Pakistan Approaching Default As IMF Renews Bailout Talks

On Tuesday a delegation of officials from the IMF arrived in Islamabad. The purpose of their trip is to meet with members of the Pakistani government and restart negotiations over a idling bailout package. The IMF assistance has been on the table for some time; however, Pakistan’s leadership has balked at accepting it due to uncertainty about the conditions and terms that come along with it. Unfortunately for Islamabad, time and options are running out. There is no alternative rescue package waiting in the wings and with each hour that goes by Pakistan’s economic, political and security situations worsen. The increasingly frail and unstable nuclear power is approaching default and economic collapse unless it receives considerable amounts of outside support.

Inflation has reached a near-fifty year high as the rupee is collapsing. Energy and fuel are in short supply and the bombing of a mosque in the city of Peshwar is raising fears that the Pakistani Taliban is resurgent. Prime Minister Shehbaz Sharif is running out of options. He has resisted raising taxes and cutting subsidies, fearing political backlash. Yet the IMF has demanded Pakistan incorporate these two steps in exchange for the bailout package. The arrival of IMF officials in Pakistan yesterday seems to indicate Sharif could be softening his position somewhat.

A Pakistani default would be nothing short of an unmitigated disaster for the nation and perhaps for all of South Asia. Even if this worst-case scenario is avoided, the root causes of Pakistan’s current economic woes will remain in place. Namely poor leadership and overall political mayhem coupled with continuing global instability.

Sri Lanka’s Prime Minister Claims National Economy Has ‘Collapsed.’

Sri Lanka’s prime minister has told that nation’s parliament that the national economy has, for all intent and purposes, collapsed. Ranil Wickremesinghe informed lawmakers that Sri Lanka is “facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has completely collapsed.” Wickremesinghe’s remarks did not bring any new developments to light. In fact, the rather new prime minister’s words seem intended to remind lawmakers and his critics that the task of rebuilding Sri Lanka’s economic foundation will take time and much effort. After being in power for roughly one month, opposition party politicians are attempting to lay blame for the economic collapse upon Wickremesinghe’s shoulders. As the nation slides deeper into economic malaise, the politicians are attempting to cover their own backsides and assess blame upon others.

The collapse of the national economy came about at least partly due to a perfect storm of circumstances. Heavy debt, loss of tourism revenue, a foreign currency crisis and other pandemic-related impacts, as well as the soaring costs of commodities are the main ingredients of Sri Lanka’s economic nightmare. The nation is no longer able to buy imported fuel, even for cash, due to the heavy debt owed by Ceylon Petroleum Corporation. There are no nation-states or supranational bodies willing to provide fuel, creating significant fuel shortages.

The Sri Lankan government plans to call India, China and Japan to a donor conference in early August in an attempt to increase foreign financial assistance. An interim budget will be presented around the same time. This is hoped to help Sri Lanka’s position in negotiations with the IMF. August will be when geopolitics takes on a broader and more significant position in Sri Lanka’s economic crisis. India and Japan will seek to raise their influence with Colombo while simultaneously reducing China’s influence. India and Japan, as Quad members, have political and military incentive to work together and push back China’s inroads in Sri Lanka. Beijing is attempting to move deeper into the Indian Ocean and establish basing rights for Chinese warships in an area historically regarded as the Indian sphere of influence.

Ukraine Update 19 April, 2022 (Afternoon)

  • The Russian offensive in eastern Ukraine commenced late Monday following missile strikes against military targets in western Ukraine and preparatory artillery fire strikes against Ukrainian forces in the east. Russia has spent the past two weeks reinforcing and resupplying its forces in the Donbas region in preparation for this moment. Ukraine had also resupplied and reinforced its ground forces in the east to the best of Kiev’s ability. These efforts have attracted Russian attention, as was made apparent by the missile attacks on military targets deep in the Ukrainian rear areas like Lviv. Disrupting the flow of war supplies from outside Ukraine has become a high priority for Russia, a lesson learned the hard way earlier in the conflict. The supply routes coming from Poland and other NATO nations into Ukraine are going to be targeted more as the offensive in Donbas is now getting underway.
  • Russian Foreign Minister Sergei Lavrov has confirmed that a new phase of the war has begun. During an interview with India Today, the diplomat said, “This operation in the east of Ukraine is aimed as it was announced from the very beginning to fully liberate the Donetsk and Luhansk republics.” When he was questioned about the growing rhetoric over nuclear weapons, Lavrov blamed the Ukrainian government, and specifically Volodymyr Zelenskiy for fueling false allegations.
  • The IMF (International Monetary Fund) is modifying its forecast for global economic growth over the next 24 months as the ripple effects of the conflict in Ukraine continue to expand. When the war started in February, 2022, economies around the world hadn’t yet fully recovered from the COVID-19 pandemic. Now these recoveries will be hampered by the war, jeopardizing growth in nations mainly across Europe and Asia. Naturally, Russia and Ukraine are feeling the most direct and immediate effects of the war.

The Argentine Headache

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Argentina is on the brink of a financial crisis once again. Current leader Mauricio Macri’s loss to  left-wing opponent Alberto Fernandez in the primary election has caused a swarm of financial repercussions. The S&P Merval, Argentina’s main stock market plunged 48% on Monday. It was then second largest drop of any major stock index since 1950. The Argentine peso dropped 15% versus the US dollar on Monday as well. These losses extended on Tuesday. The wide margin of Macri’s loss is what triggered the financial earthquake. Investors were expecting him to be defeated, yet not to the extent that he was.

Now the future appears uncertain. The looming probability of a sovereign default on the country’s IMF loans is sending investors scrambling for cover. The emerging political scenario is causing concern around South America and beyond. Should the Peronists return to power, Argentina will once again be ruled by a leftist government. Brazil’s right-wing President Jair Bolsonaro is publicly warning of a possible Argentine refugee crisis affecting his country in the future. Brazil is already contending with waves of Venezuelan immigrants streaming into the northern region of the country, fleeing the economic and political crises in their homeland. The possibility of a second refugee crisis at Brazil’s southern border is unpalatable to say the least.

After the downturn in global markets yesterday stemming from global recession fears, it would appear that the Argentine headache will add to the increasing concerns among investors about the health of the global economy, as well as the growing influence that the geopolitical climate has on markets and national economies this summer.

Sunday, 5 July, 2015 Update: Greek Voters Say No

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Greece has spoken on the topic of whether or not to accept an international bailout and the answer has been a resounding “No!” 61.3% of the people who cast a ballot in Sunday’s referendum rejected the terms of the bailout.  So, what will happen now?

The truth is that nobody is sure. Prime Minister Alexis Tsipras now has a popular mandate and believes the referendum results will give him a stronger hand at the bargaining table. It is unclear just how much, if any weight the referendum results will carry with Greece’s creditors, Eurozone finance ministers and national leaders. Tsipras has been playing a perilous game of political brinkmanship with the creditors and EU. Although he is declaring victory, the end results are not yet certain. After the drama and histrionics of the last few weeks, the IMF and other creditors might not be in a generous mood when it comes to negotiations. In fact, the deal that Greek voters just said no to is no longer on the table. Tsipras may have overplayed his hand in counting on the results of a domestic referendum to be enough to force the creditors to renegotiate.

The majority of Greek voters, regardless of how they voted today, want Greece to remain in the Eurozone. The question is whether or not that will even be possible now. Greek banks are still closed, although the government has stated they will be opened on Tuesday. Money is running short at a dangerously fast clip. If a compromise between the creditors and government is not reached quickly, the situation could worsen even faster.

Today was an important day for Greece. The people sent a message to the European Union and the nation’s creditors. After five years of austerity, the people have had enough. Tomorrow, however, is a new day. The good feelings and confidence generated by today’s vote will start to dissipate and reality will set in.

Greece’s problems have not been solved.