Analysis

Egyptian Leverage

Cairo’s role in a US-backed regional security architecture makes the military dictatorship a regional giant too big to fail. The Sisi regime, like its predecessors, is keenly aware of this status and leverages it to secure the acquiescence of creditors and allies. The size of the IMF agreement—more than double the $3 billion originally on the table—recognizes this fact. 

Oil Linkages

Oil and gas producers in Africa face unique challenges in pursuing state-led development. The resource curse, and specifically the phenomenon of “Dutch disease”, which inflates the value of the local currency, makes exporting local products abroad difficult. As long as oil remains a valuable commodity, however, the opportunities for development will remain.      

Total Peace?

Gustavo Petro’s presidency marks a turning point in Colombia’s democratic history. Not only is Petro the first leftist in government, but he has also made achieving peace a central objective of his progressive agenda. The Colombian armed conflict has been the most violent conflict in Latin America in both the twentieth and twenty-first centuries: it has left over 450,000 dead, 50,000 kidnapped, and 8 million displaced. Beginning in the mid-1960s with roots dating back to the 1950s, it is also the region’s longest running conflict. Dozens of guerrilla groups, dissidents, and factions have emerged within this landscape, alongside paramilitary structures, drug cartels, and state-led violent actors.

The G20 in the South

In December 2023, Brazil began presiding over the G20. The one-year presidency, which will culminate in the annual summit being hosted in Rio de Janeiro in November 2024, is the third of four terms from the global South—following Indonesia in 2022 and India in 2023, and preceding the already decided South African presidency in 2025. When India’s Narendra Modi formally handed over the presidency to Brazil last November, Lula announced three priorities to “place the reduction of inequalities at the center of the international agenda: (i) social inclusion and the fight against hunger (ii) energy transition and sustainable development in its three aspects (social, economic and environmental) and (iii) reform of global governance institutions.” The proposals were well received internationally; now is the time for concrete agendas to build toward the November summit.

Red Sea Rivalries

Every few years, a crisis in the Red Sea makes global headlines. In 2014, the Yemeni Civil War spilled into the Red Sea after the Houthis captured the capital Sana‘a and dissolved the parliament. As a warning, the Houthis allegedly conducted two missile strikes on US Navy ships, prompting a swift but limited retaliation from a US warship. In 2019, a malfunctioning commercial vessel was left stranded in the Suez Canal for six days, obstructing the trade of an estimated $9 billion in commercial goods passing through the Red Sea each day. The scale of the economic impact was so severe that the Egyptian government, which profits from tolls on Suez transport, initially demanded close to a billion-dollar settlement from the Japanese owner of the vessel.

The Falling Lira

Since late 2021, the Turkish economy has been shattering conventional economic expectations. With deeply negative real interest rates, high inflation, a large and persistent current account deficit, an external debt stock exceeding 50 percent of GDP, and a central bank with net foreign exchange reserves estimated around -$50 billion, the economy has seemed permanently poised for crisis. 

Miracle in Reverse

The South Korean economy has widely been recognized as the paragon of the East Asian miracle, with rapid economic growth and a fairly equal income distribution. The country continued its upward growth trajectory even in the aftermath of the 1997 financial crisis, emerging as a global leader in manufacturing semiconductors, automotive, and batteries.

External Imbalance

In August 2023, a week after winning Argentina’s primary elections, now-president Javier Milei, publicly stated that the Argentine peso was “worth less than excrement.” In the next two days, the dollar-peso parallel exchange rate climbed almost 20 percent, intensifying the already rapid devaluation of the currency. Such extreme proclamations were common for Milei, who as a candidate combined libertarianism with global right-wing extremism and placed proposals to abolish the central bank and dollarize the national economy at the center of his campaign. 

Anarcho-Capitalism

Since the early 2000s, Argentine development finance has undergone a profound transformation. Amid cyclical debt defaults and endless negotiations with Western investors and the IMF, Chinese overseas investment loans have slowly crept to the fore. Between 2007 and 2020, Argentina received $10.65 billion in investment from Chinese companies, concentrated in the  energy,  mining and finance sectors.

Constitutional Odysseys

On September 11, 1980—seven years after Augusto Pinochet seized power from democratically elected Salvador Allende in a brutal American-backed military coup—the dictatorship passed a constitution that laid the groundwork for one of the world’s earliest and most enduring neoliberal experiments. The results of this experiment have been well documented: with the privatization of education, pensions, health, public transportation, and essential natural resources like water, the country became one the most economically unequal countries in the OECD. 

Climate Divergence

Ten years ago, the current predicament of central bankers would seem unthinkable: to what extent should they contribute to society’s response to climate change? As the impacts of climate change have escalated, most central banks have begun to appreciate the wide-ranging economic and financial consequences relevant to their work. These include the economic damages from heat waves, storms, floods, and droughts, as well as rising sea levels, species extinction, and other environmental shifts. These physical impacts also set the stage for a disruptive societal transformation, which will have consequences for central banks’ ability to maintain monetary and financial stability. How central banks should respond to these new challenges remains hotly contested. What is the appropriate role for institutions with unrivaled power—and high levels of political independence—to shift the financial conditions that are critical for a response to climate change?

Sectoral Strategy

Industrial policy in Africa is back. Beginning last January, Nigeria moved forward with the second phase of  its “Sugar Master Plan,” a flagship industrial policy that began in 2013 to stimulate domestic production. It does this by offering numerous incentives to investors and prohibiting refined sugar imports for retail. Last month, Ghana extended a zero VAT policy on locally manufactured textiles, while Kenya announced plans to impose a 25 percent levy on imported clothes to revive its textile sector. And over the past decade, Benin’s investment in the Glo Djigbé Industrial Zone, a textile industrial park, has helped transform the nation into the continent’s leading cotton producer.

Industrial Experiments

The turn of the twenty-first century brought a reassessment of development economics. The global commodity boom of the 2000s ushered in windfall profits for resource-rich countries in the global South, and with them came new agendas for growth. In 2002, economists like Dani Rodrik were hailing the decline of political support for the Washington Consensus and wondering what would come after neoliberalism.

The Doom Loop

Recent coverage of insurance markets has highlighted the industry’s involvement in the so-called “climate risk doom loop”: looming climate risks and greater disaster damages are raising the price of insurance for real estate and infrastructure assets, exacerbating their owners’ vulnerability to future disasters and feeding into higher insurance prices in the future―or the withdrawal of insurance coverage altogether.

Bearing Risk

For the past two centuries in Britain, the US, and other high income countries, financial markets have been venues in which the government provides a relatively safe investment opportunity in the form of government bonds. At the same time, private investors seeking higher returns have privately issued stocks and bonds in these markets, thereby bearing the risk of financing private productive and innovative activities.

Rate Transformation

On September 28, 2023, the Bank of England opened permanent liquidity facilities to nonbanking financial entities—such as pension funds, insurers, and investment funds— many of whom have a role in the interest rate swap market. The move is unprecedented. Historically, the Bank of England and other Western central banks have assisted banks in managing their cash outflows by creating facilities catering to liquid assets' usability. Since the introduction of swaps in the 1980s, swap market participants were excluded from liquidity programs, and interest rate swaps were not considered a cash management tool. Why the sudden shift? 

The Dollarization Threat

The results of Argentina’s first-round elections on October 22 were not to be expected. Conservative former security minister and election favorite Patricia Bullrich came in third place, knocking her out of the running for the presidency, which will be decided on November 19 at a runoff election between the current Peronist finance minister Sergio Massa and the far-right economist Javier Milei. Having won 36.6 percent of the vote—compared to Milei’s 29.9 percent—Massa remains the frontrunner, but it remains unclear whether Bullrich’s supporters will side with the Peronist figurehead of the crisis-ridden economy or the far-right outsider next month. 

Democratic Preconditions

Poland’s parliamentary elections last Sunday have led to victory for Donald Tusk and his party, Koalicja Obywatelska (Civic Coalition). Although the ruling Prawo i Sprawiedliwość (Right and Justice, or PiS) Party received the largest share of the vote, 35.4 percent, granting them the first opportunity to try to form a government, they are likely unable to do so. An alliance with the far-right Confederation party, which won eighteen seats, would not be enough for a majority. Partnering with the centrist Trzecia Droga (Third Way), and the Nowa Lewica (New Left) alliance, Civic Coalition will be able to lay claim to 248 of the 460 seats in parliament, returning Tusk to the office of prime minister, a position he last held between 2007 and 2014. 

The Oil Revolution

The abrupt quadrupling of the oil price in the final months of 1973 is widely held to have marshalled the end of “a golden age of world capitalism.” Eric Hobsbawm’s standard-setting interpretation defines 1973 as the turning point when the world “lost its bearings and slid into instability and crisis.”[fn]Eric J. Hobsbawm, Age of Extremes. The Short Twentieth Century (London: Abacus, 1994), 403.[/fn] Though Hobsbawm’s assessment was overwhelmingly skewed towards the global North, the radical changes that occurred in the oil market that year were no doubt both of immediate and longer-term global significance.