IV. POLITICAL ENVIRONMENT NATURE OF BILATERAL RELATIONSHIP WITH THE UNITED STATES The government and people of Madagascar are favorably disposed toward the United States, and relations are friendly. The U.S. is a major bilateral donor country, and contributes to multilateral programs in Madagascar of the United Nations Development Program, the World Bank and the International Monetary Fund (IMF). Madagascar is historically linked to its former colonial power France, and its government, legislature and judicial system are marked by French models. Madagascar is a member of the Non-aligned Movement and the Organization of African Unity and tends to take stances in international fora with those organizations. Its non-alignment is reflected in its "all points" diplomatic relations, ranging from Israel, South Korea and Taiwan to China, Iran and North Korea. MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE After years of failed socialist economic policies, Madagascar is taking important steps toward economic reform which favors reducing the government's presence in the productive sectors of the economy. Some Malagasy leaders favor accomplishing economic reform through structural adjustment programs backed by the IMF and World Bank, and others favor direct private sector financing on commercial terms. There is general agreement on the goals of developing the private sector, improving export volumes, creating jobs, and reducing public sector deficits and debts. While the Malagasy government has endeavored to simplify procedures for single-stop investment ("guichet unique"), the on- going decentralization of political and administrative structures-- intended to give regions more self-government and revenue collection powers, and strengthen government accountability-- will probably add some administrative hurdles for businesses seeking to invest in Madagascar. BRIEF SYNOPSIS OF POLITICAL SYSTEM, SCHEDULE FOR ELECTIONS AND ORIENTATION OF MAJOR POLITICAL PARTIES Madagascar's political system is defined by a constitution which was approved by referendum in 1992 and provides for a mixed parliamentary-presidential structure. The Parliament comprises a National Assembly and a Senate. At the time of this writing, only the National Assembly is in place. Its 138 members were elected in June 1993 and will serve for four years. The National Assembly elects a Prime Minister who then designates his cabinet of ministers (the Government) with the approval of, and in consultation with, the President. The President was elected in February 1993 by direct, unusual suffrage for a five-year term. The Prime Minister and his government constitute the executive in all but sovereignty matters (i.e., foreign affairs and national defense), in which the President is the executive. Both the Government and the Parliament share legislative initiative. The formation of the Senate will first require the election of territorial assemblies, since it is these local legislative bodies which will elect, in turn, two-thirds of the Senate. The remaining third are to be appointed by the President. Senators serve for four years. In addition to the executive (President and Prime Minister) and legislative (National Assembly and Senate) branches, the constitution provides for an independent judiciary composed of a Constitutional Court, a Supreme Court, a High Court (to judge executive and judicial branch authorities), and a system of tribunals and appeals courts. There are considerable checks and balances. The Government can be censured and dismissed by an absolute majority in the National Assembly. On the other hand, the President and the Council of Government (i.e., the Prime Minister and his Cabinet) can by decree, dissolve the National Assembly. The Constitutional Court must approve the constitutionality of every law before it is promulgated. Local government elections are tentatively scheduled for August 1994, but may not take place until later, possibly November. Barring a dissolution, the next National Assembly elections will take place in 1997, followed by Presidential elections in late 1997 - early 1998. Political parties currently tend to divide along populist versus reformist lines, the major difference being the degree of adherence to economic reform prescribed by the IMF and World Bank. The major populist parties are generally associated with the so- called "Forces Vives" movement which spearheaded the 1991-1993 transition period, ending the rule of long-time president Didier Ratsiraka. The Forces Vives movement is led by President Albert Zafy and by the President of the National Assembly, Richard Andriamanjato. Influential political parties most closely associated with them (with number of seats in the 138-seat National Assembly) are: Forces Vives Cartel (47); AKFM- Fanavaozana (5); and Union National pour la Democratie et le Developpement-UNDD (7). The major reformist parties tend to espouse more economic conservatism; i.e., balanced budgets, a reduced public sector, private sector development, market forces and a privatized banking system. The economic policies of the government of Prime Minister Francisque Ravony tend in this direction, even though the government has several Forces Vives ministers. Primary reformist proponents are the G-Six majority in the National Assembly, which includes the following parties (with National Assembly seats): MFM (15); Leader-Fanilo (15); Fihaonana (10); FAMIMA (11); and PSD/RPSD (8). Several G-Six parties include hold-overs from the Ratsiraka regime which began initiating market-oriented economic reforms before being turned out of office.