon Morales to hold a run-off election against his nearest opponent, former President José Mesa. However, by early November, it was clear that restoring order would require the president to step down, and his fate was sealed when the country’s top military commander came to that conclusion. Morales resigned on Nov. 10 but declared himself the victim of a coup, accepting Mexico’s offer of asylum. 

Neither Morales’ opponents nor the OAS has challenged the results of the legislative elections, which were held concurrently with the presidential vote, and delivered a majority for the incumbent leftist MAS. Despite its dominant position, the MAS has chosen to cooperate with the interim government headed by Jeanine Áñez, a right-wing lawmaker who, prior to ascending to the presidency, served as the second deputy vice president of the Senate. 

On Nov. 23, Congress unanimously approved legislation to establish a new electoral body that will be responsible for organizing a fresh presidential election. The measure also restored the two-term limit on the presidency, thereby disqualifying Morales from participating in the revote. 

An election is constitutionally required to take place no later than mid-February 2020. Comparisons are already being drawn to the 2018 election in Brazil, where the disqualification of an iconic leftist leader (Luis Inacio “Lula” da Silva) contributed to a highly polarized political climate, creating an opening for a populist right-wing dark horse (Jair Bolsonaro) to emerge victorious. The media has already identified “Bolivia’s Bolsonaro”: Luis Fernando Camacho, a lawyer, businessman, and political activist from Santa Cruz, which has long been a bastion of anti-Morales sentiment.

Whoever wins the next election will face immediate pressure to reverse a steady loss of economic momentum. However, the room for maneuver will be constrained by a dangerously large fiscal deficit, the result of the generous government spending that has been a key driver of growth over the last four years. 

Shortly before Morales stepped down, he issued a decree canceling a joint-venture project with Germany’s ACI Systems to produce and market lithium-ion batteries, in response to demonstrations by opponents of the project in Potosi, who claimed that it provided no benefit to the community. Such sentiments will pose an obstacle for any government seeking to revive the project, and even an administration favorably disposed toward doing so may find it difficult to locate willing partners, except in the unlikely event that he or she can boast an incontrovertible mandate and rock-solid support in the Congress.

After a difficult first quarter, marked by the repercussions of the “yellow vests” movement, the number of corporate insolvencies since the beginning of the year in France is set to decline for the fourth consecutive year. However, Coface expects a slight rebound in insolvencies in 2020 (0.9%), mainly due to the expected slowdown in the construction sector, which was largely driven by public works in 2019 in the run-up to the municipal elections.

Although the gilets jaunes (yellow vests) movement caused an increase in corporate insolvencies at the beginning of the year, the subsequent tax measures implemented by the government and the dynamism of the labor market led to an increase in household purchasing power and, ultimately, a sharp decline in insolvencies in the consumer-dependent sectors of retail services and distribution.

On the other hand, transport continues to be penalized by the increase in the number of taxi driver and road hauler insolvencies, and the automotive sector has seen an increase in the cost of failures, despite the decrease in their frequency. This apparent contradiction is explained by the difficulties encountered in 2019 by vehicle equipment manufacturers, whose share of the market is significant despite their limited number.

More generally, the first 10 months of the year were marked by an increase in insolvencies for companies that generated more than €5 million in revenue—notably, six companies with a turnover of more than €200 million initiated insolvency proceedings during the period.

According to the survey conducted by Coface in September 2019 among industry business leaders, French companies are relatively positive about the evolution of their cash flow in 2020. But they are much less so regarding the French economy and, above all, the global economy. For example, half of the respondents believe that their export activity will continue to mainly be threatened by trade tensions and geopolitical risk, much more so than by Brexit or a possible recession in the United States. Despite these risks, 2020 will also bring export opportunities, particularly to the rest of the European Union, which companies believe will be the most dynamic market next year, ahead of North America and Asia.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations