Tag: china

Lebanese Banking Sector ‘Unwilling’ to Reform

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On Thursday, June 18, Lebanese financial adviser Henri Chaoul resigned from his role in negotiations with the International Monetary Fund (IMF.) The adviser of the Lebanese Ministry of Finance expressed his exasperation with the Lebanese banking sector.

“I have come to the realization that there is no genuine will to implement either reforms or a restructuring of the banking sector, including the Central Bank,” Chaoul said in a statement.

The adviser accused Lebanese authorities, including politicians, central bank officials, and representatives of the Lebanese banking sector of dismissing the “magnitude” of Lebanese losses and accused all actors of embarking on a “populist agenda,” according to Reuters.

The government of Prime Minister Hassan Diab had introduced a plan based on government projections of losses amounting to $83 billion in the banking sector alone. The plan’s estimations of losses presented the first quantitative diagnosis of Lebanon’s intertwined crises that have led to rapid hyperinflation and rapidly falling living standards for Lebanese people.

Fundamental disagreements

Chaoul and the IMF appear to agree with the magnitude of the losses estimated in the prime minister’s plan, but Chaoul implied that the banking sector, including its central bank and a parliamentarian fact-finding committee, had presented very different numbers, challenging the government’s estimates. The failure of Lebanese officials to agree upon the scale of its losses amounted to a “dismissal” of the true problem, according to the adviser.

The former Lebanese finance minister and current Speaker of Parliament Nabih Berri said that the government estimates had been drawn up in a rushed manner that had led to mistakes and wrong assumptions. He told Lebanese broadcaster MTV that Lebanon would be unable to pay its bond obligations until 2043 as politicians aim to reach a compromise on the true number of losses.

The IMF itself has highlighted that the uncertainty over the true scale of Lebanon’s financial woes is a major stumbling block in the ongoing negotiations, calling for a “joint diagnosis” to establish a transparent diagnosis on which to base its talks.

“Lebanon needs to reach a common understanding of the source and size of its financial losses,” IMF spokesman Gerry Rice stated on the IMF website, calling the issues “complex.”

Reforms

The IMF will only provide support if the Lebanese government is willing to implement broad reforms, which could prove unpopular. “There is a need for comprehensive reforms in many areas, which requires acceptance and consensus from the society as a whole,” Rice stated.

But many fear the IMF will require unpopular neoliberal reforms that aim to cut public spending that could face significant resistance from Lebanon’s increasingly destitute population.

Public resistance to IMF demands for reform is highly likely as the IMF is a proponent of the “Washington consensus” that calls for cutting public spending, shifting taxation onto the poor, liberalization of banking, deregulation, and privatization.

Many countries who have followed IMF reforms have only seen their populations further impoverished as public spending is cut to allow for foreign debt repayments while halting growth and inflation.

US ambitions to weaken the influence of Hezbollah in Lebanon and neighboring Syria have resulted in tough sanctions, the Caesar act, which came into effect on June 17. The sanctions are aimed at Syria but will gravely impact Lebanon, which is one of the few remaining nations to trade with Syria.

The role of the US in further worsening Lebanon’s economic prospects in the midst of its interconnected health, economic, and financial crises has led some to urge the country to find funding from China instead.

Chinese alternative

China has been eager to work with Lebanon, as it sees its ports in Tripoli as an important possible link in its Belt and Road Initiative that aims to connect Europe with China through an ambitious infrastructure project that spans the historic silk route.

Hezbollah’s leader Hassan Nasrallah on June 16 announced that China is ready to invest in Lebanon’s infrastructure.

“Chinese companies are ready to inject money into this country,” Nasrallah stated on Hezbollah’s television network Al-Manar. Nasrallah argued that China would easily match the $10 billion sought from the IMF, with few of the painful reform demands.

While inviting Chinese investment could significantly boost Lebanon’s economic prospects, it would risk the ire of the United States who could apply sanctions to cripple the economy as it is currently doing in Iran and Syria.

Accepting IMF reforms would likely spark further popular unrest, while accepting Chinese investments could trigger a diplomatic conflict with the US. Even if Lebanon had a functional and effective government, the country is left with few good choices to resolve the suffering of its people.

Russia, China, EU Tell US to Pull Back from Iran Arms Embargo Threats

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Russia and China have echoed the European Union’s sentiments, reiterating that the US is in no position to use the Iran nuclear deal as a platform for imposing a permanent weapons embargo on Iran. In a May 27 letter, to the UN Security Council, and  U.N. chief Antonio Guterres made public today, Russian Foreign Minister Sergey Lavrov criticized the US position as “ridiculous and irresponsible.” 

“This is absolutely unacceptable and serves only to recall the famous English proverb about having one’s cake and eating it,” Lavrov wrote.  

Last week, US Ambassador to the UN Kelly Craft said a draft resolution would soon be introduced to the Security Council calling for a permanent arms embargo on Iran, as it has violated the conditions of the Joint Comprehensive Plan of Action (JCPOA). Despite no longer being part of the accord, Craft and US Secretary of State Mike Pompeo have both intimated that reintroducing UN-backed weapons sanctions, under the basis of the JCPOA agreement, is currently a top US priority.  

Top Chinese and European Union diplomats have also questioned the Trump administration’s call for a snapback to pre-JCPOA sanctions. All permanent Security Council members — Russia, China, the US, France and UK — have a right to veto resolutions. 

“The United States, no longer a participant to the JCPOA (nuclear deal) after walking away from it, has no right to demand the Security Council invoke a snapback,” Wang told the Security Council and Guterres in a letter on June 7. 

On June 9, EU foreign policy chief Josep Borrell Frontelles agreed, stating, “the United States has withdrawn from the JCPOA, and now they cannot claim that they are still part of the JCPOA in order to deal with this issue from the JCPOA agreement.”  

“They withdraw. It’s clear. They withdraw,” he stressed. 

The US unilaterally pulled out of the Joint Comprehensive Plan of Action (JCPOA) accord

between the U.S., Britain, Germany, France, China, Russia and Iran in 2018. Under the 2015 plan Iran promised to limit sensitive nuclear activities, in return for an easing of sanctions. However the agreement began to unravel when Trump pulled out of the deal under his “maximum pressure” campaign, and re-imposed stringent US economic sanctions. 

Under the JCPOA, which is enshrined in a UN resolution, if Iran violates the terms of the accord, sanctions, including an arms embargo, can be reinstated. Iran has violated the terms of the nuclear deal since the US pulled out, but Lavrov, Wang, and Borrell argue that the US has waived its rights to push for renewed sanctions since pulling out of the accord.  

“A party which disowns or does not fulfil its own obligations cannot be recognized as retaining the rights which it claims to derive from the relationship,” Lavrov explained, invoking 1971 International Court of Justice precedent. 

Read also: Iran to Execute Spy Who Gave Soleimani’s Location to US

 

 

Central Banking For All: How a Digital Yuan Could Change Banking Forever

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When officials in China’s government heard Facebook CEO Mark Zuckerberg announce plans for a digital currency called the “Libra” in October, it made a decision to fast-track the implementation of its own digital currency. The Chinese government had been working on a digital version of its currency since 2014 and the looming threat of a potential competitor meant they needed to act fast.

‘Leaked’ trials

In April 2020, in the midst of a global pandemic, China started field-testing its digital currency in four large cities. Screenshots of China’s digital currency soon circulated on the internet, prompting government officials to announce that the new currency’s digital wallets were “part of the test in our research and development process and it does not mean the digital yuan has been launched officially.”

The trial run in Chengdu, Shenzhen, Suzhou, and Xiong’An meant that locals would receive part of their wages not in their bank account, but instead through deposits to a “digital wallet.” From that digital wallet customers could buy a hamburger at McDonald’s, pay for their morning coffee at Starbucks, or spend their earnings in participating shops, entertainment venues, and restaurants.

The government has stressed that it has no official timetable or launch date for the digital currency but currency traders and financial experts have nevertheless begun debating the potential threats and benefits. “American economic and geopolitical power is at stake,” stated Foreign Affairs, while Forbes published an op-ed titled “China could force Donald Trump and the Fed to destroy the US banking system.”

Going digital

The Chinese are already very familiar with cashless payments. Apps like Alipay and Wechat Pay mean Chinese people increasingly grab their phone instead of their wallet when it is time to pay at shops, restaurants, or even informal street vendor stalls, a user experience very similar to that of a potential digital Yuan.

After it became clear that the COVID-19 pandemic had hit Wuhan the worst, China’s government had trucks full of locally used cash shipped to be disinfected for reuse. Officials feared the virus could easily transfer through currency and initially planned to literally “launder” the money to clean and disinfect it.

But it soon became clear it was easier to replace the paper notes with digital currency and that the implementation of a digital currency meant that in a future crisis, money could be distributed instantly to citizens.

The Coronavirus crisis has already inspired the much-criticized Chinese government to ditch growth targets, something deemed unimaginable just a year ago, and could be set to again challenge the global financial and economic status quo with its newest innovation: “Central banking for all,” with the digital Yuan.

Cutting out the middleman

While some fear a possible long-term threat of the digital Yuan replacing the Dollar as the favored international currency, it is the banking system that should be most worried. The digital Yuan means that citizens, businesses, and the government can make payments without banks taking their cut.

Our global status quo means citizens get their money from their employer. They then deposit this in a bank account, and the bank then uses that money as collateral in order to borrow much more money from central banks, which banks use to make trades and invest just like any market trader would. In essence, banks hold depositors’ money, and use it to borrow more money to loan out or “play with” in the market.

That system is the part of the “financialized economy” in which we live, where banks produce no actual products but profit from their position in between central banks and citizens and businesses. That entire industry could be upended by China’s digital Yuan with citizens receiving and transferring money directly through their central bank with no fees or profits made.

OPEC Countries Face Difficult Choice as Volatile Oil Prices Rise

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With oil prices now close to $40 per barrel, member states of the Organization of Petroleum Exporting Countries (OPEC) have a difficult choice to make. Oil prices have benefited from voluntary and involuntary production cuts amid a global demand slump that is slowly easing.

However,with countries gradually reopening their economies and some airlines restarting national and international flights, oil prices are likely to rise as demand steadily increases.

The significant impact that production cuts have had on the volatile oil markets has not gone unnoticed and OPEC’s contribution to global cuts has been significant. The budgets of OPEC member states have also been impacted by the effects of production cuts as oil-dependent states have seen their revenue evaporate with mounting deficits and painful austerity in national social welfare spending.

Volatility

Global oil industry experts and commodity traders have been closely monitoring the developments around an upcoming meeting between Saudi Arabia and Russia, in order to discuss a potential one month extension to its production cuts. When news broke that the meeting could be delayed, global oil prices dipped again.

However, the Saudi-led OPEC bloc has not been able to universally cut production. Iraq, for instance, has little power over its production levels as most oil is extracted by international oil companies. The country has negotiated with these supermajors but has been unable to sufficiently cut back production, a situation similar to Nigeria’s. The fate of an upcoming OPEC meeting now hangs on whether these non-complying nations can meet their pledged cuts or not.

Dependence

For many countries that are dependent on oil for significant parts of their state income, the current prices are tempting. With prices at their highest since March 6, many countries would like to crank up production and increase revenues. But doing so might cause oil prices to fall again as global demand has not reached sufficient levels to justify a free-for-all in oil production.

Low prices do have a long-term strategic advantage as they would exacerbate the widespread bankruptcies and consolidation in the US shale gas industry and potentially reduce investment in high-cost oil production like off-shore and tar-sand extraction. While traditional low-cost producers in the Middle East and North Africa would stand to benefit from increased market-share in the long-term, current budget difficulties and plummeting state revenue could prompt countries to favor a more short-term solution.

Short-term pain

The other option is to continue with cuts, suffer another month of pain with an eye on a recovery in oil prices once demand picks up. This means that 2020 national budgets could suffer less and austerity can be minimized.

In the long-term this would mean that traditional low-cost oil producers in the Middle East would have to continue to compete with more expensive producers that have taken a large chunk of market-share in the last decades.

The short-term pain of continuing production cuts could help raise the price of oil to levels where national budgets produce lower deficits, and unrest associated with austerity can be avoided. Choosing to increase national production could create a few weeks of income at current levels before prices go down once again, with the potential of increased market-share in the long-run.

With no easy options, the coming OPEC meetings and another possible Saudi-Russian agreement will likely have widespread effects on global oil markets for years to come.

China Decouples GDP Growth, Success in Potential Global Paradigm Shift

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On May 22, the opening of the Chinese National People’s Congress featured a remarkable announcement from the Chinese Premier, Li Keqiang. In the midst of a global economic crisis the Chinese government has decided to not set a GDP target for the coming year. The move will confuse many local and provincial politicians, as growth was the key metric on which China’s success has been measured since 1990.

Without a GDP target there will be no pressure on politicians to achieve GDP growth at any cost, which has been the strategy of China and most of the world’s countries for several decades.

The Chinese appear to have recognized that chasing growth causes damage to the environment and reduces living and working conditions if used as the sole metric for national success.

Growth

The Chinese are certainly not planning to stop growing, but by deprioritizing GDP growth, the government will have the space to focus on improving healthcare and education and reducing ecological damage.

China is set to reach its target of eradicating poverty in the country in 2020, and the shift away from growth could easily mean that Chinese citizens will see a renewed focus on improving living conditions.

GDP growth has been the key metric for success that most countries around the world aim to achieve. But the link with GDP growth and improving standards of living is dubious at best.

The London Economic’s Jack Peat argues polling data shows that “GDP growth fails to deliver enhanced life satisfaction, poverty alleviation and remains environmentally disruptive.”

Incentives

The eternal push for economic growth brings with it incentives that ensure businesses and countries can never reach a satisfactory level of success, but instead must always keep “growing.” In the current economic paradigm, the idea of “next year’s GDP growth” invites direct foreign investment in a country much more than living conditions, security, or the education level of the population ever will.

The COVID-19 crisis has revealed that in a crisis, the use of GDP as the most important metric meant few countries had adequately prepared their healthcare system for an abnormal crisis.

It also meant governments had to force companies to produce important medical equipment and protective gear.

There had been no incentive to produce these items before, even though it would have benefited the public, as there is no reward for much but GDP growth.

Perpetual growth

The most important reason to decouple growth from success is the fact that we live on a planet with finite resources. Trying to realize infinite growth on a planet that is clearly and visibly struggling from over-depletion of its finite resources is a recipe for disaster. Climate researchers have argued that many highly-developed countries would actually benefit from degrowth.

For countries like China, there are many parts of society that still need growth. Better healthcare, education, and working and living conditions will likely become the next focus of China’s government after having dragged its population out of abject poverty.

If China stops using GDP growth as a metric for success, it could have far-reaching effects on our global economics.

A few countries have already signaled they will not consider GDP growth their key metric, but success in China could be a guiding light for other economies that are buckling under the need to forever grow.

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