Stratfor’s Global Intelligence: Week of Aug. 1, 2016

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BISHKEK (TCA) — The Times of Central Asia presents to its readers Stratfor’s Global Intelligence, a weekly review of the most important events that happened in the world — from Europe to Middle East to Russia to Central Asia to Afghanistan to China and the Americas.

The Week That Was

Post-Coup Turkish Military Meeting

Turkey held its annual Supreme Military Council meeting this week ahead of schedule. The gathering focused primarily on how to plan and organize following the failed military coup. All told, while 10,000 soldiers and over 1,600 officers have been relieved of duty, suspended, or arrested. (Although the government did release 758 detained soldiers July 30 after they testified in proceedings.) Turkey’s armed forces for now remain structurally the same, just slightly diminished in size. There were efforts this week to extend more points of civilian oversight over military affairs, but much of that still needs to be fought out legally.

President Recep Tayyip Erdogan’s would now like to increase presidential contro of the National Inelligence Agency and the chief of General Staff of the Republic of Turkey. These changes, however, will require constitutional amendments. The gendarmerie and the coast guard were shifted this week more fully under civilian state control, nested under the Ministry of Interior. In addition to the domestic organizational aspects, there remains concern over the future of relations with the United States. Anti-U.S. sentiment was palpable in a protest at Incirlik air base in southeast Turkey. This base is crucial to U.S.-led anti-Islamic State coalition operations and a key position in the NATO military network.

As Turkey reassesses its military capabilities and ability to continue external operations such as aiding rebels in Syria, it is evaluating its external relationships as well. Monitoring anti-U.S. sentiment will be key in the coming weeks, particularly as the Turkish extradition request for U.S.-based cleric Fethullah Gulen is outstanding. There are longer-term issues at stake, related not only to bilateral military relations with the United States, but also to Turkey’s role in NATO.

A Compromise on Eurozone Deficits

The week saw northern and southern Europe reach a compromise on the controversial issue of deficits in the eurozone. The European Commission decided not to propose sanctions against Spain and Portugal because of their failure to meet EU deficit targets. Germany backed the decision and generally maintains a hawkish stance when it comes to deficits. But the government in Berlin probably reached the conclusion that, only a month after the Brexit referendum, the European Union cannot afford to punish its member states and deepen the already serious political fragmentation of the bloc.

But the decision also raises questions about a potential shift of power in the European Union, as the British decision to leave the bloc opens the door for countries in Mediterranean Europe to increase political influence in the bloc. This may play into negotiations over a plan to assist Italy’s troubled Monte dei Paschi di Siena bank, which will likely make progress next week, after the stress tests by the European Banking Association confirmed the bank’s capital shortfalls. In recent weeks, Italian authorities have negotiated with private banks to participate in a rescue program, but some degree of state intervention cannot be ruled out.

India’s Goods and Services Tax Inches Forward

On Wednesday, the Cabinet of Indian Prime Minister Narendra Modi acceded to two key opposition demands regarding the long-pending Goods and Services Tax bill (GST)—namely, removing an extra 1 percent tax imposed by manufacturing states, and guaranteeing reimbursements to states for up to five years of lost tax revenue. The Goods and Services Tax promises to replace India’s multiple, overlapping tax regimes with a single national market. It is crucial to promoting interstate commerce, lowering manufacturing costs and boosting India’s growth. Modi wants to pass the current bill (a constitutional amendment) during the ongoing Monsoon session of parliament before it ends Aug. 12. While the opposition Indian National Congress party has yet to formally pledge its support, that the prime minister modified the bill in the the party’s favor increases its chances of being passed, perhaps as early as next week.

Full Articles

Iran Beefs up Its Air Defenses

Iran received its first delivery of Russian-made S-300 air defense systems in May, and it is getting ready to put them to use. Satellite imagery provided by AllSource Analysis shows intensive construction underway at an air defense base near Tehran to accommodate the systems. The layout of the new construction at the base appears to be notably different from those of existing air defense positions in Iran, and the base’s location indicates that it may not be a permanent S-300 station, but a training facility.

A Dawn for the Dead Companies of China

China is battling a ghastly economic problem. For months, the country’s so-called zombie corporations — failing, mostly state-controlled companies — have been teetering on the brink of bankruptcy, caught among high and rising levels of debt, ballooning debt-servicing costs and slim or nonexistent profits. In response, China’s State Council released a statement July 18 describing a possible pilot program to enable indebted corporations to convert some of their outstanding debts to equities held by Chinese banks. On its own, a corporate debt-to-equity swap would do little to reform these companies into productive and profitable businesses, a key requirement if China is to “rebalance” to a more sustainable growth model. Even so, it would help lower the businesses’ debt burden in the short term. For Beijing, bound as it is by the need to maintain employment and, in turn, social stability, that may be enough to stave off a crisis for the time being.

Indonesia Guards Its Front Door

At least three times this year, Indonesian authorities have confronted Chinese fishing vessels in the waters near the remote Natuna Islands, an area whose 200-nautical-mile exclusive economic zone (EEZ) overlaps China’s expansive nine-dash line. Each time, Jakarta has made a point of widely publicizing the incursions despite Beijing’s objections. In the wake of the run-ins, Indonesian President Joko “Jokowi” Widodo visited the islands and promised to boost defense, fishing and natural gas production in the area. Despite its provocative fishing activities in the South China Sea, however, China is not the sole target of Indonesia’s defensive measures; Jakarta has also made a public show of destroying dozens of Malaysian and Vietnamese vessels found fishing in the area. For Indonesia, protecting the Natuna Islands — however small and remote they may be — is key to exerting control of its territory and affirming its position in Asia’s waterways.

Iranian Kurds Return to Arms

Though the Islamic State’s core territory is now shrinking, its rapid rise as a global enemy and its quick territorial expansion in 2013 and 2014 shook the Middle East, instigating a series of realignments of military power. As the militant group claimed Mosul, Tikrit, Sinjar, Zumar and Kobani, Kurdish peshmerga units of Iraqi, Iranian, Turkish and Syrian nationality deployed to try to stop it. Today, the multi-country front against the Islamic State is more secure and stable in those areas where territory held by the group abuts traditionally Kurdish territory.
At the same time, however, the Kurdish groups’ involvement in the fight against the Islamic State has once again empowered them militarily. In Iran, home to a substantial Kurdish minority population, the side effects of this newfound might are visible. The fight against a common enemy has begun to unite Iran’s disparate Kurdish groups, though various factions will inevitably jostle for dominance. Meanwhile, as the Kurds have gained prominence on the battlefield, external powers have taken a greater interest in them. Combined, these factors help to explain the revival of Kurdish insurgencies in Iran.

Yellow Fever: An Overlooked Outbreak in Africa

For much of the past year, the Zika virus has dominated the news cycle and commanded international attention. With the Summer Olympics in Rio de Janeiro less than two weeks away, and two cases of the virus that could be unrelated to travel reported in Florida, that is unlikely to change any time soon. But another mosquito-borne disease, yellow fever, is working its way (albeit more quietly) through the African nations of Angola and the Democratic Republic of the Congo.

Though it has attracted far less attention than the Zika virus, yellow fever nevertheless could disrupt economic activities in and beyond those countries, a key consideration in assessing the geopolitical risk of a disease outbreak. What’s more, a large number of foreign workers in Angola and the Congo as well as a vaccine shortage worldwide could conspire to turn the latest outbreak of yellow fever — a disease that has been preventable for nearly 80 years — into a more global concern.

The Week Ahead

Stimulus in Japan

The Japanese government and Bank of Japan both announced stimulus measures last week, and next week the current Cabinet under Prime Minister Shinzo Abe is expected to approve the $265 billion stimulus package on Aug. 2 that Abe announced. Details of the plan have been sparse and it is unclear how much of that headline figure is new spending and not spending already announced. The Bank of Japan’s monetary stimulus measures were muted leaving markets unimpressed. In any event, Japan will continue moving forward with the bold Abenomics economic plans that includes aggressive stimulus measures even though the effectiveness is growing duller. Finally, the day after the spending package is passed, Abe is expected to reshuffle his cabinet. Some of Abe’s Cabinet members lost their seats in the most recent upper house elections on July 10th and are expected to be replaced. Others may also be shuffled out of office, but no change in key policies, like Abenomics, are expected. The Liberal Democratic Party remains firmly under Abe’s control.

Russo-American Coordination in Syria?

Next week, the United States is hoping for an answer from Russia in response to its proposed joint targeting and intelligence plan for combating extremist groups in Syria, particularly focusing on Jabhat al-Nusra. However, a number of factors could delay a Russian response, which will in turn delay the next round of U.N.-brokered Syrian peace negotiations in Geneva, which were tentatively supposed to resume in late August, according to the U.N. envoy this week. Heavy fighting in the city of Aleppo this past week, including the encirclement of rebel-held territory by Syrian government forces, aided by Russian airstrikes, will delay a timely U.S.-Russia accord. Cease-fire violations in Aleppo originally delayed Geneva talks in late February. Furthermore, Jabhat al-Nusra announced a makeover and formal split from al Qaeda this week, partly in an effort to avoid falling into the crosshairs of any developing Sino-American agreement. In all, a timely transition to new negotiations seems a distant prospect so long as Russia continues to engage in heavy airstrikes.

Olympics in Brazil

The Summer Olympics will begin Aug. 5 in Rio de Janeiro. Despite a year of political instability surrounding the impeachment of President Dilma Rousseff, such instability is unlikely to significantly impact the country’s ability to stage the event despite recent protests that delayed the torch relay. However, hearings in the Senate to ultimately impeach the president could reach the Senate floor during the Olympic Games themselves, raising the risk of some demonstrations by groups opposed to the impeachment. However, Rio de Janeiro will have a significant security presence, and the opposition Workers’ Party is not pushing for a coordinated protest wave to defend against the president’s impeachment. Consequently, it will be difficult for social movements intending to protest against the president’s impeachment to mount demonstrations capable of disrupting the entire tournament.

South Africa Local Elections

South Africa’s Aug. 3 local elections will see districts and municipalities in all nine provinces up for grabs. The elections come amid prolonged weakness in the South African economy and will be a test for the ruling African National Congress as it faces growing competition from the centrist Democratic Alliance and the far left Economic Freedom Fighters. Most importantly, the possibility that the Democratic Alliance may win major urban centers like Pretoria or Johannesburg cannot be ruled out, with such a victory being a boon to the country’s political opposition and a mostly symbolic loss to the African National Congress.

Central Asian Ministers Gather

All five Central Asian foreign ministers will meet with their U.S. counterpart, John Kerry, in Washington on Aug. 3. This is the second meeting under the new C-5+1 format after Kerry made a historic tour of Central Asia in November. The meeting will center on cross-border security concerns stemming from Afghanistan. There has been a recent uptick in violence and arrests of extremists in all the Central Asian states. Russia has offered to increase security cooperation with the Central Asian states, however some states — like Uzbekistan and Turkmenistan — are wary of increased Russian influence in the region. So the Central Asian states are reaching out to Washington for increased support, something Moscow will be wary of.