Cold war is still going on, though of another type

According to many analysts, 20th century ended with a unipolar world. The United States developed the complacency it had eliminated its enemies, but the start of the 21st century proved it wrong and the cold war is still going on.

The fight against communism might be over, but the communist countries from the east began to respond to the US, in their own way. Two leaders from the east, Putin and Xi Jinping are constantly challenging the US hegemony through proxies, trade and diplomacy.

Although, the main US enemy during the cold war was Russia, one more was added to the list in the new cold war, China. The dawn of the 21st century brought rising China.

Its military might and economic progress posed a threat to US dominance. China began to capture the world through trade and investment. It caused the US, to take some unconventional steps against China. The US imposed economic sanctions on China and China responded accordingly. Hence, the trade war started.

The US also shifted its Asia Pacific policy to Indo-Pacific. The initiative New Silk Road, the establishment of Quad, more military presence in the South China Sea, military assistance to Taiwan, and support for Hong Kong are some manifestations of the new cold war.

Rising Russia

Putin strengthened the disintegrated Russia, which gave birth to the new phase of the cold war, and also made Russia stronger to give a befitting response to the US at every front.

Putin with political acumen and strong nerves has brought Russia to the level to compete with the US at the international chessboard more firmly and robustly.

In 2015, Russia launched airstrikes in Syria to back Bashar Al-Assad, the US was too keen to topple. Failed Trump had to announce the withdrawal of troops from Syria. Subsequently, Russia won Asad, the ruler of an important country in the Middle East.

Furthermore, Russia’s meddling in the US 2016 elections which boosted Trump candidacy, proved Putin a great strategist. Trump’s policies ‑ withdrawal from the Paris Climate Accord, cancellation of Iran nuclear deal, Mexico border wall, a travel ban on some Muslim countries, recognition of Jerusalem as the capital of Israel etc. brought criticism to the US.

By bringing Trump into power, Russia succeeded in minimizing its enemy’s role in international politics and tarnishing its image at an international forum.

Russia and China also enjoy good relations with Iran. Both Russia and Iran are also major allies in Syria, a country that was once America’s ally. Closer to home, Russia is also trying to play its card in the Afghanistan conflict.

The US had to invite Russia to arrange the Moscow conference, which was arranged on 20th March, to bring peace to Afghanistan. After fighting the longest war, the US is defeated and facing humiliation, because of Russia’s support to Taliban. Now Russia would surely win an important stake in Afghanistan’s political leadership.

Falling United States

Moreover, Turkey has also gone from the US hands. The US sanctions over Turkey against buying the S-400 missiles system from Russia have brought the relations between former allies to a historic low.

Turkey, under Erdogan, chose to preserve its sovereignty by pursuing an independent policy. Hence, the country, which once allowed the US to deploy nuclear weapons against USSR now has warm relations with Russia and is no more on Uncle Sam’s payroll.

In Latin America waves of the cold war were also seen following the Venezuela crisis. The US has thrown its support behind Venezuelan opposition leader Juan Guaido and declared him the interim president while Russia sent two military planes carrying about 100 Russian personnel arrived in Caracas in the support of President Maduro.

The US officials have told CBS News that the influx was unusual for its size, has fuelled tensions between Russia and the United States as China was also supporting Maduro. Hence, the 21st century has ignited the cold war between Russia and United with new a new vigor.

It was thought that Biden, the seasoned politician, who was known for his support to democratic values, would not put through the world into an abyss of another cold war, but his first foreign policy speech proved it wrong.

China building iron ore hub in Africa

It seems Chinese state planners have realized their glaring vulnerability, high dependence on iron ore from Australia. Perhaps that is why China is looking at an impoverished but mineral rich country in West Africa, Guinea, as the potential partner that would free it from the dependence on Australia, which has turned a foe after joining Quad.

Guinea sits atop the world's largest reserve of untapped high-quality iron ore. Surely it is no coincidence, then, that on 4th March 2021, the first batch of China-donated COVID-19 vaccines arrived in Guinea, one of the first nations to receive the Chinese gift. 

The change in Chinese strategy can be best understood by reading two briefs. The stock market turmoil linked to US investment firm Archegos Capital Management appears to have hit Japan's biggest financial player, Mitsubishi UFJ Financial Group. Its security unit said it faces a potential loss estimated at $300 million at a European unit.

In worrying news for Apple, its partner and top iPhone assembler Foxconn said that the global chip shortage will cut its shipments by 10% a rare acknowledgment that shows some of the world's biggest consumer names might face headwinds from the supply crunch rocking the tech industry.

Further clarity can be obtained by a quick review of rise and fall of Japan.
 
"No other nation at the present time is spending so large a part of its revenue on naval preparations," military author Hector Bywater wrote in the 1921 book "Sea-Power in the Pacific." But Japan had a critical weakness: lack of steel. Japan's ambition to become the dominant Pacific naval power was brought to a standstill when the US imposed a steel embargo in 1917.
  

Courtesy: Nikkei Asia

It is not an appropriate time for Pakistan to issue US$ denominated Eurobonds

There are reports that Pakistan is getting ready to issue US$ denominated Eurobonds of more than US$2 billion over the next few days. The settlement date for the issue is likely to be 6th April 2021. However, some analysts are of the view that it is not an appropriate time to go for this adventure.

Initial indications suggest that 5-year bond’s bids to be between 6.0-6.5%, 10-year bond’s between 7.2-7.7%. Interestingly, Pakistan is also trying to sell Eurobonds having a tenor of 30 years at a yield of close to 8.5-9.0%.

They say, currently US$ exchange parity is on the slide and further erosion in value is anticipated as Ramadan gets closer. They anticipate an influx of more than US$2.5 billion over the next 30 days, which may push the parity below Rs148.

They go to the extent of saying that Pakistan should capitalize this opportunity, as no interest payment will be required. The want State Bank of Pakistan (SBP) to work out a band, in which parity should be allowed to move. The central bank should start buying when parity goes below the threshold point or start selling which parity crosses upper limit.

They believe the central bank has ample supply of local currency in its coffer and in the worst scenario can print more. In this scenario the biggest collateral will of the added foreign exchange reserves.

Currently, Pakistan’s US$ denominated bond yields around 5.9% (having maturity in 2027) in the secondary market. The average yield over the last 3-months for the same is around 5.8%.

We believe this re-entry of Pakistan in international capital markets will support investors’ sentiments. Regardless of the yield, the size of these bonds will provide much needed support to Pakistan foreign exchange reserves that are currently adequate for 3 months of import only.

S&P and Moody’s presently rate Pakistan as B- with stable outlook and B3 with stable outlook.

Recently Egypt having S&P rating of B and Moody’s rating of B2 (one notch above Pakistan), raised US$3.75 billion. Egypt sold 5-year worth US$750 million at 3.875%, 10-year bonds worth at US$1.5 billion at 5.875% and 40-year bonds worth US$1.5 billion at 7.5%.

Pakistan Rupee (PKR) vis-à-vis US$ has climbed to a 22-month high, gaining around 3% during the last month and 9% from its bottom touched on 20th July 2020.

Pakistan floated its first bond in international market during 1994 and then in 1997.

The first bond was launched on Dec 22, 1994 at 11.5% with amount raised being US$150 million. This was followed by US$160 million and US$300 million bond in Feb-May, 1997 at 6% and Libor + 395bps, respectively.

Later due to international restriction after nuclear testing Pakistan was unable to tap international market. However, Pakistan reverted back to international market in 2004 as better macroeconomic indicators resulted in improved ratings.

In FY05, Pakistan issued 5-year Eurobond and raised US$500 million at rate of 6.75%.

In FY06, Pakistan issued US$600mn in 5-year Sukuk issuance at rental rate of 6M LIBOR plus 220bps.

In FY07, Pakistan issued total US$800 million by issuing two Eurobonds of worth US$500 million (7.125%, 10 year) and US$300 million (7.875%, 30 year) each.

After gap of 7 years, Pakistan mobilized US$2 billion in April 2014 by issuing 5 and 10 year bonds at 7.25% and 8.25%, respectively.

In November 2014, Pakistan issued Sukuk of US$1 billion (already matured in December 2019) at 6.75%.

In September 2015, Pakistan issued 5-year Eurobond of US$500 million at 8.25%. In Oct-2016, Pakistan issued 5 year Sukuk of US$1 billion at a lowest rate of 5.5%.

In last issue of November 2017, Pakistan raised US$2.5 billion by offering 5-year Sukuk of US$1 billion and 10-year Eurobond of US$1.5 billion at 5.625% and 6.875%, respectively. 

Bangladesh: A role model for developing countries

Poverty, hunger, natural disasters, famine, crumbling infrastructure, political turmoil, and coups in the first decade after the creation of Bangladesh did not paint a picture that would radiate hope. Today, as the country celebrates Golden Jubilee of Independence, Bangladesh has not only stood on its own feet, but has also become a role model for development.

In the beginning, Bangladesh was branded as a basket case. The naysayers believed that country would have to be fed by the international community as it was staring at failure with no mineral resources, high population growth, food shortage, and negligible exports.

The situation was so bad that in 1976, Just Faaland, resident representative of the World Bank in Bangladesh (1972-1974), and Prof Jack R Parkinson, senior economist to the World Bank Mission summed up Bangladesh’s trauma in the phrase “test case for development”. They argued, “If development could be made successful in Bangladesh, there can be little doubt that it could be made to succeed anywhere else.”

Bangladesh turnaround story is worth reading. The country brought down the population growth rate from over 3 percent to a little over one percent. The poverty rate had fallen to less than 20 percent before the pandemic from as high as 82 percent in the 1970s.

The country struggling to feed its 75 million people five decades ago is self-sufficient in food production even though the population has more than doubled.

Aid-dependence significantly declined from 14 percent of the GDP in the 70s to less than 1.5 percent now.

Life expectancy is 72 years, much higher than neighbouring Pakistan and India.

People can now send their children to schools and access primary health care.

With policy support of the government, Bangladesh has become a key supplier of readymade garments worldwide. Major brands of the world have their products made here. This industry alone brings in about US$34 billion a year and employs millions, women being the largest workforce in the industry.

Another key driver of the economy is manpower export. Around 10 million Bangladeshis are working abroad and earning foreign exchange for the country and bringing comfort to near and dear.

They send in around US$15 billion every year and that amount is ever increasing. This allowed Bangladesh to have a huge foreign currency reserve.

More than ten million people took shelter in India in 1971. Now Bangladesh, with its economic might, is able to open its doors to nearly a million Rohingyas escaping persecution in Myanmar.

Bangladesh has met all three conditions for graduating from the grouping of the least-developed countries twice. The United Nations Committee for Development Policy has already recommended the country’s graduation in 2026.

Bangladesh’s economy was one of the few economies that posted positive growth in 2020 when growth went south for most because of the pandemic.

The secret of Bangladesh’s success was its education and girls, as American journalist and political commentator Nicholas Kristof put it. “Bangladesh invested in its most underutilized assets — its poor, with a focus on the most marginalized and least productive, because that’s where the highest returns would be.”

Ahsan Mansur, Executive Director of the Policy Research Institute of Bangladesh, said the central bank did not have a machine to print money after independence. The geopolitical situation was not in favour of Bangladesh as the new country was aligned with the left-leaning bloc.

Since the severe famine of 1974, Bangladesh has not faced any major food crisis, greatly aided by the green revolution that was sweeping across the world at the time. “This has been a major achievement,” he said.

A major paradigm shift was moving away from a nationalized economic policy stance perceived in the 1970s to a private-sector-led economy with liberalization, deregulation and denationalization in the 80s and 90s, according to Manzur Hossain, Research Director of the Bangladesh Institute of Development Studies (BIDS).

“Bangladesh has disproved all predictions and progressed at a good pace,” said AB Mirza Azizul Islam, a former bureaucrat and Finance Adviser of the government.

Muhammad Abdul Mazid, a former Chairman of the National Board of Revenue, said all governments took note of the importance of the agriculture sector to feed the growing population amid shrinking land. The sector gave the much-needed resilience to the economy.

“Our people are resilient and proactive in driving the economy forward. And they have been supported by appropriate policies,” said Prof Shamsul Alam, member of the General Economics Division under the Planning Commission.

Zaid Bakht, a former Research Director of the BIDS, credited public expenditure and investment for the surprising turnaround. “All countries do this, but ours was more focused and intense. Governments have given emphasis on rural infrastructural development. This has a tremendous impact on the economy.” There has been economic diversification. Cropping intensity has been increased. Non-farm activities have gone up, he added.

He said microcredit organizations and NGOs have worked in empowering women. Governments set up roads and bridges, kept the labour market flexible, gave mobility and education to women and girls, and made some improvements in the health sector. “All these created a virtuous cycle,” Bakht said.

Zahid Hussain, a former lead economist of the World Bank’s Dhaka Office, gave credit to the steady economic growth, social policies aimed at population control, rural roads, education and electrification, primary education, female education, local low-cost health solutions for immunization and communicable diseases, access to finance through microcredit, last-mile service delivery by NGOs, and demographic dividend for the turnaround of the country.

The latest testimony to Bangladesh’s astounding achievement came when Nicholas Kristof advised US President Joe Biden to look to Bangladesh to find the answer to how to bring down the rate of poor children.

Courtesy: The Daily Star

Traffic in Suez Canal resumes after stranded ship refloated

Shipping traffic through Egypt’s Suez Canal resumed on Monday after a giant container ship which had been blocking the busy waterway for almost a week was refloated, the canal authority said. Live footage on a local television station showed the ship surrounded by tug boats moving slowly in the center of the canal. The station, ExtraNews, said the ship was moving at a speed of 1.5 knots.

The 400-metre (430-yard) long Ever Given became jammed diagonally across a southern section of the canal in high winds early last Tuesday, halting traffic on the shortest shipping route between Europe and Asia.

 “Admiral Osama Rabie, the Chairman of the Suez Canal Authority (SCA), announces the resumption of maritime traffic in the Suez Canal after the Authority successfully rescues and floats the giant Panamanian container ship EVER GIVEN,” a statement from the SCA said.

“She’s free,” an official involved in the salvage operation said.

After dredging and excavation work over the weekend, rescue workers from the SCA and a team from Dutch firm Smit Salvage had succeeded in partially refloating the ship earlier on Monday using tug boats, two marine and shipping sources said.

Evergreen Line, which is leasing the Ever Given, confirmed the ship had been successfully refloated and said it would be repositioned and inspected for seaworthiness.

Ship stranded in Suez Canal re-floats

The stranded container ship blocking the Suez Canal for almost a week was re-floated on Monday and is currently being secured, Inchcape Shipping Services said, raising expectations the vital waterway will soon be reopened.

The ship was successfully re-floated at 4.30 am local time and was being secured at the moment, Inchcape, a global provider of marine services said on Twitter.

Ship-tracking service VesselFinder has changed the ship’s status to under way on its website.

The 400-metre (430-yard) long Ever Given was jammed diagonally across a southern section of the canal in high winds early on Tuesday, halting shipping traffic on the shortest shipping route between Europe and Asia.

At least 369 vessels were waiting to transit the canal, including dozens of container ships, bulk carriers, oil tankers and liquefied natural gas (LNG) or liquefied petroleum gas (LPG) vessels, SCA Chairman Osama Rabie told Egypt’s Extra News on Sunday.

Egypt’s Leth Agencies tweeted the ship had been partially refloated, pending official confirmation from the Suez Canal Authority.

The Suez Canal Authority had earlier said in a statement that tugging operations to free the ship had resumed. The Suez Canal salvage teams intensified excavation and dredging on Sunday and were hoping a high tide would help them dislodge it.

IMF Completes Combined Review of EFF for Pakistan

Reportedly, Executive Board of International Monetary Fund (IMF) has completed combined second through fifth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan, allowing for an immediate release of US$500 million for budget support, taking total budgetary support under the arrangement to about US$2 billion.

Program performance has remained satisfactory notwithstanding the unprecedented challenges of the COVID-19 shock, and the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods.

Pakistani authorities have remained committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth, and achieve economic reform program medium-term objectives.

Pakistan’s 39-month EFF arrangement was approved by the Executive Board on 3rd July 3, 2019 for about US$6 billion at the time of approval of the arrangement, or 210% of quota. The program aims to support Pakistan’s policies to help the economy and save lives and livelihoods amid the still unfolding COVID-19 pandemic, ensure macroeconomic and debt sustainability, and advance structural reforms to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Pakistanis.

Following the Executive Board discussion on Pakistan, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

The Pakistani authorities have continued to make satisfactory progress under the Fund-supported program, which has been an important policy anchor during an unprecedented period. While the COVID-19 pandemic continues to pose challenges, the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The authorities have also continued to advance their reform agenda in key areas, including on consolidating central bank autonomy, reforming corporate taxation, bolstering management of state-owned enterprises, and improving cost recovery and regulation in the power sector.

Reflecting the challenges from the unfolding pandemic and the authorities’ commitment to the medium-term objectives under the EFF, the policy mix has been recalibrated to strike an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms while maintaining social cohesion. Strong ownership and steadfast reform implementation remain crucial in light of unusually high uncertainty and risks.

Fiscal performance in the first half of FY21 was prudent, providing targeted support and maintaining stability. Going forward, further sustained efforts, including broadening the revenue base carefully managing spending and securing provincial contributions will help achieve a lasting improvement in public finances and place debt on a downward path. Reaching the FY22 fiscal targets rests on the reform of both general sales and personal income taxation. Protecting social spending and boosting social safety nets remain vital to mitigate social costs and garner broad support for reform.

The current monetary stance is appropriate and supports the nascent recovery. Entrenching stable and low inflation requires a data-driven approach for future policy rate actions, further supported by strengthening of the State Bank of Pakistan’s autonomy and governance. The market-determined exchange rate remains essential to absorb external shocks and rebuild reserve buffers.

Recent measures have helped contain the accumulation of new arrears in the energy sector. Vigorously following through with the updated IFI-supported circular debt management plan and enactment of the National Electric Power Regulatory Authority Act amendments would help restore financial viability through management improvements, cost reductions, regular tariff adjustments, and better targeting of subsidies.

Despite recent improvements, further efforts to remove structural impediments will strengthen economic productivity, confidence, and private sector investment. These include measures to: 1) bolster the governance, transparency, and efficiency of the vast SOE sector; 2) boost the business environment and job creation; and 3) foster governance and strengthen the effectiveness of anti-corruption institutions. Also, completing the much-advanced action plan on AML/CFT is essential.