Tag: Financial Crisis

A World in Crisis Needs Both Trade and Aid — Global Issues

  • Opinion by Ngozi Okonjo-Iweala – Rebeca Grynspan – Pamela Coke-Hamilton (geneva)
  • Inter Press Service

GENEVA, Aug 16 (IPS) – We are in the toughest period the world economy has faced since the creation of the multilateral system more than three-quarters of a century ago. A quadruple shock of COVID, climate change, conflict and cost-of-living has undone years of hard-fought development gains.

As financial conditions tighten, even countries that had seemed on track to prosperity and stability now stare into the abyss of debt distress, fragility and uncertainty about the future.

Coordinated, multilateral action is necessary to tackle the crises we face. Both aid and trade have key roles to play in reversing the impacts of this quadruple shock and putting the world back on track to achieve the Sustainable Development Goals.

We head the three international agencies that comprise the Geneva trade hub – the World Trade Organization (WTO), UN Conference on Trade and Development (UNCTAD) and the International Trade Centre (ITC).

The WTO makes and monitors the rules for global trade. UNCTAD delivers research and consensus-building to guide governments. ITC helps small business go global, especially firms led by women and young entrepreneurs. We work together so that trade works better for development.

All three of us share a deep commitment to trade-led prosperity. All three of us understand that a world in crisis means no more business as usual. And all three of us want our organizations to “walk the talk” on making aid and trade deliver for real people.

To guide aid and trade towards a better world, policymakers need to pivot in three fundamental ways.

First, make trade greener. Global trade can play an important role in a transition to a low-carbon economy. Preliminary research at the WTO suggests that removing tariffs and regulatory trade barriers for a set of energy-related environmental goods would reduce global CO2 emissions by 0.6% in 2030 just from improved energy efficiency, with additional potential gains from innovation spillovers and as lower prices accelerate the shift towards renewable energy and less carbon-intensive products.

Second, make trade more inclusive. Promoting greater trade by small businesses and greater participation by women and youth make companies and countries more competitive, drives economic transformation and reduces poverty.

Yet ITC business surveys found that one only out of every five exporting companies is women-led. WTO data show that micro, small and medium-sized firms represent around 95 percent of all companies globally but only one-third of total exports.

Third, make trade more connected. In our networked world, the future of trade is through digital channels and platforms, especially for small businesses. During the pandemic, we saw how doing business online went from being useful to critical for survival. UNCTAD data shows that digitally delivered services reached almost two-thirds the level of global services exports.

These themes were discussed at the Global Review of Aid-for-Trade, which took place 27-29th July in Geneva.

The event took place one month after the WTO’s successful Twelfth Ministerial Conference, which put trade multilateralism back on track and delivered a landmark agreement on fisheries subsidies, and two months before the COP27 meeting in Egypt (November 6-18) that could determine the world’s chances to keep the 1.5C target alive.

The data shows promising signs that aid-for-trade is tilting towards greater sustainability, inclusivity and connectivity. OECD and WTO data reveal a record high of nearly US$50 billion in aid for trade disbursements in 2020, of which half were either climate or gender related, and one-third supported the digital economy.

Despite growing budgetary pressures at home, it is critically important to continue and increase these aid-for-trade flows.

Apart from a stronger thematic focus on sustainability, inclusivity and connectivity, maximizing the contribution of aid for trade to achieving the Sustainable Development Goals requires a resolute focus on the “where” and “how” of delivering development results.

This means a focus on those countries whose trade and development needs are highest – particularly Least Developed Countries and fragile/conflict-affected countries – and regional initiatives like African Continental Free Trade Area, to ensure they become stepping-stones to wider and more inclusive regional value chains and trade-led growth.

It means partnership across international organizations. The WTO, UNCTAD, and ITC already collaborate on initiatives like the Global Trade Helpdesk, which simplifies market research by bringing key trade and business information into a single portal, as well as on support to cotton-exporting countries in Africa.

Last but certainly not least, it means mobilizing public and private finance. The IFC estimates a worldwide US$300 billion financing gap for women, and the global trade finance gap has nearly doubled from an already-staggering $1.5 trillion. Without access to finance, firms cannot grow, diversify or formalize.

We want to end with a call to action. Creating a more sustainable, inclusive and connected future is the moon shot of our times. Aid, trade and multilateralism – working together – are part of the solution.

It is normal and understandable that governments act to shore up their own economies in troubled times. But we must act now to ensure that the world’s poorest and most vulnerable can still see a pathway to prosperity through global trade.

The joint opinion piece is authored by Ngozi Okonjo-Iweala, Director-General, World Trade Organization, Rebeca Grynspan, Secretary-General, UN Conference on Trade and Development, and Pamela Coke-Hamilton, Executive Director, International Trade Centre.

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April Fool’s Inflation Medicine Threatens Progress — Global Issues

  • Opinion by Jomo Kwame Sundaram, Anis Chowdhury (sydney and kuala lumpur)
  • Inter Press Service

SYDNEY and KUALA LUMPUR, Aug 09 (IPS) – The world economy is on the brink of outright recession, according to the International Monetary Fund (IMF). The Ukraine war and sanctions have scuttled recovery from the COVID-19 pandemic.

Over 80 central banks have already raised interest rates so far this year. Except for the Bank of Japan governor, major central bankers have reacted to recent inflation by raising interest rates. Hence, stagflation is increasingly likely as rising interest rates slow the economy, but do not quell supply-side cost-push inflation.

Anis Chowdhury

IMF U-turn unexplained

The IMF chief economist recently advised, “Inflation at current levels represents a clear risk for current and future macroeconomic stability and bringing it back to central bank targets should be the top priority for policymakers”.

While acknowledging the short-term costs of raising interest rates, he has never bothered to explain why inflation targets should be considered sacrosanct regardless of circumstances. Simply asserting inflation will be more costly if not checked now makes for poor evidence-based policy making.

After all, only a month earlier, on 7 June, the IMF advised, “Countries should allow international prices to pass through to domestic prices while protecting households that are most in need”.

The Fund recognized the major sources of current inflation are supply disruptions – first due to pandemic lockdowns disrupting supply chains, and then, delivery blockages of food, fuel and fertilizer due to war and sanctions.

US Fed infallible?

Without explaining why, US Federal Reserve Bank Chair Jerome Powell insists on emulating his hero, Paul Volcker, Fed chair during 1979-87. Volcker famously almost doubled the federal funds target rate to nearly 20%.

Thus, Volcker caused the longest US recession since the 1930s’ Great Depression, raising unemployment to nearly 11%, while “the effects of unemployment, on health and earnings of sacked workers, persisted for years”.

Asked at a US Senate hearing if the Fed was prepared to do whatever it takes to control inflation – even if it harms growth – Powell replied, “the answer to your question is yes”.

Jomo Kwame Sundaram

But major central banks have ‘over-reacted’ time and again, with disastrous consequences. Milton Friedman famously argued the US Fed exacerbated the 1930s’ Great Depression. Instead of providing liquidity to businesses struggling with short-term cash-flow problems, it squeezed credit, crushing economic activity.

Similarly, later Fed chair Ben Bernanke and his co-authors showed overzealous monetary tightening was mainly responsible for the 1970s’ stagflation. With prices still rising despite higher interest rates, stagflation now looms large.

North Atlantic trio

Most central bankers have long been obsessed with fighting inflation, insisting on bringing it down to 2%, despite harming economic progress. This formulaic response is prescribed, even when inflation is not mainly due to surging demand.

Powell recently observed, “supply is a big part of the story”, acknowledging the Ukraine war and China’s pandemic restrictions have pushed prices up.

While admitting higher interest rates may increase unemployment, Powell insists meeting the 2% target is “unconditional”. He asserted, “we have the tools and the resolve to get it down to 2%”, insisting “we’re going to do that”.

While recognizing “very big supply shocks” as the primary cause of inflation, Bank of England (BOE) Governor Andrew Bailey also vows to meet the 2% inflation target, allowing “no ifs or buts”.

While European Central Bank President Christine Lagarde does not expect to return “to that environment of low inflation”, admitting “inflation in the euro area today is being driven by a complex mix of factors”, she insists on raising “interest rates for as long as it takes to bring inflation back to our target”.

April Fools?

Much of the problem is due to the 2% inflation targeting dogma. As the then Governor of the Reserve Bank of New Zealand – the first central bank to adopt a 2% inflation target – later admitted, “The figure was plucked out of the air”.

Thus, a “chance remark” by the NZ Finance Minister – during “a television interview on April 1, 1988 that he was thinking of genuine price stability, ‘around 0, or 0 to 1 percent’” – has become monetary policy worldwide!

Powell also acknowledged, “Since the pandemic, we’ve been living in a world where the economy has been driven by very different forces”. He confessed, “I think we understand better how little we understand about inflation.”

Meanwhile, Powell acknowledges how changed globalization, demographics, productivity and technical progress no longer check price increases – as during the ‘Great Moderation’.

Bailey’s resolve to get inflation to 2% is even more shocking as he admits the BOE cannot stop inflation hitting 10%, as “there isn’t a lot we can do”.

Although it has no theoretical, analytical or empirical basis, many central bankers treat inflation targeting as universal best practice – in all circumstances! Thus, despite acknowledging supply-side disruptions and changed conditions, they still insist on the 2% inflation target!

Interest rate, blunt tool

Central bankers’ inflation targeting dogma will cause much damage. Even when inflation is rising, raising interest rates may not be the right policy tool for several reasons.

First, the interest rate only addresses the symptoms, not the causes of inflation – which can be many. Second, raising interest rates too often and too much can kill productive and efficient businesses along with those less so.

Third, by slowing the economy, higher interest rates discourage investment in new technology, skill-upgrading, plant and equipment, adversely affecting the economy’s long-term potential.

Fourth, higher interest rates will raise debt burdens for governments, businesses and households. Borrowings accelerated after the 2008-09 global financial crisis, and even more during the pandemic.

Monetary tightening also constrains fiscal policy. A slower economy implies less tax revenue and more social provisioning spending. Higher interest rates also raise living costs as households’ debt-servicing costs rise, especially for mortgages. Living costs also rise as businesses pass on higher interest rates to consumers.

Policy innovation

The recent inflationary surge is broadly acknowledged as due to supply shortages, mainly due to the new Cold War, pandemic, Ukraine war and sanctions.

Increasing interest rates may slow price increases by reducing demand, but does not address supply constraints, the main cause of inflation now. Anti-inflationary policy in the current circumstances should therefore change from suppressing domestic demand, with higher interest rates, to enhancing supplies.

Raising interest rates increases credit costs for all. Instead, financial constraints on desired industries to be promoted (e.g., renewable energy) should be eased. Meanwhile, credit for undesirable, inefficient, speculative and unproductive activities (e.g., real estate and share purchases) should be tightened.

This requires macroeconomic policies to support economic diversification, by promoting industrial investments and technological innovation. Each goal needs customized policy tools.

Instead of reacting to inflation by raising the interest rate – a blunt one-size-fits-all instrument indeed – policymakers should consider various causes of inflation and how they interact.

Each source of inflation needs appropriate policy tools, not one blunt instrument for all. But central bankers still consider raising interest rates the main, if not only policy against inflation – a universal hammer for every cause of inflation, all seen as nails.

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Fear Returns to Argentina, Once Again on the Brink — Global Issues

View of a demonstration by social organizations in a Buenos Aires square in July. The scene occurs almost every day in the capital of Argentina, a country where poverty has held steady at around 40 percent of the population since before the COVID-19 pandemic. The possibility of a social uprising is one of the fears in the face of the deepening socioeconomic crisis. CREDIT: Daniel Gutman/IPS
  • by Daniel Gutman (buenos aires)
  • Inter Press Service

BUENOS AIRES, Jul 27 (IPS) – Darío is a locksmith in Flores, a traditional middle-class neighborhood in the Argentine capital, who will have to stop working in the next few days. “Suppliers have suspended the delivery of locks, due to a lack of merchandise or because of prices,” he laments. His case is an illustration of an economy gone mad in a country that once again finds itself on the brink of the abyss.

The problems that have been dragging on in this South American country, where the vast majority of the population has become poorer over the last four years and social unrest is on the rise, exploded this month with an exchange and financial crisis that created enormous uncertainty about what lies ahead.

The Central Bank ran out of dollars, and imports, which in large part are a source of inputs for domestic production, were restricted to the maximum. The result is fear, speculation, increased social unrest and out-of-control inflation, which is causing price references to be lost and some companies and businesses are hedging their bets with preventive increases, or they even decide not to sell.

Today, in the streets and in the media, the questions raised are whether the country is on the eve of a social outbreak and whether President Alberto Fernández, so politically isolated that he is questioned by his own government coalition, will reach the end of his term in December 2023.

At that time, Argentina will be celebrating 40 years of democracy, marked by a succession of economic crises that have left an aftermath of growing inequality and have caused distrust to spread easily in society at the first signs that things are not going well.

The crisis deepened at the beginning of the month, when the Jul. 2 resignation of then Economy Minister Martín Guzmán triggered a 50 percent drop in the parallel exchange rate — known locally as the dollar blue — the only one that can be freely acquired in a country with exchange controls, and this, in turn, further fuelled inflation, which in 2021 stood at 50 percent and this year is already expected to end above 90 percent.

“There has been a series of imbalances in Argentina’s macroeconomy for years, which means that today the government does not have the tools to deal with exchange rate and financial pressures,” Sergio Chouza, an economist who teaches at the public University of Buenos Aires (UBA), told IPS.

“In this country the value of the dollar dominates expectations about prices and as a result it is increasingly difficult to avoid a ‘spiral’ of inflation. At the same time, government bonds have collapsed and are already yielding less than those of Ukraine,” he adds.

Chouza says that the COVID-19 pandemic was one of the major contributing factors in triggering a situation that seems to have gotten out of control.

“There was an expansion of public spending, as in most of the world. But the problem is that while most countries financed it with credit, Argentina could not do so because it was already over-indebted,” the expert explains.

Homeless people who survive by picking through garbage in Buenos Aires sleep on the corner of a central street in Argentina’s capital. In 2021 the country experienced an economic recovery after the first year of the pandemic, but a rise in inflation in 2022 has aggravated the crisis once again. CREDIT: Daniel Gutman/IPS

Social protests

The square in front of the Palacio de Tribunales, in the heart of downtown Buenos Aires, is overflowing with people. The youngest protesters hold banners from social movements from poor outlying neighborhoods, but there are also entire families with small children in their arms. Traffic in the surrounding area is completely cut off as the columns of marchers continue to pour in.

It is a Thursday in July, but this is an image that can be seen practically every day in the Argentine capital, where the most vulnerable social sectors are staging a series of protests because, in the midst of the crisis, the government has suspended the expansion of the Potenciar Trabajo program.

This is the name of the National Program for Socio-productive Inclusion and Local Development, which offers a stipend from the government in exchange for four hours of work in social enterprises, such as soup kitchens or urban waste recyclers’ cooperatives.

“In our neighborhoods things have been very hard for many years, but now it’s getting worse because we can no longer afford to put food on the table,” Fernando, who preferred not to give his last name, told IPS. He is a young man from Laferrere, one of the poorest localities on the outskirts of Buenos Aires, who was a waiter in a bar before becoming unemployed in 2021. Today he does occasional construction work.

Santiago Poy, a researcher at the Observatory of Social Debt at the private Argentine Catholic University (UCA) tells IPS that, with the combination of currency devaluation and inflation since 2018, wages have lost around 20 percent of their purchasing power.

“Poverty stood at around 25 percent in 2017, climbed to 40 percent in 2019 and remained steady after that. Today there is a feeling of widespread impoverishment, despite the fact that the unemployment rate is only seven percent, because 28 percent of workers are poor,” says Poy, describing the situation in this Southern Cone country of 47.3 million people.

After the height of the pandemic in 2020, social indicators improved in 2021 but are worsening again this year and the vast social assistance network does not seem to be sufficient to curb the decline.

“Social aid is not going to solve things in Argentina, because the macroeconomy is a permanent factory of poverty,” says Poy.

One of the operations carried out last weekend by Economy Ministry personnel in supermarkets in Buenos Aires, in order to control price hikes on basic products and “dismantle speculative maneuvers,” as reported. CREDIT: Economy Ministry

The price race

“I am ashamed to set some prices at which I have to sell such basic things as bread, flour or sugar,” Fernando Savore, president of the Federation of Grocery Stores of the province of Buenos Aires, which groups 26,000 businesses in the country’s most populous region, tells IPS.

Savore says that since the beginning of the year the price hikes by suppliers have been constant, but that they skyrocketed in the first week of July, after the economy minister resigned.

“We have seen increases of more than 10 percent in food and more than 20 percent in cleaning products. I don’t think they are justified, but every time the dollar goes up, prices go up,” says Savore, who adds that grocers are hesitant to sell some products because of uncertainty about the costs of restocking them.

And in a context of overall jitters, the government unofficially leaks rumors about economic measures, which do not then materialize but fuel the sense of uncertainty.

President Fernández said that the lack of dollars would be solved if agricultural producers sold a good part of their soybean harvest, which they are currently withholding, worth 20 billion dollars.

They are obliged to export at the official exchange rate, whose gap with the parallel dollar has reached a record level of more than 150 percent, and they are apparently waiting for a devaluation.

On Jul. 25, the new economy minister, Silvina Batakis, met in Washington with the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, to assure her that this country will comply with the agreement signed with the multilateral lender this year, which includes goals to reduce the fiscal deficit and increase the Central Bank’s reserves.

But in Argentina, few people dare to predict where the crisis is heading, and how quickly it will evolve.

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

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Smallholder Farmers in Uganda Recruit Black Soldier Fly for Green Fertiliser — Global Issues

Abbey Lubega inside the larvae hatchery unit. Simple tools are used to harvest the larvae and frass. Credit: Wambi Michael/IPS
  • by Wambi Michael (kampala & kayunga)
  • Inter Press Service

Kampala & Kayunga, Jul 19 (IPS) – The conflict in Ukraine has led to an increase in fertiliser prices in Uganda and neighbouring Kenya. Amidst the shortages, some farmers are shifting to a more sustainable way of enriching their soils using frass from the Black Soldier Fly.

Before Russia invaded Ukraine, Marula Proteen Hub, based in Kayunga in central Uganda, mobilised farmers to produce Black Soldier Fly larvae (BSF). But many, especially the elderly, were hesitant.

“I wondered what they will think of me keeping maggots? Some, however, accepted. So, they have been keeping those maggots from which we make animal feed and now, quality fertiliser too,” said Abbey Lubega, the overseer of Marula Proteen Hub in Kangulumira sub-county.

About one thousand farmers in Kayunga have been mobilised to rear the maggots, which they sell to the hub either in cash or in exchange for organic fertiliser.

“Farmers have waste on their farms. So, we give them BSF systems for rearing the larvae. We also give them five-day-old larvae. The larvae eat through waste collected from homes. After eight days, they sell us the mature larvae or feed their livestock. There is also that option. Then they retain fertiliser for their garden,” said Lubega in an interview with IPS

“What the farmers are looking for, besides this income from the larvae, is the fertiliser produced on their farms. They can produce whatever quantities they want. It is quick, it is reliable,” explained Lubega

Marula Proteen Hub is situated below a pineapple and jackfruit processing plant to tap into the waste generated as feedstock for the larvae rearing. A pungent smell of ammonia fills the air as one enters the larvae hatchery section, where five-day-old larvae eat through waste.

“These larvae are eating. They are defecating. The ammonia that you are smelling is emanating from frass,” explained Lubega

Harriet Nakayi harvests BSF Larvae in Kangulumira Kayunga District.

Harriet Nakayi lives in Namakandwa Parish, close to 75 kilometres east of Uganda’s capital Kampala. She is one of the women in this area trained to sustainably produce BSF larvae for animal proteins and frass fertiliser for their crops.

With her three-year-old daughter standing by, Nakayi scoops larvae from black containers and pours them onto a metallic net to separate them from the decomposed brown substances that look like loam soil. The larvae are about to be taken to the hub for sale. The frass and compost material are ready to be applied in her coffee, vanilla, and banana gardens.

She told IPS that frass from BSF is much easier to apply when compared with farmyard manure.

“This fertiliser does not burn the plants. So unlike manure which you have to wait for some time, you can take this one immediately to the garden,” said Nakayi

Like Nakayi, Solomon Timbiti Wagidoso, a pineapple farmer, said he applied BSF fertiliser to one of his gardens and that their growth seems to point to a better harvest.

“The government said it would manufacture our fertiliser, but I’m told that project is on a standstill. We now depend on imported fertiliser whose cost keeps on increasing,” said Timbiti

According to Timbiti, the price of fertiliser has increased since late 2020. The war in Ukraine now exacerbates the high prices.

By early April, fertiliser prices had more than doubled in Kenya, Uganda, and Tanzania. The three countries and the rest of East Africa depend on imports from Russia and Belarus.

Researchers in Uganda and Kenya found that ‘the composting process of black soldier fly frass fertiliser takes five weeks compared to the 8–24 weeks for conventional organic fertiliser.

Frass, a by-product of BSF rearing, has been found to contain substantial amounts of nutrients that can fertilise the soil. Lubega scoops frass from one of the containers with his hands. Tiny maggots are still crushing the waste that now looks like fine loam soil.

“It’s almost powder, as you can see. It is very fine,”  said Lubega. “Manure from cow dung is good, but that from goat manure is better. That from chicken is better than that of a goat. So how about the larvae that are the smallest. So, we see that the smaller the animal, the better the manure.”

Lubega explains to IPS that Black Soldier Fly larvae can break the substrates to make the nutrients available to the plant.

“Inorganic fertilisers give you the nutrient the plant needs, but organic fertilisers improve the soil health. They reduce that dependency. If I buy inorganic fertiliser for this season, I have to go back and buy more for the next season. You will need to apply inorganic fertiliser throughout your entire life,” he added.

He said organic fertilisers are better suited for smallholder farmers, like those in Kangulumira, who cannot afford to buy inorganic fertilisers.

“And if you look at the cost-benefit analysis, why would I buy inorganic fertiliser if I’m going to need it all the time? It not different from teaching me how to fish and giving me fish,” added Lubega.

Rucci Tripathi, the global Practice Lead Resilient Livelihoods at international development charity VSO with an office in Uganda and several other countries, told IPS that there is a need for a strategy for farmers and developing countries to shield farmers from the current fertiliser, fuel and food prices crisis.

Tripathi said there was a need to invest in supporting community initiatives on the production of natural manure, including feeding the soils through having a crop cover such as hay and planting nitrogen-fixing plants.

“This reduces farmers’ dependence on imports of chemical fertilisers, which is good for farmers’ incomes and soil health. We see many such small-scale initiatives across Zimbabwe to Uganda to Kenya,” she said

Researchers at the International Centre of Insect Physiology and Ecology (Icipe) have revealed that adopting insect bioconversion technology can recycle between two and 18 million tonnes of waste into organic fertiliser worth approximately 9–85 million US dollars per year.

The researchers, who include Dr Sevgan Subramanian, Dr Chrysantus Mbi Tanga and Denis Besigamukama, recently published an article titled “Nutrient quality and maturity status of frass fertiliser from nine edible insects”.

They observed that although the use of organic fertiliser is acceptable and affordable to farmers, there has been limited uptake in Sub-Saharan Africa due to poor quality, long production time, and limited sources of organic matter on the farm.

“Thus, there is a need to explore alternative sources of organic fertilisers that are readily available, affordable and of good quality, such as insect frass fertiliser,” they wrote.

Dr Debora Ruth Amulen, the founder of the Centre for Insect Research and Development, based in Kampala, told IPS that there is a need to sensitise farmers about the animal proteins and fertiliser generated from BSF.

“It is useful on our farms. It’s also a useful tool for our environment. We have a lot of manure from cattle and livestock. They are producing a lot of greenhouse gases. The Black Soldier fly has been found useful in compositing urban waste,” explained Amulen, also a lecturer at Makerere University

“It is a very simple technology that even those that have not gone to school can apply. And it’s very cost-effective.”

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World Faces Cascading Crises Causing Profound Suffering & Multiple Famines — Global Issues

  • Opinion by UN SG (united nations)
  • Inter Press Service

UNITED NATIONS, Jul 14 (IPS) – In his opening address to the 2022 Ministerial meeting of the High-Level Political Forum on the UN’s Sustainable Development Goals, July 13-15.Our world is in deep trouble – and so too are the Sustainable Development Goals (SDGs).

Time is running out. But there is still hope. Because we know what we need to do:

End the senseless, disastrous wars – now. Unleash a renewable energy revolution – now. Invest in people and build a new social contract – now.

And deliver a New Global Deal to rebalance power and financial resources and enable all developing countries to invest in the SDGs.

Let’s come together, starting today, with ambition, resolve and solidarity, to rescue the SDGs before it is too late.

We meet at a time of great uncertainty. The world faces cascading crises that are causing profound suffering today, and carry the seeds of dangerous inequality, instability and climate chaos tomorrow.

The ripple effects of Russia’s invasion of Ukraine have hit amid a fragile and uneven recovery from the COVID-19 pandemic, while the climate emergency is gathering pace.

Some countries are investing in recovery through a transition to renewable energy and sustainable development.

But others are unable to do so, because of deep-rooted structural challenges and inequalities, at global and national levels.

Some 94 countries, home to 1.6 billion people, face a perfect storm: dramatic increases in the price of food and energy, and a lack of access to finance.

And so there is a real risk of multiple famines this year. Next year could be even worse, if fertilizer shortages affect the harvests of staple crops, including rice.

The United Nations Global Crisis Response Group on Food, Energy and Finance has warned of the impacts of the current cost of living crisis and the future risks for next year.

Sixty per cent of workers today have lower real incomes than before the pandemic; developing countries are missing $1.2 trillion per year, just to fill the social protection gap; And sixty percent of developing economies are currently in, or at high risk of, debt distress.

Meanwhile, the number of people forced from their homes has risen to 100 million — the highest number since the creation of the United Nations.

The planet’s largest ecosystems – oceans and forests – are in danger. Biodiversity is declining at unprecedented rates.

Discrimination against women and girls continues in all sectors and all societies, while gender-based violence is at emergency levels. Attacks on women’s reproductive rights are reverberating around the world.

Implementing the Sustainable Development Goals will require $4.3 trillion USD per year — more money than ever before — because the international community is simply not keeping pace with the commitments it made;

In the face of these cascading crises, we are far from powerless. There is much we can do, and many concrete steps we can take, to turn things around.

I see four areas for immediate action.

First, recovery from the pandemic in every country.

We must ensure equitable global access to COVID-19 vaccines, therapies and tests. And now it is very important to have a serious effort to increase the number of countries that can produce vaccines, diagnostics, and other else technologies thinking about the future.

Governments must work together with the pharmaceutical industry and other stakeholders to share licenses and to provide technical and financial support to allow many other countries to produce vaccines and other medical important products.

Then we must redouble our efforts to make sure future outbreaks of disease are better managed by strengthening health systems and ensuring Universal Health Coverage.

Second, we need to tackle the food, energy and finance crisis.

Ukraine’s food production, and the food and fertilizer produced by Russia, must be brought back to world markets — despite the war.

We have been working hard on a plan to allow for the safe and secure exports of Ukrainian produced foods through the Black Sea and Russian foods and fertilizers to global markets.

I thank the governments involved for your continued cooperation.

But there can be no solution to today’s crises without a solution to the crisis of economic inequality in the developing world.

We need to make resources and fiscal space available to countries and communities, including Middle Income Countries, that have an even more limited financial toolbox than three years ago.

This requires global financial institutions to use all the instruments at their disposal, with flexibility and understanding.

Among other measures, they must consider raising access limits, re-channeling all unused Special Drawing Rights to countries in need, and reviving the Debt Service Suspension Initiative to provide immediate support to those in debt distress.

We should not forget that the majority of poor people do not live in the poorest countries; they live in Middle Income Countries.

If they don’t receive the support they need, the development prospects of heavily indebted Middle-Income Countries will be seriously compromised.

Looking ahead, we need a New Global Deal so that developing countries have a fair shot at building their own futures.

My report on Our Common Agenda calls for concerted efforts to rebalance power and resources through an operational debt relief and restructuring framework; lower borrowing costs for developing countries; and investment in long-term resilience over short-term profit.

The global financial system is failing the developing world.

Although since it was not designed to protect developing countries, perhaps it is more accurate to say the system is working as intended.

So, we need reform.

We need a system that works for the vulnerable, not just the powerful.

Third, we need to invest in people.

The pandemic has shown the devastating impacts of inequality within and between countries.

Time and again, it is the most vulnerable and marginalized who suffer most when crises hit.

It is time to prioritize investment in people; to build a new social contract, based on universal social protection; and to overhaul social support systems established in the aftermath of the Second World War.

Education is one critical example.

Any hope of solving the world’s challenges starts with education. But education today is racked by a crisis of equity, quality and relevance.

The Transforming Education Summit that I will convene in September is a platform for world leaders to recommit to education as a global public good; to chart a new vision for education systems fit for the future; and to mobilize support in order to move from vision to reality, especially in developing countries.

The Global Accelerator on Jobs and Social Protection for Just Transitions offers another critical entry point.

I urge all countries to make full use of this tool to reskill and retool their workforces for the economies of the future: powered by renewable energy and based on digital connectivity.

Fourth, we cannot delay ambitious climate action.

The battle to keep the 1.5 degree goal alive will be won or lost this decade.

While achieving this goal requires a reduction in global emissions of 45 percent below 2010 levels by 2030, current pledges would result in a 14 percent increase in emissions by that date.

This is collective suicide. We must change course.

Ending the global addiction to fossil fuels through a renewable energy revolution is priority number one.

I have been asking for no new coal plants and no more subsidies to fossil fuels because funding fossil fuels is delusional and funding renewable energy is rational.

Developed countries must make good on their $100 billion climate finance commitment to developing countries, starting this year.

Developing economies must have access to the resources and technology they need.

Half of all climate finance should go to adaptation. Everyone in climate- related high-risk areas should be covered by early warning systems within the next five years.

And we need to review access and eligibility frameworks for concessional finance, so that developing countries, including Middle Income Countries, can get the finance they need, when they need it.

The World Bank and the other international financial institutions must provide much more concessional funding, especially in relation to climate adaptation.

The High-level Political Forum is the place where the world comes together around solutions for sustainable development; for rebuilding differently and better; for achieving the SDGs.

We have the knowledge, the science and technologies and the financial resources to reverse the trajectories that have led us off course.

We have inspiring examples of transformative change.

In just over one year’s time, we will meet here for the 2023 SDG summit marking the halfway point between the adoption of the 2030 Agenda, and its target date.

Let’s do everything in our power to change course and build solid progress by then.

I wish you a successful meeting.

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Income-based Solutions Paramount for Addressing Food Insecurity

More than 1.3 million people in Ontario, Canada, the most populous province in one of the world’s wealthiest countries, are food insecure. Credit: Ottawa Food Bank
  • by Juliet Morrison (ottawa)
  • Inter Press Service

Ottawa, Jul 12 (IPS) – Lisa Argiropulos, a single mother of two teenage sons and a resident of Ottawa, Ontario, has been facing food insecurity since 2016, after an accident that left her with chronic pain and disabilities.

Unable to continue working, Argiropulos has been living off disability support and child benefits payments. Yet, her income is insufficient to provide for herself and her family, especially with today’s prices.

“With the prices going up, it’s astronomical. I was struggling before. Now it’s ten times worse. By the time I pay all my bills, my utilities, and any expenses, what’s left over for food is not nearly enough. It’s been really, really hard. You’re always having to look elsewhere for help, weekly, monthly,” Argiropulos said.

In Canada, the cost of food has risen 9.7 percent from April 2021 to April 2022. The high price of other necessities, like gas and housing, has also contributed to food insecurity; people have to spend more of their income on those expenses, which leaves less for food.

Food insecurity occurs when people do not have reliable access to enough nutritious food. Pre-pandemic, it affected approximately 1.3 million people in Ontario—the most populous province of one of the wealthiest countries in the world.

“That really shows how challenging it is for so many in Ontario. It is not everyone’s reality to be able to afford all your basic necessities in a month,” Amanda King, Director of Network and Government Relations at Feed Ontario, said.

Today, the total number living with food insecurity is likely to be bigger because inflation has put more people in precarious positions.

“Food insecurity is something that’s somewhat invisible. That is why it is really important to emphasize the data and statistics that we have. If you look at a classroom, you cannot immediately identify which child did not have breakfast that morning. Statistically, you know there are children in that classroom that have not had breakfast,” King said.

To get by, Argiropulos seeks additional support from her local food bank to stretch her food budget. For her, that is the Barrhaven Food Cupboard, where she’s allowed one visit a month. While she receives a package of food intended to last for seven days, it goes quickly in her family of three, with her growing sons.

Food banks are also feeling the current strain of inflation.

Usage of food banks has increased significantly in the past couple of months as more people are in need. According to CEO George Macdonald, the Barrhaven Food Cupboard has seen a usage increase of 130 percent since last year. Ottawa Food Bank CEO Rachael Wilson noted that they served 52,000 meals across their network in March. Last year, they served an average of 44,000 a month.”

Higher food and gas prices mean that it has become more expensive for food banks to operate. Before the pandemic, the Ottawa Food Bank spent 1.7 million Canadian dollars (about USD 1.31 million) annually on food. This year, Wilson told IPS they were preparing to spend over 4.5m CAD (USD 3.49m).

Though both Wilson and Macdonald were coping with the demand, they noted that further increases in food bank usage could affect their ability to serve their community.

“It’s very stressful. Knowing how we are going to get food on our shelves every day is just a day-to-day stress right now. So far, there hasn’t been an instance where we couldn’t provide the food that is needed. But I honestly don’t know how sustainable it is for us to continue to meet the needs at this level without major change,” Wilson said.

The Ottawa Food Bank, which supports 112 smaller food programs, relies primarily on charitable donations. It receives no regular funding from the provincial or federal government.

The current extent of food insecurity has prompted calls for change in how policymakers address the issue.

Government interventions on food insecurity have mostly been in helping support the operations of food banks. Provincial relief for food insecurity during the pandemic came indirectly: over 1 billion CAD was allocated in Social Services Relief Funding (SSRF) (about USD 775m) to help municipalities and social service providers, including food banks.

While helpful for short-term relief, Tim Li, research coordinator at PROOF—a program from the University of Toronto working to identify policy solutions for hunger—explained that these interventions do little to address the causes of food insecurity.

“Hunger is not just about not having food. It’s about people’s financial circumstances. It’s about poverty, lack of income, and income security. We’re not seeing action that takes that approach as far as addressing income inadequacy to reduce food insecurity. It goes to show that the safety net is not as robust as we thought.”

Rather than increasing aid to food banks, PROOF advocates for income-based solutions, such as expanding social assistance and increasing the minimum wage. Such moves would require mostly provincial-level action, given the provinces are responsible for both areas.

“Our research really points to policymakers tackling minimum wage, social assistance, and all the other different policies that exist within their toolbox, whether that’s income tax, child benefits. There’s a lot that public policymakers can do. It’s just a matter of them doing it,” Li said.

More than 60 percent of people dependent on social assistance in Canada are food insecure, according to a 2018 study.

The total is presumed to be bigger today, given most social assistance programs are not indexed to inflation. This results in support payments being worth less and less each year as prices rise, potentially leading more people to slip into food insecurity.

Argiropulos is also asking for income-based solutions. Fully supporting herself and her family is simply out of reach in her current state, she told IPS.

Around a year ago, her doctor recommended she apply for a food allowance for those with dietary needs because of medical conditions. The allowance was part of Ontario’s Disability Support Program (ODSP), and Argiropulos qualified because she had type two diabetes.

She was shocked, however, upon realizing how much she was eligible to receive.

“He sent in , and it was only an additional 35 dollars per month for type two diabetes. I had gestational diabetes throughout both pregnancies with my children. So, I know. I’ve seen dieticians. I know how you’re supposed to eat. I know about carbohydrates. I know about all that stuff. Thirty-five dollars, it’s not even doable,” she said.

Argiropulos noted that the reality of living on social assistance and facing food insecurity needs to be emphasized.

“I worked my entire life, and I fell on bad times. And food, nobody should be denied food. We live in a country where we should not be denied food. When you are forced to rely on the system, struggling for food should not happen. It just shouldn’t.”

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Recovering Edible Food from Waste Provides Environmental and Social Solutions in Argentina — Global Issues

Tomasa Chávez, bundled up against the cold of the southern hemisphere winter, works at the Central Market in Buenos Aires, where she was hired in 2021 to separate edible waste that can be recovered. Until then, she went there daily on her own for 30 years to look for food and other recyclable materials among the waste that has now been given new value. CREDIT: Daniel Gutman/IPS
  • by Daniel Gutman (buenos aires)
  • Inter Press Service

BUENOS AIRES, Jul 06 (IPS) – For 30 years, Tomasa Chávez visited the Central Market of Buenos Aires and rummaged through the tons of fruits and vegetables that the stallholders discarded, in search of food. Today she continues to do so, but there is a difference: since 2021 she has been one of the workers hired to recover food as part of a formal program launched by the Central Market.

“Before, I used to come almost every day and collect whatever was edible and whatever could be sold in my neighborhood. Food, cardboard, wood… Now I still come to separate edible food, but I work from 7:00 to 15:00 and I get paid some money,” the short, good-natured woman told IPS.

The Central Market of the Argentine capital is a universe that seems vast and unfathomable to those who venture into it for the first time.

Covering 550 hectares in the municipality of La Matanza, on the outskirts of Buenos Aires, it is full of life; to describe it merely as a central market that supplies fruits and vegetables to a metropolis of 15 million inhabitants would be an oversimplification.

In the market there are large companies and small businesses, streets, avenues, warehouses, buildings and even areas taken over by homeless people and a rehabilitation center for people with substance abuse problems. In some places people are crowded among crates of fruit and the noise is overwhelming, but there are also large empty areas where everything is quiet.

Nearly 1,000 trucks enter the Central Market every day to pick up fresh food that is sold in the stores of the city and Greater Buenos Aires. Every month, 106,000 tons of fruits and vegetables are sold, according to official data.

There is also a retail market with food of all kinds, attended by thousands of people from all over the city, in search of better prices than in their neighborhoods, in a context of inflation that does not stop growing – it already exceeds 60 percent annually – and which is destroying the buying power of the middle class and the poor.

View of one of the 12 bays where the fruits and vegetables that supply the 15 million inhabitants of the Greater Buenos Aires region are sold wholesale. The activity begins at 2:00 a.m. and every day some 1,000 trucks enter the market and some 10,000 people work there. CREDIT: Daniel Gutman/IPS

As a reflection of the social situation in Argentina, where even before the COVID-19 pandemic the poverty rate exceeded 40 percent, a common image of the Market has been that of hundreds of people like Chávez rummaging through the waste, looking for something to eat or to sell.

But since August 2021, much of that energy has been poured into the Waste Reduction and Recovery Program, which is based on two main ideas: to use food fit for consumption for social assistance and the rest for the production of compost or organic fertilizer to promote agroecology.

“There was a social and environmental problem that needed to be addressed. Today we have fewer losses, we provide social assistance and create jobs,” Marisol Troya, quality and transparency manager at the Central Market, told IPS.

Coping with the crisis

The 12 gigantic bays where fruits and vegetables are sold wholesale are the heart of the Central Market, which employs 800 people and where a total of 10,000 people work every day.

At 2:00 a.m. the activity begins every day in the market with frenetic movement of crates containing local products from all over Argentina and neighboring countries, which are a festival of colors. Each bay has 55 stalls.

Three people look for food in a container of discarded products at the Central Market of Buenos Aires, where more than 100,000 tons of fruits and vegetables are sold every month to supply retail stores in the Argentine capital and its suburbs. With the recovery program, the Market seeks to provide environmental and social solutions. CREDIT: Daniel Gutman/IPS

“The search for food among the Market’s waste was spurred by the economic crisis and the pandemic,” said Marcelo Pascal, a consultant to the management. “We realized very quickly that there was a lot of merchandise in good condition that was discarded for commercial reasons but could be recuperated.

“There were even small stands that used vegetables found in the garbage. A lot of edible products were recovered, but the process was disorderly, so an effort was made to organize it,” he told IPS.

From August 2021 to June 2022, 1,891 tons of food were recovered for social aid, while 3,276 tons have been used to make compost, according to official figures from the Central Market, which is run by a board of directors made up of representatives of the central, provincial and city governments.

“We have reduced by 48 percent the amount of garbage that the Market was sending to landfills for final disposal, which was 50 tons a day,” agronomist Fabián Rainoldi, head of the Waste Reduction Program, told IPS.

Fabián Rainoldi, head of the Waste Reduction and Recovery Program of the Central Market of Buenos Aires, stands in front of one of the mountains of organic waste that are used to produce compost, which serves as fertilizer for agroecological enterprises. CREDIT: Daniel Gutman/IPS

Orderly recovery of edible products

Justo Gregorio Ayala is working in an esplanade next to one of the wholesale bays. In front of him he has a crate of bruised tomatoes, impossible to sell at a store, but many of which are ripe and edible. His task is to separate the edible ones from the waste.

“I live here in the Market, in the Hogar de Cristo San Cayetano, and six months ago I got this job,” Ayala said, referring to the rehab center for addicts that opened in 2020 inside the Market itself.

“There were always a lot of products to recover in the Market, but now we do it better,” added Ayala, who is one of the workers hired for the Program.

He clarified, however, that the scenario varies depending on the temperature. “In summertime, because of the heat, the fruits and vegetables last much less time and the stallholders throw away more products. Now in winter we don’t find so much.”

The workers work in eight of the market’s 12 bays. There are a total of 24 workers, divided into groups of three, who separate the merchandise that the stallholders are asked to leave in the center of the bay.

The recovered goods are loaded onto trucks that are taken to a huge warehouse in the Community Action section of the Market, where they are prepared for use in social aid projects.

Justo Gregorio Ayala is one of the 24 workers who select edible fruits and vegetables discarded by vendors at the Buenos Aires Central Market. Since August last year, almost 19,000 tons of food fit for human consumption have been recovered and have gone to soup kitchens and other kinds of social assistance. CREDIT: Daniel Gutman/IPS

“We deliver food to 700 soup kitchens, according to a weekly schedule: about 130 per day,” said Martin Romero, head of the Community Action section, where 22 workers perform their duties, as the first vehicles begin to arrive to pick up their cargo.

“We also put together eight-kilo bags, with whatever we have available, which we deliver to 130 families,” he added to IPS.

What is not fit for human consumption ends up in the composting yard, a plot of land covering almost three hectares, where the process of decomposition of organic matter takes about four months.

“The organic waste is mixed with wood chips made from the crates, which absorb water and reduce the leachate that contaminates the soil. The organic compost is donated to agroecological gardens which use it for fertilization and the recovery of degraded soils,” explained Rainoldi.

The goal is a Central Market that makes use of everything and does not send waste to the dump. It’s a long road that has just begun.

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

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OECDs Regressive World Corporate Income Tax Reform — Global Issues

  • Opinion by Jomo Kwame Sundaram, Anis Chowdhury (sydney and kuala lumpur)
  • Inter Press Service

SYDNEY and KUALA LUMPUR, Jun 21 (IPS) – After decades of rejecting international tax cooperation under multilateral auspices, rich countries have finally agreed. But, by insisting on their own terms, progressive corporate income tax remains distant.

Tax avoidance and evasion by transnational corporations (TNCs) are facilitated by ‘tax havens’ – jurisdictions with very low ‘effective’ taxation rates. Intense competition among developing countries to attract foreign direct investment (FDI) makes things worse.

Anis ChowdhuryDeveloping countries need tax revenue most, but they will lose more, as a share of GDP, than wealthy countries. But a global minimum corporate (income) tax rate (GMCTR) can become a “game changer” undermining tax havens.

Minimal minimum rate
TNCs exploit legal loopholes to avoid or minimize tax liabilities. Such practices are referred to as ‘base erosion and profit shifting’ (BEPS).

Tax havens collectively cost governments US$500–600bn yearly in lost revenue. Low-income countries (LICs) will lose some US$200bn, more than the foreign aid, of around US$150bn, they receive annually.

Corporate income tax represents 15% of total tax revenue in Africa and Latin America, compared to 9% in OECD countries. Developing countries’ greater reliance on this tax means they suffer disproportionately more from BEPS.

A GMCTR requires TNCs to pay tax on their worldwide income. This discourages hiding profits in tax havens. The Independent Commission for the Reform of International Corporate Taxation (ICRICT) recommended a 25% GMCTR.

This 25% rate was around the current GDP-weighted average statutory corporate tax rate for 180 countries. Slightly below the OECD countries’ average, it is much less than the developing countries’ average. So, a GMCTR below 25% implies major revenue losses for most developing countries.

To reverse President Trump’s 2017 tax cut, the Biden administration proposed, in April 2021, to tax foreign corporate income at 21%. In June, the G7 agreed to a 15% GMCTR, endorsed by G20 finance ministers in July. This poor G7 rate is now sold as a “ground-breaking” tax deal.

Jomo Kwame SundaramUnsurprisingly, the World Bank President also rejected 21% as too high. The Bank has long promoted ‘race-to-the-bottom’ host country tax competition. Embarrassingly, its Doing Business Report was ‘suspended’ indefinitely in 2021 after its politically motivated data manipulation was exposed.

The OECD also wants to distribute taxing rights and revenue by sales, and not where their goods and services are produced. Critics, including The Economist, have pointed out that large rich economies would gain most. Small and poor developing economies, particularly those hosting TNC production, will lose out.

The OECD proposals could reduce small developing economies’ (SDEs) tax bases by 3%, while four-fifths of the revenue would likely go to high income countries (HICs). Hence, developing countries prefer revenue distribution by contribution to production, e.g., employees, rather than sales.

Undemocratic inclusion
Developing countries have never had a meaningful say in international tax matters. G20 members should have asked multilateral organizations, such as the UN and the IMF, which the G7 dominated OECD has long blocked.

Instead, the G20 BEPS initiative asked the OECD to work out its rules. After decades of keeping developing countries out of tax governance, its compromise Inclusive Framework on BEPS (IF) promotes lop-sided international tax cooperation.

Developing countries were only involved “after the agenda had been set, the action points were agreed on, the content of the initiatives had been decided and the final reports were delivered”.

Developing countries have been allowed to engage with OECD and G20 members, supposedly “on an equal footing”, to develop some BEPS standards. To become an IF member, a country or jurisdiction must first commit to the BEPS outcome.

Thus, the non-OECD, non-G20 countries must enforce a policy framework they had little role in designing. Unsurprisingly, with little real choice or voice, the 15% GMCTR was agreed to, in October 2021, by 136 of the 141 IF members.

FDI vs taxes
The proposed OECD tax reforms are supposed to be implemented from 2023 or 2024. The United Nations Conference on Trade and Development (UNCTAD) Investment Division recognizes it will have major implications for international investment and investment policies affecting developing countries.

UNCTAD’s World Investment Report 2022, on International tax reforms and sustainable investment, offers guidance for developing country policymakers to navigate the complex new rules and to adjust their investment and fiscal strategies.

Committed to promoting investments in the real economy, especially by FDI, UNCTAD recognizes most developing countries lack the technical capacity to address the complex tax proposal. Implementing BEPS reports and related documents via legislation will be difficult, especially for LICs.

Existing investment treaty commitments also constrain fiscal policy reform. “The tax revenue implications for developing countries of constraints posed by international investment agreements (IIA) are a major cause for concern”, the Report notes.

Although tax regimes influence investment decisions, tax incentives are far from being the most important factor. Other factors – such as political stability, legal and regulatory environments, skills and infrastructure quality – are more significant.

Nonetheless, tax incentives have been important for FDI promotion. Such incentives inter alia include tax holidays, accelerated depreciation and ‘loss carry-forward’ provisions – reducing tax liability by allowing past losses to offset current profits.

With the GMCTR, many tax incentives will be less attractive to much FDI. Tax incentives will be affected to varying degrees, depending on their features. UNCTAD estimates productive cross-border investments could decline by 2%.

Hence, policymakers will need to review their incentives for both existing and new investors. The GMCTR may prevent developing countries from offering fiscal inducements to promote desired investments, including locational, sectoral, industry or even employment-creating incentives.

Investors rule
With generally lower rates, ‘top-up taxes’ could significantly augment SDEs’ revenue. Top-up taxes would apply to profits in any jurisdiction where the effective tax rate falls below the minimum 15% rate. This ensures large TNCs pay a minimum income tax in every jurisdiction where they operate.

However, host countries may be prevented by IIAs – especially Investor State Dispute Settlement (ISDS) provisions – from imposing ‘top-up taxes’. If so, they will be imposed by TNCs’ mainly rich ‘home countries’.

Thus, FDI-hosting countries would lose tax revenue without benefiting by attracting more FDI. Existing IIAs – of the type found in most developing countries – are likely to be problematic.

Hence, the GMCTR’s implications are very important for FDI promotion policies. Reduced competition from low-tax locations could benefit developing economies, but other implications may be more relevant.

As FDI competition relies less on tax incentives, developing countries will need to focus on other determinants, such as supplies of skilled labour, reliable energy and good infrastructure. However, many cannot afford the significant upfront financial commitments required to do so.

Many important details of reforms required still need to be clarified. Thus, developing countries must strengthen their cooperation and technical capabilities to more effectively negotiate GMCTR reform details. This is crucial to ‘cut losses’, to minimize the regressive consequences of this supposedly progressive tax reform.

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SWIFT Dollar Decline — Global Issues

  • Opinion by Jomo Kwame Sundaram, Anis Chowdhury (sydney and kuala lumpur)
  • Inter Press Service

SYDNEY and KUALA LUMPUR, Jun 14 (IPS) – US-led sanctions are inadvertently undermining the dollar’s post-Second World War dominance. The growing number of countries threatened by US and allied actions is forcing victims and potential targets to respond pro-actively.

SWIFT strengthened dollar

The instant messaging system of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) informs users, both payers and payees, of payments made. Thus, it enables the smooth and rapid transfer of funds across borders.

Anis Chowdhury

Created in 1973, and launched in 1977, SWIFT is headquartered in Belgium. It links 11,000 banks and financial institutions (BFIs) in more than 200 countries. The system sends over 40 million messages daily, as trillions of US dollars (USD) change hands worldwide.

Co-owned by more than 2,000 BFIs, it is run by the National Bank of Belgium, together with the G-10 central banks of Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the UK and the US. Joint ownership was supposed to avoid involvement in geopolitical disputes.

Many parties use USD accounts to settle dollar-denominated transactions. Otherwise, banks of importing and exporting countries would need accounts in each other’s currencies in their respective countries in order to settle payments.

SWIFT abuse

US and allied – including European Union (EU) – sanctions against Russia and Belarus followed their illegal invasion of Ukraine. Created during the US-Soviet Cold War, SWIFT remains firmly under Western control. It is now used to block payments for Russian energy and agriculture exports.

But besides stopping income flows, it inadvertently erodes USD dominance. As sanctions are increasingly imposed, such actions intimidate others as well. While intimidation may work, it also prompts other actions.

This includes preparing for contingencies, e.g., by joining other payments arrangements. Such alternatives may ensure not only smoother, but also more secure cross-border financial transfers.

As part of US-led sanctions against the Islamic Republic, the EU stopped SWIFT services to Iranian banks from 2012. This blocked foreign funds transfers to Iran until a compromise was struck in 2016.

Jomo Kwame Sundaram

US financial hegemony

Based in Brussels, with a data centre in the US, SWIFT is a ‘financial panopticon’ for surveillance of cross-border financial flows. About 95% of world USD payments are settled through the private New York-based Clearing House Interbank Payments System (CHIPS), involving 43 financial institutions.

About 40% of worldwide cross-border payments are in USD. CHIPS settles US$1.8 trillion in claims daily. As all CHIPS members maintain US offices, they are subject to US law regardless of headquarters location or ownership.

Hence, over nearly two decades, CHIPS members like BNP Paribas, Standard Chartered and others have paid nearly US$13 billion in fines for Iran-related sanctions violations under US law!

Exorbitant privilege

The USD remains the currency of choice for international trade and foreign reserve holdings. Hence, the US has enjoyed an “exorbitant privilege” since World War Two after the 1944 Bretton Woods conference created the gold-based ‘dollar standard’ – set at US$35 for an ounce of gold.

With the USD remaining the international currency of choice, the US Treasury could pay low interest rates for bonds that other countries hold as reserves. It thus borrows cheaply to finance deficits and debt. Hence, it is able to spend more, e.g., on its military, while collecting less taxes.

Due to USD popularity, the US also profits from seigniorage, namely, the difference between the cost of printing dollar notes and their face value, i.e., the price one pays to obtain them.

In August 1971, President Nixon unilaterally ‘ended’ US obligations under the Bretton Woods international monetary system, e.g., to redeem gold for USD, as agreed. Soon, the fixed USD exchange rates of the old order – determining other currencies’ relative values – became flexible in the new ‘non-system’.

In the ensuing uncertainty, the US ‘persuaded’ Saudi King Feisal to ensure all oil and gas transactions are settled in USD. Thus, OPEC’s 1974 ‘petrodollar’ deal strengthened the USD following the uncertainties after the Nixon shock.

Nevertheless, countries began diversifying their reserve portfolios, especially after the euro’s launch in 1999. Thus, the USD share of foreign currency reserves worldwide declined from 71% in 1999 to 59% in 2021.

With US rhetoric more belligerent, dollar apprehension has been spreading. On 20 April 2022, Israel – a staunch US ally – decided to diversify its reserves, replacing part of its USD share with other major trading partners’ currencies, including China’s renminbi.

Sanction reaction

The EU decision to bar Iranian banks from SWIFT prompted China to develop its Cross-border Interbank Payment System (CIPS). Operational since 2015, CIPS is administered by China’s central bank. By 2021, CIPS had 80 financial institutions as members, including 23 Russian banks.

At the end of 2021, Russia held nearly a third of world renminbi reserves. Some view the recent Russian sanctions as a turning point, as those not entrenched in the US camp now have more reason to consider using other currencies instead.

After all, before seizing about US$300 billion in Russian assets, the US had confiscated about US$9.5 billion in Afghan reserves and US$342 million of Venezuelan assets.

Threatened with exclusion from SWIFT following the 2014 Crimea crisis, Russia developed its own SPFS (Financial Message Transfer System) messaging system. Launched in 2017, SPFS uses technology similar to SWIFT’s and CIPS’s.

Both CIPS and SPFS are still developing, largely serving domestic BFIs. By April 2022, most Russian banks and 52 foreign institutions from 12 countries had access to SPFS. Ongoing developments may accelerate their progress or merger.

The National Payments Corporation of India (NPCI) has its own domestic payments systems, RuPay. It clears millions of daily transactions among domestic BFIs, and can be used for cross-border transactions.

Sanctions cut both ways

Unsurprisingly, those not allied to the US want to change the system. Following the 2008-9 global financial crisis, China’s central bank head called for “an international reserve currency that is disconnected from individual nations”.

Meanwhile, China’s USD assets have declined from 79% in 2005 to 58% in 2014, presumably falling further since then. More recently, China’s central bank has been progressively expanding use of its digital yuan or renminbi, e-CNY.

With over 260 million users, its app is now ‘technically ready’ for cross-border use as no Western bank is needed to move funds across borders. Such payments for imports from China using e-CNY will bypass SWIFT, and CHIPS will not need to clear them.

Russia has long complained of US abuse of dollar hegemony. Moscow has tried to ‘de-dollarize’ by avoiding USD use in trade with other BRICS – i.e., Brazil, India, China and South Africa – and in its National Wealth Fund holdings.

Last year, Vladimir Putin warned the US is biting the hand feeding it, by undermining confidence in the US-centric system. He warned, “the US makes a huge mistake in using dollar as the sanction instrument”.

The scope of US financial payments surveillance and USD payments will decline, although not immediately. Thus, Western sanctions have unwittingly accelerated erosion of US financial hegemony.

Besides worsening stagflationary trends, such actions have prompted its targets – current and prospective – to take pre-emptive, defensive measures, with yet unknown consequences.

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US Leads Sanctions Killing Millions to No End — Global Issues

  • Opinion by Jomo Kwame Sundaram, Anis Chowdhury (kuala lumpur and sydney)
  • Inter Press Service

KUALA LUMPUR and SYDNEY, Jun 07 (IPS) – Food crises, economic stagnation and price increases are worsening unevenly, almost everywhere, following the Ukraine war. Sanctions against Russia have especially hurt those relying on wheat and fertilizer imports.

Unilateral sanctions illegal
Unilateral sanctions – not approved by the UN Security Council – are illegal under international law. Besides contravening the UN Charter, unilateral sanctions inflict much human loss. Countless civilians – many far from target countries – are at risk, depriving them of much, even life itself.

Jomo Kwame SundaramSanctions, embargos and blockades – ‘sold’ as non-violent alternatives to waging war by military means – economically isolate and punish targeted countries, supposedly to force them to acquiesce. But most sanctions hurt the innocent majority, much more than ruling elites.

Like laying siege on enemy settlements, sanctions are ‘weapons of mass starvation’. They “are silent killers. People die in their homes, nobody is counting”. The human costs are considerable and varied, but largely overlooked. Knowing they are mere collateral damage will not endear any victim to the sanctions’ ‘true purpose’.

US sanctions’ victims
The US has imposed more sanctions, for longer periods, than any other nation. During 1990-2005, the US imposed a third of sanctions regimes worldwide. These were inflicted on more than 1,000 entities or individuals yearly in 2016-20 – nearly 80% more than in 2008-15. Thus, the Trump administration raised the US share of all sanctions to almost half!

Tens of millions of Afghans now face food insecurity, even starvation, as the US has seized its US$9.5 billion central bank reserves. President Biden’s 11 February 2022 executive order gives half of this to 9/11 victims’ families, although no Afghan was ever found responsible for the atrocity.

Biden claims the rest will be for ‘humanitarian crises’, presumably as decided by the White House. But he remains silent about the countless victims of the US’s two-decade long war in Afghanistan, where airstrikes alone killed at least 48,308 civilians.

Anis ChowdhuryNow, the US-controlled World Bank and IMF both block access to financial resources for Afghanistan. The long US war’s massive population displacement and physical destruction have made it much more vulnerable and foreign aid dependent.

The six decade-long US trade embargo has cost Cuba at least US$130 billion. It causes shortages of food, medicine and other essential items to this day. Meanwhile, Washington continues to ignore the UN General Assembly’s call to lift its blockade.

The US-backed Israeli blockade of the densely populated Gaza Strip has inflicted at least US$17 billion in losses. Besides denying Gaza’s population access to many imported supplies – including medicines – bombing and repression make life miserable for its besieged people.

Meanwhile, the US supports the Saudi-led coalition’s war on Yemen with its continuing blockade of the poorest Arab nation. US arms sales to Saudi Arabia and the United Arab Emirates have ensured the worst for Yemenis under siege.

Blocking essential goods – including food, fuel and medical supplies – has intensified the “world’s worst ongoing humanitarian crisis”. Meanwhile, “years of famine” – including “starving to death a Yemeni child every 75 seconds” – have been aggravated by the “largest cholera outbreak anywhere in history”.

Humanitarian disasters and destroying lives and livelihoods are excused as inevitable “collateral damage”. Acknowledging hundreds of thousands of Iraqi child deaths, due to US sanctions after the 1991 invasion, an ex-US Secretary of State deemed the price “worth it”.

Poverty levels in countries under US sanctions are 3.8 percentage points higher, on average, than in other comparable countries. Such negative impacts rose with their duration, while unilateral and US sanctions stood out as most effective!

Clearly, the US government has not hesitated to wage war by other means. Its recent sanctions threaten living costs worldwide, reversing progress everywhere, especially for the most vulnerable.

Yet, US-led unilateral sanctions against Iran, Venezuela, North Korea and other countries have failed to achieve their purported objectives, namely, to change regimes, or at least, regime behaviour.

Changing US policy?
Although unilateral sanctions are not valid under the UN Charter, many US reformers want Washington to “lead by example, overhaul US sanctions, and ensure that sanctions are targeted, proportional, connected to discrete policy goals and reversible”.

Last year, the Biden administration began a comprehensive review of US sanctions policies. It has promised to minimize their adverse humanitarian impacts, and even to consider allowing trade – on humanitarian grounds – with heavily sanctioned nations. But actual policy change has been wanting so far.

US sanctions continue to ruin Iran’s economy and millions of livelihoods. Despite COVID-19 – which hit the nation early and hard – sanctions have continued, limiting access to imported goods and resources, including medicines.

A US embargo has also blocked urgently needed humanitarian aid for North Korea. Similarly, US actions have repeatedly blocked meeting the urgent needs of the many millions of vulnerable people in the country.

The Trump administration’s sanctions against Venezuela have deepened its massive income collapse, intensifying its food, health and economic crises. US sanctions have targeted its oil industry, providing most of its export earnings.

Besides preventing Venezuela from accessing its funds in foreign banks and multilateral financial institutions, the US has also blocked access to international financial markets. And instead of targeting individuals, US sanctions punish the entire Venezuelan nation.

Russia’s Sputnik-V was the first COVID-19 vaccine developed, and is among the world’s most widely used. Meanwhile, rich countries’ “vaccine apartheid” and strict enforcement of intellectual property rights – augmenting corporate profits – have limited access to ‘Western’ vaccines.

The US has not spared Sputnik-V from sanctions, disrupting not only shipments from Russia, but also production elsewhere, e.g., in India and South Korea, which planned to produce 100 million doses monthly. Denying Russia use of the SWIFT international payments system makes it hard for others to buy them.

Rethinking sanctions
Economic sanctions – originally conceived a century ago to wage war by non-military means – are increasingly being used to force governments to conform. Sanctions are still portrayed as non-violent means to induce ‘rogue’ states to ‘behave’.

But this ignores its cruel paradox – supposedly avoiding war, sanctions lay siege, an ancient technique of war. Yet, despite all the harm caused, they typically fail to achieve their intended political objectives – as Nicholas Mulder documents in The Economic Weapon: The Rise of Sanctions as a Tool of Modern War.

As Cuba, Iran, Afghanistan and Venezuela were not major food or fertilizer exporters, their own populations have suffered most from the sanctions against them. But Russia, Ukraine and even Belarus are significant producers and exporters.

Hence, sanctions against Russia and Belarus have much wider international implications, especially for European fuel supplies. More ominously, they threaten food security not only now, but also in the future as fertilizer supplies are cut off.

With tepid growth since the 2008 global financial crisis, the West now blocks economic recovery. Vaccine apartheid, deliberate supply disruptions and deflationary policies now disrupt international economic integration, once pushed by the West.

As war increasingly crowds out international diplomacy, commitments to the UN Charter, multilateralism, peace and sustainable development are being drowned by their enemies, often invoking misleadingly similar rhetoric.

IPS UN Bureau


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



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