Foreign Policy Blogs

Weekly Risk Outlook


Iowa Caucuses open. Argentina to introduce settlement offer. U.S. economy slows. Nations of TPP sign pact. Peace efforts in Syria continue. All in this Week’s Risk Outlook.

Iowa Caucuses Open Official 9-Month U.S. Presidential Election Season

Today, Iowa voters will head to schools, churches, and homes to cast their votes for the Democratic and Republican presidential Iowa caucus. Being the first state in the United States to hold the nominating contest for the presidential election, Iowa has always had an outsize influence in presidential elections and candidates in both parties have aggressively courted Iowa voters.

Donald Trump and Secretary Hillary Clinton, the respective frontrunners of the Republican and Democratic Party nominations, are both under significant pressure to eke out a victory in today’s caucuses. Should either of them fall short, the upstart challengers for both candidates (Senators Ted Cruz and Bernie Sanders) would gain a significant media boost ahead of next week’s New Hampshire primary on February 9 and subsequent South Carolina primary and Nevada caucus.

Most recent polls have shown Donald Trump ahead of Senator Cruz in Iowa (although Senator Marco Rubio has risen in the polls too), with more moderate candidates occupying the next slots down. On the Democratic side, polls have been mixed: some have seen support for Senator Sanders exceed that of Secretary Clinton, while others have shown that she continues to maintain an edge. After the Iowa caucuses, however, Senator Cruz and Sanders face divergent paths. Although Sanders is the odds-on favorite to win the New Hampshire primary, Senator Cruz does not appear to be polling particularly well in the state, which tends to favor more moderate Republican candidates.

Some of the big questions to watch for as election results come in: will any Republican candidates drop out of the race following a poor showing? Will Senator Sanders be able to pick up sufficient support beyond the largely white states of New Hampshire and Iowa to create a broad coalition to gain the Democratic nomination? How will Secretary Clinton and Trump respond to their respective showings in the caucuses, and will this dent momentum for either of them?

Argentina to Introduce Settlement Offer to Holdout Creditors

On Monday, Argentina’s Secretary of Finance Luis Caputo will present a settlement offer to the holdout creditors of Argentina’s defaulted 2001 debts to the New York mediator between the Argentine government and major New York hedge funds. The holdout creditors may deliver their own offer, but were miffed during the last meeting when the Argentine government refused to sign a non-disclosure agreement regarding the offers.

The offer by the Finance Ministry represents the first serious offer by the Argentine government to resolve this issue, following multiple failed attempts by the Kirchner administration to work around the U.S. court system to pay non-holdout creditors. Should the offer by the Argentine government be accepted or a compromise reached, Argentina will be able to access international credit that has been shut off since Judge Griesa’s order freezing market access until the holdout issue is resolved.

This could allow Argentina to avoid a slip into recession this year as President Macri moves quickly to reduce Argentina’s trade and tax barriers to advance investment and growth in the country. Key commodity prices (including soybeans) have fallen in value over the past 6 months and have constrained government finances and consumer spending. Additionally, Argentina’s two largest trade partners, Brazil and China, are both experiencing economic headwinds, further limiting Argentina’s growth potential. A deal with holdout creditors could bring Argentina back to sovereign debt markets and move South America’s third largest economy forward.

U.S. Data Could Dim Economic Prospects After Slow 4th Quarter Growth

On Monday, the U.S. Commerce Department will release consumer spending figures for households for December 2015, with many economists projecting a fall in growth momentum. This data will likely be paired with a further contraction in manufacturing in January for a third straight month, to be reported by the Institute for Supply Management.

Although a few world economies (including India and the UK) appear to be performing at or above economic expectations, the downwind forces affecting China, Brazil, Russia, Canada, and other major commodity producers has left the world economy in a relatively fragile position.

The strength of the U.S. economy is fundamentally important in preventing the world from descending into another major recession, making market reactions to such developments particularly important at this time. Stock markets have fallen precipitously over the past several months on continually falling oil prices and growth concerns in China.

Solid growth numbers (or at least numbers less pessimistic than estimates) could help bolster perceptions that the U.S. economy is improving following last week’s announcement that growth for the 4th quarter last year had been a disappointing 0.7%.

Otherwise, consumer spending and manufacturing statistics will support the argument that the world economy is slowing and may be headed for another recession.

Given the politically decisive timing (with presidential, congressional, gubernatorial and state legislative elections in November), poor economic figures could also have significant spillover effects into the U.S. political scene.

TPP Nations to Sign Pact, with Complex Ratification Path Ahead

On Thursday, representatives of the 12 countries that constitute the Trans-Pacific Partnership agreement (TPP) are slated to sign onto the accord in Auckland, New Zealand. Legislative ratification, however, could be a complex affair for many of the Pacific Rim countries.

Canada’s new government has not yet indicated whether it will fully support the agreement’s ratification. Trade Minister Chrystia Freeland has said the government would sign the agreement to move the process forward, but has been non-committal on ratification.

The United States has congressional elections in November, and most major candidates in both parties for President have come out against the trade pact.

Additionally, Peru is slated to have April presidential and Assembly elections and Japan’s upper house will have its own elections in June. Left-leaning political parties in New Zealand as well as Australia are pushing members to oppose ratification of the agreement, and Malaysia’s ruling government is undergoing an expanding corruption scandal.

Ultimately, this means 12 countries with extremely complex political and economic obstacles will need to ratify this agreement, although it may enter into force if a sufficient number of countries (85% of GDP, meaning at the very least Japan, the United States, and Canada) sign it first.

Negotiations on Syria Continue in Rome and Amsterdam

On Tuesday, Secretary of State Kerry, Italian Foreign Minister Paolo Gentiloni and coalition partners will meet in Rome to discuss efforts to counter Islamic State forces in Iraq and Syria. This will be followed by a meeting of EU foreign ministers on Friday in Amsterdam to discuss peace talks in Syria and Libya.

It is difficult to gauge whether any serious developments may unfold in the course of talks, particularly considering many major opposition groups are concerned that the United States and Russia may seek to impose peace terms on the rebels. Significant roadblocks in peace talks have hardened, while the humanitarian situation in Syria has gained significant international attention and criticism. The Assad government has received condemnation over the blockades of several rebel-held cities, which has led to widespread starvation and may be a sign of war crimes by the government.

This article was originally published by Global Risk Insights and written by GRI analyst Brian Daigle.