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Transnational Thursdays 4
Thanks to @ActuallyATleilaxuGhola for the name. As before, all folks are encouraged to add to any of these or to add coverage of any countries they’re interested in, the more the merrier.
Argentina
Despite recent polls showing the libertarian Javier Millei in a three way tie with mainstream parties for the presidential election, 60% of voters oppose his proposal of dollarization and no candidate of his scored above 15% in the provincial elections. Juntos por el Cambio, the Center Right opposition party, scored big in the long time Peronist stronghold of San Luis and otherwise the mainstream parties consolidated their holds on the provinces they already governed. They are supposed to formally announce coalitions this morning so I may edit that in later.
The government has announced another debt swap as part of their ongoing effort to restructure debt obligations. Inflation continues to climb at breakneck speeds from 100% a few weeks ago to 149% this week.
Colombia
President Gustavo Petro has successfully negotiated a six month cease fire with the rebel group ELN*, starting in August. This is a major victory for internal stability and fulfills one of Petro’s central campaign promises. Unfortunately he doesn’t have much time to celebrate as the conservative Attorney General continues his investigations into corruption in the Petro’s Administration, this time looking into alleged illegal campaign financing.
Guatemala
Guatemala’s high profile persecution of a journalist critical of the regime has ended in a widely criticized sentence of six years. Elections are Sunday the 25th (though they will likely go to a runoff in August). After banning the three most popular anti-establishment candidates, the remaining candidates are all different flavors of establishment, frequently literally the children of previous Presidents. Most noticeable is Zury Ríos, daughter of former dictator Efraín Ríos Montt, famous for his (US backed) genocide of the indigenous Mayans. Ríos is a controversial figure for her defense of her father, and has run twice before and never finished better than third. However, she is currently the front runner (following Carlos Pineda being banned), running on a campaign of imitating Salvadoran President Bukele’s security approach for the gangs in Guatemala. She is trailed by Sandra Torres of the Social-Democrat party, former First Lady and runner up in the previous two elections, possibly headed for a third.
Turkey
JP Morgan estimates that Erdogan will kick off his new term by finally raising interest rates possibly up 25%. They predict a recession in the short term, but hopefully the pain needn’t be long if they can restore the confidence of international investors. Foreign Policy expects his new term to be defined by a continually assertive foreign policy, especially as a broker in the Russia-Ukraine conflict and now the Balkans as well. NATO continues to largely be at Turkey’s whims with regards to Sweden’s accession.
Iran
Three months after the Saudi-Iran Peace Accords, Iran has yet to deescalate on any front. The war in Yemen rages on, Iranians have repeatedly targeted Americans in Syria, interfered with sea trade (1,2), and continued to direct their proxies in Lebanon, Syria, and Palestine to shell Israel. The Biden Administration, long having given up on resurrecting a nuclear deal and unwilling to go full force against Iran, has listed towards steady de-escalation, foregoing retaliation against Iran for its attacks or build up of uranium reserves, and allowing it to skirt some sanctions and access previously frozen funds.
India
45,000 people have been evacuated from India’s Gujarat State (and 60,000 from neighboring Pakistan’s Sindh Province) in anticipation of Thursday’s Biparjoy Cyclone. Ethnic violence in BJP dominated Manipur State has reached highly serious levels: “More than 130 people have died in the state, and another 60,000 displaced from their homes. People have ransacked 4,573 weapons from police armories and destroyed 250 churches. So grave is the situation that many residents have chosen to escape to neighboring Myanmar, where the ruling military junta is conducting aerial bombing campaigns against its own citizens.” @self_made_human any details to add?
Eritrea
Eritrea is pretty much never in the news because of its extreme political isolation under the thirty year dictatorship of Isiais Afwerki, who looks like your friendly neighbor over the fence but who actually turned Eritrea into one of the least free countries in the world, frequently coming in dead last for freedom of press and recently hitting a three way tie with North Korea and Mauritania for prevalence of slavery. However, after sixteen years of absence, Eritrea has decided to rejoin the East African regional block, Inter-Governmental Authority on Development. This will restore trade ties as well as security collaboration channels.
Sudan
The latest 24 hour ceasefire ended and violence began again immediately, with fighting increasingly growing more in the RSF home base of Darfur. “More than 1.6 million people to leave their homes for safer areas inside Sudan, according to the International Organization for Migration. About 530,000 others fled to the neighboring countries of Egypt, South Sudan, Chad, Ethiopia, the Central African Republic, and Libya.”
Nigeria
Nigeria’s Progressive new leader Bola Tinubu officially took the Presidency two weeks ago and started things off with a bang by ending a fuel subsidy that strained Nigeria’s finances. This caused fuel prices to immediately spike, sending off significant unrest throughout the country. Bloomberg reports that an internal government committee has recommended Nigeria continue to sell off its state assets in oil, killing two birds with one stone by raising finances and boosting efficiency in the petroleum sector, thus ideally helping to fulfill Tinubu’s ambitious campaign pledge to triple oil production.
Tinubu has also suspended and has now arrested the head of the Central Bank Godwin Emefiele. The charges are vague and based around economic mismanagement, specifically around a controversial policy that caused a currency shortage. However, it’s worth noting Emefiele was Tinubu’s opponent in his party’s primary so is something of a political rival.
Jihadist attacks have spiked recently as well, which does not bode well for Tinubu’s campaign promise to restore peace. However, the new National Assembly has now been sworn in with Tinubu’s All Progressives Congress party holding majorities in both chambers, so he can begin to appoint a cabinet and make use of his mandate to address the twin maladies of the economy and terrorism.
What's the political obstacle stopping Argentina from reducing inflation? You'd think at 150% it would be so bad that people would vote for literally anything to stop it. I don't get what they could be funding with money printing that people could feel was worth it.
Agentina at this point has a terminal case of populism, from what I understand. This plus central bank being subservient to the whims of the state, plus simple export-driven economy where diverting labor from agriculture to industry eliminates surpluses, plus human capital flight… Really a proof for why independent CB is valuable. And low time preference is indispensable.
On the other hand, a good use case for crypto.
The largest problem is that the central government doesn’t control spending. This is why the terminal case of money printing exists, Argentina’s constitution is extremely fucked up and resembles a combination of the pre-civil war US, the EU and a modern federal country. Provinces are supreme other than some powers they nominally ‘delegate’ to the federal government. There are like 20 provinces and many are controlled by a single party, cluster of local patricians or just a single family.
Read this extraordinary OECD profile. Argentina is one of the most decentralized countries in the world. Provinces seem to have a constitutional right to borrow up to 25% of their income (most of which comes from their share of federal tax receipts) per year from the federal government. It would be as if US states could unilaterally require the federal reserve to print money for them on an ongoing basis, without Washington being able to do much about it. The federal government collects something like 85% of tax income, but then distributes in practice well over the appropriate share of it to the provinces through this weird arrangement and must pay for all spending at the federal level on the military, infrastructure, etc.
In theory the federal congress can take over provincial government to rein in spending in an emergency, but in practice local power centers are themselves so populist and so entrenched that this is widely seen as impossible, and whenever a federal politician tries to bring the provinces to heel, the provincial elites get scared their powerful patronage networks will go unfunded and so replace the leader with someone more amenable.
If you look at spending patterns every time there’s a remotely non-terrible year in Argentina spending jumps 10-15% in real terms. Like the friend whose money seems to run through his fingers, they can’t not spend everything they have, and more. And of course the provincial system creates perverse incentives where each province has to maximize its bennies before the whole thing goes kaput again.
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When the center right Juntos por el Cambio took power they inherited high inflation and pledged to address it, but action ended up being mangled by an internal struggle between the Central Bank of Argentina and the Treasury. The CBA wanted to more agresively target inflation but the Treasury pointed out because the pension system had a lag adjustment, disinflation would prevent them from getting their finances in the black. Fighting inflation and restoring the nation's fiscal health were both campaign promises of Macri's; unfortunately he sided with the Treasury and they raised the inflation target from 10% to 15%. International investors responded in kind to the poor financial stewardship and things have continued to spiral from there
The current peronist government, Frente de Todos, is actually addressing inflation with really high interest rates of 97%, at least in theory, but they're probably implementing it poorly. Whereas a normal Central Bank would be doing open market operations the CBA doesn't have the reserves for that, so historically they do sterilization instead, or selling bonds to remove money from the economy. The drawback is that issuing bonds is creating a debt that needs to be repaid, so it's a way of signaling that you're putting more money into the economy later, which might raise inflation expectations.
Part of the problem is that the normal psychological effect of performative monetary tightening, which is what’s primarily responsible for changes in expectation in normal countries, doesn’t exist around Argentinian central bank rate-setting, since nobody has faith that any tightening regime will be completed before enough people start whining for the populists to get back into power and turn on the taps.
Argentina is a hilarious country. Basically a bunch of retired college educated 30 year olds who live at home in poverty. It’s the weirdest thing you’ve ever seen. A mansion cost a millions dollars to own and $700/mth to rent. (Too many people buy real estate to hedge inflation but everyone lives with their family so there’s no renter demand so rent is dirt cheap to rent the upper classes investment mansions).
Steak cost 10% of the cost in the USA but clothes cost 150%. It’s literally so weird. The whole thing is weird. Way too many oddball terrifies and taxes on certain things that throw parts of the economy off.
Beautiful place though. And nice people too. Argentinians are some of the nicest people out there.
Plan to move there sooner or later.
I mean some of that is surely PPP terms combining oddly with subsidies.
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I think it’s one of those countries where material quality of life is much worse than in the rich world for the average person, but still high enough (plus mild climate, relaxed culture, relative safety) that most people are kind of fine with the arrangement.
The best comparison really is Southern Italy, which Southern Italians will always tell you is a shithole (and it kind of is) but at the same time don’t want to leave because compared to working hard 9-6 in Milan for (much) more money, staying in Calabria and living a chill life is preferable to them.
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Agreed. I have a kind of not-that-backed-up theory that all the previous, mismanaged crises Argentina has lived through have had a lasting psychological effect that makes it harder to restore balance. Like if a normal country has a rocky weather in the economy people don't necessarily all react in some extreme fashion, whereas Argentinians have good reason to expect their leaders to respond poorly and for things to escalate, so they'll rapidly shift purchasing habits or pull money from banks and help make their fears a self-fulfilling prophecy.
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I'm really not the right guy for in-depth political analysis in India, but in the absence of anyone better I'll step up to the plate:
NE India is largely divorced from the rest of the country, by geography and ethnicity to boot. The majority of the tribes that live in those parts resemble the denizens of Myanmar, Tibet or Nepal more than other parts of India, but even that's belying the ethnolinguistic diversity lurking there. The tribes have their own concerns, with them often being at each others throats over historical grievances, religion, or an effort to get gibs.
In this case, it's the latter, one of the Hindu tribes once successfully lobbied to be granted privileged status affirmative action-wise, causing an uproar in their Christian counterparts, who are afraid of being squeezed out, or more cynically, just as eager to get their stamp of disprivilege and run with it. After all, the coveted Scheduled Tribe status comes with economic and political benefits, and everyone wants a piece.
The extremely hilly terrain means that regional powers dominate the region more than the central government would like, especially given many decades of Maoist insurgency that only relatively recently calmed down. The border with Myanmar is porous, although the majority of Rohingya ended up in Bangladesh instead of NE India, that's still a major point of contention today.
So one tribe is taking the fuck you, got mine approach, and the other wants to join in the fun, prompting violence and rioting. The Indian government loves to cut off Internet access if someone looks at them funny, so there's an information blackout in those parts.
Frankly, most of India doesn't give a shit, violence there is unlikely to percolate to the rest of the country. None of the parties are particularly sympathetic, this is textbook sectarian strife in the arsehole of India, we've seen worse and will likely see more of the same for a while now.
Nah that was great, much appreciated.
I've heard now several times that the Kuki are nearly the same ethnic group as Myanmar's Chin. Do you know if there any recedivism or recruitment between the Chin National Army and their Indian counterparts or do they mostly see each other as unrelated peoples?
There seem to be quite a few potentially relevant articles that come up when you search Google Scholar for kuki chin insurgency.
Interesting, looks like it's an insurgent group in Bangladesh that has definitely received weapons from the Kachin rebels and possibly the Karen, but I can't figure out if they've worked with the Chin National Army. It does seem like they've hid and trained in the Kuki-dominant Indian state of Mizoram and that's also where a lot of them have fled to from the violence. Mizoram itself had a strong secessionist movement for a long time but signed a peace treat with India in '86.
I know very little about this specific issue, but I do know that insurgencies often do tend to spread across borders
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I don't have the faintest idea! It's simply not something I ever looked into, but if I had to bet, I'd bet against it simply because the actual ongoing rebellion in Myanmar hasn't spilled into India barring the refugee crisis. I'd hope that if large amounts of men and materiel were becoming involved in the war, that I'd have heard something about it, but that's weak evidence at best.
To give you an idea of how little thought anyone gives the place, imagine suddenly accosting a random American Mottizen and wanting to know the minute details of the geopolitics in Puerto Rico.
I doubt any of the other Indians here I know are better prepared to answer that, and there's nothing on that particular topic I could tell you that wouldn't involve me googling the same things you would haha.
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Dollarization is usually a bad (long term) solution to a currency crisis, but in Argentina’s case is likely worth it, simply as a way to force powerful provincial governments into restraining spending.
I think it could have been a good idea if they had done it a long time ago, or maybe just stuck through with convertibility. As is even Millei thinks they’d have to liquidate 100% of reserves to pull it off, and everyone else seems to think even that wouldn’t be enough.
That’s a problem, but a bigger problem is that the current situation serves a lot of Argentinian elites just fine (it’s not like they - or anyone - have their savings in pesos, which is part of the problem), so there’s little impetus for change, ever.
Not sure where these stats are from, but if the real figures are similar, the reality (as with much of South America) is that the rich have it too good to upend the system.
Those are pretty bonkers levels of inequality, but I think it sort of drives from the opposite direction given the polls showing 60% of people opposing dollarization. The elites could weather a major change well enough, but they probably won’t dollarize precisely because the cash-strapped public doesn’t want their pensions going up in smoke
I also wouldn’t rule out reforms from the top, though they probably won’t be that dramatic. The previous Administration did some pretty wide ranging (if poorly implemented) reforms and I’d guess they’re going to win this election too.
What do you mean by this?
I tried to access the Bloomberg link that mentions the poll (with 12ft.io too) but no luck.
I'd guess only a small percentage of the population would oppose the dollarization due to fear whilst saving money in that currency.
Interestingly, the article you linked about sterilization is written by Cachanosky one of the authors of the now main plan of dollarization for Milei to implement, if elected.
The rosiest perspective on dollarization is Millei’s and he thinks it would take 100% of reserves to buy up all the pesos in circulation. Everyone else seems to think Argentina’s reserves are less than the monetary base which if they can't secure a huge loan could force a pretty severe devaluation and wipe out savings.
Additionally, Argentina pays for their deficits by printing money and would lose the ability to do that after dollarization, so they'd assuredly have to cut public spending. The current Minister of Economy promised to stop doing this over a year ago but certainly has not. Social Security expenditures are close to half of their spending (including pensions and unemployment insurance) and is supposed to be funded by the Sustainability Guarantee Fund, but in 2008 the government nationalized the fund and started using it as a patronage vehicle: "President Cristina Fernandez’s government has used ANSES [State Pension Agency] to fund everything from laptops for schoolchildren to the Treasury itself after she nationalized the pension system....By relying on the ANSES, the government has been able to keep spending on politically popular but costly programs."
After a decade and a half of diverting funds to low-return government securities and subsidized infrastructure projects the SGF is now thoroughly depleted and ranked 3rd from the bottom of 44 countries in the Mercer CFA Institute Global Pension Index, leaving pension funding leaning heavily on monetary financing and likely first on the chopping block if they lose this ability. Long term it's assuredly better to restrain monetary financing but short term it would be pretty painful.
The article is mostly about dollarization itself, there isn’t a ton more detail about the polling beyond the headline:
Zuban Córdoba y Asociados say the results are a preview from a national household survey, so no clue about the methods or anything.
Good catch
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Argentina has insane dollar savings rates. Half the middle class has $100k+ in cash sitting around somewhere. That makes the case for dollarization perhaps uniquely interesting vs other attempts to do it in Cambodia, Zimbabwe etc.
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