It is nearly 30 years since Rudiger Dornbusch and Sebastian Edwards published a seminal book, The Macroeconomics of Populism. Their conclusion back then was that the economic policies of populist leaders were quintessentially irresponsible. These governments, blinded by an aim to address perceived social injustices, specialised in profligacy, unbothered by budget constraints or whether they might run out of foreign exchange.

Because of this disregard for basic economic logic, their policy experiments inevitably ended badly, with some combination of inflation, capital flight, recession and default. Salvador Allende’s Chile in the 1970s, or Alan García’s Peru in the 1980s, capture this story perfectly.

These days, the macroeconomics of populism looks different. Of course there are populist leaders out there whose policies follow, more or less, the playbook of the 1970s and 1980s. Donald Trump may prove to be one of those, with a late-cycle fiscal expansion that seemed to have no basis in economic reasoning; Recep Tayyip Erdogan, by some accounts, may be another.

But a much more interesting phenomenon is the apparent surge in populist leaders whose economic policies are remarkably disciplined.

Take Mexico’s president, Andrés Manuel López Obrador. When it comes to fiscal policy, it is odd indeed that this fiery critic of neoliberalism seems fully committed to austerity. His budget for 2019 targets a surplus before interest payments of 1 per cent of GDP, and on current plans he intends to increase that surplus next year to 1.3 per cent of GDP. He has upheld the autonomy of the central bank and, so far at least, his overall macroeconomic framework is anything but revolutionary.

Hungary’s prime minister Viktor Orban offers another example of conservative populism. Under his watch, budget deficits have been considerably lower than they had been previously, helping to push the stock of public debt down from 74 per cent of GDP in 2010, the year Orban took over, to 68 per cent last year.

This emphasis on the virtues of fiscal prudence is also visible in Poland, where Jaroslaw Kaczynski’s PiS has managed public finances with sufficient discipline in the past few years to push the debt/GDP ratio below 50 per cent last year, the first time this has happened since 2009.

The obvious question is: what has changed in the decades since Dornbusch and Edwards went into print?

One answer is that today’s populists tend to strive for national self-reliance, which encourages them to avoid building up any dependence on foreign capital. And since that goal is achieved by keeping a tight rein on macro policy, fiscal indiscipline is avoided in order to limit vulnerability to foreign influences.

Perhaps this is because the 'them', or the perceived enemy, for many of today’s populists tends to be outside the country rather than inside. Broadly speaking, it is the forces of globalisation — and global capital in particular — that are the problem for these leaders, and self-reliance is the only way to keep those forces at arm’s length. This helps to explain why, for example, Orban has been so keen to repay debt to Hungary’s external creditors. He has relied instead on selling bonds to Hungarian households to finance his deficits, even though the interest rates on those bonds are much higher than he would pay to foreign creditors. It also helps explain why the PiS in Poland has presided over a decline in foreign holdings of its domestic bonds. Foreign investors owned 40 per cent of Poland’s domestic government debt back in 2015, but only 26 per cent now.

In other words, among many of today’s populists there is a blurring of the distinction between populism and nationalism. And the nationalistic urge to keep the rest of the world off your back seems to dominate the populist urge to spend money. The perfect example of that instinct is Vladimir Putin: not necessarily a populist, but his administration has been emphatic about the need to keep public spending low and to build solid financial buffers. National self-reliance is an economic obsession for the Russian government, and provides a model for other countries who wish to insulate themselves from international finance.

One of the reasons why the macroeconomics of populism have changed in this way is the historical legacy of economic disaster. If you are a populist leader in a country where financial crisis is part of living memory — as it is in Mexico, Hungary and Russia, say — you might do well to err on the side of conservatism for fear of repeating the mistakes of your predecessors.

But another reason why populism looks different for countries like Poland, Hungary, Mexico and Russia has to do with mere luck. Hungary and Poland, in particular, enjoy the luck of geography: having been absorbed into the EU, they have received financial transfers from Brussels averaging some 3-4 per cent of GDP in the past few years, so that populism in these countries has been solidly underpinned by the terms of their EU membership. López Obrador is enjoying the inheritance of his predecessor’s sound macro policy, together with a buoyant US economy and low US interest rates. Russia has had the good fortune of oil exports to rely on.

The thing about luck is that it can run out. So maybe it’s not quite time yet to bury the old macroeconomics of populism. But for the time being, it seems true to say that many of today’s populists have an unexpectedly robust sense of economic discipline.

This article was originally published in the Financial Times.

The speaker will discuss development prospects in the Asia-Pacific and their implications for Europe and the UK. He will outline prospects for the region’s growth, the impact of the current US-China trade conflict as well as other challenges faced by the region. He will also discuss the future role of the Asian Development Bank and how it plans to support the further development of the region.

In the five months since the last extension of the Brexit deadline, the questions about the UK’s trading relationship with the EU remain as open as before, as do those about what sort of relationship it should seek with other partners.

The world has not stood still, however, and so the UKTPO is convening another panel to consider constructive ways of moving forward. The panel will discuss potential trajectories for UK trade policy, followed by a question and answer session.

The UK Trade Policy Observatory (UKTPO) is a partnership between Chatham House and the University of Sussex which provides independent expert comment on, and analysis of, trade policy proposals for the UK as well as training for British policymakers through tailored training packages.

In the past 12 months, a series of highly-anticipated elections throughout Latin America have demonstrated that deep political shifts are underway.  This has occurred at a time when economic growth across the region is slowing and a number of countries face growing social crises.  How will these political shifts and social challenges affect growth and foreign direct investment (FDI)?

Christopher Sabatini will outline how the shifting political dynamics across the region have, and will, continue to influence trade and investment in the coming months and years across the continent and what regional developments mean for the international community in light of Brexit, global trade tensions and the rise of China and other emerging powers. How can businesses and governments provide a platform to overcome mutual obstacles faced by Latin American investors? What impact have Chinese development projects had in Latin America? And are medium and small economies in Latin America vulnerable to a global trade war?

This event is only open to Major Corporate Member and Partner organizations of Chatham House. If you would like to register your interest, please RSVP to Linda Bedford. We will contact you to confirm your attendance.

To enable as open a debate as possible, this event will be held under the Chatham House Rule.

The Syrian currency depreciated by 11% between mid-August and the first week of September, to reach an unprecedented level of SYP692 to the US dollar. According to the government, the main reasons behind this collapse are the international sanctions imposed on Syria and currency speculation.

Accordingly, the government has forced speculators and local foreign exchange companies to sell the US dollar instead of holding it. Moreover, Syrian security agencies have pressured profiteers with close links to the regime to effectively participate in campaigns that support the local currency. Indeed, the Syrian pound appreciated in value in only a few days to reach an average of SYP615 for $1 in the second week of September.

This high volatility in currency prices results in monetary uncertainty among traders, and thus, increases the possibility of other depreciations in the near future.

Currency speculation could be the reason behind the high fluctuations. However, the fall in the exchange rate has been a continuous and steady trend ever since the beginning of the conflict. The Syrian currency is about 13 times less valuable than before conflict, and fell by 20% between January and September 2019. It is therefore more likely that the devaluation reflects a structural deterioration of the Syrian economy.

There are a number of interlinked reasons behind this trend:          

Economic collapse

The conflict in Syria has led to a drastic decline in economic activity. By 2018, the total accumulated economic loss was estimated at about $428 billion, which equaled 6 times Syria’s GDP in 2010. The country’s GDP lost about 65% of its value compared to its level before the war. The conflict has also caused a reallocation of resources to destructive and war-related activities. This drop in economic productivity weighs on the Syrian pound’s stability.       

Dramatic export decline

The total value of Syrian exports contracted from $12.2 billion in 2010 to less than $700 million in 2018, whereas imports declined from $19.7 billion to $4.4 billion during the same period. Thus, the coverage ratio of exports to imports dropped from 62% to 16% in this period, indicating that the government has become very dependent on external trade partners. Almost all import payments are made in foreign currencies, which increases the devaluation pressure on the Syrian pound.

Iran has provided the Syrian regime with credit lines estimated at about $6 billion to import oil and consumer goods from the Islamic Republic. These credit lines do not include all the Iranian financial support to the regime. Iranian oil exports to Syria are estimated at about 2 million barrels a month (a total of around $16 billion during the eight years of conflict). The increasing external debt to Iran, also due to military support, may contribute in stabilizing the Syrian pound for short period, yet it is bound to sustain the devaluation pressure in the long run.      

Damaging monetary policies

Since the beginning of the conflict, the Central Bank of Syria has issued a series of decisions that have contributed to the weakening of the Syrian pound. For instance, until 2015, the bank adopted a policy of selling hard currencies to local foreign exchange companies. This policy depleted their foreign currency reserves by about $1.2 billion, without halting the deterioration of the pound. The bank has also increased the money supply; there is three times the amount of currency in the local market as today compared to before the conflict, causing a surge in inflation and currency devaluation.

The absence of foreign direct investment

Between 2005 and 2010, Syria received an annual average of $1.5 billion as foreign direct investment (FDI); this amount has dropped almost to zero during the years of conflict. Russia and Iran have continued to invest in Syria, mainly in the mining sector, but the conditions of these investments have limited the inflows of foreign currency to Syria. FDI inflows were a major source of hard currency; their absence is an additional driver of currency depreciation.

International sanctions

Many countries have imposed sanctions on various sectors in Syria, including energy and financial transactions. During the last two years, the US has tightened its sanctions by introducing the Caesar law, which aims to isolate the Syrian regime. These sanctions have increased the cost of the Syrian imports and therefore raised demand for foreign currencies. Remittances, estimated at $4.5 million per day as well as foreign investments and exports were also negatively affected, and this has reduced the supply side of hard currencies inside Syria.

Currency speculation

The Syrian regime usually intervenes to manage currency speculation through government agencies and friendly business entities. But such speculations are very difficult to control in Syria given the poor economic conditions, the high level of business uncertainty and the lack of trust in institutions. This has driven the Syrian households, those who did not already lose their savings, to buy gold or hard currencies as safe investments.

The Syrian pound’s depreciation and its high fluctuations reflect the fragile political and economic situation in the country. The government’s improvised decisions have failed to stabilize it, causing a rise in the prices of basic goods. This has left more than 90% of Syria’s population under the poverty line. Long-term stability in exchange rates requires an inclusive and sustainable development strategy, one that would need to be based on an accountable and transparent political landscape. That seems a long way off.

As the chair of the Royal Institute of International Affairs, I recently hosted an offsite event with some of the organization’s strongest supporters, research staff, and other leaders. I left with a clearer view of three of the biggest issues of our time: slowing productivity growth, anti-establishment politics, and the rise of China.

John Maynard Keynes' The Economic Consequences of the Peace has long been a key reference point in discussions about the Treaty of Versailles and its impact on Germany and Europe’s rehabilitation. A century after its publication, the relevance of Keynes’ thinking – not least the influence it had on public perception of the treaty itself – offers an insight into the impact of expert analysis on how political decisions are received in public and academic spheres.

This panel discusses the author, the book and the controversy they have generated up to the present day. How relevant is Keynes’ polemic and how applicable is his European economic recovery plan to our current period of global dislocation? What is the role of experts in the formation and scrutiny of international politics? And how can contemporary politicians use Keynes’ comprehensive assessment of the intersection between political, social and economic realities and national idealism to inform their approaches to international relations?

Currently 73% of all UK agricultural imports come from the EU. That heavy dependence sparked a report by the British parliament expressing concern about the UK’s food security in the immediate aftermath of Brexit.

Meanwhile, Latin America’s agricultural powerhouses Brazil and Argentina only accounted for a total of 1.6% of the UK’s agricultural market across eight sectors in 2018. A growing relationship would seem to be an obvious fit post-Brexit – but a number of structural issues stand in the way.

There is certainly scope for increasing Latin American agricultural exports to the UK given current trade patterns. Two of the main agricultural imports that the UK buys from the EU are meat products, representing 82% of UK imports in that category, and dairy products and eggs; 98% of UK’s dairy- and egg-related external supply came from the EU. In both these areas, Brazil and Argentina could have comparative advantages, including lower prices.

But any improvement in agricultural trade links will depend on two factors: 1) how the UK leaves the EU: whether it crashes out, negotiates an easy exit or leaves at all; and 2) whether Latin American agricultural producers can improve their environmental practices and can meet the production standards established by the EU and likely maintained by a post-Brexit Britain.

Some of the key issues that will affect this are:

Tariff structures

On the UK side, there is pressure by domestic agricultural producers to raise UK tariffs to allow them to expand their local market share. Yet, despite the pressures from local farmers, the UK has laid out two scenarios.

In one case, the UK government has stated that in the event of a no-deal Brexit, tariffs will be lowered to 0%, but there is no firm commitment and this would likely be temporary. It is also unlikely that those would apply to all agricultural products. In the case of beef imports (of which Argentina and Brazil are major exporters), the UK has proposed that ‘no deal’ would bring a reduction on tariffs on a range of beef products of roughly half.

Meanwhile, tariffs on EU imports could go up. Even if the UK establishes 0% tariffs on EU products, it’s possible that the EU will not reciprocate, instead choosing to revert to the World Trade Organization’s most-favoured-nation tariffs. To take one example of what that would mean, under existing most-favoured-nation tariffs on beef, the tariffs range from €6.80 per 100 kilograms of full bovine carcasses or half carcasses all the way up to €161.10 for 160 kilograms of prepared or preserved meat, including sausages.

Free trade agreements between the EU and Latin American countries

The EU has free trade agreements with the Central American bloc of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama; Mexico; Chile; and the Andean countries of Colombia, Ecuador, and Peru. In all those cases, the UK has expressed its desire to maintain its liberal trade framework with those countries.

Even if the UK leaves without a deal and tariffs do increase on EU agricultural exports, though, these Western Hemisphere economies are unlikely to see a large boost in their food exports to the UK. Chile and other large fruit producers are already locked into the Chinese market. And the real agricultural powerhouses, Argentina and Brazil, are now part of the EU trade agreement with Mercosur.

Since that agreement is not yet in force, the UK and Mercosur would need to negotiate a separate agreement. Such an agreement may be easier to ratify than the EU agreement since there is only one partner (the UK) for such a deal, but the likely change in government in Argentina after the 27 October elections may make it difficult to secure a deal on the Mercosur side.

Some EU trade agreements also include arrangements for tariff rate quotas. An EU quota with Argentina, for example, allows more than 280,000 tonnes of lamb to be imported to the EU duty free from Argentina, among other countries. It is unclear whether these quotas will be maintained or even expanded by the UK post-Brexit.  

Phytosanitary standards and rules governing the treatment of animals

Non-tariff barriers concerning production practices could play a key role. The large UK consumer organization Which? raised the concern before parliament that in the scramble to replace EU food imports, the UK could diverge from EU standards on animal cloning, the use of growth hormones and hygiene in poultry production. Pressure to maintain those standards would likely exclude many products from South America.

Beyond the regulatory barriers, there is also the possibility that UK consumers may reject agricultural products produced in less sustainable and humane conditions, or in countries (such as Brazil) that are seen by the public as abusing the environment.

In short, an increase in Latin American agricultural exports to the UK market may not happen as easily or as quickly as some hope after Brexit. In fact, it may not happen at all. But if Latin American countries – Argentina and Brazil in particular – want to capture this potential new market, the first step both should be to improve their environmental profile and standards at both the government and producer level.

Almost four years since it was established, the China-led Asian Infrastructure Investment Bank (AIIB) has approved 49 projects and proposed 28. The AIIB claims to be more efficient and less bureaucratic than traditional multilateral development banks (MDB’s) which has threatened the existing model of multilateral development finance. At the same time, China’s increased role in previously Western-led economic institutions, such as the WTO and IMF, has raised questions over the future of the international trade order. How will a rising China shape the international institutional order? Where are there opportunities for potential collaboration and what areas pose challenges? And how should other states and international organizations respond?

Attendance at this event is by invitation only. 

This article argues that practices of global finance provide a rich opportunity to consider gender's embodiment in everyday, but highly regulatory, financial life. Tracing a pathway through the rise of the ‘diversity agenda’ in global finance in the wake of the global financial crisis, the article asks how ‘diversity’ has shaped the global financial services industry, and whether it has challenged the reproduction of gendered power in global finance. Recent, innovative feminist political economy work has laid out a clear challenge to researchers of the global political economy to explore how everyday practices have become significant sites of gendered, regulatory power, and this article takes up this challenge, analysing how the rise of ‘diversity’ in financial services reveals the crucial intersections of gendered power and everyday economic practices. Using a conceptual framework drawn explicitly from Marysia Zalewski's work, this article advances critical inquiry into how gender has become an often unacknowledged way of writing the world of global finance, in ongoing, and problematic, ways. It proposes that the practices and futures of the diversity agenda in global finance provide a window into the persistent failure of global finance to reconfigure its foundational masculinism, and asks that financial actors begin to take seriously the foundational, gendered myths on which global finance has been built.

Many studies have explored the importance of public opinion in British foreign policy decision-making, especially when it comes to the UK's relations with the United States and the European Union. Despite its importance, there is a dearth of research on public opinion about British foreign policy towards other major players in the international system, such as emerging powers like China. We have addressed this knowledge gap by conducting a public opinion survey in the UK after the Brexit referendum. Our research findings indicate that the British public at large finds China's rise disconcerting, but is also pragmatic in its understanding of how the ensuing bilateral relations should be managed. More importantly, our results show that views on China are clearly split between the two opposing Brexit identities. Those who subscribe strongly to the Leave identity, measured by their aversion to the EU and antipathy towards immigration, are also more likely to hold negative perceptions of Chinese global leadership and be more suspicious of China as a military threat. In contrast, those who espouse a Remain identity—that is, believe that Britain would be better served within the EU and with more immigrants—are more likely to prefer closer engagement with China and to have a more positive outlook overall on China's place within the global community.

Economic containment has garnered repeated attention in the discourse about the United States' response to China. Yet, the attributes of economic containment as a distinct strategy of Great Power competition remain unclear. Moreover, the conditions under which a leading power can employ economic containment against a challenging power remain theoretically unelaborated. This article first suggests that economic containment refers to the use of economic policies to weaken the targeted state's material capacity to start military aggression, rather than to influence the competitor's behaviour over a specific issue. Then, this article suggests that economic containment becomes a viable option when the leading power has the ability to inflict more losses on the challenging power through economic restrictions, and this ability is largely determined by the availability of alternative economic partners. When the leading power cannot effectively inflict more losses on the challenging power due to the presence of alternative economic partners, it is better off avoiding economic containment. The author substantiates these arguments through case-studies of the United States' responses to the Soviet Union during the Cold War. The article concludes by examining the nature of the United States' recent economic restrictions against China.

The upcoming UK general election is arguably a 'Brexit election', and as such, whoever wins the election will have little time to get their strategy for Brexit up and running to meet the new Brexit deadline of 31 January 2020. But what are the political parties’ policies for the UK's future trade? This event will present and discuss what the five main parties’ manifestos imply for future UK trade. Each manifesto will be presented and analysed by a fellow of the UK Trade Policy Observatory (UKTPO) and will be followed by a Q&A session. 

The entry into force of the African Continental Free Trade Area (AfCFTA) on 30 May, after only three years of negotiations, is an economic, political and diplomatic milestone for the African Union (AU) and its member states, crucial for economic growth, job creation, and making Africa a meaningful player in international trade. But the continent will have to work together to ensure that the potential benefits are fully realized.

A necessary innovation

With its advances in maintaining peace and security, abundant natural resources, high growth rates, improved linkages to global supply chains and a youthful population, Africa is emerging as a new global centre of economic growth, increasingly sought after as a partner by the world’s biggest economies. Governments from across Africa have been taking a more assertive role in international markets, including through proactive diversification of trading partners, and the continent remains a strong advocate for the multilateral trading system.

However, this is not yet reflected in outcomes. The African Union does not have observer status at the World Trade Organization, despite diplomatic efforts in the past decade. Africa has less than a three per cent share of global trade, and the growing trend towards protectionism across the global economy may only increase the vulnerability of a disunited Africa. Its fractured internal market means that trade within Africa is lower than for any other region on the globe, with intra-African trade just 18 per cent of overall exports, as compared to 70 per cent in Europe.

The AfCFTA is the continent’s tool to address the disparity between Africa’s growing economic significance and its peripheral place in the global trade system, to build a bridge between present fragmentation and future prosperity. It is an ambitious, comprehensive agreement covering trade in goods, services, investment, intellectual property rights and competition policy. It has been signed by all of Africa’s states with the exception of Eritrea.

It is the AU's Agenda 2063 flagship project, brought about by the decisions taken at the January 2012 African Union Summit to boost intra-African trade and to fast track the establishment of the Continental Free Trade Area. It builds upon ambitions enshrined in successive agreements including the Lagos Plan of Action and the Abuja Treaty. Access to new regional markets and reduced non-tariff barriers are intended to help companies scale up, driving job creation and poverty reduction, as well as attracting inward investment to even Africa’s smaller economies.

The signing in 2018 of the instruments governing the Single Air Transport Market and the Protocol on Free Movement of Persons, Right of Residence and Right of Establishment provided another step towards the gradual elimination of barriers to the movement of goods, services and people within the continent.

Tests to come

However, while progress is being made towards the ratification of the AfCFTA, much remains to be done before African countries can fully trade under its terms. The framework for implementation is still under development, and the creation of enabling infrastructure that is critical for connectivity will take time to develop and requires extensive investment.

So, the first test for the AfCFTA will be the level to which Africa’s leaders make it a domestic priority, and whether a consensus can be maintained across the AU’s member states as the costs of implementation become clear.

There is no guarantee that the gains of free trade will be evenly distributed. They will mainly depend on the extent to which countries embrace industrialization, liberalization of their markets and opening of their borders for free movement of goods and people – policies that some incumbent leaders may be reluctant to implement. Political will to maintain a unified negotiating position with diverse stakeholders, including the private sector, will come under increasing stress.  

A second challenge is how the AfCFTA relates to already existing trade arrangements, notably with the EU.  The AU has long preferred to pursue a continent-to-continent trading arrangement instead of the bilateral Economic Partnership Agreements being sought by the EU under the African, Caribbean and Pacific (ACP) framework to which, with the exception of Algeria, Egypt, Libya, Morocco, Tunisia and South Africa, all African states belong. The signing of the AfCFTA is one important step towards making this possible.

But there are currently negotiations under the ACP to replace the Cotonou Accord (the framework governing trade between ACP members and the EU, including Economic Partnership Agreements [EPAs], that is due to expire in 2020). Negotiations on the African pillar of the accord are due to take place after the AfCFTA has entered into force. So African states and the AU will face the challenge of balancing their commitment to the ACP bloc with pursuing their own interests.

And though the AfCFTA should supersede any other agreements, the EPAs or their successors, will continue to govern day-to-day trading, in parallel to the new pan-African market. It is not yet clear how these contradictions will be reconciled.

A new role for the AU?

The AU will need to play an active role as the main interlocutor with Africa´s international trading partners, with the AfCFTA secretariat being the arbiter of internal tensions and trade disputes. The AU´s engagement at continental level has to date revolved mainly around headline political diplomacy, security and peacekeeping. With the continental free market becoming a reality, an effective pivot to economic diplomacy will be critical for growth and development.

With the AfCFTA, the AU has endeavoured to address Africa’s unsustainable position in global trade, to stimulate growth, economic diversification and jobs for its growing population. Much will depend on the commitment of African leaders to maintaining a unified negotiating position to implement the agreement and the AU’s capacity to effectively move from political to economic diplomacy.

The transition of power in Oman from the deceased Sultan Qaboos to his cousin and the country’s new ruler, Sultan Haitham bin Tariq, has been smooth and quick, but the new sultan will soon find that he has a task in shoring up the country’s economic position.

Above all, the fiscal and debt profile of the country requires careful management. Fiscal discipline was rare for Oman even during the oil price spike of the 2000s. Although oil prices only collapsed in 2014, Oman has been registering a fiscal deficit since 2010, reaching a 20.6 per cent high in 2016. As long as fiscal deficits remain elevated, so will Oman’s need to finance those deficits, predominately by borrowing in the local and international market.

Oman’s Debt-to-GDP ratio has been rising at a worrying pace, from 4.9 per cent in 2014 to an IMF-estimated 59.8 per cent in 2019. By 2024, the IMF is forecasting the ratio to reach nearly 77 per cent. A study by the World Bank found that if the debt-to-GDP ratio in emerging markets exceeds 64 per cent for an extended period, it slows economic growth by as much as 2 per cent each year.

Investors are willing to lend to Oman, but the sultanate is paying for it in terms of higher spreads due to the underlying risk markets are placing on the rising debt profile of the country. For instance, Oman has a higher sovereign debt rating than Bahrain yet markets perceive it to be of higher risk, making it costlier to borrow. Failure to address the fiscal and debt situation also risks creating pressure on the country’s pegged currency.

If oil revenues remain low, Sultan Haitham will have to craft a daring strategy of diversification and private sector growth. He is well placed for this: Sultan Haitham headed Oman’s Vision 2040, which set out the country’s future development plans and aspirations, the first Gulf country to embark on such an assessment. However, like all vision documents in the Gulf, Oman’s challenge will be implementation.

In the age of climate change, renewable energy is a serious economic opportunity, which Oman has to keep pursuing. If cheap electricity is generated it could also be exported to other Gulf states and to south Asia. In Oman, the share of renewables in total electricity capacity was around 0.5 per cent in 2018; the ambition is to reach 10 per cent by 2025.

However, in order to reach this target, Oman would have to take additional measures such as enhancing its regulatory framework, introducing a transparent and gradual energy market pricing policy and integrating all stakeholders, including the private sector, into a wider national strategy.

Mining could provide another economic opportunity for Oman’s diversification efforts, with help from a more robust mining law passed last year. The country has large deposits of metals and industrial minerals and its mountains could have gold, palladium, zinc, rare earths and manganese.

Oman’s strategic location connecting the Gulf and Indian Ocean with east Africa and the Red Sea could also boost the country’s economy. The Duqm special economic zone, which is among the largest in the world, could become the commercial thread between Oman, south Asia and China’s ‘Belt and Road Initiative.’

Oman has taken important steps to make its economy more competitive and conducive to foreign direct investment. Incentives include a five-year renewable tax holiday, subsidized plant facilities and utilities, and custom duties relief on equipment and raw materials for the first 10 years of a firm’s operation in Oman.

A private sector economic model that embraces small- and medium-sized enterprises as well as greater competition and entrepreneurship would help increase opportunities in Oman. Like all other Gulf economies, future employment in Oman will have to be driven be the private sector, as there is little space left to grow the public sector.

Privatization needs to continue. Last year’s successful sale of 49 per cent of the electricity transmission company to China’s State Grid is a very positive step. The electricity distribution company as well as Oman Oil are next in line for some form of partial privatization.

The next decade will require Oman to be even more adept in its competitiveness as the region itself tries to find its new bearings. Take tourism for instance; Oman hopes to double its contribution to GDP from around 3 per cent today to 6 per cent by 2040 and the industry is expected to generate half a million jobs by then. Over the next 20 years, Oman will most likely be facing stiff competition in this area not only by the UAE but by Saudi Arabia as well.

The new sultan has an opportunity to embark on deeper economic reforms that could bring higher growth, employment opportunities and a sustainable future. But he has a big task.

Read all our analysis on the Coronavirus Response

The coronavirus outbreak comes at a difficult time for China’s ruling party. A tumultuous 2019 saw the country fighting an economic slowdown coupled with an increasingly hostile international environment. As authorities take assertive steps to contain the virus, the emergency has - at least temporarily - disrupted global trade and supply chains, depressed asset prices and forced multinational businesses to make consequential decisions with limited information. 

Against this backdrop, panellists reflect on the country’s nascent economic transition from 2020 onward. What has been China’s progress towards a sustainable innovation-led economy so far? To what extent is the ruling party addressing growing concerns over job losses, wealth inequality and a lack of social mobility? And how are foreign investors responding to these developments in China?

There are two well-established ideas in trade. Individually, they are correct. Combined, they can lead to a conclusion that is unfortunately wrong.

The first idea is that, across a range of economic sectors, the EU and the US have been engaged in a battle to have their model of regulation accepted as the global one, and that the EU is generally winning.

The second is that governments can use their regulatory power to extend strategic and foreign policy influence.

The conclusion would seem to be that the EU, which has for decades tried to develop a foreign policy, should be able to use its superpower status in regulation and trade to project its interests and its values abroad.

That’s the theory. It’s a proposition much welcomed by EU policymakers, who know they are highly unlikely any time soon to acquire any of the tools usually required to run an effective foreign policy.

The EU doesn’t have an army it can send into a shooting war, enough military or political aid to prop up or dispense of governments abroad, or a centralized intelligence service. Commission President Ursula von der Leyen has declared her outfit to be a ‘geopolitical commission’, and is casting about for any means of making that real.

Through the ‘Brussels effect’ whereby European rules and standards are exported via both companies and governments, the EU has indeed won many regulatory battles with the US.

Its cars, chemicals and product safety regulations are more widely adopted round the world than their American counterparts. In the absence of any coherent US offering, bar some varied state-level systems, the General Data Protection Regulation (GDPR) is the closest thing the world has to a single model for data privacy, and variants of it are being adopted by dozens of countries.

The problem is this. Those parts of global economic governance where the US is dominant – particularly the dollar payments system – are highly conducive to projecting US power abroad. The extraterritorial reach of secondary sanctions, plus the widespread reliance of banks and companies worldwide on dollar funding – and hence the American financial system – means that the US can precisely target its influence.

The EU can enforce trade sanctions, but not in such a powerful and discriminatory way, and it will always be outgunned by the US. Donald Trump could in effect force European companies to join in his sanctions on Iran when he pulled out of the nuclear deal, despite EU legislation designed to prevent their businesses being bullied. He can go after the chief financial officer of Huawei for allegedly breaching those sanctions.

By contrast, the widespread adoption of GDPR or data protection regimes inspired by it may give the EU a warm glow of satisfaction, but it cannot be turned into a geopolitical tool in the same way.

Nor, necessarily, does it particularly benefit the EU economy. Europe’s undersized tech sector seems unlikely to unduly benefit from the fact that data protection rules were written in the EU. Indeed, one common criticism of the regulations is that they entrench the power of incumbent tech giants like Google.

There is a similar pattern at work in the adoption of new technologies such as artificial intelligence and the Internet of Things. In that field, the EU and its member states are also facing determined competition from China, which has been pushing its technologies and standards through forums such as the International Telecommunication Union.

The EU has been attempting to write international rules for the use of AI which it hopes to be widely adopted. But again, these are a constraint on the use of new technologies largely developed by others, not the control of innovation.

By contrast, China has created a vast domestic market in technologies like facial recognition and unleashed its own companies on it. The resulting surveillance kit can then be marketed to emerging market governments as part of China’s enduring foreign policy campaign to build up supporters in the developing world.

If it genuinely wants to turn its economic power into geopolitical influence – and it’s not entirely clear what it would do with it if it did – the EU needs to recognize that not all forms of regulatory and trading dominance are the same.

Providing public goods to the world economy is all very well. But unless they are so particular in nature that they project uniquely European values and interests, that makes the EU a supplier of useful plumbing but not a global architect of power.

On the other hand, it could content itself with its position for the moment. It could recognize that not until enough hard power – guns, intelligence, money – is transferred from the member states to the centre, or until the member states start acting collectively, will the EU genuinely become a geopolitical force. Speaking loudly and carrying a stick of foam rubber is rarely a way to gain credibility in international relations.

This article is part of a series of publications and roundtable discussions in the Chatham House Global Trade Policy Forum.

Since the 2018 economic crisis, when the value of the lira plummeted and borrowing costs soared, Turkey’s economy has achieved a miraculous ‘V-shaped’ economic recovery from a recession lasting three quarters to a return back to quarterly growth above 1 per cent in the first three months of 2019.

But this quick turnaround has been built on vast amounts of cheap credit used to re-stimulate a consumption and construction boom. This so-called ‘triple C’ economy generated a rapid growth spurt akin to a modestly able professional sprinter injected with steroids.

This has made the currency vulnerable. The lira has steadily depreciated by 11 per cent against the US dollar since the beginning of 2019 and crossed the rate of 6 lira versus the US dollar on 7 February. And there are further warning signs on the horizon.

Credit bonanza

Statistics reveal that Turkish domestic credit grew by around 13 per cent on average throughout 2019.  The credit bonanza is still ongoing. Mortgage-backed home sales jumped by a record high of 600 per cent last December alone and the 2019 budget deficit catapulted by 70 per cent due to higher government spending.

Turkey’s central bank fuelled this credit expansion by cutting interest rates aggressively to below inflation and, since the start of this year, purchasing lira-denominated bonds equivalent to around one-third of total acquisitions last year to push yields lower.

Equally, it has linked bank lending to reserve requirements – the money that banks have to keep at the central bank – to boost borrowings via state and private banks. Banks with a ‘real’ loan growth (including inflation) of between 5 and 15 per cent enjoy a 2 per cent reserve ratio on most lira deposits, which authorities adjusted from an earlier band of 10-20 per cent that did not consider double-digit inflation.

Cumulatively, bond purchases (effectively quantitative easing) and reserve management policies have also contributed to eased credit conditions.

Commercial banks have also reduced deposit rates on lira accounts to less than inflation to encourage consumption over saving. Together with low lending rates, the boost to the economy has flowed via mortgages, credit card loans, vehicle leasing transactions and general business borrowings.

Accordingly, stimulus is at the forefront of the government’s economic approach, as it was in 2017 and 2018. It does not seem to be implementing structural change to re-orient growth away from consumption towards productivity. 

In addition, governance is, again, a central issue. President Recep Tayyip Erdogan’s near total monopolization of policymaking means he guides all domestic and external policies. He forced out the previous central bank governor, Murat Cetinkaya, in July 2019 because he did not share the president’s desire for an accelerated pace of interest rate reductions.

New challenges

Despite the similarities, the expected future financial turbulence will be materially different from its 2018 predecessor in four crucial respects. 

Firstly, foreign investors will only be marginally involved. Turkey has shut out foreign investors since 2018 from lira-denominated assets by restricting lira swap arrangements. Unsurprisingly, the non-resident holdings of lira bonds has plummeted from 20 per cent in 2018 to less than 10 per cent today.

Secondly, the Turkish government has recently introduced indirect domestic capital controls by constraining most commercial transactions to the lira rather than to the US dollar or euro to reduce foreign currency demand in light of short-term external debt obligations of $191 billion.

Thirdly, the Turkish state banks are intervening quite regularly to soften Lira volatility, thereby transitioning from a ‘free float’ to a ‘managed float’. So far, they have spent over $37 billion over the last two years in a futile effort to buttress the lira. This level of involvement in currency markets cannot be maintained.

Fourthly, the Turkish state is being far more interventionist in the Turkish stock exchange and bond markets to keep asset prices elevated. Government-controlled local funds have participated in the Borsa Istanbul and state banks in sovereign debt to sustain rallies or reverse a bear market.  

All these measures have one running idea: exclude foreign investors and no crisis will recur. Yet, when the credit boom heads to a downturn sooner or later, Turks will probably escalate lira conversions to US dollars; 51 per cent of all Turkish bank deposits are already dollar-denominated and the figure is still rising.

If Turkey’s limited foreign reserves cannot satisfy the domestic dollar demand, the government may have to impose comprehensive capital controls and allow for a double digit depreciation in the value of the lira to from its current level, with significant repercussions on Turkey’s political stability and economic climate.

To avoid this scenario, it needs to restore fiscal and monetary prudence, deal the with the foreign debt overhang in the private sector and focus on productivity-improving economic and institutional reforms to gain the confidence of global financial markets and Turks alike.

Epidemics, of the size of Covid-19, have huge economic impacts – not just from the costs of managing the health of people, but stopping them, and keeping the economy working. The 10% fall in global stock markets since it became clear that Covid-19 would not be limited to China has boldly highlighted this.

Suppressing the epidemic, but allowing the economy to still function, requires key decisions, in which central banks and finance ministries play a part.

The role of fiscal and monetary authorities in managing an epidemic economy

The scope to use monetary policy to manage the economic impact of Covid-19 is limited. The fact that the underlying cause of the shock is an infectious disease outbreak (rather than a banking crisis, as in 2008-09) and nominal interest rates are currently close to zero in most major advanced economies reduces the effectiveness of monetary policy.

Since 2010, reductions in fiscal deficits mean there is more scope for supportive fiscal action. But even here, high public debt levels and the desire not to underwrite ‘zombie’ companies that may have been sustained by a decade of ultra-low interest rates remain constraints. 

However, outside broad based fiscal and monetary policies there are six ways in which finance ministries and central banks will play a critical role in responding to the crisis.

A first crucial role for finance ministries and central banks is in helping provide the best possible economic evaluation of strict containment measures (trying to isolate each potential case) versus managing the epidemic (delaying the spread of the virus, protecting the most vulnerable and treating the sick, while enabling the majority of people to get on with daily life). Given the economic consequences, they must play a full part, alongside health experts, in advising political leaders on this key decision.

Second, if large numbers of staff are required to work from home to manage the epidemic, they have the lead role in doing whatever is necessary to ensure that financial markets – and thus the wider economy – will continue to function smoothly.

Third, they need to ensure adequate funding for the public health response. Steps that can make an enormous difference to the success of containment strategies, such as strengthening surveillance, and guaranteeing the availability of testing kits and protective equipment for front line health workers, must not fail because of a lack of funding. 

Fourth, they have a lead role in designing targeted economic interventions for the wider economy. Some of these are needed immediately to re-enforce and incentivize strict containment strategies, such as ensuring that employees without full or adequate sick leave cover have the financial support to enable them to report and self-isolate when they get sick. 

Other interventions may help improve the resilience of the economy in accommodating moderate ‘social distancing’ measures; for example, by providing assistance to small firms to help them gear up for home working.

Yet others are needed, as a contingency, to safeguard the most vulnerable sectors (such as tourism, retail and transport) in circumstances where there is a prolonged downturn. The latter may include schemes to allow deferral of tax payments by SMEs, or steps to encourage loan extensions and other forms of liquidity support from the banking system, or by moves to underwrite continued provision of business insurance.

Fifth, national economic authorities will need to play their part in combatting ‘fake news’ through providing transparent and high-quality analysis. This includes providing forecasts on the likely economic impact of the virus under different scenarios, but also detailed information on the support and contingency measures they are considering, so they can be improved and refined through feedback. 

Sixth, they will need to ensure that there is generous international support for poor countries, by ensuring the available multilateral support facilities from the international financial institutions and multilateral development banks are adequately funded and fit for purpose. The World Bank has already announced an initial $12 billion financing package, but much more is likely to be needed.

They also need to support coordinated bilateral aid where this is more effective, as well as special measures to support particularly vulnerable groups, for example, in refugee camps and prisons. Given the importance of distributing sophisticated medical equipment and expertise quickly, it is also important that every effort is made to avoid delays due to customs and migration checks.

Managing the future

The response to the immediate crisis will rightly take priority now, but economic authorities must also play their part in ensuring the world finally takes decisive steps to prevent a repeat of Covid-19 in future.

The experience with SARS, H1N1 and Ebola shows that, while some progress is made after each outbreak, this is often not sustained. This epidemic shows that managing diseases is absolutely critical to the long-term health of global economy, and doubly so in circumstances where traditional central bank and finance ministry tools for dealing with major global economic shocks are limited.

Finance ministries and central banks therefore need to push hard within government to ensure sustained long-term funding of research on prevention and strengthening of public health systems. They also need to ensure that the right lessons are drawn by the private sector on making international supply chains more robust.

Critical to the overall success of the economic effort will be effective international coordination. The G20 was established as the premier economic forum for international economic cooperation in 2010, and global health issues have been a substantive part of the G20 agenda since the 2017 Hamburg Summit. At the same time, G7 finance ministers and deputies remain one of the most effective bodies for managing economic crises on a day-to-day basis and should continue this within the framework provided by the G20.

However, to be effective, the US, as current president of the G7, will need to put aside its reservations on multilateral economic cooperation and working with China to provide strong leadership.

Having chaired the independent (and global) Antimicrobial Resistance (AMR) Review for David Cameron, I know a similar approach should have been taken quickly about COVID-19.

Similar not in precise nature but - in so far as incorporating infectious disease modelling, and using economic analysis to try to contain and solve it - it should be applied in parallel.

The AMR Review is well-known for highlighting the potential loss of life as well as the economic costs of an escalating growth of resistance to antimicrobials, and the inaction to prevent it.

In particular we showed that, by 2050, there could be around 10 million people each year dying from AMR, and an accumulated $100trn economic cost to the world from 2015 to 2050.

Horrendous outcomes

What is less focused on, as we showed in our final report, is that to prevent these horrendous outcomes, a 'mere' $42bn would need to be invested globally. This would give an investment return of something like 2,000%.

I shudder to think what policymakers could do if we don’t make these investments and we reach a situation - possibly accelerated itself by escalating the inappropriate use of antibiotics in this COVID-19 crisis - where we run out of useful antibiotics. It will be a much longer time period to find new vaccines to beat COVID-19.

In addition to this crisis, requiring G20 policymakers to back up their generous words about combatting AMR would mean they need to spend around $10bn instigating the generally agreed Market Incentive Awards to promote serious efforts by pharmaceutical companies.

In fact, given that the financial crisis we are also now in means companies are greatly dependent on our governments for their future survival, perhaps the pharma Industry will finally understand the real world concept of 'Pay or Play', where companies that don’t try to find new antibiotics are taxed to provide the pool of money for others that are bold enough to try. And realise there is a world coming of different risk-rewards for all, including them.

When applied to the COVID-19 challenge, it is useful to look at the required investment in accelerating as much as possible the efforts to find useful vaccines to beat it, but also to immediately introduce the therapeutics and diagnostics in countries that are so poorly prepared.

Those Asian countries affected early include a number that seem to have coped so far in keeping the crisis to a minimum because they had the appropriate therapeutics and diagnostics, despite not having vaccines. A sum of approximately $10 bn from the G20 would be sufficient to cover all these vital areas.

Now consider the economics of social distancing. As soon as it became apparent that our policymakers were heeding the Chinese method of trying to suppress COVID-19, it was immediately obvious that our economies would - at least for a short period - sustain the collapse of GDP that China self-imposed in February. From industrial production and other regular monthly data, the Chinese economy has declined by around 20%.

It is quite likely many other economies - probably each of the G7 countries - will experience something not too dissimilar in March. And, to stop our complex democracies from further immediate pressure including social disharmony, governments in many countries have needed to undertake dramatic unconventional steps.

Here in the UK, our new chancellor effectively had three budgets within less than a fortnight. And outside of the £330bn loan policy he has announced, at least £50bn worth of economic stimulus has been announced.

Many other G20 countries have undertaken their own versions of what I call 'People’s QE', many of them bigger packages - the US appears to be contemplating a stimulus as much as $2 trillion.

But, for the sake of illustration, if the UK package were the price for three months social distancing and this was repeated across the G20, then the total cost for all G20 countries - adjusted for relative size - would be in the vicinity of $1trillion.

If this isn’t accompanied by steps involving the best therapeutics and diagnostics, and we have to keep everyone isolated for one year, it would become at least $4trillion.

This may be 'back of the envelope' calculations which ignores the almost inevitable challenges for social cohesion in so many nations. But the G20 must spend something around $10bn immediately to put in absolute best standards all over the world, and another $10 bn to kickstart the market for new antibiotics.

This is a version of an article that first appeared in Project Syndicate.

The outbreak of COVID-19 has demonstrated the wide-ranging and immediate impact a systemic shock can have on the global economy including the financial loss caused by the emergency shutdown of many retail operations, the loss of income for individuals who are forced to stay indoors and the major disruption to supply chains. The longer term impacts are still being realized and depend heavily on the ability of industry and the government to respond effectively to the direct economic shock caused by the pandemic.

Systemic shocks like the COVID-19 pandemic demand immediate responses, but should also encourage governments and industries to re-examine their recovery processes, their resilience and their forward planning. In this webinar, the panellists will discuss the short and long-term impacts of the current crisis and explore how industry can help ensure that the global economy is able to recover from, and build resilience to, future systemic shocks. How do business leaders move from making decisions to reimagining a ‘new normal’ and reforming their practices? What are the critical decisions that businesses should consider when planning for this 'new normal'? And how far can these decisions be based on expected changes to governmental or intergovernmental regulation of different sectors?   

This event is part of a fortnightly series of 'Business in Focus' webinars reflecting on the impact of COVID-19 on areas of particular professional interest for our corporate members and giving circles.

Not a corporate member? Find out more.

In the last 100 years, global economic crises from the Great Depression of the 1930s to the 2008 financial crash have contributed to significant political changes in Europe, often leading to a rise in popularity for extremist parties and politics. As Europe contends with a perceived crisis of democracy - now compounded by the varied responses to the coronavirus outbreak - how should we understand the relationship between externally-driven economic crises, political upheaval and democracy?

The panellists will consider the parallels between the political responses to some of the greatest economic crises Europe has experienced in the last century. Given that economic crises often transcend borders, why does political disruption vary between democracies? What can history tell us about the potential political impact of the unfolding COVID-19-related economic crisis? And will the unprecedented financial interventions by governments across Europe fundamentally change the expectations citizens have of the role government should play in their lives?

This event is based on a recent article in The World Today by Hans Kundnani and Pepijn Bergsen who are both researchers in Chatham House's Europe Programme. 'Crawling from the Wreckage' is the first in a series of articles that look at key themes in European political discourse from the last century. You can read the article here. 

This event is open to Chatham House Members. Not a member? Find out more.

Political leaders, policy-makers and academics routinely refer to development as an objective process of social change through the use of technical, value-free terms. Images of poverty and inequality are regularly presented as evidence of a world that exists ‘out there’ where development unfolds. This way of seeing reflects the value of scientific forms of knowledge but also sits in tension with the normative foundations of development that take European modernization and industrialization as the benchmark for comparison. The role images play in this process is often overlooked. This article argues that a dominant mode of visuality based on a Cartesian separation between subject and object, underpinning the ascendance of European hegemony and colonialism, aligns with the core premises of orthodox development discourse. An example of how visual representations of development matter is presented through images of Africa–China relations in western media sources. Using widely circulated images depicting China's impact on African development in western news media sources as an example of why visual politics matters for policy-making, the article examines how images play a role in legitimizing development planning by rendering associated forms of epistemological and structural violence ‘invisible to the viewer’.