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April 2, 2013 | 1033 GMT
As stresses continue to rise in different corners of the world, a number of governments -- from Berlin to Caracas -- are going to struggle in keeping their balance this quarter.
With six months to go before parliamentary elections, the German government is facing growing pressure to show German taxpayers that Berlin will manage the European crisis with a firm hand. At the same time, Germany must make concessions to deflect rising criticism from heavily indebted peripheral states that are now questioning the security of their bank deposits and are looking to France to champion their cause. France, facing rising unemployment at home, will identify with these states' demands but will also have to choose its battles with Berlin wisely to avoid breaking the alliance that holds the European Union together.
While Europe seesaws between these constraints, China faces an ongoing struggle to maintain employment and adequate economic growth amid weakening external demand for its exports. This quarter, Beijing's efforts to contain a major spike in informal lending activity will expose deeper, structural flaws in the economy. Ambiguous statements out of newly inducted bureaucrats in Beijing will do little to clarify China's economic policy direction, but they will underscore the dearth of options China possesses in its economic rebalancing act.
In Egypt, the military and the Muslim Brotherhood-led government find themselves in an uneasy but unavoidable alliance in trying to prevent a security vacuum and economic crisis from crippling the country. Simply put, the Brotherhood needs the military to control the streets, and the military needs the Brotherhood to continue absorbing the blame for the myriad problems afflicting the state. This tenuous balance will deny the opposition its wish of forcing a military intervention against the government this quarter, but it will add to the state's overall paralysis.
Venezuela will no longer have the charisma of late President Hugo Chavez to help the state manage the consequences of high social spending and a steadily decaying economy. Though government expenditures are in need of heavy trimming, the likely incoming president, Nicolas Maduro, will not be able to stray far from Chavez's populist platform as he struggles to consolidate power this quarter.
No one has lost total control over these crises just yet. The issues we have highlighted in this report could well be at sub-critical levels by the end of the next three months. However, the stresses in the international system are deepening, and the experience of Europe in particular leaves little room for complacency.
The Financial Crisis
The European crisis will enter a new phase this quarter that will expose Germany's limitations in managing the situation and intensify an ultimately irresolvable debate over who within the eurozone -- the core or the periphery -- should bear the political, economic and social burden of the crisis.
While Cyprus will experience significant political trauma over its bailout, in the rest of the European periphery uncertainty will grow over the security of bank deposits. To mitigate the risk of bank runs, EU countries and the European Parliament likely will agree to long-debated regulations for banks (to take effect in 2014) and advance plans on forming a banking union. By emphasizing supervision in the financial sector, the EU bureaucracy will try to convince citizens that taxpayer money will not be used solely to protect the banks and signal to investors and depositors that the banking sectors are strengthening. Regardless of EU bureaucrats' efforts to characterize Cyprus as an isolated case, the handling of the island's bailout is still likely to weaken confidence in the European banking sector overall.
Germany and France
The festering doubt over the security of bank deposits beyond Cyprus will add to growing resistance to Germany in the periphery as Berlin prepares for September parliamentary elections. Germany thus far has maintained a difficult balance. It has been trying to take a tough stance on austerity and bailout terms to appease its domestic audience and address indebted countries' more fundamental economic imbalances, while also managing political tensions at the EU-level to preserve the currency and trade union so vital to Germany's export-oriented economy.
This quarter, that balance will be seen in Berlin's blend of strong rhetoric and accommodating gestures, such as conceding to softer deficit targets for distressed countries. The constraints on Germany in trying to manage this balance will tighten as elections approach. Germany's predicament is not at a point where Berlin will lose control in its domestic and EU-level imperatives, but the combined pressures will result in more reactive -- and thus less effective -- German policy in trying to manage the crisis.
As Stratfor highlighted in its annual forecast, the Franco-German relationship remains the linchpin of the European crisis. France is beginning to feel the impact of the crisis as its economy slows and unemployment rises. France will manage its gradually rising domestic pressures by approving several economic reforms, including labor reform, in an attempt to regain competitiveness. At the EU-level, Paris will continue advocating for the European periphery and will negotiate with Berlin for softer deficit targets for this year. Tension between Germany and France will also persist over peripheral issues, such as France's push for the European Union to lift its arms embargo on Syria. Though Paris is coming under more political and economic strain, France will be able topreserve its alliance with Germany through this quarter.
Growing Discontent
Across Europe, anti-establishment parties will gain popularity and social discontent with the ruling elites will become more apparent. In Italy, the inconclusive February elections that led to a paralyzed parliament will greatly complicate efforts by the traditional elites to form a government, and early elections cannot be ruled out. Italy will therefore experience political uncertainty during the next three months, with the popularity of the anti-establishment Five Star Movement enduring throughout this tumultuous political cycle.
The United Kingdom will continue to gradually distance itself from the European Union. This will be seen in the government's continued anti-EU rhetoric and its attempts to curb immigration from Eastern Europe. Rising anti-establishment sentiment stemming from austerity measures and political corruption will challenge the elites in smaller EU countries, including Slovenia and Bulgaria, the latter of which is holding elections in May.
Syria and Surroundings
The main focus of activity for the region lies in the northern Levant. The Syrian rebels will continue to make gains against loyalist forces, particularly in the north (Ar-Raqqah, Idlib and Aleppo) and east (Deir-el-Zour.) The rebels will battle loyalist forces in and around the Homs crossroads southward to Damascus but will encounter heavy resistance from loyalist forces trying to prevent a significant rebel breakthrough. Rebel attacks in the capital and Damascus suburbs will continue unabated but are not yet at the point of seriously undermining President Bashar al Assad's control over the core. Even if the rebels receive more foreign aid this quarter, it will not be enough to make a decisive impact on the battlefield.
As the battle continues, the actions of the Syrian political opposition and political negotiations with outside players will remain largely irrelevant: No provisional government can claim to speak on behalf of enough of the rebels to matter, the outside players are divided in their interests for Syria, and the al Assad clan will not get the assurances it needs to seriously entertain a cease-fire.
As the conflict intensifies in Syria, so willsectarian tensions in Lebanon. Hezbollah's efforts to secure supply lines and smuggling routes eastward along the Beirut-Damascus highway and from the northern Bekaa Valley through the Orontes River Valley westward to the coast will provoke Sunni attacks inLebanon's northern borderland. Hezbollah may be forced to respond in kind in Syria, but will be more cautious in Lebanon to avoid premature clashes with its Sunni adversaries.
From the Levant to Mesopotamia
The spillover of violence from Syria into Iraq will be more gradual but no less significant. The movement of fighters between Syria and Iraq's mostly Sunni western provinces will steadily increase. Jihadist fighters with transnational interests have so far dominated the insurgency in Iraq, but over time the insurgency will involve more Iraqi nationalist fighters who have been sidelined from the Shiite-dominated government in Baghdad and who also do not want to see the jihadists eclipse the nationalists' influence in the broader Sunni resistance.
Sunni and Kurdish opposition to Prime Minister Nouri al-Maliki's government will persist in the quarter, but a lack of organization and coordination within both camps, and between Sunnis and Kurds, will allow al-Maliki to play these divisions off one another to maintain his hold over the government.
Iran
The lead-up to Iran's presidential election in June will consume much of Tehran's attention this quarter. After two consecutive terms, the historic non-clerical presidency of Mahmoud Ahmadinejad will come to an end. The clerical establishment will try to use this political opening to regain some of its lost influence, but the legacy borne out of Ahmadinejad's populist challenge to the clerical elite is likely to endure beyond this election. Regardless of which political camp wins the vote, the support of the Islamic Revolutionary Guard Corps, which has its own internal divisions to contend with, will be critical to the new government.
No major shift in regional policy is likely to result from the election. Iran will continue expending considerable resources in attempts to defend the Syrian regime, including efforts to recruit Shiite fighters from across the region. Iran knows that the fall of the Alawites in Damascus will be the catalyst for a more robust Sunni resistance in Iraq and thus will prioritize sending reinforcements to Syria this quarter. Tehran's abilities to protect its interests in Syria and Iraq will be constrained financially due to the ongoing sanctions campaign against Iranian crude oil sales. Iran will continue exporting to its Asian consumers, albeit at lower levels and more sporadically. Tehran will continue negotiating with the P-5+1 (the five permanent U.N. Security Council members plus Germany) over its nuclear program but will not make any significant concessions with this group or bilaterally with the United States during the Iranian election season. Rhetoric over a military strike against Iran is likely to diminish as Israel, for now, moves closer to the United States in managing the Iranian nuclear issue.
Egypt
Egypt is unlikely to see relief from its political, economic and security troubles, but the state will hold together this quarter. The mostly secular and liberal political opposition will continue efforts to delegitimize the ruling Islamist Muslim Brotherhood through demonstrations, riots and labor strikes. The opposition's intent will be to create the conditions for a military intervention against the Brotherhood, but it will not achieve the critical mass needed to succeed. The military will intervene selectively in more restive areas to try to restore calm, focusing primarily on restoring confidence in local police and internal security forces to prevent the proliferation of vigilantes and militias. The military will struggle in this effort but will be able to prevent the security vacuum in Egypt from reaching a point that would compel its forces to intervene against the government.
An autonomous and polarized judiciary will continue to create political obstacles for the Brotherhood, and parliamentary elections scheduled for April are likely to be delayed. At times the actions of the courts will indirectly serve the military's interest by keeping the Brotherhood in check, but the military and the Brotherhood will have no choice but to cooperate behind the scenes as problems persist in the country. The military has no interest in attempting to rule directly at this point.
The Muslim Brotherhood has stated its intent to implement a rationing system for key subsidized goods including bread, cooking fuel and transportation fuel at the beginning of the third quarter, but it will lack the degree of political control it needs to carry out these measures, especially as the election timetable faces delays. A resolution to ongoing International Monetary Fund negotiations for a new loan is unlikely in the second quarter. Egypt's cash-strapped government will continue efforts to secure aid from regional governments to muddle through another three months.
Turkey
Though Turkey remains heavily constrained, the Turkish government will pursue policies this quarter that are designed to both insulate Ankara from regional instability and enable Ankara to influence its neighborhood. The priority of the Turkish government will be to see through the first phase of a negotiated cease-fire with the Kurdistan Workers' Party. Over the next three months, the Kurdish group will begin a phased withdrawal from Turkey to theQandil Mountains in Iraq. The Turkish government will in turn be expected to move forward with judicial reform to allow for the release of Kurdish prisoners. Parallel to this process, behind-the-scenes negotiations will take place between Turkish Prime Minister Recep Tayyip Erdogan's government and Kurdish politicians over constitutional reforms. The debate over the constitution will intensify across Turkey's polarized political spectrum, with no resolution expected this quarter.
By prioritizing its Kurdish problem over the region's array of conflicts, Turkey is hoping to clear enough obstacles at home to eventually be able to exert meaningful influence beyond its borders, particularly in Syria and Iraq. Linked to this strategy is a renewed effort by the Turkish government to strengthen relations with the United States in the hopes of eliciting stronger U.S. backing for Turkish policies in the region. Israel's diplomatic thaw with Turkey could allow for closer U.S.-Turkish coordination on regional issues this quarter, butWashington will continue to restrain its involvement in the region. Turkey willkeep its distance from Israel, taking care to preserve its credibility with the Arab states.
Nonetheless, the prospect of closer ties among Turkey, the United States and Israel occurring while Turkey is trying to manage a delicate negotiation with the Kurdistan Workers' Party could motivate the Iranian and Syrian regimes to threaten and possibly facilitate attacks in Turkey. Iran's success toward this end is not assured, but the intent would be to derail Turkey's initiatives and remind Ankara of its need to continue cooperating with Iran to avoid bigger troubles at home.
Algeria
Algiers' regional strategy will focus on trying to limit the influx of fighters from Mali, Tunisia and Libya. In addition to maintaining a heavy security presence on its borders and attempting with limited success to coordinate on security with Tunisia and Libya, Algeria will push for the integration of Tuareg interests in Mali's post-intervention political transition in order to limit regional instability on its southern borders. Complicating this strategy will be a gradual increase in social protests across Algeria's vast southern expanse. Residents are demanding better employment opportunities, development and housing, a common refrain of the near-daily protests of northern suburban slums, but southern protests are not likely to form a cohesive political threat to President Abdel Aziz Bouteflika's ruling coalition in the second quarter.
Afghanistan and Pakistan
Negotiations among the Taliban, Pakistan and the United States over a post-U.S. Afghanistan are unlikely to make much headway this quarter. Schisms within the Taliban, uncertainty and competition over the successor to Afghan President Hamid Karzai, side negotiations between the Taliban and former Northern Alliance members and a divided Pakistani parliament coming out ofgeneral elections in May will complicate the process. With each of the principals in this negotiation trying to sort out internal issues, the United States is unlikely to offer a significant concession, such as releasing Taliban prisoners, this quarter.
China
With the leadership transition complete, China's new leaders will devote much of the second quarter to cementing recently announced bureaucratic reforms and solidifying their own power, as well as outlining the broad strokes of the Communist Party's social, political and economic agendas. During their first few months in power, Xi Jinping and the new Politburo Standing Committee will push strongly to bolster confidence, both at home and abroad, in their commitment to social and political reform and their ability to manage the process of economic rebalancing.
The second quarter likely will see calls for accelerated work on long-running issues like inland development, urbanization, hukou (household registration system) reform, industrial consolidation and bureaucratic streamlining, as well as changes to the fiscal relationship between the central government and local governments. But with this year's National People's Congress now over, it will be at least a year before significant changes or new policy directions are enacted on many of these fronts. Rather, the discussions will serve primarily to frame expectations regarding the pace and extent of economic growth and reform to be expected in the second half of the year.
Beijing likely will continue efforts to rein in or at least extend its control over informal or "shadow" lending markets in the second quarter. January and February saw an unprecedented explosion ininformal lending activity (with non-state-owned bank credit accounting for more than half of the new credit created) that raised numerous questions about the structure and stability of investment and lending tools like wealth management products. If informal lending activity continues to grow at a similar pace into the second quarter, Beijing may try to guard against the potential for widespread defaults by enforcing stronger supervision and regulation of banks' off-balance sheet lending or even making minor adjustments to the central and local governments' fiscal relations to reduce burdens on local economies. To help alleviate tensions between the local and central governments and maintain high overall economic activity, the central government will also continue to support local property markets -- especially for first-time homebuyers -- while gradually curtailing real estate speculation.
As the Chinese government struggles to maintain adequate economic growth and social stability amid weak external demand and deep internal imbalances, it will continue to consolidate and expand its presence and enforce its territorial claims in the South and East China seas. This will elicit routine responses from neighboring littoral countries, but anything more than saber rattling or minor skirmishes between coast guard forces remains highly unlikely.
Southeast Asia
Countries in the Southeast Asian archipelago will pay greater attention to issues of trans-border militancy, underlying ethnic tensions and territorial integrity. The so-called Royal Sulu Army raid on the Malaysian province of Sabah reopened the quiet dispute between Manila and Kuala Lumpur over ownership, but more directly it highlighted the long-standing complications of the ethnic and clan map of Southeast Asia that shows little connection to the political borders. Sitting in the middle is Malaysia, involved in the opening of peace talks between the Thai government and southern Thai militants and the final negotiations between the Philippine government and southern Philippine militants even as it tries to clear the remaining Royal Sulu Army militants from Sabah. The peace negotiations are likely to trigger additional militant activities by elements seeking better deals or to disrupt the talks, and Malaysia could become a target in the coming quarter even as it faces the regular domestic social disruptions surrounding the upcoming national elections.
North Korea
North Korea has raised the level of its threats to South Korea, Japan and the United States and is likely to follow through with some military action on or around the Korean Peninsula, but this will remain within the bounds of its more recent actions. The North Koreans do not appear to have reached a point where they may consider actions that could lead to full-scale war. Nonetheless, the belligerent behavior will continue and is intended both to test the new South Korean leadership and force another set of negotiations that will exchange a brief relaxation of tensions for economic and political concessions. At the same time, Pyongyang will continue with small-scale domestic economic adjustments, keeping control over the possible domestic repercussions by exploiting the sense of tension and embattlement espoused in state media. Although the United States and South Korea remain open to talks, and China and Russia are seeking to open the dialogue (and benefit from being seen as the peacemakers), no major breakthroughs are likely in the quarter given the political constraints in Washington, Seoul and even Pyongyang.
Russia and the European Crisis
Russia will remain aware of its vulnerability to the European crisis after taking its first large hit at the end of the first quarter when theoffshore financial haven of Cyprustargeted Russian funds. Russia has been attempting to shield itself from the crisis in Europe, a major trading market where it has many investments and assets. Russia will continue its efforts to minimize this exposure by moving some Russian investments and financial holdings in the region out of offshore economies, luring European firms to further invest in the Russian market and creating a variety of trade agreements with strategic European partners. The Kremlin will also attempt to protect the Russian investments that cannot be moved back home because the Russian financial system is not composed in a way that can handle major amounts of cash and investments.
At the same time, Russia is watching divisions re-emerge between states in Europe and so is readjusting its relationships on the Continent accordingly. At this stage of the European crisis, Russia will prioritize its relationship with Germany. Russian President Vladimir Putin will visit Germany in April to solidify Moscow's ties to Berlin and discuss how to further protect Russian interests.
Internal Balance
The European crisis will continue affecting the Kremlin's current attempt to crack down on corruption. The Kremlin is aggressively trying to root out corruption among government and top business officials -- the first such campaign in nearly a decade. The targeting of Russian money in Cyprus has allowed the Kremlin to bolster its demand that Russian money should be kept in Russia, though Putin must contain the discontent among those Russian officials that have lost money. The Kremlin's anti-corruption efforts are likely to increase in the second quarter as investigations are launched on political figures, from Duma members in the lower chamber to those in the upper house and throughout regional governments.
Russia and its Former Soviet Territory
Russia will continue to see mixed results as it seeks to expand its influence in its former Soviet periphery. Negotiations over a new natural gas deal withUkraine will remain the dominant issue for Moscow and Kiev in the second quarter. Both countries have expressed renewed interest in striking a deal, but so far neither Russia nor Ukraine has been willing to make the necessary concessions to come to an agreement. Russia has called for Ukraine to quit the EU Energy Community and loosen its ties to Europe in exchange for lower natural gas prices, but Ukraine has preferred to maintain ties with both the European Union and Russia's Customs Union without getting too close to either bloc. Ukraine is likely to continue this balancing act in the next quarter by engaging in negotiations with Russia, and the European Union and the International Monetary Fund.
In the Caucasus, Russia will continue strengthening ties with Georgia this quarter, especially in the economic sphere, with a Georgian-Russian economic forum scheduled for early April. Azerbaijan is scheduled to decide in June on a Southern Corridor project linked to the Shah Deniz II natural gas field, with Nabucco West and the Trans-Adriatic Pipeline as the frontrunners. Azerbaijan could delay the decision and announcement as rival projects continue competing over the rights to Shah Deniz II. In the longer term, Russia will apply regional pressure to try to undermine any Southern Corridor project efforts.
In the Baltics, Russia will continue to see its position in the realm of energy diminish as countries in the region -- particularly Lithuania and Poland -- pursue energy diversification projects. The Baltics will also continue closer political and security cooperation with Europe in general and the Nordic countries in particular.
In Central Asia, Kyrgyzstan and Tajikistan will continue to experience domestic instability in the form of protests and occasional violence; upticks in such incidents historically occur in the second quarter. This will push the two countries closer to Russia, as Moscow will provide greater financial and security assistance.
Growing Ties With the East
While Russia's relationship with the United States will remain contentious, its relationships in the east will continue growing in the second quarter. At the end of the first quarter, Russia struck numerous military and energy deals with China, and in the second quarter it will make some major energy deals with Japan when Prime Minister Shinzo Abe visits Russia with a large business delegation. There is not much interaction between Russia and Japan, because trade and other ties have been hampered by the bitter dispute -- dating from World War II -- between the two countries over the Kuril Islands. However, Japan is increasingly energy hungry, and Russia is looking to shift large amounts of energy exports to the east. China has already made clear it is willing to purchase more Russian energy, and now Japan wants to try to strike a series of large investment deals to secure Russian energy supplies. All this will most likely be done without a formal peace agreement over the Kuril Islands, however.
Venezuela
A new phase in Venezuelan history will begin in the second quarter with elections scheduled for April 14 following the death of Venezuelan President Hugo Chavez. Interim President Nicolas Maduro is likely to defeat opposition leader and Miranda state Gov. Henrique Capriles Radonski. Maduro's first tasks will be to follow through on attempts to stabilize the currency begun in the first quarter and pull back on spending to relieve the financial pressure on state-owned oil company Petroleos de Venezuela. Maduro will not be able to stray too far from the political patterns set under Chavez's leadership, however, and must maintain relatively high social spending on a range of programs in order to ensure his continued popularity.
Efforts to increase oil production will be key, and Maduro's official assumption of leadership will help to stabilize expectations for current investors who were concerned about institutional stability after Chavez's death in the first quarter, when it was unclear when the leadership transition would take place. This will be particularly important for the country's relationship with Chinese lenders and Indian oil producers invested in the country's Orinoco heavy oil belt that have been waiting explicitly for the transition to occur. However, Maduro will not be able to make the kind of major shift in investment policies that would bring in substantial foreign investment from the energy supermajors in the second quarter.
Without Chavez's personal gravitas, Maduro will struggle to manage the political effects of Venezuela's deep economic challenges, including deteriorating infrastructure, a collapsing black market currency trade, shortages of basic goods and rampant crime. After what has effectively been more than a year of electoral campaigning, the government will have to begin trimming expenditures in the second quarter in order to allocate resources where necessary, including ensuring that the national oil company has sufficient cash to cover its obligations.
Mexico
The administration of Mexican President Enrique Pena Nieto is in the midst of an ambitious reform plan, tackling many of Mexico's well-known regulatory challenges. In the second quarter, the Mexican government will pass a comprehensive telecommunications and media reform package that will liberalize two of Mexico's most heavily protected industries. After passing the Chamber of Deputies in the first quarter, the reform package will likely pass the Senate in April. After that, the measures that alter the constitution will need to be approved by a majority of state legislatures, a process that could take months but will likely be concluded in the quarter. A range of upcoming legislative changes proposed by the Pena Nieto government could be presented to the legislature in the second quarter. These will include discussion of mining reform and could also include increased focus on the possibility of immigration policy and financial sector reform.
The government probably will not use the second quarter to tackle energy reform, the largest and most controversial issue. With the Pena Nieto administration still building its case for reform that would encourage foreign investment and the corollary introduction of high-technology exploration and production processes, it is unlikely that an energy reform package will be presented in the second quarter. Pena Nieto will spend a great deal of effort in the coming months negotiating with factions of the ruling Institutional Revolutionary Party and with the other major parties to reach an agreement on energy reform in the longer term.
The cartel landscape will be characterized by ongoing fracturing as various groups split and fight each other. Although the Sinaloa and Los Zetas cartels are still major players, a number of smaller organized criminal groups have risen to challenge their dominance in the market. Competition for Guadalajara can be expected to add to violence in Jalisco state. Divisions within the Gulf cartel have significantly increased violence in the northeast, and this can be expected to continue through the second quarter.
Argentina
Argentina is experiencing increased economic instability going into the second quarter as a devaluation on the black market currency exchanges has caused sharp growth in the spread between the official and the unofficial exchange rates. The government will intervene to stabilize the market in the second quarter as necessary to avoid rising pressure to devalue. With more than $40 billion in currency reserves at the Central Bank and legislative elections approaching in the fourth quarter, the government can afford to prevent a sharp devaluation that would have negative political consequences in the second quarter.
Nevertheless, the government has a pressing need to secure access to foreign exchange, which will put it in direct conflict with the agricultural sector in the second quarter. Agricultural groups are likely to protest government policies -- including what they see as an overvalued currency, high export taxes and strict domestic price controls -- in the second quarter. Although the sector's conflict with the government is unlikely to reach the kind of widespread protests seen in March 2008, the second quarter will be more tense than any harvest season since then.
Brazil
Brazil will make progress in the second quarter in its efforts to develop its energy industry and transportation infrastructure. The first offshore oil and natural gas licensing auction in Brazil since December 2008 will begin in May. The auction will mark a significant step forward for Brazil, whose state owned-oil company Petroleo Brasileiro hopes to add 1 million barrels per day of oil equivalent to its current 2.4 billion barrels per day of oil equivalent by 2017. The May auction will open offshore oil fields in the northeast as well as some onshore oil basins. Debate over an oil royalties distribution law will continue through the second quarter and is unlikely to be resolved until the end of the year. At the same time, the government will push forward with its efforts to stimulate investment-led growth and infrastructure improvement through road and rail concession auctions. Labor concerns will continue to hamper privatization efforts at Brazil's ports.
Elsewhere in the economy, the administration of Brazilian President Dilma Rousseff will continue focusing on making regulatory shifts designed to combat high costs affecting both consumers and producers in an effort to spur growth in Brazil in 2013. Inflation has reached 6.31 percent and although it is not yet above the Central Bank's 6.5 percent upper limit, it remains a driving concern for the government. As a result, Brazil will be considering further measures to control inflation, which could include additional efforts at consumer price reductions or raising the benchmark interest rate.
Mali
The second quarter will mark thebeginning of a transition from French-led offensive operations to an African-led stabilization force supported by France. French military forces will shift the burden of securing population centers in northern Mali to the 6,300-strong African contingent operating alongside Malian forces. Some of the French infantry units engaged in combat operations north of Kidal and east of Gao will be withdrawn. However, France will retain a force of a few thousand personnel consisting of transport and logistics units as well as special operations forces, intelligence collection personnel and air assets to support the African forces operating in Mali. The European Training Mission will remain deployed to facilitate the training and integration of the Malian military. The correlation of Western and African forces in Mali and in West Africa will limit al Qaeda in the Islamic Maghreb and Malian militant groups such as the Movement for Jihad and Unity in West Africa and Ansar Dine to guerrilla-type attacks executed from remote and rural northern Mali. These attacks likely will not disrupt the stabilization effort significantly, nor will they allow the militants to recover territorial control.
The French and allied Malian and African forces want to see the stabilization force become a U.N. peacekeeping operation, which will add legitimacy to the operation while distributing the financial burden to the global community. National political dialogue among Mali's several ethnic groups, which are campaigning ahead of national elections in July, will occur in the second quarter, aiming to further stabilize Mali. These broader governance efforts are meant to persuade the Malian people and local governments to avoid promoting militancy. While the success of these efforts will be critical for establishing a long-term solution both in combating jihadist militancy and in relations between Bamako and northern Mali's Tuareg population, the second quarter will see an uncomfortable peace between Mali's northern and southern regions. The regional and international forces will attempt to stabilize the process.
South Africa
In the second quarter, the annual "Strike Season" will begin as wage agreements in several industries are set to expire. New wage agreements, notably in the coal and gold mining sectors, will be negotiated toward the end of the second quarter, and talks will likely continue into the early third quarter. Alongside the collective bargaining process, labor union members will use strikes to place additional pressure on the negotiations. In mining fields that are less productive -- for example, coalfields that saw demand drop over the past year -- the threat of layoffs through labor lawsuits against illegal strikers could limit the effects of strikes.
Mining companies may pursue overly favorable worker wage deals in an attempt to appease their workers early on in the negotiation process, hoping to avoid disruptive strikes. The success of the Association of Mineworkers and Construction Union -- which is more militant than the labor groups in the Congress of South African Trade Unions -- in the platinum sector last year could lead other unions to enter negotiations with inflated demands, which will eventually be tempered and agreed to, in an attempt to achieve similar results and demonstrate the unions' effectiveness. The mining companies, however, will be more likely to appease unions that do not copy the Association of Mineworkers and Construction Union's tactics. The mining companies, the Chamber of Mines, the National Union of Mineworkers and the National Union of Metalworkers of South Africa will agree to wages that do not take too long to negotiate and will thus minimize disruptions to mining production.
The South African government will observe and facilitate collective bargaining negotiations but will not intervene during the process other than to maintain law and order should strike activity become violent or prolonged in the case of a strategic asset like coal.
Nigeria
The second quarter will see rising political tensions and militant violence in Nigeria. Constraints on violence by Islamist militant groups Boko Haram andAnsaru in the north, Niger Delta militant groups in the south and criminal gangs in Lagos will largely be self-imposed rather than from policy or security force interventions by President Goodluck Jonathan's administration. Militants will conduct attacks but will steer clear of triggering interventions from foreign security forces by avoiding actions such as continual kidnappings of foreign nationals. Instead, the militants will attack Nigerian soft targets or disrupt oil production as Jonathan maintains an intentionally ambiguous position on his desire for re-election ahead of the country's 2015 national vote.
Zimbabwe
Zimbabwe likely will hold national elections at the end of the second quarter. President Robert Mugabe and the ruling Zimbabwe African National Union-Patriotic Front party will spend the whole of the second quarter conducting an intimidation campaign to try to ensure their victory over the Morgan Tsvangirai-led opposition Movement for Democratic Change. Once assured of re-election, and that the loose status quo will not be radically disrupted, political efforts to shape a post-Mugabe leadership for the Zimbabwe African National Union-Patriotic Front will resume in Harare with South African mediation.
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