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Tag: Alexander Kozul-Wright

  • Black Sea Grain Initiative: Russia Reluctantly Agrees to a Two-Month Extension

    Black Sea Grain Initiative: Russia Reluctantly Agrees to a Two-Month Extension

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    Black Sea Grain Initiative has been renewed – for now. Credit: Ihor Oinua/Unsplash
    • by Alexander Kozul-Wright (geneva)
    • Inter Press Service

    GENEVA, Mar 22 (IPS) – Given the complex interplay between geopolitics and financial markets, Russia’s invasion of Ukraine in February 2022 sent shockwaves across the global economy. Admittedly, the implications both within and between countries have varied. However, there were some common denominators, including higher commodity prices.

    Price disruptions were particularly severe for ‘soft’ agricultural commodities. During peacetime, Russia and Ukraine produced a large amount of the world’s grain, supplying 28 percent of globally traded wheat and 75 percent of sunflower products. Before the war, they were also among the world’s top providers of barley and corn.

    After the start of hostilities, exports of grain were severely disrupted. For four months, Russian military vessels blocked Ukrainian ports. Supply constraints triggered market volatility and price rises. Wheat, for instance, reached a record high in March 2022. This left millions of people, particularly in developing countries, at the frontline of a food crisis.

    Then, in July 2022, two agreements were signed: one was a memorandum of understanding between the UN and Moscow to facilitate global access for Russia’s food and fertilizer exports; the second was the Black Sea Grain Initiative (BSGI), signed by Russia and Ukraine, facilitating the safe export of grain and other foodstuffs from Ukrainian ports via the Black Sea.

    Brokered by the UN and Turkey, the BSGI opened a protected maritime corridor through Ukraine. The agreement assuaged concerns about global grain supplies and led to price declines. Over 900 ships of grain and other foodstuffs have left Ukraine’s major ports since last summer.

    Prior to the conflict, between 5-6 million tons of grain were exported from Ukraine’s seaports every month, according to the International Grains Council. By the end-2022, Ukraine had once again reached its historical exporting capacity (at just under 5 million tons). Production responses elsewhere also helped to increase global supplies.

    Still, Ukrainian exports to developing countries remain below pre-war levels. And while unblocking the trade corridor did help to address food insecurity in 2022, export backlogs were significant. Today, grain prices (while they have come down in recent months) remain elevated.

    Against this backdrop, negotiations between UN officials and Russian Federation representatives – headed by Deputy Foreign Minister Sergei Vershinin – kicked off in Geneva last Monday on a possible extension of the BSGI. Subsequent to a four-month renewal last year, the deal was set to expire on March 18th.

    Earlier this month, UN Secretary-General Antonio Guterres highlighted the deal’s importance. He stressed that “it contributed to lowering global food costs and offered critical relief to people…, particularly in low-income countries.” Ukraine’s president, Volodymyr Zelensky, also called for the initiative to be extended.

    For their part, Russian officials argued that ‘hidden’ sanctions – targeting fertilizer firms and the country’s main agricultural bank – have undermined commodity exports. By way of background, exemptions were carved out for some Russian food and fertilizer products after Western sanctions first targeted the Kremlin in February 2022.

    In Geneva, delegates stressed that over-compliance and market avoidance by private companies had resulted in Russian commodity exports being under-traded. They noted that sanctions on its payments, logistics, and insurance systems created a barrier for Moscow to sell its grains and fertilisers in international markets.

    In response, they requested that national jurisdictions enhance exemption clarifications for food and fertilizers products. “I think it’s a fair request,” says Jayati Ghosh, professor of economics at the University of Massachusetts, Amherst. “Hidden sanctions are impeding Russian financial transactions and undermining allegedly exempted exports.”

    When the BSGI was last renewed in November, Russia threatened to renege on the deal unless hidden sanctions were addressed. While they eventually agreed to an extension, Moscow has since insisted that its own agricultural exports (notably ammonia) be included in the BSGI as a condition for its renewal.

    Under the deal’s latest iteration, Russia’s pre-condition went notably unaddressed. Moscow, in turn, agreed to extend the deal for just two months. Ukraine, meanwhile, issued conflicting statements on the matter. Over the weekend, Deputy Prime Minister Oleksandr Kubrakov tweeted that the agreement had been extended for four months.

    So far, the UN has not specified the length of the renewal, but “this could be the last time an extension is agreed,” according to Ghosh. “Russia is probably going to use this latest agreement as a threat. Rejecting a third extension in the spring may force the international community to listen to their concerns”.

    IPS UN Bureau Report


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    © Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

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  • UN Falls Short of Aid Pledge to Yemen Despite Peace Efforts

    UN Falls Short of Aid Pledge to Yemen Despite Peace Efforts

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    In the southern city of Taiz, 11-month-old Ameer Hellal receives WFP supplementary food for malnutrition. Photo: WFP/Albaraa Mansoor
    • by Alexander Kozul-Wright (geneva)
    • Inter Press Service

    GENEVA, Mar 03 (IPS) – At a high-level UN event, global donors pledged US$1.2 billion in aid operations to Yemen in 2023. Millions of Yemenis require humanitarian assistance as the country continues to suffer from the fallout of a prolonged civil war.

    While the Humanitarian Affairs and Emergency Relief Coordinator Martin Griffiths noted that the UN had received 31 commitments during the conference on February 30, 2023, in Geneva, the amount pledged remains well below the organisation’s target of US$4.3 billion.

    The conflict in Yemen started in 2014 when Iranian-backed Houthi rebels – representing the country’s Zaidi Shia Muslim minority – seized the capital, Sanaa. The war intensified in 2015 when a Saudi-led coalition intervened on behalf of the government against the Houthis.

    Owing to repeated Saudi-led bombardment campaigns and deep territorial divisions (half of the country remains under Houthi control in the north and the other half under government control in the south), Yemen’s economy has ground to a halt.

    Last year, exogenous factors also led to steep falls in Yemen’s Rial relative to the U.S. dollar, pushing inflation up to 45 percent. Elsewhere, food prices surged by 58 percent. In 2022, 13 million people in Yemen relied on the UN’s World Food Program for basic staples.

    To date, the conflict has killed more than 375,000 people, sixty percent from indirect causes (mainly from malnutrition and disease). The war has also razed the country’s civilian and physical infrastructure, including its oil sector – Yemen’s only source of foreign exchange.

    Last year, warring parties agreed to an UN-brokered cease-fire. Though it expired in October, the six-month truce led to a reduction in casualties. It also enabled commercial traffic to flow through the port of Hodeida, increasing the supply of goods and aid into the country.

    A slight improvement in food security at the end of last year meant two million fewer Yemenis suffered from acute hunger. The number of people in famine-like conditions also dropped from 161,000 to zero. But progress remains fragile.

    Yemen continues to rely on foreign aid. “More than 21 million people, or two-thirds of the country’s population, will need humanitarian assistance in 2023,” said UN secretary-general António Guterres.

    Among those in need, more than 17 million are understood to be living below Yemen’s poverty line. Meanwhile, an estimated 4.5 million Yemenis are internally displaced, largely due to climate-change-related events.

    According to the UN, Yemen is “highly vulnerable” to the effects of rising global temperatures (notably arid weather). In recent years, severe droughts have exacerbated food shortages caused by the war.

    Yemen Remains in Need of External Support

    The UN’s US$4.3 billion funding objective is nearly double what it received last year. Looking ahead, reliance on external aid will be particularly acute in 2023 due to constrained oil exports linked to Houthi attacks on government-held oil terminals last October.

    This week’s conference took place as the country’s rival groups agreed to an informal suspension of hostilities. Efforts are underway to declare a lasting peace after the parties failed to extend their UN-backed peace agreement last year.

    “We have a real opportunity to change Yemen’s trajectory and move toward peace by renewing and expanding the truce,” noted Guterres at the pledging event, co-hosted by Sweden and Switzerland.

    The meeting was attended by officials worldwide, including U.S. Secretary of State Antony Blinken and Germany’s Foreign Minister Annalena Baerbock. In his speech, Blinken called on donors to step up their contributions, citing last year’s funding shortages.

    The UN missed its financing target for Yemen by US$2 billion last year. Blinken also urged the international community to help restore Yemen’s economy, suggesting this would “reduce people’s suffering over the long term.”

    “Large-scale investment will be needed to rebuild Yemen’s physical infrastructure. Securing peace, however, remains the top priority. “Without it, millions will continue to face extreme levels of poverty, hunger and suffering,” added Blinken.

    Meanwhile, the UN secretary-general warned that aid funding would not provide a panacea for Yemen.

    “Humanitarian assistance is a band-aid. It saves people’s lives but cannot resolve the conflict itself.”
    IPS UN Bureau Report


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    © Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

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  • Development Banks Should Reform Their Lending Practices

    Development Banks Should Reform Their Lending Practices

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    • Opinion by Alexander Kozul-Wright, Ruurd Brouwer (geneva)
    • Inter Press Service
    • The International Monetary Fund (IMF) and the World Bank share a common goal of raising living standards in their member countries. This week, the two international institutions will convene in Washington DC (through October 16) for their annual meeting. The strength of the US dollar will be a key talking point. By adjusting their lending practices, these institutions have a unique opportunity to relieve suffering in the world’s poorest countries.

    GENEVA, Oct 11 (IPS) – In the last week of September, emerging market (EM) bond fund outflows hit $4.2 billion, according to JP Morgan, bringing this year’s total to a record $70 billion. The exodus, set off by a rising U.S. dollar, is heaping pressure on low-income countries.

    The greenback’s rise has been fuelled by interest-rate hikes by the Federal Reserve. Since March, the Fed has raised rates by three percentage points, prompting global investors to move their funds into U.S. financial assets and away from (riskier) EM investments.

    While economists continue to wrangle over their U.S. growth forecasts, this ‘flight to quality’ has sent financial shockwaves across the developing world, already straining under elevated costs for food and fuel – typically priced in U.S. dollars. Moreover, attempts by EM policy makers to stem the dollar’s rise have largely failed.

    Over the course of this year, central banks around the world have drained their U.S. dollar reserves at the fastest rate since 2008. To stem currency depreciations, they have also raised interest rates aggressively. In Argentina, for instance, policy makers raised rates to 75% last month. To little avail.

    The MSCI Emerging Market Currency Index, which measures the total return of 25 emerging market currencies against the U.S. Dollar, is down nearly 9 percent from January 1st. The Egyptian pound has depreciated by 20% over the same period, according to Bloomberg data. In Ghana, the Cedi has fallen by 41%.

    On top of higher imports costs, a plunging currency makes the servicing of dollar- denominated debt more expensive. This concern may seem abstract to people in advanced economies. In developing nations, however, the effects are painfully real.

    As the dollar appreciates relative to other currencies, more domestic currency (in the form of tax revenues) has to be generated to service existing dollar debts. For low-income governments, budget cuts have to be implemented in the hope of avoiding sovereign default.

    Currency depreciations have the power to strongarm authorities into reducing health and education spending, just to stay current on their debts. This leaves officials with a grim choice: either risk unleashing a full-blown debt crisis, or confiscate essential public services.

    Given the painful costs of insolvency, governments tend to prioritize austerity over bankruptcy. Together with the oft-publicized effects of lost access to foreign investment, subdued growth and high unemployment, sovereign default also imposes severe social tolls.

    In August, the World Bank published a paper measuring the decline in country living standards – looking at access to food, energy and healthcare – after state bankruptcies. The paper showed that ten years after default, countries experience 13% more infant deaths per year, on average, compared to the synthetic control (counterfactual) group.

    Admittedly, more developed emerging markets like Brazil and India can issue bonds in their own currency to limit budget cutbacks. In most of the world’s poor countries, however, financial markets are too shallow to support domestic lending.

    With no recourse to borrow from private creditors, public bodies like multi-lateral development banks (MDBs) usually step in to fill the gap. Indeed, almost 90% of low-income countries’ (LICs) funding takes the form of concessional, or non-commercial, loans from official lenders.

    Even accounting for these favourable terms, financial pressures are beginning to build outside of well-known hot spots like Lebanon, Sri Lanka and Pakistan. As it stands, LICs have outstanding debts to MDBs and other official creditors to the tune of $153 billion (mostly denominated in USD).

    Given the exogenous trigger for capital outflows from developing countries this year, multi-lateral lenders need to be more innovative. Where possible, they should use their robust credit ratings to assume greater risk by lending to poor countries in domestic currencies.

    Failing that, they could lend in synthetic local currencies. These instruments index dollar debts to local exchange rates, allowing borrowers to service liabilities in their own currency while ensuring that creditors receive payments (both interest and principal) in dollars.

    Synthetic currencies can improve debtor credit profiles by limiting foreign capital outflows and, by extension, improve debt management capacity. In particular, they boost economic resiliency by making government finances less a function of international currency volatility.

    Multilateral financial institutions have been tasked with designing a stable international monetary system to try and ease global poverty. But the loans provided by these groups undermine their own mission, as dollar debts force currency risk onto the countries least able to handle it.

    This week, the World Bank and the IMF will convene in Washington (October 10-16) for their annual meeting. The strength of the USD will be a key talking point. By adjusting their lending practices, these institutions have a unique opportunity to relieve suffering in the world’s poorest countries.

    Alexander Kozul-Wright is a researcher at Third World Network and Ruurd Brouwer is Chief Executive Officer at TCX, a currency hedging firm (https://www.tcxfund.com).

    IPS UN Bureau


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    © Inter Press Service (2022) — All Rights ReservedOriginal source: Inter Press Service

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