United States the biggest beneficiary of Russia-Ukraine war

The Ukraine war has entered its second year and the past 12 months have shown there are a variety of aspects of this conflict. In this write up an effort has been done find the movers-shakers and losers-benefiters. My conclusion - Ukrainians the biggest losers.   

In 2014, following the revolution in Ukraine, armed clashes broke out between ethnic Russians (opposed to the new government in Kyiv) and the Ukrainian military in the country’s eastern Donetsk and Luhansk regions which make up the Donbas.

Despite European attempts to ease the fighting, including the Minsk agreements which granted self-government to the Donbas, the fighting continued, leaving around 15,000 people dead. Officials in Donetsk and Luhansk claim that Kyiv aimed to wipe them out. This caused deep concern in Russia.

Meanwhile over the past decade, despite repeated warnings by Moscow, NATO has been expanding eastwards towards the Russian border.  

The US-led military alliance triggered alarm in Moscow which warned NATO to avoid dangerous steps that pose a threat to Russia’s territorial integrity and sovereignty.

Amid the massive NATO buildup of forces coupled with advanced and sophisticated weapons that can strike the heart of Russia, the Kremlin sought security guarantees from the US and NATO. These were effectively ignored by both the US and NATO.

On February 24, 2022, Russia launched attack on Ukraine, calling it a “special military operation”.  It cited several reasons for the attack, including the stance of the government in Kyiv, attacks on ethnic Russians in the Donbas region, and NATO expansion to the borders of Ukraine.

Ukraine and its Western backers argue that the conflict waged by Russia was unprovoked.

Current state of affairs

As things stand, the fighting in flashpoint regions of eastern and southern Ukraine shows no signs of ending.

Moscow has annexed four regions in Ukraine where mostly ethnic Russians reside, following a referendum by the people in Luhansk, Donetsk, Zaporizhia and Kherson.
Ukraine and its Western backers have dismissed the votes as a sham.

The war has seen suffering on both sides, but mostly in Ukraine which has witnessed a high death toll and millions displaced, although a significant proportion of those have returned home.

Sanctions

The US and its Western allies have imposed unprecedented sanctions on Russia. From the freezing of US$330 billion of Russian assets to the silencing of all Russian media outlets, the Western sanctions regime continues to this day and has targeted almost all sectors of Russian society, even to the extent of banning Russian athletes from international sports tournaments. The sanctions have failed to end the war.

On the other hand, they have backfired mostly on the people of Europe. According to IMF forecasts in 2023, the UK economy will be worse off than sanction-hit Russia.  

Inflation

If anything, Western sanctions on Russian energy and wheat have backfired on Europe and beyond.

Europe has faced an energy crisis this winter. It was dependent on cheap Russian gas for 40% of the continent’s consumption.

Europe is now filling the gap by purchasing US liquefied natural gas (LNG) at astronomical prices.

This has spearheaded record inflation levels in European households, which has in turn seen waves of protests and strikes in many European countries paralyzing the public sectors. But it’s a major income boost for US energy firms.

United States Role

1. The United States is widely believed to have instigated the war in its efforts to contain Russia.

2. Washington has by far been the largest supplier of weapons to Ukraine.

3. The Pentagon has been shipping weapons to the tune of tens of billions of dollars. The White House has repeatedly announced fresh military packages for Kyiv.

4. Yet that doesn’t mean NATO members have not chipped in.

The US and other Western arms manufacturers have made very lucrative profits from the war that is the reason many experts argue, allies want the conflict to continue as long as possible.

By the same token, Russia and other countries say pouring weapons into the warzone has not and will not end the conflict. Moscow says the arms deliveries will only increase the suffering of Ukrainians and prolong the war.

Kyiv argues it needs more advanced weapons, such as battle tanks, to repel Russian forces in the country’s east. There are major question marks as to whether these weapons will change anything on the battlefield.

Some European Parliament lawmakers have said the war serves the interests of the US and not the interests of Europeans.

Europe fails in ending violence

After the fall of Afghanistan to the Taliban in August 2021 and the embarrassing scenes of US-led forces fleeing the country, repetitious statements were made by the European Union about the need to distance itself from the military affairs of the US in different parts of the world.

EU foreign policy chief Josep Borrell said Europe needs to develop its own military capacity independent of the United States.

The 27-member bloc revived debates about Europe developing the means to act independently from the US

The EU reiterated it needed to develop diplomatic and military muscle and what France's President Emmanuel Macron termed as strategic autonomy.

Some countries are going to have to ask themselves questions about an American ally which, as Joe Biden said, doesn't want to fight other people's wars for them.

"The Europeans don't have a choice. We must organize ourselves to deal with the world as it is and not the world that we dream of," Borrel said.

"We have to analyze how the EU can further deploy capabilities and positively influence international relations to defend its interests. Our EU strategic autonomy remains at the top of our agenda."

As Europe tried to be sovereign instead of taking directions from Washington, it failed to do so, as witnessed five months later with the eruption of war in Ukraine.

The Europeans understood perfectly that they are still defenseless, both militarily and diplomatically.

They don’t have the means to significantly contribute in ending a conflict on their doorsteps.  

All the European ducks have lined up and have taken their marching orders from Washington again, with a very few exceptions.

The Europeans are unable to take themselves out of this fatal subservience to the Americans.

Accusations against Iran and China

The US and NATO have accused Tehran and Beijing of providing arms to Russia to use in the Ukraine war. Both countries have dismissed the allegations as ludicrous, saying they have been working with both parties to find a political solution to the conflict.

Russia has also rejected reports that it has received weapons from any third party.

International community

While the West claims the international community stands in solidarity against Russia, the facts on the ground suggest otherwise.

However, a considerable number of countries have taken a neutral stance toward the war.

NATO does not represent the international community, despite statements by its Secretary-General, Jens Stoltenberg. 

The international community is calling for a peaceful resolution, something the US has stood firmly against.

Countries benefiting from war

The biggest beneficiary of this war has been the United States.

It has been successful in triggering a conflict in Europe to try and contain Russia’s growing power.

It has disrupted gas supply to the continent by sabotaging Nord Stream pipelines delivering Russia’s cheap gas to European consumers.

Many experts also say the US has pitted and provoked Russia and Ukraine against each other, in a similar fashion to other conflicts instigated by the Pentagon. 

 

Bangladesh: Massive withdrawals from Islamic banks

According to The Daily Star of Bangladesh, deposit flow to Islamic banks in Bangladesh registered a fall in the fourth quarter of 2022, the first such decline in eight years, in a sign of erosion of confidence among savers owing to loan irregularities.

Data released by the Bangladesh Bank showed that total deposits in Islamic banks declined to Tk 409,949 crore at the end of December 2022, down 2.71% from Tk 421,375 crore in September 2022.

This means Islamic banks lost Tk 11,426 crore in deposits in the three months, according to the October-December 2022 quarterly report on Islamic banking of the central bank.

Full-fledged Islamic banks, now numbered 10, were the biggest sufferers as they lost Tk 11,842 crore in the fourth quarter from the third quarter. They collectively held deposits of Tk 379,951 crore in December, down 3% from Tk 391,792 crore in September.

Conventional banks with Islamic banking windows recorded a marginal decline in savings in the fourth quarter, while banks with Islamic banking windows registered a 2.94% increase in the flow of savings.

Islamic banks, however, recorded a 4.28%YoY deposit growth in the fourth quarter. Yet, the growth was the lowest since 2014, the year when the central bank started to release the quarterly report on Islamic banking.

The data came at a time when a number of Islamic banks, including Islami Bank Bangladesh (IBBL), the largest private bank in terms of deposits and investments, suffer from liquidity dearth resulting from withdrawals by many depositors after reports on alleged loan scams surfaced.

The liquidity crunch prompted the central bank in December to pump funds at 8.75% into a number of Islamic banks, including IBBL, to enable them to meet emergency financing needs and comply with regulatory requirements.

As of December 29, IBBL took Tk 8,000 crore under BB’s special arrangement. Four other Shariah-based banks — First Security Islami Bank, Social Islami Bank, Union Bank and Global Islami Bank — took Tk 6,790 crore.

Analysts say the fall in deposits at the Islamic banks is an indication of the drop of customers’ confidence owing to the allegation of loan scams, particularly at IBBL.

The central bank is investigating allegations of gross irregularities at IBBL over the disbursement of loans amounting to Tk 7,246 crore among nine companies last year.

“It is expected. Customers have withdrawn deposits mainly as a precautionary move,” said Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh.

“The confidence crisis is still there.”

With the fall in deposits, the overall market share of Islamic banks dropped to 25.81% in the deposit segment in December, down from 28.43% three months ago.

As such, the overall availability of excess liquidity at the Shariah-based banks reduced to Tk 12,871 crore at the end of 2022, from Tk 17,525 crore at the end of the third quarter, a decrease of Tk 4,654 crore.

Shah Md Ahsan Habib, a Professor at the Bangladesh Institute of Bank Management, said Shariah-based banks had enjoyed an edge over conventional banks for years in terms of deposit collection. So, a number of banks have opened Islamic banking branches and windows to attract deposits.

Data on deposits showed that Islamic banks have been displaced by conventional banks, he said.

“It seems that the confidence of a section of people has eroded following reports on loan irregularities.”

In a recent report, global ratings agency Moody’s Investors Service said Islamic banks in Bangladesh are more vulnerable to the tightening of liquidity than conventional banks because they have smaller liquidity buffers.

One reason that Islamic banks have weaker liquidity cushions is that the central bank has more relaxed liquidity requirements for them to support the growth of the sector.

Another reason is that Islamic banks are prohibited from holding conventional interest-bearing government bonds, and there is a limited amount of liquid shariah-compliant instruments.

“The profitability of Islamic banks is already weaker than that of conventional banks because they are more reliant on term deposits, which results in narrower spreads between financing yields and deposit costs than the system-wide level,” said the agency.

Monzur Hossain, Research Director of the Bangladesh Institute of Development Studies, thinks the recent media reports related to irregularities might have prompted the deposit withdrawal.

“Once the deposit figures of all types of banks become available, it will be clear whether the decline is a general trend or Islamic bank-specific,” he said.

A spike in imports, declines in remittance inflows and high inflation have drained liquidity out of the Bangladeshi banking system, said Moody’s report.

Despite the decline in deposits, investments by Islamic banks grew 4.9% to Tk 405,202 crore at the end of December from Tk 386,221 crore in September. The growth stood at 14.6% from the Tk 353,448 crore witnessed at the end of December 2021, according to BB data.

Mansur, a former official of the International Monetary Fund, said governance has to be ensured and irregularities that have taken place have to be addressed to regain the confidence of depositors.

“Islamic banks have to do the repair to regain the trust of people,” said Prof Habib.

 

Incoming World Bank Chief, Ajay Banga faces myriad of challenges

Ajay Banga, US President Joe Biden's pick to run the World Bank, will face a tough slate of issues around the institution's finances and capital structure from the get-go, thorny problems he must address as he reshapes the bank into a force for combating climate change on top of its traditional role as a poverty fighter.

Biden and his team have ambitious plans for overhauling the 77-year-old World Bank, which critics have said under its outgoing Chief David Malpass was too timid in financing climate initiatives and still funds substantial fossil fuel projects across the developing world.

The key to it all, of course, is money, and as organized and funded now, the World Bank would be stretched to meet those goals.

Banga's nomination, announced on Thursday, won a round of rapid endorsements as top finance leaders met on Friday in India, a sign his ascendance by early May - or possibly sooner - is all but assured, though other member countries can also submit nominations through March 29 before the World Bank's governors choose the President.

Even before he takes office, the former Mastercard Chief is expected to start working his numerous constituencies as early as April when top officials meet in Washington at the World Bank and International Monetary Fund's spring meetings. Member countries are expected to approve initial moves to stretch the bank's balance sheet to free up more funds for climate projects, pandemic preparedness and other priorities.

If confirmed, he will jump into high-profile talks in June hosted by French President Emmanuel Macron and Barbados Prime Minister Mia Mottley focused on developing a new global financial pact to reform how rich countries finance poor countries grappling with climate-driven damages.

Under Banga's leadership, Mastercard became among the first companies to set net-zero emission targets under the Science Based Targets initiative. He also serves on the advisory board of Beyond Net Zero, a climate finance fund.

Biden administration officials touted Banga's decades of experience building global companies and public-private partnerships to fund responses to climate change and migration.

"Ajay has proven his ability as a manager of large institutions and understands investment and the mobilization of capital to power the green transition," said John Kerry, the US special envoy on climate change.

An even tougher challenge then awaits Banga in winning a capital increase from member countries. This will be especially difficult for the World Bank's top shareholder, the United States, due to political brawling between the Biden administration and the Republican-majority House of Representatives. The House has major sway over the country's purse strings and its leaders are not disposed to widen the World Bank's role in fighting climate change.

In fiscal 2022, the World Bank committed more than US$104 billion to projects around the globe, according to the bank's annual report. Experts say countries will need trillions of dollars to fight and adapt to climate change.

Before an increase can even be considered, US officials say changes in World Bank debt-to-equity ratios and other rules could free up more funds for the climate fight, given the reluctance of a politically divided US Congress to appropriate more funds in a direct capital increase.

An independent report prepared for the Group of 20 major economies said changing the way the bank and other multilateral development banks (MDBs) operate could unlock hundreds of billions of dollars in additional funds.

But some middle-income countries worry that could weaken the bank's AAA credit rating and raise borrowing costs, Mark Malloch Brown, President of the Open Society Foundations told Reuters.

"The middle-income countries worry ... that the cost of borrowing will increase because of the refusal of the West to put up more cash."

Iskander Erzini Vernoit, Director of the Morocco-based climate think tank Imal Initiative for Climate and Development, said the US - which has only contributed US$2 billion of the US$100 billion in climate finance rich countries have pledged - needed to invest more.

"Playing the blame game with management of the MDBs will only get you so far, and not far enough to finance tackling the polycrisis at scale," he said.

 

IMF flags debt restructuring hurdles

There are some disagreements over restructuring debt for distressed economies, the chief of the International Monetary Fund said on Saturday on the sidelines of a G20 meeting.

India's G20 presidency comes at a time when its South Asian neighbors Sri Lanka, Bangladesh and Pakistan are seeking urgent IMF funds due to an economic slowdown caused by the COVID-19 pandemic and the Russia-Ukraine war.

China, the world's largest bilateral creditor, urged G20 nations on Friday to conduct a fair, objective and in-depth analysis of the causes of global debt issues as clamor grows for lenders to take a large haircut, or accept losses, on loans.

"On debt restructuring, while there are still some disagreements, we now have the global sovereign debt roundtable with consideration of all public and private creditors," IMF Managing Director Kristalina Georgieva told reporters after the roundtable she co-chaired with Indian Finance Minister Nirmala Sitharaman.

"We just finished a session in which it was clear that there is a commitment to bridge differences for the benefit of countries."

Apart from restructuring debt, regulating cryptocurrencies is another priority area for India, which Georgieva agreed with.

"We have to differentiate between central bank digital currencies that are backed by the state and stable coins and crypto assets that are privately issued," Georgieva said.

"There has to be very strong push for regulation... if regulation fails, if you're slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk."

 

 

 

Pakistan Stock Exchange witnesses 10.4%WoW decline in average daily trading volume

During the week ended on February 24, 2023, Pakistan Stock Exchange remained volatile due to news flows regarding the IMF deal and approval of Financial Supplementary Bill for raising additional taxes of PKR170 billion.

Unease amongst the participants increased as T-Bills cut-offs in the latest auction by State Bank of Pakistan (SBP) went up to 19.95%, contributing to the fears of further hike in the interest rate.

Reserves held by the SBP witnessed an increase for second consecutive week, rising to US$$3.26 billion, still standing at a critical level. The noticeable improvement can be expected after IMF agreement and expected inflows from bi-lateral partners.

The KSE-100 index closed the week at 40,708 points, lower by 411 points, depicting 1.0%WoW decline.

Participation in the market declined by 10.4%WoW, with daily volumes averaging 138 million shares as against 154 million shares a week ago.

PKR continued to strengthen against the US$, gaining 2.82% over the course of the period to close in at PKR259.99/US$ on Friday.

Other major news flows during the week included: 1) foreign exchange reserves got much-needed boost on support from amid IMF procrastination, 2) GoP announced steps to correct fiscal imbalances, 3) Current Account for the first seven month of the current financial year dipped on import curbs to US$3.8 billion deficit, 4) Islamabad got positive signals for help from Riyadh, and Beijing, and 5) ECP failed in taking decision on election date.

Sector-wise, Miscellaneous, Cement and Vanaspati & Allied Industries were amongst the top performers. On the other hand, Leasing Companies, Close-End Mutual Fund and Oil & Gas Exploration Companies were amongst the worst performers.

Flow wise, major net selling was recorded by Individuals with a net sell of US$4.56 million. Companies absorbed most of the selling with a net buy of US$5.91 million.

Top performing scrips during the week were: PSEL, KTML, KOHC, and MUGHAL, while top laggards were: PGLC, HGFA, PPL, SHFA, and SHEL.

The market is expected to remain range-bound in the near future, clouded by concerns regarding the interest rate hike. Expected increase in the interest rate may be a huge downside for the aggregate demand and subsequently the equity markets.

Any news regarding a successful Staff Level Agreement with the IMF and inflows from bi-lateral partners would boost investor’s confidence. Investors are advised to stay cautious while building new positions in the market.

Pakistan: Auction of wheat not fit for human consumption

Pakistan Agricultural Storage & Services Corporation Ltd (PASSCO) has published a tender in newspapers for the sale of 44,000 tons of wheat lying in its warehouses. This wheat is not fit for human consumption. The last date for submission of the tender is March 03, 2023.

Experts fear that ‘not fit for human consumption’ wheat will ultimate be bought by the erring flour mills and sold to the consumers. Even if it is bought by chicken feed mills, the birds eating contaminated feed will not be suitable for human consumption.

Technically the government should burn this wheat to save chickens and human beings.

Going such a large quantity stale raises various questions: 1) why appropriate steps were not taken to save this quantity from going stale? 2) Why there was delay in release of the quantity to flour mills when market was experience shortfall? Will any action be taken against those who are responsible for this crime?

It is estimated that going stale of such a big quantity would cause over PKR20 million to the nation. The Government is already spending foreign exchange on the import of wheat, leading to waste of precious foreign exchange. On top of all the incapacity of the government has raised flour price in the local market and added to the miseries of the poor people.

This highlights the inadequate storage capacity available with PASSCO and provincial departments. The successive governments have failed miserably in the construction of grain storage silos.

Reportedly, the aggregate wheat storage capacity of PSSACO and provincial food departments is less than 2.5 million tons as against an average crop size of nearly 30 million tons. It must be remembered that these are flatbed warehouses where wheat is kept in bags.

Another question can be raised, if PASSCO and provincial food departments do not have adequate storage, why the government has given these the mandate to be the sole buyers of wheat? 

UN resolution approves withdrawal of Russian forces from Ukraine

The United Nations General Assembly resolution calling for Russia to withdraw from all territory in Ukraine was approved by member nations on a 141-7 vote. Although, the resolution holds no power but relays a powerful message to Moscow.

General Assembly votes also serve as a key barometer for the success of each side of the war to sway international opinion.

The resolution is purely symbolic, but it allows Ukraine and its allies to build a consensus against Russia.

Thirty-two countries also abstained from the vote, including China, South Africa and India.

The countries opposing the resolution included Belarus, Mali, Nicaragua, Russia, Syria, North Korea and Eritrea.

Russia picked up two additional votes from a previous UN vote on the war in October.

US Ambassador to the United Nations Linda Thomas-Greenfield said the vote will go down in history.

“On the one-year anniversary of this conflict, we will see where the nations of the world stand on the matter of peace in Ukraine," Thomas-Greenfield said in remarks the day before the vote.

Indian Ambassador to the U.N. Ruchira Kamboj said the resolution had inherent limitations and questions that needed to be answered.

South Africa, China and Russia are holding joint drills in the Indian Ocean this weekend.

The United States also accused China of supplying nonlethal aid to Russia, and several officials warned Beijing is considering sending lethal aid.