In recent years, we have clearly seen this happening in Russia, Thailand, China and Turkey. An official anti-corruption campaign and conflicts with foreign countries in order to divert attention from the real problems fit perfectly into this picture.
In other countries, where democracy is more well-established or where the government has less control over institutions and society, conflicts escalate within the political system. Corruption scandals come to light and will be used to settle the political score.
South Africa, but especially Brazil and Malaysia are the best examples in this category. The Petrobras corruption scandal and the imminent deposition of President Dilma Rousseff in Brazil cause major turmoil and uncertainty.
The scandal surrounding Prime Minister Najib, who allegedly stole 600 million euros from public funds, threatens to plunge the already fragile Malaysia – with its subcutaneous ethnic tensions – into a much larger crisis.
The political risk is rapidly increasing in the emerging world, whether we are talking about the first or second category.
This partly explains why equity, bond and currency markets continue to fall. Corruption scandals, government crises and increasing repression are a huge distraction from the reforms that are so urgently needed to reduce imbalances in the economy, to improve the investment climate and to create an opportunity for growth recovery.
InvestmentEurope is providing ongoing coverage of responses from the fund industry to developments linked to the spread of Coronavirus.