The lambasted South Korean President Park Geun-hye has offered to resign if parliament can achieve a ‘safe transfer of government’. In a televised message the scandalised president told the appalled masses she would ‘step down according to the schedule and legal procedures agreed by lawmakers for the stable transfer of power.’ The rhetoric was quickly dismissed by rival politicians as an attempt to hamper or make superfluous her pending impeachment which could go to a vote as early as this Friday (one could call it an attempt at pulling a ‘Richard Nixon’). Last weekend saw around 2 million take to the streets nationwide to protest against President Park making it the largest such protest in the country’s history.
It seems 2016 has been a bad year for democratically elected leaders: from impeached Brazil’s Rousseff and disgraced Malaysia’s Najib to a disillusioned David Cameron and Iceland’s bumbling Gunnlaugson. There seems to be an endless selection of routes for leaders to hamper their offices or disgrace themselves including the few aforesaid for federal budget violations (officially), allegations of fraud, ill-considered referendum promises and apparent tax evasion respectively. Add Ms Park’s infamous Rasputin-esque consulting of a meddling mystic on government policy and one wonders at the possibilities for next year and how incumbents like Philippines’ Duterte and incomings like Trump might contribute to the tally (as well as many other unbridled leaders and rising demagogues).
Interestingly leaders like China’s President Xi and Russia’s President Putin still hold approval ratings of around 87% and 82% respectively, compared to just 4% now for Ms Park. But no leader is invulnerable to such disenfranchisement; even Ms Park attained brief approval ratings around 70% earlier in the year. However the two recurrent causes of such public unrest and leader ousting seem far less likely in such economies, as with other countries we hold in our investable universe. First, when there is no real alternative government, such leaders are much less susceptible to widespread censure. Clearly this has associated negatives over the long-term but recent history is telling of how hard it is for protest votes to gain traction in the face of such political infrastructure. Second, a less sullied positive, is that these two countries are not heavily indebted from a Net Foreign Asset (NFA) perspective.
In the face of subdued growth (with the global headwinds from increasingly top-heavy demographics, approaching Lewis Turning Points for urbanisation, protectionism risks…) being a creditor with above average growth gives governments a lot more economic space to select the optimal fiscal path and appease the populace with favourable policies. And even if these policies aren’t sustainable over the long term they can act well as a buttress during cyclical lows or during reforms and should remain feasible as long as the country continues to be able afford it in the short/medium term. Monitoring NFA is an effective way of monitoring this, backed up by the evidence that no net foreign creditor government has ever defaulted on international debt, and the logic that such a decision to default from an international creditor would likely be detrimental by putting their overseas assets at risk in addition to the usual long term reputational damages.