FCIB, export credit, global credit reports, collections reports, country risk reports, international credit risk reports, global credit
My Account

Turning on Leadership

Chris Kuehl, Ph.D.

Geopolitical news for the past few years has been volatile to say the least. Analysts have been struggling to get any sort of handle on this. Many simply assert this is some form of renewed populism akin to the movements that have popped up over the years in many countries, but this assertion doesn’t really seem to capture the mood of the electorate in a variety of countries.

What is clear is that voters are angry, frustrated and searching for something—even as they are unable to put their finger on just what that is. In the last year, there have been dramatic political upheavals that left pollsters and analysts more than baffled.

The election in the Philippines brought Rodrigo Duterte to power on a wave of desire for a strongman who would solve all of the nation’s problems, but now his base has begun to turn on him. His poll numbers are as low as they have ever been. In France, Emmanuel Macron, the ultimate centrist, was swept to power in a stunning victory over the radical right-wing Marine Le Pen, but his poll numbers are as low as any French president in 35 years, and it has only been months since the election. Yuriko Koike was set to challenge Shinzo Abe in Japan, but her numbers faded rapidly, and she elected to not even compete. In the U.S., the poll numbers for Donald Trump have fallen with every passing week.

Polls are obviously not infallible. A lot depends on who is conducting the polling and when. A voter may well indicate deep animosity and dissatisfaction with a given candidate or leader one minute and then vote for him or her in the next.

The poll is often a way to protest without facing the consequences. The point is that many of the leaders in the world today have nothing approaching a real mandate to lead—at least as far as the public is concerned.

Angela Merkel’s party won the largest number of seats, but it will still have to form an awkward coalition while keeping an eye on the radical right. Theresa May is fighting for her political life in the U.K.—her own party wants to dump her. The president of Mexico is worried about the rise of the populist left; the Brazilian president is mired in scandal; and India’s Narendra Modi is struggling as his economic reforms have not panned out as hoped.

Not that leadership has ever been easy, but there is a growing fear that people have become almost ungovernable. Democracy works, but only when certain characteristics are maintained. It is required at some point that the bulk of the population be on the same page and generally support the people who are trying to govern.

There have always been divisions with people on the extremes, but the middle usually held. Now that is not assumed. The middle has shrunk as people find themselves on the side of either the right or left. Their tolerance for one another’s views is extremely limited. The leaders themselves are making less of an effort to govern from the middle and seem content to rely solely on their core supporters. Trump plays exclusively to his “base” and makes no bones about it. Duterte has done the same thing in the Philippines. One can make the same assertion regarding many others. This leaves those out of that base with no options other than bitter opposition, which advances these countries very little.

A Look at Noncash Global Payments

Global digital payments are expected to rise by 10.9% from 2015 to 2020, according the World Payments Report 2017 (WPR 2017).

The report estimates volumes generated by emerging economies will grow 19.6%—three times the rate of mature economies. Emerging Asia, which includes China, Hong Kong and India, among others, is expected to grow 30.9% in volume.

Worldwide noncash wholesale transactions by corporates, mid-sized enterprises and public authorities are estimated to record 6.5% growth from 2015–2020, or more than 122 billion wholesale transactions.

Increased digitization of corporate business-to-business (B2B) payments is affecting regional trends. In Mature Asia-Pacific markets, which include Australia, Japan, Singapore and South Korea, small- and medium-sized businesses are using digital invoicing, virtual cards and cloud-based finance and accounting, and in Emerging Asia, charge cards are popular among corporates to simplify and secure supply-chain payments.

A New Payments Ecosystem Emerges

The WPR 2017 also highlights the emergence of a new payments ecosystem driven by a number of converging factors. Some of the forces creating change include:

  • The dynamic regulatory landscape including the requirements of Payment Services Directive 2 (PSD2) compliance (an EU directive, administered by the European Commission, which opens up accessibility to customer data in banks to increase competition for payments services);
  • Fintechs;
  • Changing corporate and customer expectations for value-added services; and
  • An increase in payments-enabling technologies.

Opportunity Arises for Corporate Treasurers

The report also looks into the value proposition—as well as the challenges—for corporate treasurers from the new ecosystem, based on findings from the interviews carried out. Corporate treasurers’ demands for better, more reliable end-to-end services are impacting the payments ecosystem.

Treasury management is going digital as repetitive task automation allows treasurers to focus on cash forecasting and fraud prevention. In trade finance, banks and fintechs are exploring blockchain-based smart contracts to optimize processes. In cross-border payments, banks are experimenting internally with blockchain to develop scalable digital payments platforms.

Collaboration and open systems pose security threats within corporate treasuries; however, corporations now expect their banks to help them improve their security infrastructures. In the new payments ecosystem, third-party developers interact directly with a partner banks’ customers, raising questions about data privacy, security and identifying attackers.

The report also highlights a key challenge in the new payments ecosystem: the lack of standardization caused by national regulators’ different standards and individualized interpretations.

Impact of KRIIs on the Regulatory Landscape

Key regulatory and industry initiatives (KRIIs) aimed at competition and risk reduction are called out within the report as complicating the regulatory landscape, by stimulating service provider competition and disrupting traditionally inert segments of the payments value chain. However, KRIIs have the potential to improve standardization and transparency, which are expected to bring substantive and long-term innovation to customers, the report says. KRIIs introduced since the publication of World Payments Report 2016 focus on digital currency, reduction of cash, fintechs and APIs.

The report also covers the challenges faced by stakeholders while implementing PSD2 regulation in Europe. When the revised PSD2 is rolled out in January 2018, Europe will take an important step toward becoming a fully interoperable digital market. Far-reaching effects across banks, payment service providers, fintechs and corporates are expected. However, the WPR 2017 highlights that a lack of regulative coordination and integrated data management among EU banks may create conflicting objectives and competing agendas while diminishing expected standardization and transparency. KRIIs around instant payments, cash reduction and cybersecurity could act as catalysts for payment services providers to create solutions that enhance customer satisfaction.

PIIE Forecasts Global Growth Gaining Momentum

The global economy overall has gained momentum in part from more accommodative monetary policies and fiscal policies that have shifted from appreciable restraint to mild stimulus, according to economists at the Peterson Institute for International Economics (PIIE).

In the United States, prospects remain favorable for steady growth and low inflation in the next couple of years, noted David Stockton, Peterson Institute senior fellow and former Federal Reserve chief economist. While fiscal policy outcomes in the United States remain highly uncertain, the effects on the economy of any sizable stimulus package—whether in the form of tax cuts, increased spending, or both—would likely be offset by higher interest rates, given that the economy is currently operating near full employment, Stockton explained.

Business investment has increased and tightening labor markets appear to be yielding modest upward pressure on wages, but that has yet to leave any clear mark on price inflation, creating challenges for the Federal Reserve. President Trump will have an opportunity to appoint five members to the Fed’s Board of Governors, including the chairman, and Stockton concludes that these appointments could tilt the Fed toward more accommodative monetary policy.

China’s economy is expected to grow between 6% and 7% in 2018, based on continued strong increases in private consumption, which has offset most of the softening of Chinese investment and export growth in recent years, according to Nicholas Lardy, the Institute’s Anthony M. Solomon senior fellow. He maintains that the evidence contradicts the widespread contention that China’s rapid credit growth in recent years poses a major risk to the Chinese economy.

Lardy says that China’s leadership, including President Xi Jinping, has made controlling financial risk a top priority, encouraging regulators to crack down on risk increasing practices. Finally, if the slowdown in credit expansion seen recently does lead to a modest economic slowdown, he argues that the leadership may choose not to restart rapid credit growth. They can achieve their goal of doubling GDP in the decade to 2020 with an average growth rate of only 6.2% over the next three years, and thus do so without incurring additional financial risks.

Growth prospects in Latin America are in contrast to the rest of the global outlook, said José De Gregorio, PIIE nonresident senior fellow and former governor of the Bank of Chile. He believes that growth will remain sluggish for the next couple of years. While Brazil and Argentina are recovering slowly from recessions, Chile, Colombia and Peru are still experiencing long but vulnerable expansions. Monetary policy has been loosened throughout the region, but fiscal space remains limited, reducing the prospects for any government stimulus.

Taking a long-term view, potential growth in the region is only between 3% and 4% at present, which is far lower than Latin America’s growth rates prior to the Great Recession. In addition, short-term risks—including potential political crises, particularly in Brazil—make that difficult to achieve, he says.

Election Calendar

Nov. 19 – Chile, Chilean Chamber of Deputies

Nov. 19 – Kyrgyzstan, President

Nov. 19 – Chile, Chilean Senate

Nov. 19 – Chile, President

Nov. 26 – Honduras, Honduran National Congress

Nov. 26 – Honduras, President

Global Roundup

SA President Zuma must face corruption charges, court rules. South Africa's President Jacob Zuma must face charges of corruption, fraud, racketeering and money laundering, the Supreme Court of Appeal has ruled. (BBC)

Turkey bans U.S. citizens after embassy suspends all visa services. U.S. citizens who don’t already possess a visa for Turkey are now banned from travelling there, after the Turkish Embassy in Washington made an announcement on its website stating that it had suspended all visa services for Americans. (The Independent)

Mugabe names new finance minister amid Zimbabwe financial crisis. Zimbabwe President Robert Mugabe has replaced Finance Minister Patrick Chinamasa with Home Affairs Minister Ignatius Chombo in a cabinet reshuffle, the government said in a statement Oct. 9. The move comes against the backdrop of a severe hard currency shortage that has dealt a fresh blow to confidence and investment in the southern African economy, which uses the U.S dollar. (Africa News)

Catalan leader stakes claim to independence, then delays it. Catalan separatists on Oct. 10 signed what they called a declaration of independence from Spain. Catalonia’s president said he would delay implementing it for several weeks to give dialogue a chance. Spain, however, called an emergency cabinet meeting for the next morning and gave little indication it is willing to talk. (Business Mirror)

No winners: Lessons from Brexit for the Catalan referendum. The continuing fallout from the Catalan independence referendum will harm the Catalan and Spanish economies. It also undermines the authority of the political establishment in Madrid and Brussels. As a week of fresh demonstrations approaches, it appears that neither side is in a position of strength. (Global Risk Insights)

Regional elections seen as test for Venezuela's Maduro, opposition. Venezuelans will go to the polls Oct. 15 in regional elections that are viewed as vital tests for both President Nicolás Maduro and the opposition. Voters will elect governors for all 23 states, and the opposition Democratic Union Roundtable coalition is calling for large turnouts that some election experts say could propel them to victory in most of the regional elections. (VOA)

Hurricane devastation impacts health care supply chains. The destruction caused by Hurricane Maria in Puerto Rico last month has created major disruptions for the island’s pharmaceutical product and medical device manufacturing facilities, affecting international supply chains. Puerto Rico is the fifth-largest territory in the world for pharma manufacturing and produces about half of the world’s top-selling patented drugs. (Risk Management Monitor)

China September exports up 8.1%, imports up 18.7% as trade with North Korea slides. Chinareported strong trade data on Oct. 13 just days ahead of a major Communist Party Congress. In September, China's exports were up 8.1% from a year ago in dollar terms, while imports were up 18.7%. Analysts polled by Reuters expected an 8.8% rise in Chinese exports in September from a year ago in dollar terms. Dollar-denominated imports were forecast to jump 13.5% in the same period. (CNBC)

Mexico, Mercosur deals at stake if not concluded in 2017, EU warns. If the EU fails to complete trade deals with Mexico and Mercosur by the end of this year, upcoming elections in Brazil and Mexico could complicate the conclusion of the agreements, EU negotiators warned Oct. 9. (EurActiv)

U.S. withdraws from UNESCO, saying it’s biased against Israel. The Trump administration withdrew the U.S. from the United Nations cultural organization, saying it’s biased against Israel—citing its decision to admit the Palestinian territories as a member state. The decision to quit the U.N. Educational, Scientific and Cultural Organization “was not taken lightly,” said state department spokeswoman Heather Nauert in a statement Oct. 12. (Bloomberg)

Trump expected to disavow Iran nuclear deal, not abandon it. President Donald Trump on Oct. 13 was expected to refuse to certify that the multinational accord to curb Iran’s nuclear program sufficiently serves U.S. interests, stopping short of abandoning it, according to two senior administration officials. (Bloomberg)

U.S. hikes tensions in NAFTA talks with call for sunset clause. Washington has dramatically increased tensions in talks to renew the North American Free Trade Agreement (NAFTA) by proposing that the lifespan of any new deal be limited to five years, people familiar with the negotiations said on Oct.12. (Reuters)

Trump may yet dump NAFTA. There is still a strong likelihood that President Donald Trump will withdraw the United States from NAFTA. That’s the view of Robert Zoellick, a former U.S. trade representative, who spoke at the Atlantic Council in Washington Oct. 5. (Global Trade Magazine)

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations