Key Political Issue Key Economic Issue North American Review South American Review

1. Key Political Issue Key Economic Issue North American Review South American Review West European Review Central and East European Review Middle East and North African Review Sub-Saharan African Review Central and South Asian Review East Asia and Pacific Review Statistics in Focus Contents: The ISA Global Update Issue #363 19th of January 2011 Published by ISA (International Strategic Analysis) www.isa-world.com

2. Key Political Issue: Upheaval in Tunisia Summary - A lack of political reform, coupled with rising prices and a weak labor market, served to be the catalyst for violent political change in Tunisia that resulted in the ouster of a long-serving dictator. However, the situation in Tunisia remains very unstable as various political factions jockey for power amid the power vacuum that was created when President Zine al-Abidine Ben Ali was overthrown. Moreover, this political whirlwind in Tunisia has the potential to spread to other countries in the Middle East and North Africa, potentially leading to a period of major instability in what had been some of that region’s most stable countries. • Ben Ali Toppled: • After 23 years in power, President Ben Ali was seemingly caught by complete surprise by the violent street protests that erupted across Tunisia in recent weeks. • While these protests were triggered by rising food prices and a lack of jobs for younger Tunisians, they were directed at the president, whose grip on power seemed firmly in place. • However, the protests continued to grow in size and intensity and many influential figures in the military and the government withdrew their support for President Ben Ali, leaving him with little option but to flee the country. • As a result, a new unity government has been created, but it remains to be seen if this will be enough to placate the emboldened protesters. • Impact on the Region: • While Tunisia is one of the region’s smaller and weaker powers, the events of the past few weeks have sent shockwaves across the Middle East and North Africa. • Similar protests have already taken place in countries such as Algeria and Jordan, and there are growing fears in countries such as Egypt that such anti-government sentiment, when coupled with soaring commodity prices, could bring thousands of people to the streets. • Algeria’s President Abdelaziz Bouteflika faces a particularly dangerous situation as street protests have intensified in recent weeks at the same time as he is struggling for power with that country’s intelligence services. • What to Watch For: • Egypt too, is watching developments closely, as that country’s recent fraudulent parliamentary elections have stoked public anger, while Egypt’s aging President Hosni Mubarak is looking for a potential successor.

3. Key Economic Issue: The Threat of Rising Food Prices Summary - The political unrest that has dramatically impacted many emerging markets in recent months has largely been the result of soaring inflationary pressures that have stemmed from a sharp rise in food prices. While food prices have not yet returned to the record-high levels of 2008, there are serious concerns that they could do so in the coming months. If this is the case, the threat of a major economic downturn among many key emerging markets is a real possibility, as is the potential for more unrest. • Food Prices to Keep Rising: • Food prices have risen dramatically in recent months and are forecast to continue to rise in the coming months due to a number of factors. • First and foremost, adverse weather conditions stemming from the ongoing La Nina in the Pacific Ocean have impacted many of the world’s leading agricultural regions in recent months, leading to soaring prices for grain, meat and sugar. • Second, demand levels for food continue to rise rapidly, particularly in emerging markets such as China and India. • Finally, many governments have been forced to reduce their subsidies for basic food products as a result of their worsening financial situations, leading to dramatically higher food prices in many poorer countries. • More Unrest: • While all countries will feel the impact of rising food prices, it is the world’s emerging markets that will experience the greatest reverberations. • In those countries where governments are no longer able to maintain hugely expensive subsidies for basic food products, large-scale protests are to be expected, much like those that occurred in Tunisia and Algeria in recent months, • If food prices return to 2008 levels, such unrest is likely to spread to emerging markets around the world and could lead to a much higher level of political volatility in regions such as the Middle East, Africa, South Asia and Latin America. • As a result, the Tunisian president might not be the last world leader to find himself ousted by the effects of rising food prices. • What to Watch For: • Inflationary pressures, driven in part by rising food prices, could dampen the outlook for developed economies as well in the coming months.

4. Regional Overview: North America Regional Summary: China’s president began a four-day state visit to the United States. “Baby Doc” Duvalier returned to Haiti for the first time in 25 years. • Chinese President in the US: • Amid serious tensions between the world’s two most powerful countries, Chinese President Hu Jintao began a four-day visit to the United States to meet with US President Barack Obama and other US leaders. • In recent months, relations between the US and China have been strained by a range of disputes ranging from the status of Taiwan to currency manipulation on the part of both countries. • One key issue that has been addressed in these meetings has been the volatile situation on the Korean Peninsula, as the Obama Administration continued to call on China to do more to restrain North Korea. • Baby Doc Returns to Haiti: • In a surprise move, former President Jean-Claude “Baby Doc” Duvalier returned to Haiti for the first time since he was overthrown by a popular revolt in 1986. • He ruled Haiti from 1971 until 1986 and was accused of corruption and widespread human rights abuses during his rule. • It was unclear why the former strongman returned to Haiti, although he claimed that it was to help the country recover from the devastating earthquake that hit Haiti last year, as well as the ongoing cholera outbreak. • However, he was arrested just two days after returning to Haiti and charged with corruption and embezzlement. • A Look Ahead: • Rising Risk Factor: • Mexico’s murder rate rose sharply once again in 2010.

5. Regional Overview: South America Regional Summary: More severe flooding hit southeastern Brazil in recent weeks. Argentina’s farmers held another strike this week. • Devastating Floods in Brazil: • The flooding that has hit southeastern Brazil in recent weeks continued to spread in recent days, causing more than 660 deaths and driving hundreds of thousands of people from their homes. • This prompted the Brazilian government to describe these floods as the worst natural disaster to take place in Brazil in recent decades. • Over the past week, the worst flooding spread from around the city of Sao Paulo to the east, where they inundated many areas around Rio de Janeiro. • As more people move to the hills and valleys of this highly-populated region, more people are impacted by flooding and mudslides, hence the high death tolls. • Argentine Farmers on Strike: • This week, farmers in Argentina launched a seven-day strike against the government’s limits on grain exports. • As a result, the farmers have halted all sales of grain in Argentina, although the grain harvest has yet to begin. • Argentine farmers are angry that these export limits are preventing them from taking advantage of high levels of global demand, while keeping grain prices in Argentina artificially low. • Tensions between Argentina’s government and its agricultural sector have remained high in recent years as the government has moved to keep food prices low. • A Look Ahead: • Key Issues or Events: • The improved relations between Colombia and Venezuela are unlikely to last long.

6. Regional Overview: West Europe Regional Summary: Ireland’s prime minister survived a challenge to the leadership of his political party. More controversy engulfed Italian Prime Minister Silvio Berlusconi this week. • Ireland’s Prime Minister Survives: • This week, Ireland’s embattled Prime Minister Brian Cowen survived a vote of confidence within the ruling Fianna Fail party, allowing him to remain as the head of Ireland’s government. • Prime Minister Cowen had been challenged for the leadership of the Fianna Fail party by Foreign Minister Micheal Martin, who resigned shortly after his bid for the party leadership failed. • Prime Minister Cowen’s approval ratings have plummeted to record lows in recent months as a result of Ireland’s devastating economic crisis. • More Troubles for Berlusconi: • Italian Prime Minister Silvio Berlusconi’s tenuous grip on power was further threatened this week following a series of damning new revelations regarding his private life. • According to Italian prosecutors, there is new evidence that the prime minister had paid for sex with a “significant number” of young prostitutes, including one who was just 17-years-old. • In addition, there was new wiretapping evidence implicating Prime Minister Berlusconi in a number of controversial circumstances involving prostitutes. • A Look Ahead: • Elections This Week: • The first round of voting in Portugal’s presidential election will take place this weekend amid concerns that Portugal is next in line for needing a bail-out for its troubled economy.

7. Regional Overview: Central and East Europe Regional Summary: BP signed a deal to help Russia develop its oil and gas industry in the Arctic Sea. Inflationary pressures mounted in Central and East Europe. • BP Oil Deal in Russia: • Last week, the British oil giant BP signed a joint venture with the Russian energy firm Rosneft to develop oil and gas fields in Russia’s section of the Arctic Ocean. • It is believed that there are extremely large reserves of oil and gas to be discovered in Russian controlled waters of the Arctic Sea, but Russia needs foreign expertise to exploit these resources. • According to this deal, BP will take control of 9.5% of Rosneft’s shares, while Rosneft will receive 5% of BP’s shares. • This latter detail has raised concerns in both Britain and the United States, as Rosneft is controlled by the Russian government. • Rising Inflationary Pressures: • Inflation rates continued to rise across most areas of Central and East Europe in recent months, driven upwards by significant increases in food and energy prices. • Inflation rates rose in all of the European Union member states in this region in December 2010, led by Romania, where the inflation rate rose to 7.9% year-on-year last month. • Other countries in the region suffering from particularly high rates of inflation are Hungary and Bulgaria. • These inflationary pressures are threatening to weaken the region’s recovery from the recent economic crisis that swept through the region over the past two years. • A Look Ahead: • Rising Risk Factor: • Bulgaria’s rapidly shrinking population is threatening to lead to long-term economic stagnation in that country.

8. Regional Overview: Middle East and North Africa Regional Summary: More violent protests erupted in Tunisia in recent days, forcing President Zine al-Abidine Ben Ali to flee the country. Lebanon’s unity government collapsed. • Protests in Tunisia: • Tunisian President Zine al-Abidine Ben Ali was forced out of power last week as widespread protests spread across the country. • President Ben Ali first attempted to placate the protestors by announcing that he would not seek another term in office, but this failed and he was forced to flee the country and go into exile in Saudi Arabia. • Meanwhile, the speaker of the parliament, Foued Mebazaa, became the country’s interim leader, while Prime Minister Mohammed Ghannouchi was asked to form a new government. • Nevertheless, clashes between protestors and security forces have continued. • Lebanon’s Government Collapses: • Last week, Lebanon’s coalition government collapsed when the hard-line Shiite group Hezbollah and its allies withdrew from the government. • Hezbollah and the parties allied with it withdrew from the government due to their opposition to a United Nations-backed tribunal that is investigating the assassination of former Prime Minister Rafik Hariri in 2005. • Following the collapse of the government, Lebanese President Michel Suleiman asked Prime Minister Saad Hariri (Rafik Hariri’s son), to remain as head of a caretaker government. • A Look Ahead: • Rising Risk Factor: • Leaders in other North African countries such as Algeria and Egypt are certainly fearful that large-scale protests could erupt in their countries, weakening their grip on power.

9. Regional Overview: Sub-Saharan Africa Regional Summary: Nigeria’s president moved closer to securing another term in office. Initial results from this month’s referendum in South Sudan showed that voters in that region overwhelmingly backed independence for South Sudan. • A Victory for Nigeria’s President: • Last week, Nigerian President Goodluck Jonathan won the tightly-contested primary for the nomination of Nigeria’s ruling People’s Democratic Party (PDP) for April 2011’s presidential election. • Despite the fact that many of the party’s leaders hoped to nominate a northerner to run for the presidency (the president is a southerner), President Jonathan was able to win a surprisingly large victory in the primary. • As a result, President Jonathan is now the clear favorite to win this year’s presidential election. • South Sudan Moves Towards Independence: • While the final results from this month’s referendum on independence in South Sudan are not expected to be released until next month, initial results suggest that the people of South Sudan have voted overwhelmingly in favor of independence from Sudan. • This week, the leader of South Sudan, Salva Kiir, urged the people of South Sudan to forgive the north of Sudan for the millions of deaths that occurred in the region in Sudan’s long-running civil war. • Nevertheless, tensions between the north and the south remain high, particularly over disputed oil fields that straddle the border between the two regions. • A Look Ahead: • Elections This Week: • The Central African Republic is scheduled to hold presidential and parliamentary elections this weekend.

10. Regional Overview: Central and South Asia Regional Summary: There was a new call to delay the opening of Afghanistan’s parliament. Pakistan’s economic performance began to improve. • Call for a Delay in Afghanistan: • This week, the head of the tribunal that is investigating allegations of fraud and other voting irregularities in last year’s parliamentary election in Afghanistan called for a one month delay in opening the new parliament in that country. • As it stands, Afghanistan’s parliament is scheduled to open this weekend. • However, the head of this tribunal, Judge Sidiqullah Haqiq, claimed that more re-counting of the votes from this election needed to be completed. • These elections, coupled with last year’s controversial presidential election, severely damaged the credibility of Afghanistan’s President Hamid Karzai and his government. • Pakistan’s Improving Economy: • According to Pakistan’s Prime Minister Yousaf Raza Gilani, Pakistan’s economy expanded by 4.1% in 2010, a significant improvement from the growth rate recorded in 2009. • However, this growth rate failed to meet expectations, in large part as a result of the massive flooding the swamped large areas of the country in August and September 2010. • Pakistan’s economic growth is forecast to accelerate over the coming year, although it may take another two years before Pakistan’s GDP growth can reach pre-crisis levels. • A Look Ahead: • Rising Risk Factor: • The recent flooding in eastern Sri Lanka could stoke political tensions in that region.

11. Regional Overview: East Asia and the Pacific Regional Summary: The Japanese government was reshuffled. China’s president criticized the US dollar-led international currency system. • Japanese Government Reshuffle: • Last week, Japanese Prime Minister Naoto Kan reshuffled his government in a bid to deal with Japan’s numerous economic challenges. • Among the changes was the appointment of Kaoru Yosano as the new economics minister and he is expected to take significant steps to reduce Japan’s debt problems. • In addition, Prime Minister Kan named Satsuki Eda as the country’s new justice minister and he favors abolishing Japan’s death penalty. • While Japan’s economy has expanded at a healthy pace in recent months, it is expected to slow significantly in the coming months as Japan’s domestic market weakens. • China Criticizes the Dollar: • Just ahead of his visit to the United States this week, Chinese President Hu Jintao criticized the international currency system that is dominated by the US dollar. • Instead, President Hu stated that the Chinese government is moving to eventually replace the US dollar as the leading international reserve currency with the Chinese yuan, although he admitted that this would be a very long process. • Meanwhile, President Hu criticized the decision by the US Federal Reserve to inject $600 billion into the US economy, a move he claimed was designed to weaken the dollar at the expense of the yuan and other currencies. • A Look Ahead: • Key Issues or Events: • China has done little to alleviate tensions with the United States ahead of this week’s visit to the US by Chinese President Hu Jintao.

12. Statistics in Focus: Unemployment Unemployment rates have remained stubbornly high in many of the world’s leading economies in recent months, despite higher rates of economic growth. In some regions, unemployment will not trend downwards until late 2011 or early 2012.