ANNUAL FORECAST 2011

Jan. 12, 2011

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Meanwhile.” The Chinese have shown great resilience. and the continued effects internationally of the global slowdown. this is not acceptable. But given the status of the Chinese economy. casualties. with the notable exception of the Baltic states and to a lesser extent the Caucasus. Beijing is walking a very difficult path between rampant inflation and rapid economic slowing. and Iranian interests. it leaves Iran the single most powerful conventional force in the region.ANNUAL FORECAST 2011 The year 2011 is one of preparation and postponement. forcing them to accommodate a more powerful Iran. While it is not likely to be very public.S. as Washington. STRATFOR has long been perceived as bearish on the Chinese economy. However. then Iran retains the option of stirring up militias and unrest in Iraq. but the global economic crisis revealed the weaknesses of China’s export-based model. That leaves one path if the United States wants to get out of Iraq at some future point: an accommodation (even if quiet) with Iran to ensure both U. and the reality is that the longer an economic miracle continues to be miraculous. and leaves Iraq open to Iranian domination. Beijing and Moscow — among several others — are already looking to elections and leadership changes in 2012. While Beijing is likely to procrastinate in making any radical economic policy changes. a move that could reshape the balance of regional power. From the political perspective. all while the U. the United States is not likely to carry out any major military action against Iran. From the geopolitical perspective.stratfor. The ripple effect alters the sense of security for the Saudis and other Arab regimes. We are less bearish than realistic. As China’s leaders search for a solution and try to avoid the social consequences of a slip in either direction. Russia will continue to attempt to roll back U. the more likely it is to end its amazing run. daring policies and ideas are perhaps what China needs. South Korea and the Southeast Asian “Tigers. influence in Eurasia and solidify its own. allowing Iran (or any other single power) to dominate the region is unacceptable. Russia has largely completed its retrenchment to the borders of the former Soviet Union. something that Washington can little accept.S. If the United States withdraws. they are also focused on the next major generational leadership transition. presidential election season begins ramping up. The uncertainty of next year affects the actions of this year. This effectively ends the balance of power in the Gulf region.S. and Moscow is now secure 2 © 2011 STRATFOR Austin. increasing conflict and the attendant U.S. the worse things may be when the system starts to unravel. farther east China is struggling with its own economic imbalances.-Iranian discussions this year toward this end. and the United States will seek to retain a strong presence in Iraq rather than withdraw from the region. This discourages any radical or daring economic policies. TX 78701 Tel: 1-512-744-4300 www. we expect a significant increase in U. While government investment now makes up the lion’s share of the Chinese economy. We cannot help but notice the similarities between China and its East Asian economic predecessors: Japan. slated to begin in 2012. and thus avoid the likely short-term chaos that could entail. The United States is officially obligated to complete its withdrawal of combat troops from Iraq by the end of this year. and stability will remain the watchword as the politicians jockey for position. One of the biggest questions in 2011 concerns Iraq. If Washington does not carry out a meaningful withdrawal. the longer the leaders delay fundamental action.S. We think the latter will take precedence over the former.com . While Washington looks to extricate itself from Iraq without leaving power in the region unbalanced.

but it would take many months and also run huge risks. Pressure on the United States from Saudi Arabia and its allies in Iraq not to withdraw will be heavy. TX 78701 Tel: 1-512-744-4300 www. Second. is whether the United States will withdraw its forces. but the United States will be prepared to pay that price. air and land) from the air. Moscow knows that its time to act freely is ticking down as Russia watches the United States wrap up some of its commitments in the Middle East.S. This new strategy will play to all its relationships around the world.enough to shift from its more assertive stance to one that appears more conciliatory. Iraq would fall under Iranian domination. STRATFOR expects this will lead to greater instability in Iraq. the greatest military power in the Persian Gulf region is Iran. the states on the Arabian Peninsula would have to accommodate the new balance of power. The answer to this question determines the region’s geopolitical reality. presidential campaign would be getting under way. Iran would have the option of launching guerrilla operations against U. but will be effective in moving Russia’s influence farther beyond its former Soviet sphere and into Europe — where the United States has been dominant since the end of the Cold War. We do not believe a withdrawal is likely in 2011.S. Given that the United States will not completely withdraw and will not launch a major military strike unless pressed by unforeseen circumstances. as the political elite position themselves ahead of the 2012 elections. a dramatic shift in the balance of power due to withdrawal would be a certainty. Whether or not Iran acquires nuclear weapons.S. Should the United States remove all effective military force in Iraq and limit its forces in Kuwait. While it is possible for the U. Middle East/South Asia The most important question in the Persian Gulf is the degree to which the United States will draw down its forces in the region. The chance of surgical strikes targeting Iranian nuclear facilities is very low. two things would happen. therefore. but Moscow will also be looking internally. so the United States will keep enough forces in Iraq to block Iran. using its surrogates in Iraq. it cannot control the market reaction to military activity there. it is the major conventional power. Should the United States not remove its forces from the region. Other than the United States. making concessions to Iranian interests.stratfor.com . Russia’s focus this year is to mold understandings with states like the Baltics. That would escalate casualties in Iraq at a time when the U. This could be done. While a new Iraniansponsored insurgency is a possibility. The consequences of failure for the global economy would be enormous and too great a risk without a much broader war designed to destroy Iran’s conventional forces (naval. First. Navy to keep the strait clear. The core prediction STRATFOR needs to make for the region. while entrenching its strong relationship with Germany. forces. inasmuch as the Iranian response would be to attempt to block the Strait of Hormuz. it is likely that the United States will reach out to Iran — 3 © 2011 STRATFOR Austin.

Another complication is that the presidential election is scheduled for September. but a comprehensive settlement in 2011 seems unlikely at this point. the first two figures look favorable to economic growth.stratfor. and if an accommodation is reached. it might be informal in order to minimize political repercussions in both countries.S. and inventory builds (an indicator of whether or not wholesalers and retailers will be placing new orders. and more can be expected in the year ahead. where regime change will have profound implications for the region and beyond. India and China — account for less than one-third of that amount). In Turkey. though not to the extent seen in 2008-2009. TX 78701 Tel: 1-512-744-4300 www.S. but also on the ability to compel the Taliban to negotiate some degree of political accommodation. which in turn would require more hires). While the various elements that make up the state will be busy trying to reach a consensus on how best to navigate the succession issue. In Afghanistan. but the vote will highlight the core secular-religious divide within Turkey. Egypt begins the year with the successors of ailing 82-year-old Egyptian President Hosni Mubarak at odds over the pending transfer of power. 4 © 2011 STRATFOR Austin. That $10 trillion is approximately half of the global consumer market. and Pakistan will try to steer Washington toward talks (in the hopes that Islamabad will be able to influence the eventual outcome of those talks). The Global Economy The United States will experience moderate to strong growth in 2011. and Syria has its own interests at stake. interests in the Persian Gulf and Iranian interests in Iraq.-led International Security Assistance Force (ISAF) saw some successes on the battlefield in 2010. consumer is going to do. (The combined BRIC states — Brazil.S. However. While the opponents of the regime — both those who seek change via constitutional means and those who prefer extra-constitutional methods — are not yet organized enough. STRATFOR consults three sets of data: firsttime unemployment claims (our preferred method for evaluating current employment trends). the rifts within the government also create vulnerabilities for Egypt. Hamas has an interest in maintaining a short-term truce with Israel. but pressure from competing Islamist movements and Israel’s ongoing efforts to prevent Hamas from strengthening will likely lead to clashes within the year. retail sales (the actual consumer’s track record). In Israel. Some movement toward a negotiated settlement this year is possible. the most serious threat Israel faces. As 2011 begins. As the U. on Israel’s southern flank. so goes the world. while the last indicates employment may be slow to recover. In Gaza. and it is not clear whether Mubarak will run for a sixth five-year term. several political and militant forces active in Egypt will be trying to take advantage of the historic opportunity the transition presents. concerns remain about Hezbollah. These talks will likely be a continuation of secret talks held in the past. 2011 is an election year. consumer activity comprises the bulk of the U. The success or failure of the counterinsurgency-focused strategy therefore rests not only on the military degradation of the Taliban.com . As it seeks to consolidate itself at home. the U. consumer goes.S. But Hezbollah is focused on matters in Lebanon. so another major IsraelHezbollah war in 2011 is unlikely. When measuring what the U. things are not quite as stable.either the government or significant factions within it — in order to reach some sort of accommodation guaranteeing U. with parliamentary elections scheduled for June.S. Unlike in other major economies. trying to learn from past efforts that had unexpected results. the AKP in 2011 will work toward a more coherent foreign policy. The ruling Justice and Development Party (AKP) is unlikely to lose the election overall. The various factions — both in his National Democratic Party and the army — do not agree on who can best ensure regime stability and policy continuity once Mubarak is no longer in a position to lead. Russia. the ISAF has neither the troop strength nor the staying power to truly defeat the Taliban through military force alone. system — some $10 trillion of the $14 trillion total.

have economies that do not add nearly as much value. STRATFOR pays particular attention to what investors and banks are doing and thinking. This will solve the employment problem. which would normally help the southern European states.S. and STRATFOR forecasts that more states will join Greece and Ireland in the bailout line in 2011. Beijing was concerned that rolling back stimulus policies enacted in late 2008 would put economic growth at risk. STRATFOR has learned that. Japan has largely removed itself from the scene. Because the 2008-2009 recession was financial in origin. and its economy is the least exposed to the international system of any advanced nation. Yet these economies (and others) are enmeshed into the eurozone. STRATFOR projects that the systems the Europeans built in 2010 to handle the financial crisis will prove sufficient to manage Portugal. Japan will rot. In China. The Southern Europeans. given these circumstances. with the Germans experiencing their fastest growth in a generation. the same is not true elsewhere in the world. Spain and Austria. Recently. Japan’s population has aged to such a degree that consumption is expected to shrink every year from now on. Europe faces a structural problem. but Germany’s presence in the eurozone is acting as a sort of life preserver. while its national budget is now majority funded by deficit spending. Federal Reserve indicates how functional the financial system is. nearly every government throughout its history has at some point been brought down by social unrest of some kind. in contrast. Put simply. Both measures are strongly positive as 2011 begins. but it comes at the certain price of higher inflation. but they will only pay so much for a Spanish apple. and total bank credit as made available by the U. They must remain price competitive to generate growth.stratfor. respectively. In one bit of good news for the Europeans. and Southern Europe — the region that needs growth the most to emerge from the debt maelstrom — mired in recession. the four states facing the highest likelihood of bailouts. 5 © 2011 STRATFOR Austin. but it will rot in seclusion. China’s challenge in 2011 will be to maintain sufficient services and subsidies to keep social forces in check at a time when the country’s economic model will exacerbate inflationary problems. The result is a midground currency. The result will be growth bifurcation. The financial crisis is depressing the euro. In Asia the picture is more familiar.com . Consequently. limiting how far the common currency can sink. The euro was designed for and by the Germans. Japan’s debt is held almost entirely at home. Belgium. But while the United States may be gearing up for a strong performance. people will pay more for a German car. and with it employment. prevented from falling to levels that would actually stimulate the south while holding at weaker levels that make the already competitive Germans hypercompetitive. the financial crisis that started sweeping Europe in 2010 is far from over. Luckily for the rest of the world.STRATFOR pays close attention to two other measures on the economy: The S&P 500 Index indicates investors’ risk appetite. Beijing has decided to keep that stimulus intact. who want a strong currency and high interest rates to keep inflation in check and to attract the capital required to maximize their high value-added system of first-rate education and infrastructure. and the only reliable means they have of doing that is to sport a weak currency. TX 78701 Tel: 1-512-744-4300 www.

Domestically. Russia knows that the United States is still bogged down in the Middle East and South Asia. But. In both Kyrgyzstan and Tajikistan.stratfor. but it wants to have some influence over their foreign policy. creating potential instability that could make the region vulnerable to one or more crises. But whether Putin decides to run again as president or remain prime minister. Moscow and Berlin will strengthen their ties politically. a series of unrelated trends will intensify in 2011. economically. Russia’s strategy toward the Baltics is changing. and the political elite are struggling to hold or gain power. the Kremlin leader — currently Russian Prime Minister Vladimir Putin — shakes things up by replacing key powerful figures in the country. and changing relations with Georgia can largely be left for another day. Traditionally. and the Baltics. by a more cooperative engagement. Russia will be more successful in this new strategy in the Baltic state of Latvia and to a lesser degree in Estonia. so there is no need for a unilaterally aggressive push on Washington. Of these. Russia consolidated its control over Belarus. Russia knows that it will not be able to pull these countries away from their alliances in NATO or the European Union. This has been 6 © 2011 STRATFOR Austin. Moscow’s strategy shift will also affect how Russia interacts with its former Soviet states. The most complex relationship will be with the United States. religious and regional tensions are turning violent. Russia knows that it broadly dominates the countries and can now move more freely in and out of them — and allow the states more leeway. In four of the Central Asian states. Kazakhstan and Kyrgyzstan.Former Soviet Union Russia’s consolidation of influence in the former Soviet Union is nearly complete. financially and socially. Russia is furthest along with Moldova. their inherent mistrust for one another will motivate them to prepare to pressure each other if needed in the years beyond 2011. it could trigger another clampdown on the country politically and socially. while Lithuania will be more challenging. and in 2011.com . ensuring it can reap benefits from having warm relations with countries — such as investment and economic ties — while keeping pressure on those same countries for political reasons. in the lead-up to an election. economically and financially in the new year. but many in the country’s elite will still scramble to secure their positions or attempt to gain better ones. TX 78701 Tel: 1-512-744-4300 www. Ukraine. Putin has asserted that his power over the Kremlin is strong enough that he will not need such a reshuffling. the independently minded Caucasus states of Georgia and Azerbaijan. Russia is preparing for parliamentary elections at the end of 2011 and the highly anticipated presidential election in 2012. There are still three regions in which Russia has not solidified its influence and thus will be more assertive: Moldova. and Moscow is attempting to work its way into each of the Baltic states on multiple levels — politically. succession crises are looming. as many outstanding issues remain between the two powers. as throughout history. at least in part. his control over Russia remains secure. In 2010. This time. Should President Dmitri Medvedev’s supporters move to break from Putin’s grip. Russia will play a double game. while strengthening its influence over Armenia and Tajikistan. In Kazakhstan and Uzbekistan. similar to the one seen in the mid-2000s. though within Russia’s constraints. Moscow will feel secure enough in its position to shift from a policy of confrontation with the West to one characterized. ethnic. However. The most productive relationship will be with Germany.

the export sector will not collapse. They will err on the side of higher inflation. conceivably. However. Though a banking crisis may be averted in 2011. Wages. Deposits are still growing and outnumber loans.stratfor. The government will use social 7 © 2011 STRATFOR Austin. and the banks appear just capable of surging credit for another year. Russia’s handling of the situation is the important factor. China’s leaders want a smooth transition to the next generation of leaders in 2012. Already some manufacturers of cheap goods are operating at a loss. most important. generating outbursts of social discontent along the lines of previous inflationary periods. and STRATFOR sources perceive unusually high levels of social frustration from Beijing to Hong Kong.exacerbated by the return of militants who have been fighting in Afghanistan for the past eight years. it cannot be averted for long. In 2011. or even. All of these processes will continue in 2011 to the detriment of export sector stability.com . such as 2007-2008. several major banks raised capital in 2010. STRATFOR does not anticipate it to collapse beneath the government’s target level. but export growth is expected to slow in 2011. TX 78701 Tel: 1-512-744-4300 www. as long as the American recovery continues and there are no other big external shocks. Reports of loss-making enterprises are not yet widespread. while adding to inflation and compounding the sector’s future burdens. but they indicate the real strains from rising costs that will worsen in 2011. This will require a tightrope walk between excessive inflation on one side and drastic slowing on the other. and the sector is sitting on a volcano of new non-performing loans worth at least $900 billion. and do not want the economy to collapse on their watch. but will hold back from getting directly involved in the fighting. workers are demanding better conditions and more compensation while the demographic advantage and the amount of new migrant labor entering markets is slowing. which could exacerbate social troubles. Since 2008. Moscow will ensure that all its pieces are in place — whether political influence or a military presence — in order to keep control (and dominance) over the region. Meanwhile. East Asia The most important question for the Asia Pacific region is whether China’s economy will slow down abruptly in 2011. Though growth may slow. energy and utilities costs are rising. reserves and bad loan provisions. China’s primary hope for maintaining targeted growth rates is investment. Both countries have called on Russia to stabilize their security situations. continued high levels of lending in China will increase systemic financial risks as companies take out new loans to roll over bad debt and invest in inefficient or speculative projects. 1989. gargantuan helpings of bank loans to drive growth. Nevertheless the credit boom cannot last much longer. but Beijing is betting this will remain manageable. Beijing will allow banks to continue high levels of lending. inflation will rise and cause economic and socio-political problems in 2011. With Beijing willing to use government investment and bank lending to avoid a deep slowdown. In these four countries. The central government will continue these stimulus policies in 2011. China’s exports recovered in 2010 from the lows of 2009. Inflation is hitting all the essential commodities. the government is letting the currency slowly appreciate. Beijing has relied on government spending packages and. Without credible reform in lending practices. Moscow will use these requests to increase its presence in the region militarily. and Beijing has toughened regulatory requirements to increase capital adequacy.

Washington will support greater coordination among Japan. Security forces are capable of dealing with protests and riots. These tensions centered on nuclear and missile developments. including the East Asia Summit and the Trans-Pacific Partnership. but such incidents will reveal the depth of the problems the country faces. though Beijing will make token policy changes and increase imports to reduce political friction. China’s military modernization will continue to focus on areas like anti-access and area denial and cyber capabilities. It will increase maritime patrols in its neighboring seas and maintain a hard-line position on territorial and sovereignty disputes. The United States will make bigger threats of imposing concrete trade measures against China as the year progresses. and it is looking like 2011 will see a return to the more managed relations with North Korea seen a decade ago. that it had China’s cover. with its neighbors and with the United States as a precursor to negotiations for economic benefits. price controls and subsidies to alleviate the problem. Berlin will continue to press the rest of Europe to accept its point of view on fiscal matters. Internationally. In the past two decades.policies. perhaps toward the end of the year as the 2012 election campaign starts to warm up. taking at least symbolic action. barring a major domestic disagreement among the North Korean elite over Kim Jong Il’s succession plans. that Seoul and Washington would not respond militarily to a more direct form of North Korean provocation. Europe Europe continues to deal with the economic and political ramifications of its economic problems. using the ongoing economic crisis as an opportunity to tighten the eurozone’s existing economic rules and to introduce new ones. China will continue playing a more assertive role. but not on outright aggression against the South — until 2010. South Korea and others. The United States will build or rebuild ties with partners like Indonesia and Vietnam and become more active in multilateral groups. TX 78701 Tel: 1-512-744-4300 www. The United States will continue its slow re-engagement with the region. At the center is Germany. Vietnam. North Korea has demonstrated a clear pattern of escalating tensions with the South. but will not be able to prevent major incidents of unrest. and the lack of transparency will continue to feed foreign suspicions. All indications suggest that Pyongyang bet correctly. increasing the risk of clashes with Japan. increasing competition with China. a maritime border the North refuses to formally recognize. that nuclear tests and missile launches no longer created the sense of uncertainty and crisis necessary to force the United States and South Korea into negotiations and concessions. Beijing will accelerate its foreign resource acquisition and outward investment strategy.com . and third. second.stratfor. North Korea’s behavior in 2010 appeared off the charts — Pyongyang was accused of sinking a South Korean navy ship and killed South Korean civilians during the shelling of a South Korean-controlled island south of the Northern Limit Line. providing an opportunity for China’s neighbors to hedge against it. Members of the Association of Southeast Asian Nations will try to balance both China and the United States. South Korea and Australia (as well as India) on regional security and economic development in Southeast Asia. Pyongyang appears to have made several very calculated decisions: First. It will continue pursuing large infrastructure projects in border areas and in peripheral countries despite resulting tensions with India and Southeast Asian states. Germany is pursuing three key initiatives: the development of a permanent bailout and sovereign debt restructuring mechanism 8 © 2011 STRATFOR Austin. China’s trade disputes with other nations — especially the United States — will worsen. the most significant European power in 2011.

stratfor. This could accelerate if Berlin is also called upon to rescue one of the other troubled economies within this intense electoral period in the first quarter. In Greece. security from terrorism and anti-immigrant rhetoric and policy. despite growing violence on the streets of Europe. Prime Minister George Papandreou is holding on to an ever-smaller majority in the parliament as his party’s lawmakers jump ship. Elites in power will seek to counter this trend by drawing attention away from economic issues and to issues such as crime. the lack of acceptable political — and economic — alternatives to the European Union and the shadow of economic crisis will keep Europe’s capitals from any fundamental break with Germany in 2011. and there is no indication that such a development will happen in 2011. as well as an increase in protests and street violence among the most disaffected segment of society. Barring an unprecedented outbreak of violence. In Ireland. These are segments that. TX 78701 Tel: 1-512-744-4300 www. foreigners and the construction sector. STRATFOR expects the Central European states to look to alternatives in terms of security. However. Germany will find resistance in Europe. Central Europe will have its own issues to deal with in 2011. But with Washington distracted and unprepared to re-engage in the region. With seven state elections in 2011 — four in a short period in February and March — the first evidence of nontraditional political forces’ coming to the forefront could be in Germany. Ireland has said “no” to Europe twice before on EU treaties. or the United Kingdom. specifically Sweden. Ultimately. Germany would only be truly challenged if one of the large states — France.com . The year 2011 will bring greater electoral success to nontraditional and nationalist parties in both local and national elections.(largely freeing Germany from having to bail out other eurozone members in the future). at least for the next 12 months. The country where elites are in most trouble is in fact Germany. Berlin has not yet made the case to its own population for Germany’s central role in Europe. Greece and Ireland are both already under EU bailout mechanisms. With the United States preoccupied in the Middle East. Berlin’s assertiveness will continue to breed resentment within other eurozone states. and why Germany needs to bail out its neighbors when it has its own economic troubles. who have seen much worse as recently as 15 years ago) and another year of recession. whether with the Nordic countries. Central Europe will continue to see its current security arrangements — via NATO and Europe — as insufficient. Spain or Italy — broke with it on austerity and new rules. but the segments of the population being affected the most across the board are the youth. laying out the advantages Germany gains from the eurozone. and continued adherence to German-designed austerity measures among eurozone members. but leadership change will not mean policy change. elections in the first quarter could bring anti-bailout or anti-austerity forces into power. the Central Europeans might not have a choice in making their own arrangements with Russia. have been and will continue to be ignored. Athens is dealing with historically high unemployment (unlike the Spanish and Irish. or with each other via forums such as the Visegrad Group. and it could be a wrench in Berlin’s plans again. the acceptance of tougher monitoring. implementation and enforcement of eurozone fiscal rules. If anyone breaks the line on austerity. This will first manifest in the loss of legitimacy for European political elites. In large part this is because if Berlin were to make this case domestically. Russia making a push into the Baltic states and consolidating its periphery. it would further breed resentment abroad. and Berlin and Moscow further entrenching their relationship. it will be the Irish and the Greeks. Those states will feel the pinch of austerity measures. which could mean concessions and a more accommodating attitude. 9 © 2011 STRATFOR Austin. both center-left and center-right. Other states may see changes in government (Spain. the youth. Portugal and Italy being prime candidates).

The real gained 108 percent during President Luiz Inacio Lula da Silva’s time in office. but no drastic political reforms are expected.stratfor. Crackdowns on select favelas in Rio de Janeiro are likely to continue this year. developing its pre-salt oil fields and internal security. Cuba will continue to send positive. but managing threats to his hold on power will become more difficult and more complex. this will be a year of immense struggle for Cuba. TX 78701 Tel: 1-512-744-4300 www. Cuba is headed for a major political change. runaway corruption and political uncertainty will define Venezuela in the year ahead. Specifically. for example. In the foreign policy sphere. but STRATFOR does not see that happening in 2011.com . meanwhile. Brazil’s focus will be absorbed by problematic currency gains. albeit measured. Meanwhile. Brazil will keep a measured distance from the United States as a means of asserting its own authority in the region while gradually building up primarily economic influence in the South American states. With Cuba exerting significant influence over Venezuela’s security apparatus and Havana needing capital that Venezuela may not be able to provide in Cuba’s time of need. especially as many of the new privately owned or cooperative businesses are expected to fail due to their lack of resources and experience and because of a shortage of foreign capital. The Venezuelan government will thus become increasingly reliant on its allies — namely China. Though doubts will rise over the sustainability of the Venezuelan government and economy. Iran and Russia — to stave off a collapse. will attempt to place limits on Venezuela’s relationship with Iran in the interest of managing their own affairs with the United States. hitting domestic industry. political signals in an attempt to make investment in the island more politically palatable to foreigners. We suspect that those eyeing a change in the Cuban leadership would rather the Castros take the fall for the economic hardships to be endured during this slow process. However. The year 2011 will be one mostly of continuity for an emergent Brazil as the country devotes much of its attention to internal development. to a lesser extent. Such a change will take time to develop and will entail a great deal of pain inflicted on the Cuban economy.Latin America Economic decay. Brazil is still in the very early stages of achieving 10 © 2011 STRATFOR Austin. particularly Paraguay. China. Venezuelan President Hugo Chavez will resort to more creative and forceful means to expand his executive authority and muzzle dissent. Chavez is facing the developing challenge of a potential clash of interests among those allies. the potential for quiet tension between the two remains. especially considering Venezuela’s growing struggle to maintain steady oil production and the country’s prolonged electricity crisis. the Chavez government likely will not be toppled as long as oil prices allow Caracas to maintain a high rate of public spending. The country is also facing investment needs of around $220 billion over the next five years for the offshore pre-salt oil fields. Cuba and. but constraints on resources and time (with the 2014 World Cup approaching) will hamper this initiative. intends to lay off or reshuffle more than half a million state workers (10 percent of the island’s work force) by March 2011 while attempting to build up a fledgling private sector to absorb the labor. However. on which the country’s geopolitical ambitions have been hinged. Cuba and Russia. relations between Cuba and Venezuela are likely to become more strained. Cuba. There are signs that Fidel and Raul Castro have reached a political consensus over the reforms and are serious about easing the heavy burden on the state out of sheer economic desperation.

However.regional prominence and will feel more comfortable making mostly superficial moves on issues far removed from the South American continent than appearing to intrude in its neighbors’ affairs. with Uganda and Kenya playing a significant role in those talks. However. Sub-Saharan Africa Sub-Saharan Africa’s year begins with important votes in Sudan and Nigeria. centered primarily on oil revenue sharing. and both sides will criticize each other for improprieties during the voter registration period and polling. Nigeria will hold national elections during the first half of the year. it is a race between President Goodluck Jonathan. and these operations are more likely to escalate tensions between the Gulf cartel and Los Zetas than to reduce violence in these areas. In Mexico. mostly independently from the Mexican government’s operations. Both candidates are wooing PDP politicians throughout the country. Southern Sudan will be in a period of legal limbo for the first half of the year. and it will be forced to make concessions on its share of oil revenues during the negotiations. Minor provocations on either side could spark a larger conflict. Within the ruling People’s Democratic Party (PDP). Candidates for the presidency and other political offices will be determined around mid-January. Thus. This will reinforce Khartoum and Juba’s mutual dependency in 2011. The northern and southern Sudanese governments will maintain a heightened military alert on the border. who hails from the oil-rich Niger Delta in the south. These months will be defined by extremely contentious negotiations between north and south. with a new government inaugurated about a month after elections are held. and the man northern politicians are calling the consensus northerner candidate. it will be the result of inter-cartel rivalries playing out between the two current dominant cartels — the Sinaloa Federation and Los Zetas — and their regional rivals. Logic dictates that for the PAN to have a reasonable chance at staving off an Institutional Revolutionary Party (PRI) comeback.stratfor. if the referendum passes. If there is a measurable reduction in overall cartel violence. when party primaries are to be held. Sudan will be an especially tense place all year. Though serious attempts will be made. Mexican authorities will devote considerable resources to the Tamaulipas and Nuevo Leon regions. the south cannot declare independence until July. The south knows it must placate Khartoum in the short term. Juba will also seek to discuss other options for oil exports in the future during the year. 11 © 2011 STRATFOR Austin. and small clashes are not unexpected. TX 78701 Tel: 1-512-744-4300 www.com . the level of cartel violence must come down to politically acceptable levels. and while neither side’s leadership wants this to happen. A referendum on Southern Sudanese independence takes place in January. any new pipeline is at least a decade away. Political stagnation will meanwhile become more severe as Mexico’s election draws closer. for the party’s nomination. with parties forming alliances and the PRI taking more interest in making the PAN look as ineffectual as possible on most issues. Khartoum will grudgingly accept the results of the referendum. former Vice President Atiku Abubakar. STRATFOR does not see Mexican President Felipe Calderon and the PAN making meaningful progress toward this end. the next year will be critical for the ruling National Action Party (PAN) and its prospects for the 2012 elections.

continuing its slow buildup (the contingent is currently 8. let alone attacked meaningfully in its core area of operations in southern Somalia. though. there will still be a governmental presence of some sort to deliver technical and administrative services and to operate public infrastructure (such as the international airport and seaport). But the cash disbursed and the patronage deployed as part of the campaign will keep most stakeholders subdued even if their preferred candidate does not win. but privately guarded and dealt with largely through the presidents’ personal envoys. South Africa will carry into 2011 a predominantly cooperative relationship with countries in the southern African region. Pretoria will use that cooperation to gain regional influence. with both governments sorting through the details of — and inserting controls over — this cooperation. The TFG’s mandate might not be renewed after it expires in August.000 strong). Al Shabaab will not be defeated or even fully ejected from Mogadishu. two semi-autonomous regions in northern Somalia. all as a matter of managing powersharing expectations that could lead to violence. The African Union Mission in Somalia (AMISOM) will see a few thousand new peacekeepers added in 2011. But AMISOM and the TFG will still not be equipped or mandated to launch a definitive offensive against al Shabaab.stratfor. This means the event will not turn into a national crisis. if the government fails to achieve gains in socio-economic governance in Mogadishu amid an improved security environment. TX 78701 Tel: 1-512-744-4300 www. Even if there is no TFG in Mogadishu. 12 © 2011 STRATFOR Austin.com .Extensive intra-party negotiations and backroom deals will occupy the Nigerian government during primary season. notably Angola. Negotiations with Angola over energy and investment deals agreed to in principle during Angolan President Eduardo dos Santos’ visit to South Africa at the end of 2010 will continue during the first half of 2011. and the Niger Delta region is likely to remain relatively calm this year. the election campaign and after the inauguration. This year will see attention focused on securing Mogadishu as well as increased political recognition of Somaliland and Puntland. Relations between the two governments will be superficially friendly. Somali Transitional Federal Government (TFG) troops will receive incremental training to increase their capabilities. Beyond the commercial and regional influence interests Pretoria holds in Angola. the South African government will push for infrastructure development initiatives with other southern and central African countries to emerge as the dominant power in the southern half of Africa.

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