While previous G20 meetings have been noteworthy for their disagreements, Brazil has emphasized substance and consensus over geopolitics during its G20 presidency. Felipe Hees, the Brazilian diplomat and sous-sherpa of this year’s G20 presidency, explained this strategy on July 25 at an Atlantic Council conference on the sidelines of the meeting. Brasília, he said, has sought to acknowledge fundamental disagreements on geopolitics between some members, and then to sidestep them entirely at the ministerial level. The big question now is: How long can this approach last?

So far, Brazilian officials have chosen to focus on economic development issues that already enjoy widespread support. Last week, this approach resulted in one of the few joint G20 ministerial-level communiqués in the past two years. Released on July 26, this communiqué displays G20 members’ alignment on launching the Global Alliance against Hunger and Poverty under the Brazilian presidency. It’s an important topic for the host country, since Brazil is the world’s leading producer of soybeans, corn, and meat, and Brazilian President Luiz Inácio Lula da Silva has emphasized his country’s role in alleviating global food insecurity. At the same time, the issue has a wider resonance. At the Atlantic Council conference, Cindy McCain, executive director of the World Food Program, emphasized that “food security is a national security issue, and it should be labeled as one.”

Climate finance and the energy transition were at the forefront in Rio last week as well. Discussions focused on how to mobilize the public and private sector in achieving climate goals. At the Atlantic Council’s conference, Renata Amaral, the Brazilian secretary for international affairs and development in the Ministry of Planning and Budget, formally called for technical assistance from multilateral development banks for catastrophic weather events, such as the floods in southern Brazil this May. Immediately following the summit, US Treasury Secretary Janet Yellen headed to Belém, the capital city of the northern Brazilian province Pará. Located near the mouth of the Amazon River, Belém was a symbolic choice for the unveiling of the US Treasury’s Amazon Region Initiative Against Illicit Finance, which is intended to help combat nature crimes.

Another issue that garnered attention last week was wealth inequality, which the Brazilian president spotlighted in his speech on June 24. “The poor have been ignored by governments and by wealthy sectors of society,” he said. Despite disagreements on whether the G20 is the right forum for the issue, it issued the first ever ministerial declaration on taxation. While Brazil’s ambition was to move the needle on a 2 percent global wealth tax, the declaration simply said that ultra-high-net-worth individuals must pay their fair share in taxes. While this fell short of Brazil’s hopes on this issue, the meetings in Rio have done more on building consensus than the past two presidencies, which have been rife with outbursts over geopolitical issues between member states.

In 2022, the then G20 president, Indonesia, saw its plan to build international cooperation for the post-pandemic recovery paralyzed by Russia’s full-scale invasion of Ukraine in February. When finance ministers and foreign ministers met in April and July of the year, officials from Russia and from the United States and Europe walked out of the room when their counterparts spoke. Ministers failed to agree on a communiqué, and negotiations on climate and education also broke down over criticisms of the war. Ahead of the leaders’ summit in November 2022, Western leaders balked at the thought of sharing a table with Russian President Vladimir Putin, who ultimately did not attend the summit. In the end, the leaders could only agree to a declaration that was a broad, noncommittal summary of approaches to addressing global challenges.

Last year, India focused its G20 presidency on depoliticizing the issue of the global supply of food, fertilizers, and fuels, as well as on addressing climate change and restoring the foundations of negotiations at the forum. Its strategy was to move geopolitics off center stage by highlighting perspectives from the “Global South,” including formally adding the African Union as a full member, and thus shaping the platform as an action and communication channel between advanced economies and emerging markets.

This was difficult. Shortly into India’s presidency, Russia and China withdrew their support for the text in the Bali statement on Ukraine. At the technical level, none of the ministerial meetings produced a joint communiqué, and New Delhi was forced to issue chairs’ statements instead. Since the leaders’ summit in New Delhi, the outbreak of war between Israel and Hamas in October 2023 has made the job of navigating geopolitical tensions all the more difficult for Brazil.

While the Russian and Chinese leaders did not attend last year’s leaders’ summit, the New Delhi Declaration was nevertheless bolder and more specific than its Bali predecessor. It set the agenda for the G20 for the years ahead but offered few specifics on how to achieve these goals.

Will Brazil’s strategy of sidestepping geopolitics work at the leaders’ summit scheduled for November 18-19 in Rio? Finance ministers and central bank governors can ignore geopolitics; presidents and prime ministers often cannot. If Brasília concludes technical negotiations on the various proposals ahead of the leaders’ summit, then consensus-building at the gathering will be easier, as geopolitics will remain just an elephant in the room.

If Brazil is successful, it can end the stalemate that the G20 has found itself in and remake it into a relevant economic coordination body—one that can adequately address the goals of its emerging market and advanced economy members. If Brazilian officials are not successful, however, the forum’s relevance may begin to wane.

It has been in the interest of the last few G20 presidencies to keep up the balancing act between the United States, China, and Russia. Moreover, it is likely that South Africa will follow this approach as it takes on its presidency in 2025. As many of the discussions in Rio noted, however, what happens in the US presidential elections this November could determine both the relevance and the tone of the G20 meetings going forward.

Ananya Kumar is the deputy director, future of money at the Atlantic Council’s GeoEconomics Center.

Mrugank Bhusari is assistant director at the Atlantic Council’s GeoEconomics Center.

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Despite the headwinds, Brazil’s non-aligned, cooperative, and practical approach holds out the promise of a constructive outcome for this year’s G20 meetings—especially if progress is not being measured by joint communiques (which have become irrelevant) but by agreements on concrete global initiatives. Under the overarching theme “Building a Just World and a Sustainable Planet”, Brazil has worked with countries in the Global South as well as developed countries to build consensus in launching a variety of global initiatives by the time of the G20 Summit. These initiatives reflect the key concerns of the Global South but have built on previous international agreements and include practical proposals for implementation.

Brazil’s proposed initiatives

First is the push to reform the United Nations system and the Bretton Woods institutions like the IMF, World Bank, and World Trade Organization. Reforms to the UN Security Council—where five permanent members (P5) have veto power—have been on the international agenda for a long time. While widely acknowledged in principle, no specific proposal has gained any traction. Brazil has put forward the idea that a P5 member should not be allowed to use its veto power in cases directly relating to itself—somewhat similar to the Western judiciary practice of reclusion of judges in cases of conflicts of interest. This would have meant that Russia would not have been able to use its veto power when the Security Council discussed the war in Ukraine. Such a proposal will not get the backing of the P5, especially amid the current geopolitical rivalry. But it could gather support from many countries, and not only within the Global South—keeping pressure on P5 members to respond with counter-proposals.

Calls for reform of the IMF and World Bank have been widely shared by the Global South, reiterated most recently by China demanding a redistribution of quota and voting shares to “better reflect the weight a country carries.” The G24, representing developing countries at the IMF and World Bank, has circulated a paper proposing specific reforms. These and other ideas about quota reform are scheduled be discussed by the IMF in the year ahead.

Second, another of Brazil’s linchpins for this year is launching a Global Alliance Against Hunger and Poverty as a tool for reaching the UN Sustainable Development Goals by 2030. That initiative leverages Brazil’s position as the second biggest food-exporting country. Specifically, the alliance will not be about initiating new funds or programs but finding ways to coordinate numerous existing funds and programs to make them more useful to recipient countries and easier to solicit contributions from developed countries. It also will compile a basket of best practices in anti-hunger and anti-poverty policies to help other countries develop their own programs. In this context, Brazil will showcase its acclaimed Bolsa Familia family welfare program, which has helped significantly reduce the country’s poverty rate and has been adapted in almost twenty other nations.

Third, Brazil will launch a Task Force for the Global Mobilization Against Climate Change to spur the G20 to help create a conducive political environment for a new and robust goal on climate finance to be agreed at this year’s COP 29 in Azerbaijan as well as for countries to present their renewed and more ambitious Nationally Determined Commitments (NDCs) to reach net zero emissions at the 2025 COP30 under Brazil’s chairmanship. Brazil will also advance its proposed Global Bioeconomy Initiative to bring together science, technology, and innovation on the use of biodiversity to promote sustainable development. This initiative will also try to expand developing countries’ access to various fragmented climate funds including the Green Climate Fund, the Climate Investment Fund, the Adaptation Fund, and the Global Environment Facility.

Fourth, leveraging the momentum of the global corporate minimum tax (effective at the beginning of this year), Brazil wants to propose a global initiative to impose a minimum tax on the super-rich which France has endorsed. This will help Brazil rally support from Global South countries as well as others to advance the proposal.

Last but not least, in September 2023 Brazil and the United States signed an MOU for a Partnership for Workers’ Rights (in particular in the gig economy). They pledged to pass necessary national legislation to achieve that goal and hope to use it as an example to get other countries to join.

The themes across these initiatives are practicality, leading by example, and a willingness to bypass time-consuming, top-down international negotiations.

While Brazil’s proposals will not all be adopted at the G20 Summit, especially in their original versions, most probably will be with some modifications. This outcome, with or without a joint communique, would represent a serious contribution by a key member of the Global South to the global reform agenda. And it comes after the achievements of India in its Presidency of last year’s G20. If South Africa keeps up this track record when assuming the G20 Presidency in 2025 (when Brazil will chair the BRICS-10 and COP30), an important step forward will be made in establishing the leadership roles of the major countries in the Global South. They are showing the ability to rally their members and to reach out to developed countries to shape global reform efforts. And if those countries, working with their partners, can sustain the implementation of the initiatives they sponsored, that would begin to make meaningful changes in the current international political and economic system. The main risk, of course, is that geopolitical rivalry will derail cooperative efforts to address pressing global problems. It remains to be seen to what extent that will happen.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Fast forward fifteen years and Brazil and India continue to share views on key global issues. For the first time since its inception in 1999, the Group of Twenty (G20) will have four consecutive emerging economy presidencies (Indonesia in 2022, India in 2023, Brazil this year, and South Africa in 2025). As G20 foreign ministers kick off their meeting in Rio de Janeiro on Wednesday, expect to see the shared views of India and Brazil reflected in a high degree of continuity between their G20 agendas.

The members of the G20 collectively account for more than 80 percent of global gross domestic product, three-quarters of world trade, and two-thirds of the world’s population. Moreover, the forum remains the world’s premium platform for coordinating international policy. Over the next year, the Atlantic Council’s G20 programming and research will track how Brazil leads this group in addressing four key areas (presented below) and will work to promote continuity with South Africa’s presidency in 2025 and the United States’ in 2026.

Food security and hunger elimination

Both New Delhi and Brasília have sought to highlight the needs of emerging markets and developing economies through their agenda-setting role at the G20. Perhaps no need stands out as urgently and pervasively as food insecurity. According to the World Food Programme, 783 million people worldwide faced chronic hunger in 2023, and most are in emerging markets and developing economies.

Under the Indian G20 presidency, the New Delhi Declaration was adopted by all members at the leaders’ summit. Among other provisions, it committed members to cooperate on agriculture research, access to fertilizers, capacity-building, and market transparency to foster food security among vulnerable populations. In particular, India emphasized the export and provision of millets, aligning with the “International Year of Millets” initiated by the United Nations General Assembly. Indian Prime Minister Narendra Modi was even nominated for a Grammy award for his appearance in a song titled “Abundance in Millets.”

Brazilian President Luiz Inácio Lula da Silva has doubled down on the social dimension of development, with a focus on combating poverty, inequality, and hunger. Food security is front and center in his domestic and foreign policy. As president of the G20, he has announced Brasília’s intention to launch a Global Alliance Against Hunger and Poverty at the leaders’ summit in November. Brazil is the world’s second-largest exporter of agriculture and is central to global supply chains—and in particular supply chains for emerging markets and developing economies. Expect to see Brazil leverage its weight in global markets to build consensus on the path forward in addressing food insecurity this year.

Climate and development finance

On climate and sustainable finance, Brazil’s G20 presidency appears poised to build on the legacy of India’s, while offering notable innovations and customizations. The four priorities of 2024’s Sustainable Finance Working Group are illustrative of Brazil’s particular interests and this G20’s overall mandate of “Building a Just World and a Sustainable Planet.” For example, financial instruments for nature-based solutions are rightfully receiving greater attention than ever in Brazil, which should not be a surprise in a country that contains two-thirds of the Amazon rainforest and 15-20 percent of the world’s biodiversity.

Leveraging Brazil’s active participation in various international financial institutions, the Brazilian finance sherpas are also placing a sharp technical focus on streamlined coordination among multilateral development banks and vertical funds. The troika of India-Brazil-South Africa G20 presidencies will press on with key Global South development financing priorities, such as just transition plans and blended finance for adaptation (see Atlantic Council’s related work on this here). In addition, Brazil has a unique opportunity to bridge this year’s G20 with the UN climate change conference known as COP30, which it will host in Belem in 2025. Brazil can coordinate its presidencies of both platforms to spur continued progress in Belem on landmark accomplishments from recent COPs, including the Loss and Damage Fund announced during last year’s COP28, held in Dubai.

Digital public infrastructure

Another area of continuity and compatibility between the G20 presidencies of India and Brazil is the provision of digital public infrastructure through payments, identity, and other digital networks created by the state to digitize and upgrade the provision of public services. Through Brazil’s Pix and India’s Unified Payments Interface (UPI), for example, both countries have seen tremendous success in building digital payments ecosystems and increasing digital and financial connectivity. 

Through the payments working group, G20 member states set targets for payments modernization for central banks and multilateral institutions. These targets address the cost, transparency, and speed of global payments. In 2023, the cost of retail payments to businesses and individuals across countries exceeded the previously set 3 percent target in a quarter of jurisdictions around the world. Similarly, the average cost of remittances is more than twice the goal of 3 percent. These metrics benchmark the G20’s progress and lay out the actions that member states still need to undertake to achieve these targets by 2027 (for cross-border retail payments) and 2030 (for remittances). 

Both India and Brazil position themselves as leaders among emerging markets in the provision of digital public infrastructure, and the G20 provides a platform to showcase their digital payment and identity models to the rest of the world. While both countries view the adoption of these platforms as a mechanism to increase financial inclusion and digital democratization, the wider adoption of digital public infrastructure will also present challenges. The G20 will have to come together to provide robust frameworks on data privacy, consumer protection, cybersecurity, competition, and public-private collaboration. These are going to be ongoing discussions, to be reflected in targets to come in the future. 

International financial institutions

During its G20 presidency, India initiated a set of processes and frameworks through the New Delhi Declaration that committed to “pursue reforms for better, bigger, and more effective Multilateral Development Banks.” The Declaration also included provisions to improve the multilateral development banks’ capital adequacy frameworks, which could yield an additional two hundred billion dollars in lending headroom over the next decade. India’s efforts focused on the quality and quantity of financing provided by international financing institutions and were supported by the United States, the largest shareholder at the International Monetary Fund (IMF) and the World Bank.

Brazil is adding to India’s priorities with a focus on governance and on augmenting the influence of emerging markets over decision-making at international financing institutions. However, divergent interests between the United States and China, the world’s two largest economies, and heightened geopolitical tensions between Russia and Western economies will make meaningful progress on economic global governance difficult.

India learned as much late last year in negotiations regarding an increase in IMF quotas—or the capital a country contributes to the institution, which correlates with that country’s voting power. The United States had proposed an increase in the quotas that would leave voting shares unchanged—a proposal that drew criticism from China and other emerging market economies who feel underrepresented at the IMF. Ultimately, the countries agreed to the US-backed “equiproportional” increase in quota resources that, in effect, pushed the issue of expanding voting power in the IMF for emerging markets to a future date.

Just like the Indian G20 presidency, Brazil’s achievements in this area will likely be incremental yet important. For example, Brazil might advance innovative ideas for increasing private finance partnerships and for making measurable improvements in international financial institutions’s operations and development impact assessments. These increments will accumulate, particularly as the G20 presidency moves in 2026 to the United States, by far the largest shareholder of various international financial institutions. Reform is a current priority for the United States, as stated by US Treasury Secretary Janet Yellen at the Atlantic Council in April 2022 and elsewhere, and the subject will be high on the agenda when G20 finance ministers meet next during the April IMF-World Bank Spring Meetings in Washington, DC.

Mrugank Bhusari is assistant director at the Atlantic Council’s GeoEconomics Center.

Ananya Kumar is the associate director for digital currencies at the GeoEconomics Center.

Pepe Zhang is a senior fellow at the Atlantic Council’s Adrienne Arsht Latin America Center.

Valentina Sader is a deputy director at the Atlantic Council’s Adrienne Arsht Latin America Center.

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Brazil’s breadbasket to the Global South

Beginning in the 1970s, both the Brazilian government and private entities invested heavily in agricultural innovations, leading to the development of more resilient crop varieties. Along with the expansion of farmland and widespread adoption of double cropping, the investments significantly enhanced agricultural productivity and gave Brazil an edge over other farming nations.

Fast forward to 2022 and Brazil has become the world’s second-largest exporter of agricultural products. It leads the world in soy, meat, coffee and sugar exports and is the second-largest exporter of oilcake and corn. Several large economies, emerging markets in particular, now heavily rely on Brazil to secure their food needs.

The benefits granted by MERCOSUR, a regional trade bloc within South America, make Brazil a prime source of agriculture for Argentina. Many Asian and African countries in the G20 are large consumers of soybeans, corn, and meat—all commodities where Brazil has a large market share. The United States, Mexico, and Canada in turn barely source any agriculture from Brazil as they source the majority of their food imports from one another as a result of the benefits granted by USMCA. Most European countries similarly import the majority of their agriculture from other European countries in the single market. 

Across the G20 economies, China is the most reliant on Brazil for agriculture, buying up a quarter of all Brazilian exports including most of its soy and beef. Brazil’s rise as an agripower since the 1970s aligned neatly with the population boom in China and the growing concern of the Chinese Communist Party over how to secure food for its population. But the real push came in the last decade as Beijing looked for agriculture suppliers other than the United States following intensification of trade tensions. 

To help Brazil increase its capacity and to reduce logistical costs, the state-owned China Oil and Foodstuffs Corporation (COFCO) invested over $2.3 billion, amounting to about 40 percent of its worldwide investments, in Brazil’s agricultural infrastructure since 2014. A key investment is at the Port of Santos, where a terminal expansion will take the company’s own capacity from 3 million to 14 million tonnes. Further cooperation in Brazilian railways, waterways, and farmland restoration is on the agenda.

Lula’s leverage is his history 

By itself, influence in the agriculture sector vis-a-vis emerging markets doesn’t provide a pathway to leadership of the Global South. Agriculture is not like semiconductors; food is an absolutely necessary resource for physical survival. Russia’s sudden blockage of the Black Sea in 2022, for instance, led to massive global grain shortages that created significant price spikes for food around the world. Moreover, the United States remains the world’s largest exporter of agriculture and for several countries in the G20, it remains the largest supplier. Lastly, although Brazil supplies about a fifth of global corn exports, it has relatively little weight in the global market for grains like wheat and rice, two critical food items for developing economies.

But Lula and Brazil nevertheless bring unique credibility with developing and advanced economies on the subject of food security.  

When he first came to office in 2003, Lula launched the ‘Fome Zero’ (Zero Hunger) programme, a series of coordinated large-scale government interventions that resulted in Brazil’s removal from the United Nations’ Hunger Map in 2014. Throughout the 2000s, Lula’s Brazil also mobilized budgetary, legislative, organizational, and narrative channels to orient its foreign policy toward hunger-reduction abroad. 

Since his return to power in 2023, Lula has once again made hunger a domestic priority. He has consistently raised the issue internationally. Now, his moment has come. As President of the G20, he has announced Brasília’s intention to launch a Global Alliance Against Hunger and Poverty at the Leaders Summit in November.

Both Brazil and the global economy have evolved since Lula was last in power. But the country possesses decades of trade and technical assistance relationships with developing economies, the know-how in the sector, and a track-record in hunger-reduction. Chronic hunger and famine remain real prospects for a tenth of the global population and developing countries will likely see Lula’s Brazil to act as a reliable representative in trying to bring together a global consensus on the path forward.

In recent years, China and India have both positioned themselves as leaders of the Global South. Now, the leader of the former is focused on his troubled domestic economy and the leader of the latter has an election on his hands. Meanwhile Lula is about to host the world twice—once for the G20 this year and then again for COP30 in 2025. If Brazil delivers tangible, material, and clearly observable benefits on food security, it will cement its position as a key leader of the Global South.

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Mrugank Bhusari is assistant director at the Atlantic Council GeoEconomics Center focusing on multilateral institutions and the international role of the dollar.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Following global trend lines, significant shifts in Latin America and the Caribbean—including presidential elections in Ecuador, Guatemala, and Argentina, unprecedented agreements with the Venezuelan government, a worsening security situation in many countries, and a pressing focus on climate change—set the stage for even more change to come in 2024.

Join the Adrienne Arsht Latin America Center as we explore top questions that may shape this upcoming year in the hemisphere.

What will the region’s newest presidents accomplish? How might Latin America’s ties with countries such as China and Russia evolve? What might be the role of the United States in an election year? Will the Caribbean see new, international attention to the specific threats faced by major climatic events?

Take our quiz to find out if you agree with what we’re predicting!

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The fragmentation of the global economy has been on display at two international conferences in recent weeks—and it doesn’t bode well for deeply indebted developing countries beset by inflation and lost access to capital markets.

The fault lines, centered on the divide between the United States and China, are adding new difficulties to efforts to restructure defaulted loans, and that will produce more pain for countries whose limited resources go to creditors instead of their own people. The recent sharp rise of global interest rates will only exacerbate the problem.

The debt issue loomed over ministers from 190 countries at the annual meetings of the International Monetary Fund (IMF) and World Bank in Marrakesh, Morocco, earlier this month. There was one breakthrough: an agreement on restructuring Zambia’s debt to government lenders, of which China is the largest creditor. But that came nearly three years after the country defaulted and then only after nine months of hard negotiations with a creditor committee headed by China and France. Those talks followed a Group of 20 (G20) Common Framework agreement in 2020 to establish a mechanism for restructuring the debt of the world’s poorest nations. The Marrakech meetings also announced progress at a roundtable on “processes and practices” related to restructuring—euphemisms for technical issues (mostly raised by China) that have slowed the provision of debt relief.

Perhaps the most significant development on debt during Marrakech was bad news: Sri Lanka announced an agreement with the Export-Import Bank of China to restructure $4.2 billion of debt. Sri Lanka, a more developed country whose 2020 default is not covered by the G20 framework, has been conducting what one IMF official described at an Atlantic Council panel as “ten parallel discussions.” The agreement underlined China’s willingness to undercut a multilateral workout in pursuit of its own interests. In this case, Beijing cut its deal even as it sat in as an “observer” in talks between Sri Lanka and a creditor committee led by India and Japan. The Ex-Im Bank deal, whose terms have not been released, also got out ahead of Sri Lanka’s negotiations with private sector creditors.

China’s approach took on more meaning when representatives from more than 100 countries, including twenty-two heads of state, gathered last week in Beijing under the patronizing gaze of Chinese leader Xi Jinping to celebrate the 10^th anniversary of the Belt and Road Initiative (BRI). That vast effort has built infrastructure throughout the developing world, but also has saddled countries with over $1 trillion of debt. Unlike Marrakech, discussion of debt was largely absent from the proceedings, outside of remarks from Vice Premier He Lifeng at a side event and a paragraph in the forum’s 16,500 word “white paper.” Xi Jinping’s speech to the forum focused on the BRI’s achievements and criticized “ideological confrontation, geopolitical rivalry, and bloc politics,” a pointed reference to US policies toward China.

The divergence between the two international gatherings underlined the increasing difficulty of sustaining international cooperation on debt issues. In the pre-COVID era, restructurings normally proceeded quickly after a country defaulted, with the defaulter reaching an agreement with the IMF on a loan and reform program, creditor governments providing financing assurances to support restructuring, and subsequent debt talks normally taking about two months.

While the Zambia negotiations were an improvement over the first Common Framework process with Chad, which took eleven months, each restructuring is essentially terra incognita. These days, debtor countries face a complicated creditor landscape—a largely Western group of government lenders called the Paris Club; multilateral financial institutions like the IMF and World Bank; China and other new sovereign lenders like India, which works closely with the Paris Club; and the private sector, which accounts for the largest amount of lending in many countries and has its own conflicting stakeholders (traditional banks vs bondholders).

The Common Framework has sought to incentivize the various creditor groups to act in relative concert and reduce the negative economic impact on low-income countries. But distrust has made this much more difficult to achieve, especially as Beijing and private-sector lenders jostle for the best terms. The disorder is more pronounced in non-Common Framework countries, where there is no agreement on an orderly process. For example, the IMF now lends to Suriname while its government has stopped repaying Chinese loans—a process called lending into arrears—because Beijing has not provided assurances of continued financing during restructuring. Meanwhile, private bondholders forged ahead with a deal that will involve a 25 percent “haircut”—or reduction in principal owed—on two bond issues, with repayment to be funded by future oil revenues.

While it is useful that creditors and debtors meet under the aegis of the IMF and World Bank roundtable to discuss outstanding issues, this is no substitute for real progress. There are still many issues even for Zambia, which still must reach separate agreements with each individual creditor government. While it has reached an agreement in principle with Eurobond holders—with an 18 percent haircut—there is still a long way to go with other private-sector bondholders and banks, which include Chinese state banks that Beijing insisted be excluded from the sovereign portion of the Zambia agreement. There are many issues still to resolve before a final restructuring accord is in place, as Brad Setser and Théo Maret enumerated in September.

Private sector lenders will inevitably insist on similar terms to the sovereign creditors. But this emphasis on “comparability of treatment” may compound future problems because creditors in both Zambia and Sri Lanka are requiring higher interest rates on restructured debt if economic growth recovers. One problem this poses for debtor countries is that the burden of higher interest payments—which will only become heavier with global rates rising—will fall on already strained fiscal resources. An IMF study on debt in sub-Saharan Africa released during the Marrakech meeting detailed the sharp rise in the share of government revenue going to interest payments. It warned about the “difficult policy choices” countries will confront “to remain current on debt.” Those policy choices will hit the most vulnerable citizens hardest in the form of less money for health, education, and economic development.

The principle that a country should repay its obligations when economic conditions have recovered makes sense, at least in theory. However, if creditors insist that borrowers facing severe economic challenges continue to tighten their belts when conditions improve—which is what the growth-linked repayment schedules would entail—there will still be serious social costs. That will be part and parcel of an increasingly unmanageable restructuring process that likely will increase global inequality and fragmentation.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of the recently published The Notorious ESG: Business, Climate, and the Race to Save the Planet.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF, CNBC Asia, and The Asian Wall Street Journal.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

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The IMF/World Bank meetings in Marrakesh

One of the concrete results of this year’s IMF/WB annual meetings is the agreement for an “equi-proportional” IMF quota increase without changing the relative voting shares of members. India’s Finance Minister broke the news of the quota agreement, affirming her country’s support for the US proposal as an immediate and temporary solution, pending continuing negotiations about changing the relative voting power.

By contrast, China has wanted both an increase and a realignment of quota to reflect the growing share of developing countries, especially its own, in the global economy. China’s view seems to be more in line with that of the G24 (comprised of major developing countries) which emphasized that an equi-proportional IMF quota increase without quota realignment will weaken the IMF by continuing to undermine its legitimacy and effectiveness. India has taken a pragmatic approach, agreeing to changes which are feasible now and not insisting on measures which are out of reach due to geopolitical conflicts among major countries.

Also noteworthy was the difference between the G20 Ministerial meeting statement coming out of the meetings. Under India’s chairmanship, the G20’s statement omitted condemnation of Russia’s war in Ukraine, as had the New Delhi G20 Summit statement.  India’s ability to craft a consensus statement yet again stands in contrast with the lack of consensus in the International Monetary and Financial Committee (IMFC) under Spain’s chairmanship. IMFC failed to issue a joint statement coming out of the meetings; instead the Spanish chair issued an individual statement containing a strong condemnation of Russia. This difference again highlights India’s ability to forge a global consensus over thorny issues.

The third Belt and Road forum

Since its inception in 2013, China’s Belt and Road Initiative (BRI) has concluded deals worth about $1 trillion in 150 countries. About 130 of those countries have sent delegations to this week’s Forum, including about twenty heads of state—of countries like Russia, Hungary, Indonesia, Sri Lanka, Argentina, Kenya and Zambia. India is conspicuous by its absence. The gathering is intended to showcase President Xi Jingping’s leading role in global development efforts—in contrast to his absence at the G20 Summit in New Delhi where Prime Minister Narendra Modi took the limelight.

Amidst criticisms about inefficiency in project implementations and huge debt buildups, China is using the Forum to affirm that the BRI will continue, albeit in smaller and greener forms focusing on digital infrastructure, instead of large-scale physical projects. The interests shown by many developing countries suggest that participation in the BRI will remain an important consideration in their dealings with China—especially if the United States and its allies don’t provide their own alternative financing. By contrast, India has criticized the BRI for promoting projects that have failed to meet international quality and transparency standards, and in particular has been against the China-Pakistan Economic Corridor, one of the BRI flagship projects, which has raised India’s sovereignty concerns as it passes through disputed Kashmir.

Reactions to the Israel/Gaza situation

Perhaps the most dramatic difference between China and India in response to recent events has been their reactions to unfolding events in the Middle East.

Immediately after Hamas attacks on Israel, PM Modi expressed shock over the terrorist attacks, saying “we stand in solidarity with Israel at this difficult hour.” The Indian government then reiterated its long-standing support for an independent Palestinian state. India’s stance is closer to that of the West.

By contrast, China has avoided condemning Hamas but called for all parties to push for a ceasefire, an end to the fighting, and returning to the negotiating table. However, in more recent days, China has criticized Israel’s actions as “acting beyond the scope of self-defense and should stop its collective punishment of Gaza civilians.”

China’s evolving view on the Israel/Gaza situation seems to be in line with that of many developing countries, including major ones such as Brazil, South Africa, and Indonesia as well as the African Union. That view attributes Israel’s denial of the fundamental rights of the Palestinian people as the root cause of the current tensions and calls for negotiations to resolve the conflicts.

Is there a consensus agenda of the Global South?

Recent events have revealed major differences in policy and posture, not only between China and India, but among developing countries. Those differences suggest that it is not straightforward to describe a grand common view of the diverse countries in the Global South. Nor is such a consensus around the corner. It is more likely that different configurations of countries will coalesce around different issues, depending on their circumstances and national interests.

Developing countries will likely pick and choose their alignment with China and India based on their specific goals. For example, developing countries eager to develop their trade and investment opportunities will continue to approach China—whose global economic footprint is much larger than that of India. Furthermore, countries with a strong anti-colonial inclination will find more affinity with China.

On the other hand, when countries prioritize the importance of being able to negotiate with developed countries to change current international economic and financial institutions and practices to be more supportive of their own economic growth and development, India’s pragmatic approach has become more attractive—as demonstrated by the support of major countries for India’s presidency of the G20 in 2023.

The result will be a complex web of multi-alignment, instead of simple non-alignment, among countries in the Global South. This will make it challenging for the West to win hearts and minds of developing countries in its geopolitical competition with China. It also highlights the importance for the West to engage constructively with countries like India to address the grievances and concerns of developing countries. Finally, it could constrain the diplomatic clout of both India and China, as neither will truly be able to say it represents the whole range of views of the Global South without a single overall consensus.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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The G20 Summit’s highest-profile outcomes include progress on digital public infrastructure, crypto regulation, climate financing, and reform of multilateral development banks. But the India-led G20 has also delivered several outcomes that, while lower-profile, nonetheless could result in big gains, most notably for micro-, small-, and medium-sized enterprises (MSMEs). For example, the G20 declaration refers to the Jaipur Call for Action, which highlights the need to enhance MSMEs’ access to information. The declaration also endorses the Regulatory Toolkit for Enhanced Digital Financial Inclusion of MSMEs and the Financial Inclusion Action Plan, both aimed at improving credit access for individuals and MSMEs.

But arguably the most concrete and impactful outcome for MSMEs is in the “Unlocking Trade for Growth” section of the G20 declaration. This section includes a reference to the High-Level Principles on Digitalization of Trade Documents, which former Assistant US Trade Representative for South and Central Asian Affairs Mark Linscott pinpointed for their importance. And one of the thrusts of these high-level principles is the digitalization and interlinking of countries’ trade documentation systems.

It is vital to build on this vision. And e-way bills offer an excellent potential starting point to build momentum toward much more ambitious outcomes, such as paperless trade.

Accelerating the e-way

Waybills are documents issued by carriers of goods containing details and instructions about shipments. The details usually include information about the sender and receiver, the point of origin and destination of the shipment, and the route to be taken. Waybills might seem arcane and mundane to many. But to businesses, especially MSMEs, waybilling processes can make or break their ability and appetite to participate in global trade.

Delays in generating or approving waybills can leave shipments stuck in customs for prolonged and unpredictable durations. These delays and uncertainties are detrimental to the credibility of MSMEs, which must earn and grow their reputations by delivering quality goods on agreed-upon timelines. In addition, the cost escalations and working capital issues caused by customs delays and uncertainties can wreak havoc on the often-fragile balance sheets of MSMEs.

Conversely, electronic waybills—or e-way bills—and interlinked e-way billing systems can dramatically increase MSMEs’ ability to participate and compete in global trade. India’s implementation of the nationwide Goods and Service Tax regime—with e-way billing playing a vital role—reduced turnaround times for trucks in road transport by 18 to 20 percent within a year of its introduction in 2017. This represents a dramatic improvement in times and costs for all businesses, but even more so for MSMEs.

E-way bills and the interconnection of e-way billing systems may also be an area ripe for immediate agreements between countries on bilateral or multilateral bases. E-way bills could thereby help build further momentum toward more ambitious digitalization and the integration of trade documentation, potentially along the lines of Singapore’s TradeNet and Taiwan’s TradeVan. TradeNet’s impact has been revolutionary: it helped traders to reduce their processing times in Singapore for trade documentation from fifteen to twenty days prior to its introduction in 1989 to less than fifteen minutes in subsequent years, saving businesses four million dollars per year in associated process fees. Similarly, following its launch in 1990, TradeVan helped speed up Taiwan’s customs processes from four hours to less than fifteen minutes.

Based on TradeNet, TradeVan, and other efforts, an Asia-Pacific Economic Cooperation report estimates reductions in transaction costs of 15-45 percent, depending on the extent of paperless trading implemented by a country. The report also highlights the potential impact of paperless trading on MSMEs’ access to the new opportunities in world trade.

India’s G20 presidency has therefore quietly but tangibly elevated the important topic of digitalized trade systems on the agendas of the leading governments, economies, and multilateral development bodies of the world. In doing so, India’s G20 presidency has laid the groundwork for substantial improvements in MSMEs’ access to global trade. India’s Ministry of Commerce and Industry, which led the G20’s Trade and Investment Working Group, deserves substantial plaudits for championing the High-Level Principles on Digitalization of Trade Documents. The ministry did so out of recognition of both the importance of these principles and the higher potential for consensus among G20 members on this aspect of trade facilitation.

Small steps, big effects

In the months ahead, countries can build on these foundations to harmonize and interlink their customs systems, with e-way billing offering a good starting point. They could do so bilaterally or as groups. The supply chain pillar of the Indo-Pacific Economic Framework for Prosperity (IPEF), for instance, presents an opportunity for increasing digitalization and further interlinking the customs processes of all the countries involved.

To be sure, harmonization of customs processes—even just for e-way billing—is by no means easy or assured. It will involve negotiation and potential compromises from the countries involved. Authorities in these countries may need to change parts of their systems and may hesitate to do so. Ironically, even some MSMEs that are already thriving in the current environment might oppose any change. MSMEs that are already reaping the gains of global trade might prefer to maintain higher barriers to entry for other MSMEs, which would be new sources of competition.

However, in a global environment that is ever-more challenging for trade negotiations, the digitalization and interlinking of waybilling represents a low-hanging fruit that is ripe for the picking. G20 countries—perhaps India among them—will hopefully pick this fruit, leveraging the momentum generated by the G20 Trade and Investment Working Group. This would help to further increase the momentum, potentially enabling IPEF members and other countries to follow suit.

The most incremental-seeming improvements can often unleash dramatic results by virtue of being easier and quicker to implement. It is encouraging to see India’s Ministry of Commerce and Industry prioritizing such often overlooked and yet immensely valuable gains for MSMEs alongside higher profile issues.

Gopal Nadadur is a nonresident senior fellow at the Atlantic Council’s South Asia Center and is also vice president for South Asia at The Asia Group.

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Much ink has already been spilled on questions coming out of US Commerce Secretary Gina Raimondo’s trip last month to China – Will the visit build momentum towards a Biden-Xi summit at APEC this November? How meaningful are newly proposed bilateral dialogues on export controls and commercial relations? Was Beijing trolling Secretary Raimondo by releasing a new Huawei phone containing advanced chip technology during her visit?

Good questions, all. But perhaps the most critical question out of the visit is whether a growing number of U.S. and foreign companies are, as the Secretary put it, starting to view China as “uninvestable”. Beijing has been trying to convince the world to continue investing in China while, at the same time, raiding U.S. companies, imposing arbitrary fines, and placing limits on access to information critical to making informed bets on the China market.

As if there were not enough complications for businesses operating in China, Dakota Cary and Kristin Del Rosso document in a new Atlantic Council report, “Sleight of Hand”, how China’s 2021 Data Security Law requires foreign companies operating in China to divulge sensitive cyber vulnerabilities directly to the Ministry of State Security. As Andy Greenberg of Wired writes , the law forces foreign businesses to make a harsh choice: “Either leave China or give sensitive descriptions of vulnerabilities in the company’s products to a government that may well use that information for offensive hacking.”

The law has also raised the risk of cyber attacks. As the chart below demonstrates, the requirement that all sensitive cyber vulnerabilities be funneled to the MSS has given the spy agency the final say on whether to make them public, producing a dramatic reduction in the public dissemination of vulnerabilities which used to afford companies the opportunity to patch them up.

The combination of such directives for foreign companies to divulge proprietary information at the potential cost of their own security with mounting government secrecy around data critical to investors’ ability to make informed decisions about China risks is disrupting operations and, indeed, adding fuel to the burning question of whether it’s now worth the trouble to invest in China.

Our Editor in Chief Tiff Roberts covers this growing culture of secrecy and much more below. Over to You, Tiff!

-Dave Shullman, Senior Director, Global China Hub

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Thank you, Dave! As the new editor-in-chief of the Global China newsletter, I aim to provide my readers with some of the most important China news and analysis every month. My take is informed by my earlier experience working as a journalist in China for almost a quarter century and the research and writing I do on China today. I hope you find our newsletter valuable.

The Year of Living Secretly
When I was a foreign correspondent in China, it was an open secret that one could not trust the economic numbers published by Beijing. But in the years following China’s entry into the World Trade Organization in 2001 it seemed as if real effort was being made to improve their reliability, as Beijing sought to draw more foreign investors. As I wrote in 2012, policymakers were “trying to address the government’s statistical shortcomings.” No longer…

Call it ‘The Year of Living Secretly‘: Beijing has chosen opacity over openness. It is doubling down on more state control over the economy under Xi Jinping and restricting access to all kinds of information. Everything from land sales, currency reserves, bond transactions, official biographies, academic information, COVID deaths, and most recently soaring youth unemployment, is being treated as akin to a state secret.

What is behind the trend? The economy is rapidly deteriorating and Beijing has no desire to publicize that fact. As GeoEconomics Center associate director Niels Graham points out in “ The Chinese economy’s moment of macro weakness—in charts”, property, manufacturing, employment, and trade are all rapidly declining while deflation worrisomely grows. “Taken together they point to serious, structural issues within China’s economy that go well beyond the cyclical problem caused by COVID,” Graham warns.

And there is the mystery surrounding the disappearance of former foreign minister Qin Gang that I wrote about in our last newsletter (it now appears that Li Shangfu, China’s Minister of National Defense, may experience a similar fate). Global China Hub nonresident senior fellow Michael Schuman recently explained in an article in The Atlantic why this obfuscation matters: Beijing’s policies affect the “welfare of billions of people, the health of the planet, and war and peace itself. Yet policymakers and diplomats around the world are too often left guessing.”

Taiwan and a two-front war
Speaking of war and peace, a delegation led by the Atlantic Council travelled last month to the place probably most likely to be at the center of any future US-China conflict – Taiwan. The group, which included former president of Lithuania Dalia Grybauskaitė and former US defense secretary Mark Esper, met with President Tsai Ing-wen, her National Security Council leadership, and visited Taiwan’s largest naval base. Tensions across the Strait are continuing to rise, with a record 103 PLA warplanes operating near the Island in just a 24-hour period between September 17 and 18. Europe Center visiting fellow Petr Tuma wrote about the rising challenge and similarities he saw while there, between Taipei and pre-2022 Kyiv.

In a report from the Indo-Pacific Security Initiative, “The United States and its allies must be ready to deter a two-front war and nuclear attacks in East Asia,” director Markus Garlauskas argues that the US could have to face China and North Korea simultaneously: a US and South Korean counteroffensive against aggression by Pyongyang would “likely prompt the PRC to intervene to protect its interests,” while “any major US-PRC conflict—for example, if the PRC attacks Taiwan—is likely to escalate horizontally and engulf Korea” and could prompt “preemptive aggression from North Korea—particularly because the conflict’s outcome would have immense implications for Pyongyang.”

Shift towards the Global South
While a host of senior US officials have trooped to Beijing (Hub nonresident senior fellow Gabriel “Gabo” Alvarado wrote about the late August visit by Commerce Secretary Gina Raimondo, the fourth cabinet official in recent months), China’s top leader has shown a shifting political calculus when choosing where he travels: emphasizing the Global South rather than the wealthier developed west.

So, while Xi skipped the G20 meeting, bringing the heads of the world’s largest economies including the US, Japan and the EU to New Delhi, India in early September–he went to every other G20 since becoming top leader—in late August he attended the BRICS Summit in Johannesburg, South Africa. Taking it a step further, Xi hosted Zambian President Hakainde Hichilema and Venezuela’s Nicolás Maduro in Beijing – two nations heavily in debt to China – shortly after snubbing the G20 (The Johannesburg meeting is discussed by Atlantic Council experts here).

The expanding BRICS is trying to “cement its position as a platform for and champion of the Global South. This aligns particularly closely with Beijing’s vision,” writes Global China Hub deputy director Colleen Cottle, who was also featured in the German Marshall Fund’s China Global Podcast. The role of Africa in the new geopolitical landscape was discussed by experts brought together by the Atlantic Council’s Africa Center, following the meeting in Johannesburg.

And China has made abundantly clear its intent to revise the current system of global governance with the Ministry of Foreign Affairs’ release on September 13, “ Proposal of the People’s Republic of China on the Reform and Development of Global Governance.” This intent is explained in a new China-MENA podcast episode, with the Hub’s Tuvia Gering and Michael Schuman along with Middle East Program’s Jonathan Fulton (also covered in their report from June), in which they describe how China paints the Global Development Initiative, Global Security Initiative, and Global Citizen Initiative as the solutions to a “world of uncertainty” created by the US-led West. Further, China made clear at the G77 + China Summit that China aims to present itself as the champion of this changing world order by claiming that it will “always be part of the developing world and a member of the Global South.”

Whether it’s growing secrecy or the turn to the Global South, China’s latest moves – and US pushback – are reverberating around the world.

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On September 13, Transatlantic Security Initiative nonresident senior fellow Stefano Stefanini wrote an op-ed for Formiche arguing that the New Delhi Summit marks the end of the “cooperative” G20 (text in Italian). 

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On September 8, Dr. Matthew Kroenig, Atlantic Council vice president and senior director of the Scowcroft Center, was quoted by the Washington Examiner on how President Biden can undercut Chinese infrastructure investments—and the influence the PRC has gained from them—during the Group of 20 leaders’ summit in India. Dr. Kroenig notes that the United States and Europe have encouraged the private sector to make investments, but because the G20 is a “weird grouping” that may not be able to agree on taking measures against China, it would be prudent for President Biden to underline the United States’ commitment to developing nations through multilateral organizations like the International Monetary Fund and the World Bank.

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Below, Atlantic Council experts explore the communiqué and other milestones from the G20 Summit, along with the new diplomatic frontiers that lie ahead.

Click to jump to an expert analysis:

Kapil Sharma: India forges a new model of inclusive diplomacy

Michael Schuman: Modi cemented his leadership of the Global South, while Xi ‘contained’ himself

Rama Yade: As it joins the G20, the African Union could accelerate its own reforms

Josh Lipsky: Don’t expect Xi to snub the G20 again next year

Jonathan Panikoff: New rail plans mark the end of a tumultuous US-Saudi period

Hung Tran: Modi delivers useful, if not spectacular, results

Nicole Goldin: The G20 communiqué was ambitious, but had a few major holes

Olga Khakova: G20 leaders should have called out Russia for global food and energy insecurity

Joseph Webster: Coal is the greater climate problem, but hydrogen takes center stage

Mark Linscott: India pulled off a well-managed G20 that found a way forward on trade

India forges a new model of inclusive diplomacy

In the lead-up to the 2023 G20 Summit, there was much focus on Putin and Xi choosing not to attend the meeting. Observers believed that their absence was a direct affront to India and would ultimately overshadow India’s presidency and its G20 objectives. But as the summit came to an end, it was clear that India’s objectives were not derailed, and three key themes emerged: consensus, inclusiveness, solutions.  

Consensus: Russia’s war in Ukraine loomed throughout India’s presidency and had divided G20 countries. It was unclear if and how the conflict would be addressed and whether it would prevent the agreement of a final G20 communiqué. However, after three hundred bilateral meetings, two hundred hours of negotiations, and fifteen drafts, Modi and his team were able to bring consensus on the Russia-Ukraine paragraphs in the final G20 communiqué.    

Inclusiveness: As part of India’s positioning to be the voice of the Global South, India shepherded the African Union’s inclusion as a permanent member of the G20. India also pushed for, and countries agreed to, major reforms at global institutions such as the World Bank and International Monetary Fund.  

Solutions: India successfully promoted its Digital Public Infrastructure plan as an exportable tech solution for financial inclusion. While it’s unclear whether other countries are capable of replicating India’s digital plan, it has found a niche that goes above and beyond simple capital financing.      

With more than two hundred meetings in over sixty Indian cities, Indian officials were intent to make their presidency about representing marginalized voices and the Global South. While India was disappointed not to have Putin and Xi present, this G20 Summit was not about how diplomacy has been done, but rather how diplomacy can be done. In the end, India’s diplomacy demonstrated its ability to take on current geopolitical disagreements and represent those countries who have felt marginalized for decades.   

—Kapil Sharma is the senior director of the Atlantic Council’s South Asia Center.

Modi cemented his leadership of the Global South, while Xi ‘contained’ himself

This year’s G20 summit will be remembered not for who was there and what they did, but for who wasn’t: The absence of Xi was the big story and will cast the longest shadow over world affairs. Xi’s decision not to attend was likely an attempt to discredit the G20 as a forum for international cooperation and represents his intensifying opposition to the established world order and resistance to multilateral cooperation. Setting Xi’s G20 snub next to his appearance at the August summit of the BRICS economic grouping of Brazil, Russia, India, China, and South Africa, and the planning of the third Belt and Road Forum in October, suggests that he intends to promote alternative and competing organizations that he can more easily manipulate or control to serve China’s global interests.

This G20 also represents an acceleration in the contest between China and other major powers for influence in the Global South. Modi proved that he is becoming a more important figure in the Global South and a counterweight to Xi within the developing world. While Xi apparently plans to rally the developing world in support of China’s anti-American agenda, Modi is offering an alternative vision of North-South relations that is focused on enhancing the voice of developing countries in global governance while at the same time cooperating—rather than confronting—the West. Modi’s advocacy of G20 membership for the African Union was a wise geopolitical maneuver that makes the forum even more inclusive.

In that way, Xi turned out to be the biggest loser of the summit. By vacating the scene, he allowed Modi and Biden to promote their own views and influence. Rather than Xi’s snub spoiling the summit, the G20 went on without him. Chinese leaders seem to fear being “contained” by the United States and its partners; with his withdrawal, Xi is doing a pretty good job of containing himself.

The summit, therefore, highlighted China’s growing isolation from most of the world’s major powers. In that way, it could also be a worrisome sign that international cooperation on key issues such as climate change could become even more challenging.

 —Michael Schuman is a nonresident senior fellow at the Atlantic Council’s Global China Hub and a contributing writer for the Atlantic magazine.

As it joins the G20, the African Union could accelerate its own reforms

The first decision of the G20 Summit held in New Delhi under the chairmanship of Modi was to admit the African Union (AU) as a member of the group. For India, it is a success: The country has proved its ability to promote the so-called Global South at the highest level. After almost a decade of advocacy, the AU, with its 1.4 billion people and three-trillion-dollar gross domestic product, will be seated at the same table as another regional organization, the European Union, and the world’s richest countries. 

According to the G20 communiqué released by India: “We welcome the African Union as a permanent member of the G20 and strongly believe that inclusion of the African Union into the G20 will significantly contribute to addressing the global challenges of our time.”

Bola Tinubu, Cyril Ramaphosa, and William Ruto—the presidents of the leading African economies, Nigeria, South Africa, and Kenya—as well as the current chairman of the African Union (Comoros President Azali Assoumani), were present for this “historic moment,” as Senegal’s Ministry of Foreign Affairs put it. “Congratulations to all of Africa!” added Senegalese President Macky Sall, who chaired the African Union in 2022 and has never stopped being a vibrant advocate of AU integration with other multilateral institutions.

Until now, only South Africa, a permanent member of the club, could represent the continent, and the African Union was only invited as a guest. Africa’s entry into the G20 is a true success, coming a few days after the enlargement of the BRICS group. Given their strong presence in both the BRICS and the G20, Africans are embracing their culture of geopolitical neutrality that they have been advocating for in recent years, while also reaching a central position in multilateral discussions.

As a full member, the African Union will weigh in on G20 commitments and prioritize its primary interests, such as debt restructuring, the reform of the international financial architecture, and climate funding—as long as African countries, like European countries, overcome their divisions. It may take a stronger AU Commission to harmonize African countries’ various positions. AU Commission Chairperson Moussa Faki should be able to be a credible interlocutor for European Commission President Ursula von der Leyen.

The necessity to bring a more unified African voice in these international gatherings could accelerate African integration and stronger reforms of the African Union as the organization celebrates its twentieth birthday. The AU is still too dependent on foreign support, which makes up 65 percent of its budget. How can it occupy the G20 seat and make its own choices without budgetary sovereignty? The G20 is only a step, as Africans know that only a seat at the United Nations Security Council will position their continent to wield true political sovereignty. The charge is historic for African Union leaders. But anything less would do a disservice to a continent that, by 2050, will have 2.5 billion citizens emerging on the world stage. 

 —Rama Yade is senior director of the Atlantic Council’s Africa Center and senior fellow for the Europe Center.

Don’t expect Xi to snub the G20 again next year

The G20 proved its relevance and resilience this weekend. From World Bank reform to adding the African Union as a member to climate commitments, the group made progress on the issues it laid out over one year ago. US President Joe Biden stepped into the void left by Xi and secured new infrastructure deals aimed at connecting India, the Middle East, and Europe. The United States was even awarded the 2026 G20 presidency, reportedly over China’s objections. 

But to be truly successful long-term, the question of what China wants from the G20 will have to be answered. In the wake of Xi’s decision to skip India’s G20 Summit (the first ever no-show from a Chinese leader), there’s speculation about what China’s engagement will be like for Brazil’s G20 presidency year—which officially begins Monday. 

But it’s actually unlikely Xi will skip next year’s leaders summit. Why? Look at the numbers:

No one knows quite why Xi didn’t show in India. It could be the need to be seen focusing on domestic problems, or China-India rivalry, or a broader signal about how China wants multilateralism to work after BRICS expansion. But one thing is clear: Xi didn’t think there was a price to pay for missing the meeting.

Next year, when Brazilian President Luiz Inácio Lula da Silva convenes world leaders, Xi may not be able to make the same calculation.

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center.

This reaction is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org.

New rail plans mark the end of a tumultuous US-Saudi period

This weekend saw the announcement of the India-Middle East-Europe Economic Corridor (IMEC)—a ship-to-rail transit network that will connect India and Europe through the United Arab Emirates, Saudi Arabia, Jordan, and Israel. The plan is not just a win for US allies in Europe, for the Middle East, and for India. It also provides the most concrete effort to date by the West to counterbalance China’s economic investments in the Gulf.

Those in the region who remain concerned about the United States’ commitment to the Middle East may minimize the impact of such an agreement; perceptions can be harder to change than reality. If implemented fully in the coming years, however, IMEC has the potential to shift both.

It also should be seen as unofficially marking the end of one of the more tumultuous periods in US-Saudi relations since September 11, 2001. Just over a year ago, it was not clear that the relationship between Washington and Riyadh would improve much before the end of US President Joe Biden’s term, and the July 2022 fist bump between Biden and Crown Prince Mohammed bin Salman did little to calm tensions. Three months later, in October, relations appeared to get worse upon Saudi Arabia’s decision to cut oil output ahead of the US midterm elections.

But as engagement between Riyadh and Beijing heated up, and as Saudi Arabia sought to calm tensions with Iran to try to ensure its Vision 2030 would not be undermined by security threats, new US efforts to engage Saudi leaders also emerged. Most prominently, efforts toward a deal that would result in Saudi-Israeli normalization continued. That endeavor and a bevy of behind-the-scenes bilateral tracks, on issues such as 6G networks and space exploration, kept the relationship moving forward, albeit slowly.

The US strategic focus will remain on China and on Russia’s war in Ukraine. But the Biden administration clearly, and rightly, recognizes that the Middle East cannot be geographically wished away; this is reflected not only by IMEC but also, for example, by additional efforts to negotiate a deal to work with Saudi Arabia to secure lithium and other metals in Africa. The result may be a more realpolitik approach to the region than Biden promised when he campaigned in 2020. But it’s also one far more likely to ensure the United States’ economic and national security interests in the years to come.

—Jonathan Panikoff is the director of the Scowcroft Middle East Security Initiative at the Atlantic Council’s Middle East Program.

Modi delivers useful, if not spectacular, results

The 2023 G20 Summit, without Xi and Putin, has delivered practically everything Modi had wanted, with many compromises. Those include a consensus declaration (by not mentioning Russia in the section about the war in Ukraine), the admission of the African Union as a permanent member (a good step forward), continued efforts to deal with climate change (but no hard commitments in phasing out fossil fuels), support for climate financing to assist developing countries (but no hard targets except extending the 2010 pledges by developed countries to transfer $100 billion a year to developing countries to 2025). 

The G20 also took on reforms to the multilateral development banks (MDB) to include climate financing in their core missions (no capital increases now but optimizing the MDB balance sheets so they can lend $200 billion more over the next decade) and support for the improvement of the Common Framework for Debt Treatment to facilitate the restructuring of low-income countries’ debt. But the Common Framework remains vague without a roadmap specifying a sequence and timeline of steps to be taken once a debtor country asks for a restructuring. In addition, the group adopted several concrete and potentially helpful initiatives such as mapping the global value chain to help countries identify risks, the digitalization of trade documents to expedite trade transactions, and the development of public digital infrastructures to promote financial inclusion and productivity. Also notable is the launch of an India-Middle East-Europe economic corridor connected by railways and ports—in direct competition with China’s Belt and Road Initiative.

Overall, the outcomes of the G20 Summit will bolster India’s claim to be the voice of the Global South—being able to articulate the demands of developing countries and to engage in negotiations with developed countries to produce useful, if not spectacular, results. This is a good template for Brazil to take up the G20 presidency in 2024 and South Africa in 2025.

—Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

The G20 communiqué was ambitious, but had a few major holes

With expectations high, the G20 delivered a comprehensive communiqué with wide-ranging, ambitious commitments from digital infrastructure to debt treatments, climate finance to cultural preservation. The outcome is so broad that what is not included could be seen as more notable than what is—though certain detailed elements such as care infrastructure for women’s economic empowerment and the creation of an international reference classification of skills and qualifications did not go unseen. 

For example, despite a focus on poverty reduction, inclusive growth, and jobs, the communiqué has no mention of informal work, which accounts for a significant share of employment in lower- and middle-income countries—especially among women, migrants, and marginalized populations. Similarly, the communiqué devotes ample attention toward reducing inequality generally and improving the economic and social wellbeing of women and girls, but is devoid of concrete discussion of generational demographic dynamics of older persons and youth who account for the majority of populations. This omission comes even as the G20 is expanding to include the African Union, representing the youngest continent where more than 60 percent of the population is under the age of twenty-five. By 2035 there will be more young Africans entering the workforce annually than in the rest of the world combined. 

The addition of the African Union is nonetheless significant, bringing more voice from and relevance to the Global South, especially as the BRICS grouping expands in an effort to counter ‘Western’ economic dominance and bring more balance to the international order. Achieving—or even getting closer to—the United Nations sustainable development goals, inclusive prosperity, and peace will require inclusive governance at all levels, and India’s G20 took many welcome if not high-level steps in this direction. Whether we see real action to reach the destination remains to be seen as the conversation moves to the United Nations General Assembly and the G20 baton passes to Brazil.

—Nicole Goldin is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and global head, inclusive economic growth at Abt Associates.

G20 leaders should have called out Russia for global food and energy insecurity 

The G20 leaders united around the importance of addressing food and energy insecurity as part of a broader fight against poverty in their declaration coming out of the summit in New Delhi. But no consensus was reached in calling out Russia’s outsized role in exacerbating these global challenges—derailing energy markets and triggering food insecurity to reach its genocidal agenda for Ukraine. This glaring gap in the statement is a missed opportunity to address Putin’s evident intention to cause economic and social harm to communities around the world. Europe has spent more than a trillion dollars addressing the energy crisis, money which should have gone to climate action at home and abroad.

Meanwhile, developing nations were outcompeted for energy supplies on the global market thanks to artificial supply shortages orchestrated by Moscow. Moreover, Russia’s sabotage of Ukraine’s agricultural exports will continue impacting access and affordability of food for millions, spreading famine in the most vulnerable communities. These developments are just the tip of the iceberg in the total bill of Moscow’s atrocities. Weak political statements, such as the G20 leaders’ declaration, embolden bad actors to continue pursuing egoistic geopolitical agendas at cost of the world’s poorest.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

Coal is the greater climate problem, but hydrogen takes center stage

Coal is a far dirtier and emissions-intensive fuel than oil or natural gas and accounted for approximately 44 percent of global emissions from fuel combustion in 2021. One might therefore anticipate that the official communiqué from the G20 convening would discuss coal at length. One would be wrong.

Coal remains too politically sensitive for the G20 to come to a consensus. While coal burn is widely acknowledged as a major contributor to climate change, as well as a cause of certain cancers and asthma, it is also cheap, reliable, and available. Consequently, many countries regard coal as a necessary evil for their energy mix. 

The G20 statement’s only mention of coal states that it “recognizes the importance . . . [of] accelerating efforts towards phasedown of unabated coal power, in line with national circumstances and recognizing the need for support towards just transitions.” 

The G20’s call for a “phasedown” of coal—versus a more aggressive “phase out”—is notable and a continuation of previous climate statements, including at the twenty-sixth United Nations Climate Change Conference of the Parties (COP26) summit in 2021. 

Hydrogen earned an entire section in the G20 statement, but its prominence in the communiqué outstrips its importance in fighting climate change. Let’s be clear: Hydrogen is a vital decarbonization technology with many viable use cases, including for the refining sector, fertilizers, steelmaking, shipping, inter-seasonal electricity storage, and more. World leaders need to be talking about hydrogen and other decarbonization pathways. Yet hydrogen also has several limitations, while scarce decarbonization resources are often better deployed in removing coal and greening the electricity grid. That is especially true for China, which accounts for more than half of world coal consumption. 

While energy access is undeniably critical for combatting energy and economic poverty, future generations will not be pleased with the G20’s failure to address coal more systematically.

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads the center’s efforts on Chinese energy security, offshore wind, and hydrogen.

India pulled off a well-managed G20 that found a way forward on trade

While the G20 is not renowned for transformational outcomes, except when the occasional global economic meltdown occurs, it is the crucial forum for annual engagement among the world’s top economies. In the run-up to the leaders’ meeting, it appeared that the hoopla of the August 22-24 BRICS Summit might have stolen the show already, but India and Modi pulled off an extremely well-managed series of ministerials, working group meetings, and private sector engagements that deserve more attention.

The results on trade were respectable but limited. The consensus on World Trade Organization (WTO) reform is familiar and will have virtually no impact on what happens in Geneva. Beyond this, the trade ministers highlighted the importance of global value chains, but it is difficult to see real progress when one group aims to shift value chains away from a fellow G20 member (China). Transparency is welcome in assistance and facilitation programs for micro-, small-, and medium-sized enterprises, but there are no game-changer results in this area. However, the outcomes related to digitalization of trade-related documents could be important.

Trade facilitation and the digitalization of trade documents and importing and exporting procedures have been one of the few bright spots in the deteriorating environment of trade relations and trade negotiations for several years now. In 2014, WTO members concluded an historic agreement—the Trade Facilitation Agreement. The initiative pushed by India on digitalization builds on the WTO agreement and seeks to take it forward in collaborative ways. As the world’s major economies continue to fragment and regroup in their trade relationships, G20 efforts on trade facilitation show that there still can be common ground.

—Mark Linscott is a nonresident senior fellow with the Atlantic Council’s South Asia Center and former assistant US trade representative for South and Central Asian Affairs.

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Modi’s pragmatic approach, however, appears to have been sabotaged by the decisions of Russian President Vladimir Putin and Chinese leader Xi Jinping not to attend the summit in New Delhi—perhaps partly in opposition to the language in the draft communiqué condemning Russia’s war in Ukraine. This has confirmed the divisions within the G20, gradually transforming it from the premier forum for international economic and financial coordination into a venue where the Group of Seven (G7) on the one hand and China and Russia on the other compete for influence. Expectations for this and future G20 summits should be adjusted accordingly. At best, they are likely to yield only small steps forward instead of big breakthroughs. 

Against this dismal backdrop, it seems likely that India’s approach could still produce some concrete results at the summit, including outcomes that are beneficial to developing countries. This should be the case whether the results are announced in a joint communiqué, if there is consensus, or in a chairman’s statement summarizing the outcomes, if there isn’t.

So, what might come out of the summit? During the G20 discussions preceding the summit, India has raised several issues important to countries in the Global South. These include the prospect of G20 membership for the African Union (AU), reform of global financial institutions, restructuring of sovereign debt, and additional climate financing. Several of these issues and proposals have not received support from either the G7 or China. Nevertheless, the fact that India has been able to articulate them should reflect well on its efforts to be viewed as the voice of the Global South. Each issue is worth a deeper look to gauge what progress might be possible in New Delhi.

The African Union’s G20 membership

After India assumed the G20 presidency in December, Indian leaders expressed concern that most of the Global South has not been at the G20 table. To promote inclusive growth, India has proposed to invite the AU, which consists of all fifty-five African countries, to join the G20 as a full member—similar to the European Union (EU). This will likely materialize at the summit, especially since US President Joe Biden and German Chancellor Olaf Scholz have expressed their support. The move would represent a concrete step forward in making the G20 more representative of the world and a forum where developing countries can directly raise their concerns. However, the African Union’s membership could raise the issue of whether to invite other regional organizations, such as the Organization of American States and the Association of Southeast Asian Nations, to join as well.

Reforming global financial institutions

Another area that could see progress is the G20’s approach toward multilateral development banks (MDBs). The G20 could, for example, amplify calls for MDBs to incorporate climate change financing into their core missions and increase their lending for such purposes. 

Specifically, the G20 could leverage earlier progress to push the MDBs to quickly complete their internal reviews and implement the recommendations put forward by the Independent Group of Experts—mainly contained in the proposed Capital Adequacy Framework, or CAF—to optimize their balance sheets, freeing up room for new loans. These measures include improving accounting for callable capital to serve as guarantees for their loans to lift their capital capacity, as well as leveraging the very good credit quality of their portfolios to reduce their calculated risk-weighted assets to make room for new loans. All together, these reforms could enable the MDBs to lend an estimated eighty billion dollars more per year without jeopardizing their AAA credit ratings. While clearly insufficient to meet the needs of developing countries, this would still be a step in the right direction and should be implemented as soon as possible since there is strong G20 support. The actual capital increase for the MDBs also remains on the agenda—however, there is not widespread support for this idea given current geopolitical divisions, at least not until the CAF reforms are fully implemented.

Leaders at the G20 Summit will probably also discuss whether to call for a positive conclusion of the International Monetary Fund’s (IMF) sixteenth general review of quotas, which is due to be completed by December 15, 2023. The review aims to raise the quota or permanent resources for the IMF and redistribute the voting shares to increase the representation of emerging market and developing countries. Given current geopolitical tensions, any proposal to give China more voting power is unlikely to be agreed to by the West. More concretely, the G20 should once again raise the issue of countries holding onto excess special drawing rights (SDR)—a reserve asset exchangeable for hard currency—after the IMF’s 2021 allocation to fight the global recession. Rich countries had pledged to voluntarily channel SDR 73 billion ($103.4 billion at current exchange rates) to the IMF’s Poverty Reduction and Growth Trust and Resilience and Sustainability Trust, which offer concessional loans to low-income countries. The G20 should renew its push for wealthier countries to meet and exceed their earlier pledges.

Last but not least, developing countries want to see reform of the World Trade Organization (WTO) to give them equitable and rules-based access to world trade. Recently, several developing countries have been unhappy with the EU Carbon Border Adjustment Mechanism, or carbon tax—and India plans to file complaints to the WTO over the tax. More generally, it is difficult to see breakthroughs being made on two contentious issues: restoring the functionality of the WTO’s Appellate Body and dealing with China’s approach to supporting its companies in domestic and global markets. Nevertheless, the demands of developing countries need to remain at the forefront of efforts to reform the WTO going forward.

Sovereign debt restructuring

G20-inspired efforts to improve the sovereign debt restructuring framework recently made some small steps forward. The Global Sovereign Debt Roundtable, co-chaired by the IMF, the World Bank, and the presidency of the G20, was launched during the spring 2023 meetings of the IMF and World Bank in Washington, DC. Bringing together representatives of official bilateral and multilateral creditors, private creditors, and debtor countries, several meetings have been held since the roundtable was launched to discuss technical issues. These issues include the timely sharing of information, improvement of debt transparency, comparability of treatment, and cutoff points in calculating debt to be restructured. In addition, a debt restructuring deal for Zambia covering $6.3 billion with official bilateral creditors was announced in Paris in June—a welcome development, even if the deal was not as good as it could have been and negotiations for final memorandums of understanding are still ongoing. 

Going forward, international focus will likely be on substantive matters, such as providing significant debt relief to low-income countries on a timely basis, instead of just on procedural and process issues. Timeliness is especially important, as a dozen highly indebted emerging markets and low-income countries have languished for some time in debt distress. Reportedly, China has objected to the language in the draft communiqué regarding emerging market debt.

Climate financing

The developed countries in the G20 will likely be confronted with calls to live up to their 2009 pledges to transfer one hundred billion dollars a year to help developing countries cope with impacts of climate change. More practically, there will be more discussions of ideas such as debt-for-climate swaps, where creditors agree to substantial sovereign debt relief, an important portion of which will be used by debtor countries for climate change mitigation and transition activities.

India has supported the UN secretary-general’s proposals for a stimulus of five hundred billion dollars to help developing countries meet UN Sustainable Development Goals by 2030. However, the G7 has been lukewarm on the proposal and is unlikely to agree to that demand.

From India to Brazil

The upcoming G20 Summit could also mark an opening salvo in the competition between China and India for the mantle of voice of the Global South. India’s approach is to focus on specific proposals to reform the current international economic and financial system and institutions to better meet the development needs of developing countries.

At the same time, it is worth watching if the BRICS group—originally made up of Brazil, Russia, India, China, and South Africa and soon to expand to six more countries—becomes more of a counterpart to the G7. The axis in the bloc of China, Russia, and Iran (which was just asked to join) poses a potential challenge if it promotes anti-US polemics to further its own agenda and influence, including through the Belt and Road Initiative. Such an approach would make any global compromises required to reform the current economic and financial system more difficult, if not impossible, to achieve.

Hopefully, countries in the Global South can realize this problem and lean toward India’s less confrontational approach. In that context, the West—represented by the G7—should do what it can to tilt the balance in India’s favor in its competition against China to become the voice of the Global South, both this year in New Delhi and next year when the G20 meets in Rio de Janeiro.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

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Amid the hoopla and meetings, the G20 deserves a critical examination of its relevance so that observers can set realistic expectations. Certainly, the G20 is an important forum for promoting global engagement across the range of issues that bedevil collective efforts to seek a better, more prosperous, happier planet. Like previous hosts, India has been serving up a wide-ranging buffet of global issues, including finance, trade, energy, climate change, health, and even tourism during its year-long G20 presidency. It is hard to argue against the value of gatherings among top officials of nations that account for more than 80 percent of the world’s gross domestic product, three-quarters of world trade, and more than two-thirds of the world’s population.

However, it is a pertinent question whether the G20 can produce transformational results that measurably advance its members’ shared interests. Is there sufficient common ground among the world’s largest economies to allow for specific achievements? A survey of recent communiques from previous G20 leaders’ meetings might leave the casual reader perplexed, as they devote a lot of words to statements that offer little to impress.

I confess to having a biased perspective based on my limited personal experiences as the first US representative to the G20 Trade and Investment Working Group, established in 2016 during China’s presidency, and as an assistant US trade representative from 2012 to 2016. Then, my focus was on defending and projecting US trade interests to avoid any communique language that might prejudice our positions in the World Trade Organization (WTO) or in regional groupings, such as the Trans-Pacific Partnership negotiations. This kind of damage control was hardly a visionary approach to finding opportunities for the world’s leading economies to develop consensus on ambitious outcomes. In fact, the most specific results achieved on trade in 2016—commitments from China related to WTO negotiations on freeing up trade in environmental technologies and creating an effective global forum on over-capacity and over-production in the steel sector—collapsed soon after the ink was dry.

The G20, however, has been effective in the past. During the 2008 global economic downturn, for example, G20 members gathered in Washington to pledge coordinated fiscal stimulus to prevent the financial crisis and global recession from worsening. In 2009, G20 leaders used summits in London and Pittsburgh to reinforce the actions initiated the year before. Since then, the G20 has also provided critical moments for bilateral meetings between leaders, which may be the most durable value these summits offer, now and in the future.

This year, the war in Ukraine has stymied progress on multiple fronts. At a meeting last month, the G20 finance ministers failed to conclude a joint statement as they tussled over how to frame the conflict and assign blame to Russia. Nonetheless, the massive G20 agenda continues to attract stakeholders’ attention in very diverse global policy areas. Discussions so far have covered post-pandemic mechanisms to ensure accessibility and equity in delivering vaccines to citizens in all nations. Supply chains, stretched thin in current crises, are also a hot topic, getting focus in several separate G20 working groups. Responses to climate change continue to climb up the G20’s agenda, as well. And a range of digital issues present ongoing challenges, even as India promotes its vision of digital public infrastructure. 

When very serious economic downturns occur and threaten global financial collapse, the G20 governments should be expected to muster forces and attempt coordinated deployment of their fiscal and monetary tools to avert disaster. But when a global economic downturn is not in the offing, then perhaps it is more realistic to expect—and to be content with—generally modest results on a wide-ranging agenda. 

This month’s G20 in India can focus on hosting important discussions, establishing person-to-person contacts, and hammering out statements that move the needle in very limited ways on health, trade, digital governance, and even climate change. As such, this and future G20 meetings can play an important supporting role to other international groupings, such as the WTO, the World Health Organization, and the United Nations Framework Convention on Climate Change, which will also seek to make an impact in these areas. At the same time, India and future G20 presidents can continue to showcase their tourist hotspots and cultural heritage as the centerpieces of their year in the spotlight. After all, to paraphrase Shakespeare, all the world is a stage, and this is India’s moment to play its role.

Mark Linscott is a nonresident senior fellow with the Atlantic Council’s South Asia Center. Prior to joining the Atlantic Council, Linscott was the assistant US trade representative for World Trade Organization (WTO) and multilateral affairs from 2012 to 2016 with responsibility for coordinating US trade policies in the WTO.

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There was hope things would go better. Last month’s debt restructuring deal with Zambia, along with the launch of the Global Sovereign Debt Roundtable (GSDR) by the International Monetary Fund (IMF) and World Bank (WB), made it seem like progress was being made toward a new set of sovereign debt restructuring principles. As US Treasury Secretary Janet Yellen stated prior to the meeting, “We should apply the principles we agreed to in Zambia’s case to other cases instead of starting from zero every time… And we must go faster.”

Now, in the wake of a meeting without tangible progress, the Zambia deal looks a little different.

There is more to the Zambia deal than meets the eye

The $6.3 billion debt restructuring agreement with Zambia and its official bilateral creditors—organized in an Official Creditor Committee—was announced at last month’s Paris New Global Finance Summit. It is useful for the country, providing it with some debt servicing relief and unlocking a $188 million disbursement from the $1.3 billion IMF Zambia program. However, the deal largely reflects China’s preferences and is less than optimal for Zambia, for several reasons.

• There is no reduction in the principal amount of the debt, but maturity dates have been extended to 2043, resulting in an average extension of more than twelve years. China has long insisted on re-profiling (of maturities and interest rates) but no principal haircuts. As a result, Zambia’s public debt/GDP ratio is unchanged from 110.8 percent in 2022.
• The interest rate on the restructured debt will be reduced to 1 percent; thereafter the rate will rise to a maximum of 2.5 percent in a base case scenario. If Zambia’s debt carrying capacity is upgraded by the IMF/WB from weak (at present) to medium, the interest rate will increase to a maximum of 4 percent, and the final maturity date brought forward to 2038 (not 2043). In their September 2022 Debt Sustainability Analysis, the IMF/WB have concluded that Zambia was close to the medium threshold. For comparison, the average interest rate on Zambia’s public debt to China is estimated to be 2.9 percent.
• In the base case scenario, with a three-year grace period for principal repayment, the present value (PV) of Zambia’s public debt being restructured has been reduced by 40 percent, assuming a 5 percent discount rate. This is shy of the 49 percent PV reduction sought by Zambia in October 2022 and less than the 50 percent PV haircuts usually granted to low-income countries in debt crisis.
• The $1.75 billion of claims insured by China’s Sinosure (including loans made by China Development Bank) will be re-classified as commercial creditor claims, not official lending as insisted by Western countries until now. This is also in line with China’s long-standing arguments.
• Consistent with the terms outlined above, each creditor country will bilaterally conclude a final restructuring agreement with Zambia—another of China’s preferences. It doesn’t matter much if such bilateral final agreements are transparent. If not, there could be suspicions of side deals beyond those agreed to, serving to erode mutual trust necessary to make progress in other cases.
• The agreement with official bilateral creditors will be contingent upon Zambia securing a comparable deal with its private sector creditors, in particular the holders of $3 billion in international bonds as part of the $6.8 billion private sector external debt. The term “contingent” is ambiguous and it’s not clear how it will be interpreted. This could delay the implementation of the official bilateral deal until a private sector deal is in place. Traditionally, a Paris Club restructuring deal is implemented right away, subject to the requirement that the debtor country seeks to obtain comparable relief from its private sector creditors.

The features mentioned above are consistent with China’s approach to dealing with its debtor countries in crisis—suggesting that Western countries and Zambia have acquiesced to China’s demands to get the deal done.

The problem with agreeing that no one size fits all

Reportedly, the G20 meeting agreed that there is no one-size-fits-all recipe for sovereign debt restructuring. That’s sensible in the sense that the specific circumstances of each debtor country should be taken into account. However, it is also consistent with China’s insistence on a case-by-case approach. This allows China to deal with debtor countries according to their strategic value to Beijing and can be used to delay rather than expedite the negotiating process.

China’s demands were also front and center in the IMF/WB launch of the Global Sovereign Debt Roundtable at their Spring meetings in April 2023. The Roundtable brought together the debtor country with all of its creditors (official bilateral, multilateral development banks and IMF, private sector creditors) to exchange views, which could inform and help actual restructuring negotiations. The IMF/WB agreed to share information more fully and more quickly with all creditors and promise to give more concessional financing, including grants to the low-income countries seeking restructuring.

This is indeed a modest step forward, especially in involving private sector creditors early on and providing them with sufficient information. If the GSDR can bring more transparency to the debt situation of the debtor country—as well as to the confidential contractual clauses in the debt owed to China—all the better! However, this is about process and has not changed the more difficult phase of reaching agreement on the scale and parameters of the debt relief—as well as how to ensure comparable burden sharing among different classes of creditors.

In short, Zambia’s debt restructuring deal and the launch of the Global Sovereign Debt Roundtable can be viewed as modest steps forward in the urgent efforts by the international community to establish a well-defined set of principles and procedures to facilitate the restructuring of sovereign debt of LVMICs—when necessary—in an efficient manner and on a timely basis. However, this goal is still far from being met, and the sovereign debt restructuring process remains unwieldy and time-consuming, deepening the crisis and ravaging the debtor country. In the meantime, the world seems to have acquiesced to China’s approach to dealing with debt crises—which is less than optimal, especially for debtor countries.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

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But many questions remain about whether creditors truly are prepared to meaningfully reduce debt burdens. These issues likely will be on the table in India this week (July 14 to 18) when the Group of Twenty (G20) finance ministers and central bank governors gather to discuss debt restructuring and other global economic issues.

In Zambia, which defaulted on its debts in 2021, government creditors led by China have resolved months of jostling and agreed to a restructuring of $6.3 billion of the country’s more than $8 billion of debt. The agreement extends for 20 years the country’s debt-repayment schedule and lowers its annual interest bill to one percent until economic growth recovers. Now, the country’s private-sector lenders, who hold billions of dollars of government IOUs, are talking about writing down some of their Zambia loans, and in Ghana are writing off loans and restructuring dollar-denominated bonds. Meanwhile, both classes of creditors are deep in restructuring discussions with Sri Lanka, which has requested a 30 percent haircut on some bonds.

These settlements would pave the way for assistance from the International Monetary Fund (IMF) and provide a way forward—albeit a difficult one—for dozens of low-income countries that are in or nearing debt distress. This represents progress compared with a year ago, when China and the private sector were balking at a transparent negotiating process. But there are still many issues to address—especially how far China really is prepared to go in reducing the burden of its vast lending. Unlike previous global debt episodes, notably the Latin America debt crisis of the 1980s and debt relief to low-income countries early this century, there is unlikely to be a grand bargain this time around.

While the preliminary agreement with Zambia has been heralded as “an epochal shift in global finance,” the reality is that negotiations there and elsewhere are following a well-trodden path: first the seal of approval of an IMF rescue program (which in Zambia’s case was reached in 2022), with promises of IMF money once a debt restructuring is agreed to. Then the hard bargaining with government lenders, followed by talks with private creditors. This slow progress is a far cry from late 2020 when the G20 agreed on a restructuring process for the poorest countries called the Common Framework that briefly raised hopes of a rapid succession of debt reductions—hopes that were dashed largely because of foot-dragging by China and foreign lenders.

Before the emergence of China as a major creditor to middle and low-income countries during the lending spree that accompanied its Belt and Road Initiative, debt negotiations went through the IMF and the Paris Club of advanced-economy lenders. It was arguably a simpler world, not least because private-sector lenders’ debt exposure in developing countries was marginal. That changed after 2010, when institutional investors joined China in shoveling money out the door to what became known as “frontier economy” borrowers. Between 2007 and 2020, an unprecedented 21 African countries accessed international debt markets. Today, debtors must proceed on multiple tracks—the Paris Club, the Chinese government, China’s state banks and state-controlled commercial banks, and Western fund managers and money-center banks.

Some creditors question the true nature of the debt restructuring now on offer. For example, private sector lenders and analysts say privately it is not clear whether, in Zambia’s case, China has negotiated bilateral conditions that have been concealed from other lenders. They say that this could cast doubt on assurances that government creditors have provided to the IMF about restructuring arrangements. In addition, China’s insistence on extending debt repayments for decades conflicts with the Paris Club’s track record of providing relief in the form of reductions in principal owed. That could become an issue if China pursues its approach in countries where other governments are major creditors—for example, India and Japan in Sri Lanka. In that case, the model of the Zambia agreement could quickly become a muddle.

The private sector has arguably made significant strides in recognizing their loan losses, as the situation in Ghana illustrates. Lenders such as the big four South African banks are writing off as much as $270 million of their loan exposures, which equates to a haircut of almost 60 percent. And Standard Chartered Bank has set aside some $160 million for Ghanaian write-downs. This loan-loss recognition serves two purposes. First, it is an effort to inform shareholders about the banks’ overall sovereign exposure and the steps they are taking to reduce it. Second, by setting a floor on the losses they are prepared to absorb, they have a better negotiating hand in the restructuring conversations.

Meanwhile, bondholders are likely to face increasing pressure to restructure Eurobond issues—and accept haircuts—as the repayment schedule accelerates in the next two years.

A looming issue may be the response of Western banks and bondholders to China’s success in having some of its loans by state-controlled banks exempted from the Zambia agreement and classified as commercial lending. How those Chinese loans are treated—in Zambia and elsewhere—while the real private-sector creditors negotiate settlements will be a test of China’s willingness to accept the principle of “comparability of treatment” for all creditors, a key principle that Beijing publicly insisted upon as recently as April.

There are real-world ramifications to these nuts-and-bolts issues that extend beyond the politics of the restructuring process. The human cost of the debt crisis for poor countries has been severe. The UN estimated last year that fifty-four countries with severe debt problems represented about three percent of global gross domestic product, but accounted for more than one-half of the 600 million people worldwide living in extreme poverty. That number has risen sharply since the pandemic hit in 2020.

Debt payments by these countries siphon off resources that are desperately needed for health, education, and other social programs. Defaults and restructuring only make this scarcity worse. That points to the need for new sources of funding. The World Bank is under pressure to free up more money for grants and lending. Meanwhile, the IMF has increased funding for two trusts designed to meet the needs of low-income countries, including one created to help developing countries meet the immediate and long-term challenge of climate change and pandemics. About $100 billion of new resources come, in part, from the 2021 allocation of $650 billion of Special Drawing Rights to IMF member countries.

But demand for help is rising faster than the available resources, especially for the Poverty Reduction and Growth Trust, a perpetually underfunded IMF vehicle that subsidizes zero-interest loans to the poorest countries. As new lending to these nations from China and private creditors dries up, the World Bank and IMF will be hard-pressed to pick up the slack. Debt restructuring that merely extends repayment for decades without any forgiveness will only entrench the imbalance between needy borrowers and lenders whose priority is to recoup their capital.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter: @vshastry.

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As India’s G20 presidency gets underway, what’s the state of EU-US engagement with the Global South? In this new era of great power competition, what is the degree of convergence between India and countries in the Global South with the United States and Europe on China? What is India’s position on Russia following the war in Ukraine? And how does India’s on-going ties with Russia come up against its cooperation with Europe and the United States?

On this episode of #AtlanticDebrief, Rachel Rizzo sits down with Dhruva Jaishankar, Executive Director, Observer Research Foundation America; Nonresident Fellow, Lowy Institute, to discuss both areas of cooperation and obstacles to deeper transatlantic engagement with the Global South.

You can watch #AtlanticDebrief on YouTube and as a podcast.

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Rachel Rizzo

Nonresident Senior Fellow

Europe Center Transform Europe Initiative

Economy & Business English

The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

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The post #AtlanticDebrief – What’s the state of EU-US engagement with the Global South? | A Debrief with Dhruva Jaishankar appeared first on Atlantic Council.

This month’s topline events

Biden Goes to Ukraine. Days ahead of the one-year anniversary of Russia’s full-scale invasion of Ukraine, President Joe Biden made an unannounced visit to Kyiv to meet with Ukrainian President Volodymyr Zelensky. While expressing gratitude for US and allied support, Zelensky appealed for heavier weapons, including fighter jets and long-range missiles that could help drive Russian forces back. On the battlefield, Ukrainian forces held their ground as Russia launched a new offensive in the Donbas.

• Shaping the order. Biden’s high-risk visit signaled America’s resolve to stand with Ukraine and maintain military support for as long as necessary, as the war extends into its second year. The administration has framed the conflict as a battle between democracy versus autocracy and a struggle to uphold a rules-based order. If Putin succeeds in Ukraine, Russia and other revisionist autocracies may be emboldened to commit aggression or engage in coercion against other nations.  
• Hitting home. Despite the prolonged conflict, recent polling indicates that a substantial majority of Americans continue to favor US support for Ukraine’s war effort.
• What to do. While coordinating closely with allies, the Biden administration should give Ukraine the weapons it needs to win the war, including seriously considering Zelensky’s request for fighter jets and longer-range weapons. 

China-Russia War Aid. Amid intelligence reports indicating that China is considering the provision of lethal weapons to support Russia’s war effort in Ukraine, US Secretary of State Antony Blinken warned that there would be “serious consequences” if Beijing moves forward on this front. US officials revealed that China is already providing non-lethal military assistance to Russia. The US began consulting with G7 allies to impose sanctions if Beijing were to transfer munitions. China sought to downplay such reports, instead highlighting its newly announced twelve-point peace plan for Ukraine that called for an immediate ceasefire—a proposal dismissed by US and EU officials as a “gimmick.” 

• Shaping the order. With Russian forces rapidly depleting ammunition stocks and facing shortages of essential equipment, Chinese military support could provide a critical lifeline for the Kremlin and potentially alter the trajectory of the war. Such a move would also have far-reaching strategic implications, serving to solidify the China-Russia partnership and deepening an “axis of autocracy” aimed at pushing back on the US-led global order.
• Hitting home. Economic sanctions against China could have serious implications for US businesses and the global economy.
• What to do. Washington should continue efforts to deter China from providing lethal aid to Russia, while being prepared to impose coordinated sanctions with allies if Beijing decides to move forward.

US Pops Chinese Balloon. US fighter planes shot down a Chinese spy balloon that had crossed into US sovereign airspace and traveled across the mainland for several days. Despite Beijing’s claims that the balloon was conducting civilian weather research before accidentally veering of course, US intelligence officials assessed that the aircraft was part of a vast surveillance program run by China’s People’s Liberation Army. The incident led to recriminations, as Secretary of State Blinken scuttled a planned trip to Beijing, though he later met China’s top diplomat Wang Li on the sidelines of the Munich Security Conference. 

• Shaping the order. While it remains unclear whether China intended to have the balloon fly over US airspace, the incident exacerbated tensions between the US and China. Despite efforts by President Biden and Chinese President Xi Jinping’s to set “guardrails” on their relations since their meeting in Bali last fall, Washington and Beijing appear to be increasingly at odds, as China has become more assertive in threatening Taiwan, strengthening ties with Russia, and challenging the legitimacy of US global leadership.
• Hitting home. The specter of a Chinese spy balloon traveling through US airspace starkly highlighted the potential threats to homeland security posed by China.
• What to do. The US should remain vigilant in defending against potential threats to the homeland from China and other foreign malign actors, while at the same time seeking to establish more consistent lines of communication with Beijing to minimize future risks of escalation.

Quote of the Month

“The democracies of the world have grown stronger, not weaker. The autocrats of the world have grown weaker, not stronger … Democracies of the world will stand guard over freedom today, tomorrow, and forever … There is no higher aspiration than freedom.”

– President Joe Biden, speaking in Warsaw, February 21, 2023

State of the Order this month: Unchanged

Assessing the five core pillars of the democratic world order    

Democracy (↓)

• Tunisian police arrested two more prominent opposition leaders in an escalating campaign targeting rivals of President Kais Saied, as Tunisia—once a bright spot for democracy in the Arab world—slid further into autocracy.
• At the urging of Mexican President López Obrador, the Mexican Congress passed a measure to overhaul the country’s independent election agency, triggering large-scale protests as opponents expressed concerns that the move could weaken the country’s democracy by hampering the ability to conduct reliable elections.
• A controversial proposal by Israeli Prime Minister Benjamin Netanyahu to limit the independence of the country’s Supreme Court sparked large protests in Israel and raised concerns among opposition groups, as well as among pro-Israel lawmakers in Washington.
• Nearly twenty years after the US invasion, Iraqi Prime Minister Mohammed Shia’ Al Sudani touted the country’s success in establishing a peaceful democracy, saying that most Iraqis appreciate that the US and its allies came to “save” Iraq from the brutality of Saddam Hussein’s regime and that, despite the heavy toll on the Iraqi population, “it’s much better to have a freedom and democracy rather than a dictatorship.”
• On balance, the democracy pillar was weakened.

Security (↓)

• Marking the one-year anniversary of Russia’s full-scale invasion of Ukraine, Vladimir Putin announced that Russia will suspend cooperation under the 2010 New START Treaty, the last major arms control agreement with the United States that limits each country to 1,550 deployed nuclear warheads.  
• China is seriously considering the provision of lethal weapons to support Russia’s war effort in Ukraine, a move that US Secretary of State Antony Blinken warned would have “serious consequences.”
• A Chinese spy balloon that had crossed into US sovereign airspace was shot down by US fighter planes, exacerbating tensions between the US and China.
• China sought to expand security cooperation with partners across the world, as Xi Jinping hosted Belarusian president Alexander Lukashenko and Iranian President Ebrahim Raisi, and Beijing unveiled a Global Security Initiative that calls for expanded training with security forces from other countries.
• Inspectors from the International Atomic Energy Agency reported that Iran has produced enriched uranium particles to the level of 83.7%, reducing the breakout time for producing one bomb’s worth of weapons-grade uranium to about twelve days if it were to move forward.
• The US and the Philippines announced an agreement to provide US forces access to four new military bases in the country, as part of a US effort to expand its strategic footprint across the Indo-Pacific.
• On balance, the security pillar was weakened.

Trade ()

• After three years of negotiations, Britain and the EU reached a breakthrough agreement on new trade rules in Northern Island, a move that resolves a simmering dispute following Britain’s exit from the EU.
• On a visit to India, German Chancellor Olaf Scholz discussed with Indian Prime Minister Narendra Modi the contours of a potential new trade deal between India and the EU.
• Overall, the trade pillar was unchanged.

Commons ()

• The US Energy Department concluded, based on uncited new evidence, that the COVID-19 virus most likely emanated from a leak from a virology laboratory in Wuhan, a conclusion also reached by the FBI in 2021—though other US intelligence agencies remain divided on the assessment.
• Overall, the global commons pillar was unchanged.

Alliances (↑)

• Vice President Kamala Harris joined the leaders of Britain, France, Germany, the EU, and other nations at the Munich Security Conference to reaffirm their commitment to stand up to Russian aggression in Ukraine. Separately, G7 foreign ministers called for other countries to cease assistance to the Russian military and avoid undermining sanctions measures against Russia. 
• Finland will seek to move forward with NATO membership independently from Sweden, whose membership bid remains stalled as Turkey and Hungary continue to delay potential ratification.
• The new basing agreement between the US and the Philippines bolstered their bilateral alliance—one that had soured during the previous presidency of Rodrigo Duterte—as defense ministers from the two nations also discussed a potential military triad with Japan.
• Overall, the alliance pillar was strengthened. 

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order     

• Samantha Power, in a Foreign Affairs piece titled “How Democracy Can Win,” asserts that autocrats are on the backfoot, and the United States and other democracies have an opportunity to regain momentum in their efforts to counter authoritarianism.
• Timothy McLaughlin, in The Atlantic, contends that the US must reorient its Indo-Pacific strategy from building military agreements to crafting strong economic policies with allies in the region.  
• Paul Poast argues that, through their recent actions, democracies in the BRICS—Brazil, India, and South Africa—are lending support to Moscow and effectively aiding and abetting Russia’s war in Ukraine.

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

• Fred Kempe, in Inflection Points, argues that, in the wake of President Biden’s visit to Kyiv, the US needs to double down on its support to ensure Russia is strategically defeated and the West remains united. 
• Dan Fried and Brian O’Toole, in the New Atlanticist, outline the effect of sanctions against Russia but note that a victory in Ukraine will require more than economic tools.
• Patrick Quirk and Katya Rimkunas, in The National Interest, discuss how the US should approach the upcoming Summit for Democracy, particularly in regards to support for democratic institutions and political parties.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Ash Jain – Director for Democratic Order
Dan Fried – Distinguished Fellow
Sydney Sherry – Project Assistant

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

The post State of the Order: Assessing February 2023 appeared first on Atlantic Council.

The international community must apply pressure so that China and private-sector lenders join in facilitating a collective haircut that includes all lenders.

As this year’s G20 chair, India clearly wants to position itself as the voice of the Global South, and resolving developing-country debt distress will serve as validation of its approach. The International Monetary Fund (IMF) estimates that 60 percent of low-income countries are in, or at high risk of, debt distress—double the 2015 level. However, the international community has struggled to offer a cohesive solution to resolve the most urgent cases, as the damage from COVID-19 continues to deepen, global growth remains slow, and high inflation continues.

The debt issue will be front and center when G20 finance ministers meet in India this week, with the Indian chair clearly prepared to turn up the heat on recalcitrant creditors. But representatives of the bondholders and some bankers who are major lenders to developing countries were expected to be absent from the discussions as the governments seek to resolve their differences. The meeting, however, can be a hopeful, fresh start.

India’s tongue-lashing of China, coupled with pressure on Beijing from the United States, World Bank, and IMF, brings unprecedented pressure to bear on a single sovereign lender. It is the inevitable result of Beijing’s decision to move at a snail’s pace to resolve the debt crisis that is resulting from its extensive lending—more than eight hundred billion dollars to developing countries between 2000 and 2017. But Chinese flexibility alone will not be enough to resolve the crisis. Comprehensive debt solutions will only become possible when the arm-twisting turns to private-sector creditors (such as powerful asset managers BlackRock and Aberdeen Asset Management and Swiss commodities giant Glencore) whose lending represents a large proportion of several countries’ debt.

Baby steps  

To be sure, there have been small steps in that direction. Creditor committees have been established for some of the worst-off debtors—Zambia, Chad, and Ethiopia—with varied results. Committees for Ghana and Sri Lanka are likely to follow suit. But those talks have dragged, offering little hope to nations on the brink of default. The scale and depth of debt issues faced in particular by many African countries require a magnanimous, multilateral approach from all classes of creditors

By some estimates, China’s collection of official and quasi-official lenders accounts for around 13 percent of Africa’s stock of private- and public-sector external debt, much of it made at commercial rates. The private sector, by contrast, accounts for about 40 percent. Multilateral lenders such as the IMF and World Bank, which lend at zero or extremely low interest rates, account for an additional 32 percent. That has led Beijing to call for those institutions to take a haircut as well—a position that lacks support from the rest of the international community, including some borrowers. That’s because multilateral institutions need to retain their preferential status as creditors since they are often the only agencies willing to provide financial assistance during a crisis—when other lenders are unwilling to help. This impasse underlines that there can be no meaningful resolution to developing-country debt distress without the active participation of all lenders.

Of all the failures in global cooperation in recent years, the debt crisis stands out as a sad example of government lenders and private creditors working at cross purposes. At the outset of the pandemic, the G20 appeared to have found a response to the rising cases of debt distress by agreeing to a Common Framework for Debt Treatment (which governs the negotiations in Chad, Ethiopia, and Zambia). Multilateral agencies stepped in to provide emergency loans and some debt relief, and G20 lenders agreed to suspend interest payments until the end of 2021. These actions provided some breathing room for countries at the front line of debt distress and gave creditors the opportunity to organize and resolve the most urgent cases.

But debt resolution in the post-pandemic era has turned into a four-legged stool comprised of national governments, the Paris Club coalition of long-time government lenders and multilateral agencies, China, and private creditors—and if two legs break, the whole stool collapses. That appears to be the case in a world with shifting power dynamics as the Paris Club, led by the Organisation for Economic Co-operation and Development, has found itself out-flanked by more powerful creditors such as China and the private sector. To be sure, the latter two have sharply varying objectives when it comes to debt resolution, and there is no suggestion that they are colluding. While the private sector hopes to extract favorable terms by way of debt repayments or an outright haircut, China’s position is more ambivalent: Geopolitics plays a role, and Beijing prefers having leverage over countries in debt distress. The end result is an international community that cannot deliver.

A study in contrasts

This is starkly evident in the cases of Zambia and Sri Lanka. US Treasury Secretary Janet Yellen met with Chinese Vice Premier Liu He (who is expected to retire soon) in Zurich before she visited Lusaka, Zambia’s capital city, last month to, as she said, “press for all official bilateral and private-sector creditors to meaningfully participate in debt relief for Zambia, especially China.” IMF Managing Director Kristalina Georgieva followed with her own trip to Lusaka, urging a “swift resolution.” Yet there are few overt signs of Chinese flexibility on the six billion dollars it is owed by Zambia. Meanwhile, private holders of Zambian Eurobonds, who account for about 20 percent of Zambia’s external obligations, have largely sat on their hands while the governments try to work out their differences—a stance that hasn’t helped the restructuring process across Africa.

In the case of Sri Lanka, while some major official creditors (India and the Paris Club) have provided financing assurances that are critical to unlocking an IMF loan, China has merely agreed to a two-year moratorium on debt payments, with no indication of any future forbearance. Private-sector creditors—who represent about 40 percent of the country’s outstanding debt—have pursued a more constructive approach, with one group writing to the IMF earlier this month committing to “design and implement restructuring terms.”

Why is the private sector apparently being more cooperative with Sri Lanka than Zambia? In private conversations, bankers say that Sri Lanka has better credit credentials and should be judged as a middle-income country on its capacity and ability to repay in the future. The implied conclusion here is that low-income African countries in debt distress have neither the capacity nor the means to recover from the pandemic-induced shock. If these perceptions are widely held, it is a scathing indictment of the global financial architecture, which incentivized poor countries to reduce aid dependence and encouraged them to access international capital markets to finance their development needs.

What’s next in this never-ending saga of debt and distress? The G20 will try to work out some solutions this week. Two things need to happen to signal to the international community that this year’s G20 will not be business as usual.

First, the G20 has to decide if a new sovereign debt roundtable convened last week by the World Bank and the IMF, which includes China, is a more effective way of addressing debt restructuring cases compared with the Common Framework, which appears to be mired in bureaucratic reporting requirements that have little bite. The private sector’s enthusiasm to participate in the Sri Lanka debt negotiations offers a helpful model for addressing existing and future cases of debt distress, with a focus on a few large individual institutions driving the agenda rather than cumbersome industry associations.

Second, the G20 will have to delicately make a choice regarding China’s role. If the private sector and Paris Club creditors speak with one voice, Beijing may feel isolated enough to come to terms with aligning with the international community.

A new approach is needed, but the G20’s track record of stalemate on difficult issues over the past decade hardly offers confidence. In the absence of a breakthrough, it will be up to the individual governments, led by India, to maintain public pressure. That would likely prove less effective, but Beijing has already shown it will respond to pressure on some debt-related issues—for example, when it agreed to the Common Framework.

The international community needs to build momentum in 2023 for a comprehensive debt resolution. After initially facing the risk of a lost decade of development due to the pandemic, many low-income countries in Africa now face the prospect of several lost decades. To prevent this, the private sector and China need to be shamed into joining forces with the rest of the G20 and do what India has wisely suggested—get a haircut.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter: @vshastry.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

The post China and private lenders are blocking a solution to the global debt crisis. The G20 must step in. appeared first on Atlantic Council.

This month’s topline events

Allies Unite on Tanks. After weeks of wrangling, Germany and the United States agreed on a way forward to provide large numbers of modern tank systems to Ukraine. Berlin will deliver fourteen Leopard 2s, clearing the way for other European allies to send scores more, while Washington pledged dozens of M1 Abrams. Separately, Britain will send several Challenger 2 tanks. The moves come as Russia secured its first major battlefield advance in months, taking control of the town of Soledar as it prepared for a larger winter assault. Russian officials warned that the tank deliveries could lead to “a new level of confrontation.”

• Shaping the order. The delivery of the heavily-armed tanks — among the most powerful offensive weapons systems provided to Ukraine so far — will considerably boost Kyiv’s fighting capabilities and could allow Ukrainian troops to break through Russian defenses and take back captured territory. The move also reaffirmed alliance solidarity, sending a strong signal to the Kremlin that the US and its NATO allies are determined to stay united in support of Ukraine.
• Hitting home. Russian aggression, if allowed to succeed, would undermine European security and lead to a world that is more dangerous for Americans.
• What to do. The US and Europe should follow this bold move by responding favorably to Ukrainian President Volodymyr Zelensky’s request for fighter jets and longer-range weapons, the provision of which could make a significant difference in Ukraine’s ability to push back Russian forces.

South Africa Warms to Russia. While Russian Foreign Minister Sergey Lavrov was on a visit to Pretoria, South Africa’s foreign minister Naledi Pandor lauded the growing “political, economic, social, defense and security cooperation” between the two nations and announced that South Africa will join Russia and China in joint military exercises next month. The meeting was a prelude to South Africa’s hosting of the BRICS summit in August. In response, the White House expressed concerns about any “country … exercising with Russia as Russia wages a brutal war against Ukraine.”

• Shaping the order. Despite US and European efforts to isolate Russia in the wake of its assault on Ukraine, the Kremlin has been able to maintain a close working relationship with South Africa and to some degree India and Brazil — major democracies that are lending support to Moscow in one way or another. As China also makes inroads in Africa and Latin America, competition in the Global South has become a defining feature of the international order.
• Hitting home. Americans would be safer in a world where nations that share common values are working together to weaken and isolate aggressive dictators.
• What to do. The Biden administration will need to find new approaches to incentivize democracies in the Global South to join in efforts to uphold the rules-based order.

Rioters Storm Brazil’s Capital. Thousands of supporters of Brazil’s former President Jair Bolsonaro stormed the National Congress, presidential palace, and Supreme Court in the nation’s capital. While the Congress was not in session and newly inaugurated president Lula da Silva was out of town, the attack defaced government buildings and left a trail of destruction across Brasília as protestors claimed that the recent presidential election was marred by widespread fraud. President Biden and other world leaders condemned the assault and affirmed their support for Brazil’s democracy. 

• Shaping the order. The attack on the capital of South America’s largest democracy echoed that of the January 6 assault on the US Capitol and dramatically illustrates the erosion of democratic norms that many nations around the world have experienced in recent years. But with the violence quickly stemmed and large numbers of those involved taken into custody, the aftermath also highlights the resilience of Brazil’s democratic institutions.
• Hitting home. Americans need to stay vigilant to defend democratic institutions from forces — internal or external — that may seek to undermine them.
• What to do. Washington should continue to support President Lula’s efforts to restore order in Brazil and use the upcoming Summit for Democracy to rally democracies worldwide to uphold shared norms and principles. 

Quote of the month

“[T]he most important thing [is] … that countries that believe in democracy, in the rule of law… stand together. And when we see that authoritarian regimes are coming closer, working closer together in the political, in the diplomatic domain, but also in the military domain, it is even more important that we stand together as countries believing in the rules-based international order.” 

– NATO Secretary General Jens Stoltenberg in South Korea, January 30, 2023

State of the Order this month: Unchanged

Assessing the five core pillars of the democratic world order    

Democracy (↓)

• Rioters stormed the Brazilian National Congress, presidential palace, and Supreme Court in the nation’s capital, claiming that the recent presidential election won by Lula da Silva was marred by widespread fraud. But order was quickly restored.
• India banned a BBC documentary criticizing Prime Minister Narendra Modi’s alleged role in Hindu-Muslim riots more than 20 years ago and arrested students at university screenings — actions criticized as assaults on freedom of speech and freedom of the press.
• With Venezuela’s autocratic leader Nicolás Maduro maintaining his grip on power, the US and the EU withdrew recognition of Juan Guadió as interim president of Venezuela, following a decision by the opposition-controlled National Assembly to remove him.
• On balance, the democracy pillar was weakened.

Security (↑)

• In a significant boost for Ukrainian security forces, the US agreed to send 31 Abrams tanks to Ukraine, paving the way for Germany and other European allies to send several dozen German-made Leopard 2s. 
• In a break with previous policy, South Korean President Yoon Suk-yeol said he would consider asking the US to position nuclear weapons on the peninsula or have South Korea develop its own, if the threat from North Korea continues to escalate.
• Citing different “democracy and justice systems,” Fiji terminated a police training agreement with China while allowing agreements with Australia and New Zealand to stand. 
• Israel conducted a drone attack against a military complex in Isfahan, a major center for Iran’s ballistic missile research and production.
• A Palestinian terrorist killed seven people during Friday night prayer services outside a synagogue in East Jerusalem as tensions mounted between Israel and Palestine.
• With the US and allied decisions on tanks, the security pillar was strengthened.

Trade ()

• President Biden joined Mexican President Andrés Manuel López Obrador and Canadian Prime Minister Justin Trudeau for the North American Leaders’ Summit in Mexico City, discussing supply chains and securing the “technologies of the future in North America.”
• The European Union is prioritizing 70 infrastructure projects around the world, with plans to invest over $320 billion as part of its Global Gateway initiative that seeks to offer developing countries an alternative to China’s Belt and Road Initiative.
• While positive, these developments were relatively limited in scope, and the trade pillar was unchanged.

Commons ()

• China reopened its borders to international travel after three years, as Chinese officials claimed COVID-19 cases had peaked across the country — though health experts suggested it was still too early to confirm.
• The US, Canada, and Mexico issued a joint declaration pledging to meet their national commitments under the Paris Agreement, while working to keep the 1.5°C temperature goal within reach.
• Overall, the global commons pillar was unchanged.

Alliances ()

• Turkish officials indicated that Ankara is unlikely to ratify Sweden and Finland’s bids for NATO membership for now and will reconsider the matter after regional elections in May or June, due to concerns over the presence of Kurdish organizations in Sweden.   
• NATO Secretary General Jens Stoltenberg, on a visit to Japan and South Korea, highlighted the challenges posed by China and reaffirmed the importance of NATO’s Asia-Pacific partnerships.
• Britain and Japan signed a security agreement granting reciprocal access to each nation’s military forces, described by a British official as the “most significant defence agreement between the two countries in more than a century.”
• In a sign of improving relations, South Korea and Japan plan later this year to restart joint military exercises that were suspended in 2018.
• With India’s national security advisor visiting Washington, the US and India held an inaugural meeting of a new joint initiative on critical and emerging technologies intended to boost defense and technology cooperation between the two nations. 
• On balance, and given the significance of Turkey’s decision, the alliance pillar was unchanged.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order     

• Michael McFaul, in Foreign Affairs, argues that now is the time for allies to go big with military assistance to Ukraine to produce a breakthrough on ending the war.
• Boris Johnson, in The Washington Post, makes the case for NATO membership for Ukraine. 
• Mary Lovely, in Foreign Affairs, contends that for friend-shoring to work in the Indo-Pacific, the US needs to offer preferential market access to those who agree to new trade provisions on China. 

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

• Dan Fried, in the New Atlanticist, weighs in on Germany’s decision to send Leopard tanks to Ukraine.
• Matthew Kroenig and Emma Ashford, in Foreign Policy, debate Turkey’s role in NATO and whether the state helps or harms the alliance. 
• Nicole Bibbins Sedaca, in Perspectives, outlines how both sides of the American political spectrum need to unite against the true enemies of democracy. 

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Ash Jain – Director for Democratic Order
Dan Fried – Distinguished Fellow
Sydney Sherry – Project Assistant

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

The post State of the Order: Assessing January 2023 appeared first on Atlantic Council.

This month’s topline events

China Deepens Arab Ties. In what was billed as the “largest and highest-level diplomatic event” between China and the Arab world since the founding of the People’s Republic, Chinese President Xi Jinping received a grand welcome in Riyadh, where he arrived for a series of summit meetings with Arab and Gulf leaders. Xi joined Saudi crown prince Muhammad bin Salman in signing a “comprehensive strategic partnership” agreement, and new technology agreements, including one involving Huawei. Beijing also pledged to increase oil purchases, while calling for future payments to be settled using the Chinese yuan rather than the US dollar. 

• Shaping the order. Xi’s visit to Saudi Arabia, which follows Biden’s trip there last summer, illustrates the intensifying strategic competition for influence between the two powers in the Middle East. Beijing is seeking to deepen its ties to the Arab world and position itself as a stable and reliable partner in a region of autocracies. At the same time, Saudi Arabia and other Gulf states are looking to diversify their alliances amid growing strains with the United States, partly in light of Riyadh’s recent decision to join Russia in reducing oil production and continuing fallout from the brutal killing of journalist Jamal Khashoggi.
• Hitting home. Americans benefit from the dollar’s status as a global reserve currency. Despite Xi’s call to use the yuan for energy payments, the dollar will likely remain the currency of choice for oil purchases in the region.
• What to do. As Beijing expands its ties in the region, Washington should seek to maintain its own influence by bolstering security partnerships with the Gulf states to deal with shared threats, including Iran. At the same time, the US should also make clear that it views the protection of human rights as a key component of a stable, rules-based order.

Zelensky Goes to Washington. Leaving Ukraine for the first time since Russia’s invasion last February, Ukrainian president Volodymyr Zelensky traveled to Washington, meeting with President Biden at the White House and delivering a rousing address to a joint session of Congress. Zelensky’s visit, amid concerns that change in congressional control might lead to reduced aid, was followed by a US announcement that it would provide the highly sophisticated Patriot missile system, as part of a nearly $2 billion security assistance package for Ukraine. Increased support for the country’s air defenses comes as Russia continued its barrages of missile and drone attacks.

• Shaping the order. Zelensky’s decision to make Washington the destination of his first trip outside of Ukraine illustrates just how important Kiev views American support for the war effort. The US has led a successful coalition of allies firmly united behind Ukraine, while providing increasingly sophisticated military equipment that has put Russian forces largely on the defensive.
• Hitting home. The enthusiastic reception for Zelensky at the US Capitol and repeated standing ovations during his speech illustrates the continued bipartisan support for Ukraine, even as Republicans get set to take control of the House of Representatives.
• What to do. The Biden administration should work with allies in Congress on both sides of the aisle to provide more advanced military equipment to Ukraine and help ensure that Kiev has what it needs to ultimately force Russia to withdraw its troops. 

Biden Hosts Africa Summit. Forty-five African heads of state joined President Biden in Washington for the US-Africa Leaders Summit, with discussions focused on climate change, public health, and food security. The White House pledged $55 billion in investments in African and announced new initiatives to grow two-way trade and investment, as well as bolster African health systems and technological innovation. The summit excluded the leaders of four nations who took power in military coups, and Biden separately hosted a session with a select group of democratic leaders to highlight US support for free and fair elections across the continent.

• Shaping the order. With China investing heavily in development initiatives and building relations across the continent, Africa has emerged as an important battleground for strategic competition. The summit follows other regional summits where Biden has met with leaders from Asia, the Middle East, and Latin America, as the US seeks to make inroads in the Global South
• Hitting home. Given the potential new trade and investment opportunities, and with so many Americans tracing their roots to the continent, strengthening US-African ties is likely to have broad political support at home.
• What to do. Washington should build on the summit by expanding investments in health and infrastructure across Africa and the developing world. The US should also seek to strengthen relations with key African democracies, particularly Nigeria and South Africa. 

Quote of the month

“[S]haring democratic values and systems will help us define joint priorities and achieve common goals… [I]t makes a huge difference whether capitalism is organized in a liberal, democratic way or along authoritarian lines.” 

– German Chancellor Olaf Scholz, December 5, 2022

State of the Order this month: Strengthened

Assessing the five core pillars of the democratic world order    

Democracy ()

• In response to the Iranian regime’s systemic repression of women and girls, the US led a successful effort to remove Iran from the UN Commission on the Status of Women. Anti-regime protests continued across the country, despite the government’s violent crackdown and imposition of the death penalty for certain individuals.
• The FBI warned that Beijing is seeking to silence criticism of the Chinese government by Chinese citizens based in the United States, by using agents to threaten, harass, stalk, blackmail, and surveil them. Canada raised similar concerns, issuing a “cease and desist” warning to China over monitoring stations it has illegally established in the country to surveil Chinese citizens.
• Sudan’s ruling generals and the country’s main pro-democracy group signed an agreement to establish a civilian-led transitional government following the military takeover in 2021, which, if implemented, could set a path toward new elections.
• On balance, the democracy pillar was unchanged.

Security ()

• The Biden administration announced plans to provide the Patriot missile defense system to Ukraine to bolster its air defense capabilities, a part of a $1.85 billion package of new military assistance. Russia continued its aerial barrage of Ukraine, launching cruise missiles and Iranian-made drones on Kiev and other cities, while the Ukrainian military successfully intercepted many of the attacks. 
• Following a meeting with former Russian prime minister Dmitri Medvedev, a close Putin ally, in Beijing, Xi Jinping reaffirmed China’s support for Russia, saying that relations between the two countries had “stood the test of international changes” and that their partnership was a “long-term strategic choice made by both sides.”
• North Korea provided arms shipments to the Wagner Group, a private Russian military company, to support the Kremlin’s war effort in Ukraine, as part of growing partnership between Moscow and Pyongyang.
• Xi Jinping, on a visit to Riyadh, touted closer security and energy ties with Gulf nations, amid reports that Saudi Arabia purchased US $4 billion worth of weapons from China, including drones and anti-ship missiles.
• Overall, the security pillar was unchanged.

Trade (↑)

• The G7, along with the EU and Australia, agreed to set a joint cap on the price of Russian oil at $60 per barrel, with the goal of further restricting Putin’s primary source of revenue for the war in Ukraine. But Moscow welcomed the decision by India, a major purchaser of Russian oil, not to abide by the cap.
• The Biden administration signed a memorandum of understanding in support of the proposed African Continental Free Trade Area, which, if fully implemented, would create a continent-wide common market, constituting the fifth-largest economy in the world.
• At the third meeting of the US-EU Trade and Technology Council, both parties agreed to establish an early warning system for semiconductor supply chain disruptions and endorsed common standards for electric vehicle charging stations.
• In light of these developments, the trade pillar was strengthened.

Commons (↑)

• The US announced a major scientific breakthrough in the decades-long effort to harness nuclear fusion, an energy source that has the potential to create abundant clean electricity – though practical applications could still be years away.
• A landmark conservation deal was reached at a UN biodiversity summit in Montreal, with measures aimed at halting species extinctions, conserving thirty percent of the world’s land and sea by 2030, and mobilizing $200 billion per year for conservation.
• The US and the EU agreed to a joint roadmap to find ways to ensure that artificial intelligence meets common standards and values of democratic countries.
• Chinese authorities began to shift away from the country’s “zero Covid policy,” relaxing rules on quarantines and surveillance in response to widespread protests, as hospital struggled to cope with the rapidly growing numbers of infections across the country. 
• On balance, the global commons pillar was strengthened.

Alliances (↑)

• In a display of allied unity, the G7 came together, with Australia and the EU, to approve a joint price cap on Russian oil. 
• In the first state dinner hosted by the Biden administration, French president Emmanuel Macron joined Biden in reaffirming the longstanding friendship between France and the United States based on a “shared commitment to democratic principles, values, and institutions.”
• Overall, the alliance pillar was strengthened.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order     

• Robert Kagan, in Foreign Affairs, contends that in a world where autocratic hegemons are challenging the free world, Americans must understand that only US power can maintain stability, as it has over the past century.
• Aaron Friedberg, in The Economist, argues that the West should abandon efforts to integrate a revisionist China into the global order, and focus instead on protecting a perimeter bloc of liberal nations and strengthening ties among them.
• Liana Fix and Michael Kimmage, in Foreign Affairs, lay out three scenarios for Russia’s defeat in the Ukraine war, including potential benefits for the US and Europe and how to deal with the risks of instability that could follow. 

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

• Fred Kempe, in CNBC, outlines steps the democratic world must take to transform authoritarian setbacks in 2022 into a more sustainable advance of the free world.
• Atlantic Council senior directors, in the Scowcroft Center’s Global Foresight 2023, offer their assessments of Top 23 Risks and Opportunities for 2023.
• Dan Fried, in the New Atlanticist, outlines how Ukrainian President Volodymyr Zelenskyy’s visit to Washington proves that the US is still the leader of the Free World.
• Matthew Kroenig, in CBS News, shares his foreign policy predictions for 2023, including how long the war in Ukraine might last and Chinese ambitions in Taiwan.
• Anca Agachi, in Politico Magazine, discusses the biggest security threats to the United States and why they may be non-traditional.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Ash Jain – Director for Democratic Order
Dan Fried – Distinguished Fellow
Danielle Miller – Assistant Director
Otto Hastrup Svendsen – Georgetown Student Researcher

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

The post State of the Order: Assessing December 2022 appeared first on Atlantic Council.

This month’s topline events

Biden-Xi Summit. Meeting in-person for the first time as national leaders, President Joe Biden and Chinese President Xi Jinping sought to diminish tensions in what has become an increasingly adversarial relationship between China and the United States. On the sidelines of the G20 Summit in Indonesia, the two leaders agreed to reopen talks on climate change and discussed Russia’s invasion of Ukraine, with Xi reportedly agreeing with Biden that “nuclear weapons must not be used.” But Xi also warned the US not to “cross the redline” regarding Taiwan.

• Shaping the order. While the historic summit may help the two nations establish guardrails in their relationship, it is unlikely to impact the broader trajectory, as the US and China seem headed toward a potentially decades-long strategic competition over the future of the global order. Such a competition appeared to be playing out in real time, as Xi met separately at the G20 with French president Emmanuel Macron and earlier in Beijing with German Chancellor Olaf Scholz, suggesting that European leaders should act independently and distance themselves from US polices toward China.
• Hitting home. The intensifying strategic competition between the West and China will have direct implications for American businesses, which will need to look at ways to reduce vulnerabilities to China in critical sectors.
• What to do. Washington should continue to pursue cooperation with Beijing in potential areas of common interest. But with China seeking to undermine democratic solidarity, the US should prioritize efforts to forge a common strategic approach for dealing with Beijing among its core allies in Europe and the Asia-Pacific.

Protests Across China. In a remarkable show of bravery, thousands of demonstrators took to the streets in cities across China, many shouting anti-regime slogans, to protest Xi Jinping’s zero-Covid policies of forced quarantines and strict lockdowns. Chinese authorities responded to the protests – the most widespread in mainland China since the 1989 Tiananmen Square massacre – by arresting and intimidating demonstrators and restricting social media. Chinese officials later seemed to indicate a willingness to soften Covid restrictions. US officials reacted cautiously, defending the right to peaceful protest but avoiding direct criticism of Beijing. 

• Shaping the order. The anti-government protests erupting across China suggest that Beijing’s response to Covid may not be a model of autocratic efficiency, as it was once touted. More broadly, the protests follow those recently taking place in Iran and Russia (albeit briefly) and appear to be part of a pattern of growing citizen unrest in autocracies around the world. But authoritarian regimes have become increasingly adept in clamping down on demonstrations and blunting their impacts, including by deploying and sharing more sophisticated surveillance technologies.
• Hitting home. American values are better protected in a world where democratic norms and human rights are respected.
• What to do. In coordination with allies, the Biden administration should supplement measures to constrain authoritarian governments with assistance to non-violent civil resistance movements across the world. Its upcoming Summit for Democracy, in March 2023, will provide an opportunity to focus on efforts in this space.

Russia Scales Back. In a significant setback for the Kremlin’s war aims in Ukraine, Russian forces pulled out of Kherson, the capital of one of the four regional provinces that Russian president Vladimir Putin formally purported to annex in September. As Russian forces consolidate, the Ukrainian military appeared to be preparing for a new counteroffensive potentially aimed at seizing back territory to the south and east. Russia continued to strike power and water facilities across the country, causing widespread outages as a cold winter approaches, as G7 leaders condemned the “barbaric missile attacks” on civilian infrastructure.

• Shaping the order. While the conflict is likely to go on for months, the tide of the war continues to turn in favor of Ukraine, as Russian forces have been put on the defensive. Russia also appears to be increasingly isolated on the global stage, with Putin choosing to stay away from the G20 leaders’ summit in Bali – one that concluded with a joint statement announcing that “most leaders” strongly condemned the war in Ukraine and declaring the threat to use nuclear weapons as “inadmissible.”
• Hitting home. America is less secure in a world where global powers can invade their neighbors and commit war crimes with impunity.   
• What to do. Washington should work with allies to ensure that Ukraine continues to receive advanced weapons and equipment to repair power and water systems, while seeking to incentivize governments in the global South to join in efforts to sanction and isolate Russia.

Quote of the month

“[I]f we let Putin win, all of us will pay a much higher price, for many years to come… There can be no lasting peace if the aggressor wins. There can be no lasting peace if oppression and autocracy prevail over freedom and democracy.” 

– NATO Secretary General Jens Stoltenberg, November 29, 2022

State of the Order this month: Strengthened

Assessing the five core pillars of the democratic world order    

Democracy (↑)

• In the most significant protest movement in mainland China since the Tiananmen Square massacre, thousands of citizens across the country demonstrated against Xi Jinping’s zero-Covid policies, many shouting anti-regime slogans, as government authorities arrested and intimidated demonstrators and restricted social media.
• The UN Human Rights Council approved an investigation into human rights abuses in Iran, where over 300 people have been killed and 14,000 arrested since anti-regime protests began three months ago. 
• In the US midterm elections, nearly every candidate for an office that oversees and certifies elections in battleground states that had denied the results of the 2020 election was defeated — a win for the integrity of America’s democratic system.
• Venezuelan president Nicolas Maduro, who had been diplomatically isolated after conducting fraudulent elections in 2018, was welcomed back to the international community, attending a UN climate conference in Egypt and shaking hands with French President Emmanuel Macron and US climate envoy John Kerry.
• On balance, the democracy pillar was strengthened.

Security (↑)

• In a significant battleground victory for Ukraine, Russian forces pulled out of Kherson, a key southern city and capital of one of the four regional provinces that Russian president Vladimir Putin formally purported to annex in September. 
• Russia came under increasing diplomatic pressure over its aggression in Ukraine, as Putin backed out of the G20 summit and faced subtle pushback from allies in a meeting of the Collective Security Treaty Organization, a Russian-dominated alliance of post-Soviet nations.
• North Korea test-fired an intercontinental ballistic missile potentially capable of reaching the US mainland, a move strongly condemned by the US and its allies, including Japan and South Korea.
• At a meeting in Tehran signaling a growing polarization between democracies and autocracies, officials from Russia, China, Iran, North Korea, Syria, Venezuela, Belarus, and other nations issued a joint rebuke of the “so-called rules-based order” and criticized efforts to “divide our world into blocs.
• In light of Russia’s setbacks in Ukraine, the security pillar was strengthened.

Trade ()

• France and other European nations criticized subsidies for US companies included in the recently passed Inflation Reduction Act, suggesting that such measures were protectionist and inconsistent with principles of an open economic order. 
• Russia asked India for assistance in keeping vital industries running, as the two nations exchanged lists of products that could be the basis for expanded trade between the two nations, despite Western sanctions on Russia.
• On balance, the trade pillar was unchanged.

Commons (↑)

• With emissions likely to reach historic levels this year, the US and its allies agreed at a global climate summit in Egypt to establish a fund for wealthy industrial nations to compensate developing countries for negative effects of climate change and accelerate global decarbonization.
• China braced for significant increases in nationwide Covid-related illnesses as the government’s zero-Covid strategy came under pressure in the wake of a looming economic slowdown and an under-vaccinated population.
• With the actions taken at the climate summit, the global commons pillar was strengthened.

Alliances ()

• G7 leaders, meeting on the margins of the G20 summit in Bali, jointly condemned Russia’s “barbaric” missile attacks on Ukrainian civilian infrastructure, and vowed to hold Russia accountable.
• While in Asia, President Biden met with his counterparts from Japan and South Korea and resolved to forge closer trilateral links, amid continuing discord between Tokyo and Seoul, and also announced a new economic security dialogue among the three nations.
• In a sign of potential divergence among allies, Emmanuel Macron accused former Australian prime minister Scott Morrison of provoking “nuclear confrontation” with China, and, in a meeting with Indo-Pacific leaders, called for “dynamic balance” with regard to China as opposed to strict alignment with the US.
• Overall, the alliance pillar was unchanged.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order     

• John Ikenberry, in Foreign Affairs, contends that as the world faces a struggle between liberal and illiberal world orders, America is well-positioned to succeed given the appeal of its ideas and capacities to build partnerships and alliances.
• Andrea Kendall-Taylor, in Foreign Affairs, argues that despite its mounting setbacks in Ukraine, Russia will remain a formidable threat to the United States and its allies.
• Fareed Zakaria, in the Washington Post, contends that while much has been written about democracy’s fragility, the world’s most powerful autocracies are showing signs of deep and structural weaknesses.

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

• In an Atlantic Council Strategy Paper, Matthew Kroenig and Jeffrey Cimmino joined Stephen Hadley, William Taylor, John Herbst, and Melinda Haring in proposing a long-haul strategy to help Ukraine win the war against Russia and secure the peace.
• Dan Fried, in Just Security, contends that initiating negotiations to end the Ukraine war on Putin’s terms is oddly timed, and potentially dangerous.
• Peter Engelke, in the New Atlanticist, outlines key recommendations for G20 member states on how to combat global food insecurity, in the context of the Atlantic Council’s Global Food Security Forum in Bali, on the sidelines of the G20 summit.
• Atlantic Council experts react to recent waves of protests in China against the Chinese Communist Party’s (CCP) restrictive Covid-19 policies.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Ash Jain – Director for Democratic Order
Dan Fried – Distinguished Fellow
Jeffrey Cimmino – Associate Director
Danielle Miller – Program Assistant
Otto Hastrup Svendsen – Georgetown Student Researcher

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

The post State of the Order: Assessing November 2022 appeared first on Atlantic Council.

Given that, the United States and its global partners should double down in 2023 to shape the contest unfolding between democrats and despots that will define the post-Cold War order. US President Joe Biden has consistently focused on this competition as a historic “inflection point.” His third year in office provides him his best opportunity yet to score lasting gains in that contest.

At the beginning of this year, autocracy seemed to be on the march. Putin and Xi in early February 2022, just ahead of the Beijing Olympics, entered a “no limits” strategic partnership. That was followed by Putin’s invasion of Ukraine.

But since then, in all three cases—Russia, China, and Iran—autocratic leaders’ errors of commission have deepened their countries’ underlying weaknesses while breeding new difficulties that defy easy solutions. 

That’s most dramatically the case with Putin, whose reckless, unprovoked, and illegal war in Ukraine has resulted in 6,490 civilian deaths, per the United Nations’s most recent estimate, and has prompted more than a million Russians to flee his country. International observers point to proof of crimes against humanity.

Beyond that, Putin has set back the Russian economy—some experts believe by as much as a decade—and sanctions are only beginning to bite. He’ll never regain his international reputation, and his military has revealed itself—despite many years of investments—as poorly trained, badly disciplined, and lacking morale.

Xi’s mistakes are less bloody in nature thus far. The excesses of his zero-COVID policy set off large-scale, spontaneous protests that amounted to the most serious challenge of his decade in leadership. Just last month, the Twentieth National Congress of the Chinese Communist Party anointed Xi with a third term as China’s leader, but the protests that followed shortly thereafter shattered that aura of invincibility and apparent public support. 

“Xi is in a crisis of his own making, with no quick or painless route out,” wrote the Economist this week. “New COVID cases are near record levels. The disease has spread to more than 85 percent of China’s cities. Clamp down even harder to bring it back under control, and the economic costs will rise yet higher, further fueling public anger. Allow it to spread and hundreds of thousands of people will die… China’s leaders appear to be searching for a middle ground, but it is not clear there is any.” 

Beyond COVID-19, what is in danger is the unwritten social contract between the Chinese Communist Party of just 96 million members and the total Chinese population of 1.4 billion. Namely, the Chinese people accept restricted freedoms and fealty to the party so long as the party provides economic rewards and social security. A series of policy mistakes has slowed Chinese growth to just 3 percent in 2022, yet Xi continues to prioritize party control over economic freedoms. 

Though the global stakes of Iran’s protests are less obvious, the Mideast and world would be far better off with a more moderate and pluralistic Iran that focuses on its public needs, retreats from its regional adventurism, and steps back from the nuclear brink. Here, too, the regime’s problems have been self-created, the protests being a result of excessive regime brutality and endemic corruption. 

So, what should be done in 2023 to transform these authoritarian setbacks into a more sustainable advance of the “free world” (helping to reverse a sixteen-year global decline of democracy, as measured by Freedom House’s 2022 report)?

First and most immediately, the United States and its partners should deepen and expand their military and financial support for Ukraine. The Biden administration’s top officials understand this is the defining battle of our post-Cold War era. Without US military and financial support, and without US rallying of allies, all of Kyiv’s remarkable courage and resilience might not be enough.

That said, Biden’s caution and his often-stated fears of setting off World War III have limited the sorts and amounts of armaments Ukraine receives—and the speed at which they reach the battlefield. Faster delivery of more and better air defense could have saved Ukrainian lives. 

It’s remains difficult to understand continued limits put on Ukraine’s ability to strike the targets from which they are being hit as Putin murderously pummels more civilian targets and infrastructure. 

NATO Secretary General Jens Stoltenberg has rightly accused Putin of weaponizing winter in the hope of freezing Ukraine’s citizens into submission. Perhaps the greater danger is that of Western fatigue in supporting Ukraine and growing external pressure on Kyiv to negotiate, when only further battlefield gains will prompt Putin to withdraw his troops and provide concessions that would allow a secure, sovereign, and democratic Ukraine to emerge.

Even as Russia requires action now, managing the Chinese challenge requires a more patient course, one that will be made easier should Putin be strategically defeated in Ukraine. Biden was right to meet with Xi in Bali, on the margins of the Group of Twenty meeting, to build a floor which can keep the world’s most crucial bilateral relationship from sinking.

Where the United States should step up its efforts in 2023 is in coalescing allies in Europe and Asia around a sustainable, consensus-driven approach to China that recognizes Beijing’s underlying weaknesses and deters its efforts to absorb Taiwan and remake the global order.

There are three potential outcomes at this “inflection point”: a reinvigoration and reinvention of our existing international liberal order, the emergence of a Chinese-led illiberal order, or the breakdown of world order altogether on the model of Putin’s “rule of the jungle.”

As 2022 ends, the failures and costs of those alternative models are clearer than ever.

Therefore, what’s crucial in the year ahead is for democracies to unify in common cause to shape the global future alongside moderate, modern non-democracies that seek a more secure, prosperous, and just world.

Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on Twitter @FredKempe.

This article originally appeared on CNBC.com.

THE WEEK’S TOP READS

#1 China’s failing COVID strategy leaves Xi with no good options
ECONOMIST

To understand Xi’s dilemma, read this smart Economist essay breaking down the consequences China will face if it abandons Xi’s “zero-COVID” policy—and the consequences it will face if it doesn’t.

One jarring image of Xi’s determination to go all-in on “zero-COVID” is an empty vaccine factory. “The stifling of debate,” the Economist writes, “has had baleful consequences. China has not approved the use of foreign vaccines, including the most effective ones, the mRNA jabs made by Pfizer-BioNTech and Moderna.”

What experience shows is “the protection accorded by Chinese shots appears to wane significantly after six months. Worse, the authorities have focused on testing and building quarantine sites this year, while failing to administer third (or even fourth) doses to all, even though these would require no new infrastructure or political messaging.”  Read More →

#2 Enough about democracy’s weaknesses. Let’s talk about its strengths.
Fareed Zakaria | WASHINGTON POST

CNN’s Fareed Zakaria, one of the premier strategic thinkers out there, has written a compelling defense of democracy’s virtues in the face of authoritarianism’s setbacks.

“It is astonishing to remember that when America’s Founding Fathers were constructing their experiment in government,” Zakaria writes, “they were virtually alone in a world of monarchies. These politicians were drawing on the writings of Enlightenment intellectuals such as Montesquieu and John Locke, studying historical examples from ancient Greece and Rome, and embracing key elements of English governance and common law. But they were mostly making it up in their heads. They had failures; their first effort, the Articles of Confederation, collapsed. In the end, however, they concocted something stunning: a system that protected individual rights, allowed for regular changes in leadership, prevented religious hegemony, and created a structure flexible enough to adapt to massive changes.”  Read More →

#3 Kevin Rudd on Jiang Zemin, steward of China’s rise

Kevin Rudd | INTERPRETER

Former Australian Prime Minister Kevin Rudd, one of the keenest observers of China anywhere, has delivered a brilliant obituary on former Chinese leader Jiang Zemin that provides insight into China’s reformist past and puts in perspective its unfortunate return to Marxism-Leninism under Xi.

His narrative recalls his own experience of Jiang, then mayor of Shanghai, singing O Sole Mio at the Sydney Opera House in 1987. It then tracks how this larger-than-life individual navigated the shoals of Communist Party politics to usher in China’s era of rapid economic growth and private sector expansion. 

“Jiang’s death this week at 96,” writes Rudd in the Lowy Institute’s Interpreter, “marks the final, flickering embers of that now-distant reformist age—and the unambiguous beginning of the brave, new world of Xi Jinping.” Read More →

#4 The Russian Billionaire Selling Putin’s War to the Public
Betsy McKay, Thomas Grove, and Rob Barry | WALL STREET JOURNAL

This WSJ investigation is a powerfully reported exposé of Yuri Kovalchuk, also known as “Putin’s banker,” an oligarch and media baron, who has used his banking and media empires to promote Putin’s murderous war in Ukraine.

“A physicist by training,” three WSJ reporters write, “Kovalchuk is motivated more by patriotic ideology than by the trappings of wealth, say people who know him. He doesn’t hold a formal position in the Russian government. Yet he has deep influence over Kremlin policy and personnel, and helps supply dachas and yachts for Putin’s use, and lucrative jobs and stockholdings to the president’s family and friends, according to people familiar with the deals, financial documents and anticorruption groups.”

“Kovalchuk,” the WSJ adds, “controls the US-sanctioned Russian Bank Rossiya. The bank, in turn, built a network of offshore companies that have benefited Putin and his associates, and invests in projects important to the state, according to interviews with former US officials and Kremlin analysts as well as public documents and information revealed in the Panama Papers, a trove of leaked documents detailing offshore financial holdings.” Read More →

#5 Rise in Iranian assassination, kidnapping plots alarms Western officials
Shane Harris, Souad Mekhennet, and Yeganeh Torbati  | WASHINGTON POST

This week’s must-read is chilling. In a remarkable narrative, the Washington Post pieces together a large-scale Iranian campaign of kidnapping, intimidation, and assassination against critics and opponents, which has escalated in recent years.

One heartbreaking case is that of the Iranian journalist Ruhollah Zam, who was lured to Iraq where he was arrested and turned over to Iranian authorities. “The IRGC,” the Post writes, referring to Iran’s Islamic Revolutionary Guard Corps, “publicly boasted of its own deception, portraying Zam’s capture as a triumph for the Iranian security services, which had outfoxed their Western adversaries. Zam was tried and sentenced to death for ‘corruption on Earth.’ He was hanged on Dec. 12, 2020, at the age of 42.”

“Another chilling example is of a failed Iranian plot to kidnap Masih Alinejad, an American citizen. “The plan to kidnap Alinejad from her home in Brooklyn is illustrative of a global effort to intimidate exiled Iranians by showing they aren’t safe anywhere outside Iran,” the Washington Post authors write. “Last year, the Justice Department indicted four alleged Iranian intelligence officials and agents in the plot, saying they targeted Alinejad because she was ‘mobilizing public opinion in Iran and around the world to bring about changes to the regime’s laws and practices.

“The operatives allegedly hired private investigators to photograph and take video recordings of Alinejad and her family and researched how they might use speedboats to secret her out of New York and eventually on to Venezuela, ‘a country whose de facto government has friendly relations with Iran,’ the Justice Department said in a statement.” Read More →

Atlantic Council top reads

Atlantic Council Strategy Paper Series Nov 30, 2022

Preparing for victory: A long-haul strategy to help Ukraine win the war against Russia—and secure the peace

By Stephen J. Hadley, William Taylor, John E. Herbst, Matthew Kroenig, Melinda Haring, and Jeffrey Cimmino

Ukraine’s counteroffensives, backed by expanded and accelerated US and allied support, continue to push Russian forces out of Ukrainian territory, although at a reduced rate. These hard-won successes, however, bring with them possible challenges that also must be addressed. 

Europe & Eurasia Politics & Diplomacy

New Atlanticist Dec 2, 2022

What to expect from the new Russian oil price cap

By Reed Blakemore, Charles Lichfield, Brian O’Toole

As the EU comes to an agreement on a $60 price cap, here’s how it will work—and what impacts the world will see on the global and Russian economy.

Economy & Business Energy & Environment

TURKEYSource Dec 1, 2022

The risks and rewards of Erdogan’s next military operation

By Rich Outzen

The November 13 bombing in Istanbul, blamed on the PKK, is spurring a planned Turkish offensive against PKK affiliates in Northern Syria, fulfilling a long term goal to better secure the country’s southern border.

Conflict Iraq

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Decades later, at the Atlantic Council’s Global Food Security Forum, held on the sidelines of this week’s Group of Twenty (G20) Summit in Bali, Indonesia, speaker after speaker echoed King’s theme—if not explicitly then at least in spirit. During an unprecedented global food crisis, they said, the plight of the world’s hungry must not be ignored. As was true in King’s time, the fierce urgency of our own time also is a moral one: to take decisive action to correct a great injustice and source of global instability.

At the Forum, which the Atlantic Council co-hosted with the Gaurav & Sharon Srivastava Family Foundation as well as Indonesia’s Ministry of Defense and Coordinating Ministry of Maritime Affairs and Investment, leading officials and experts from around the world examined the complexity, fragility, and unsustainability of today’s global food system. They assessed the numerous and often complex roots of global food insecurity and the many equally complex consequences. These roots range from near-term shocks to the global food system—for example, the awful destructiveness of the war in Ukraine or unforeseen spikes in energy prices—to longer-term and more structural challenges such as the significant and possibly catastrophic impacts of climate change on food production. The consequences then ripple through global food supply chains, reflected in the increasing prices of grain, fertilizers, and foodstuffs. Price spikes in turn harm all who depend on price stability, most especially the world’s poor.

The Forum’s participants repeatedly returned to one consistent theme: that the victims of food insecurity are ordinary people whose suffering cannot be overlooked. Today, hunger and famine threaten an estimated 828 million people every single day. Nearly fifty million are children under age five suffering from acute malnutrition. Those numbers, unfortunately, are trending in the wrong direction, the result of a confluence of factors including the war in Ukraine, distortions in oil and gas markets, the lingering impacts of the COVID-19 pandemic on global supply chains, and the increasing impacts of climate change—drought, extreme heat, and flooding. The United Nations World Food Programme estimates that it will feed some 150 million hungry people in 2022—a new record, beating the old one established in 2021.

Therein lies a source of enormous trouble. Even if we were to put aside the moral case for relieving hunger, which we never should do, we still would need to recognize just how serious a threat widespread hunger is to global stability and prosperity. Food is the most immediate need that people have. Not having enough food destroys the individual, the family, and the community. Hunger attacks the stomach, strikes fear in the mind, and hardens the heart. If enough people see their families and children go without, hunger becomes the wellspring of insecurity: social unrest, political instability, forced out-migration, even violence and warfare. In such circumstances, no one is immune. Human history is replete with revolutions begun by the hungry and desperate.    

Such a grim future need not be our fate. Although they were clear-eyed about the difficulties of the current situation, Forum participants expressed great hope that humankind can solve the multifaceted problems that give rise to hunger. Real, feasible solutions exist today, or are coming soon, if we have the foresight to see their potential and the courage to invest in them. Humans always possess agency, which means no obstacle is immovable. As difficult as it may be, we can resolve conflicts, fix global supply chains, diversify food production, eliminate food waste, put a stop to our assault on the natural world that gives us our bounty, and ultimately end hunger.

The Global Food Security Forum featured a rich discussion of the steps that the international community can take in the days and months ahead. For G20 member states, meeting this week in Bali, the fierce urgency of their task will be to have the foresight and courage to embrace innovative and transformative solutions to the challenge of global hunger.

Several of the policy recommendations that came out of the Forum are distilled below. All credit goes to the Forum’s speakers and participants:

• End the war in Ukraine on Ukraine’s terms. By far the Forum’s most common recommendation was to stop the war in Ukraine and end it on Ukrainian terms. Russia’s invasion has been a significant driver of soaring prices for food and agricultural inputs (fertilizer and fuel) during 2022. Russia can stop the war in Ukraine if it chooses to do so.
• Strengthen global norms and laws against the weaponization of food. Although there are provisions in international humanitarian law (IHL) that can be interpreted as opposing the use of food as a weapon of war, the status of IHL measures against weaponizing food are murky. Strengthening IHL in this context is imperative if the international community is to draw brighter lines against deliberately causing hunger and starvation during warfare.
• Elevate food security on the multilateral agenda. The Forum’s participants also were unanimous in calling for enhanced food security coordination at the highest levels of global governance. Food security dialogues should be created for this purpose as part of multilateral forums such as the G20 and Group of Seven (G7) summits. Forum participants embraced the idea of creating a standing yearly G20 dialogue as an informal advisory mechanism to annual G20 Summits.
• Fortify and expand financial instruments for emergency humanitarian relief. The international financing of emergency food reserves should be a greater priority, as doing so addresses the immediate needs of hungry people during food crises. G20 member states, other states, and international organizations ought to build more robust mechanisms for emergency food financing, including the creation of instruments such as barter-based trade exchanges that can help alleviate food shortages during crises.
• Bolster norms against grain export controls. During food security crises, including the 2022 crisis, grain-exporting states create export controls to protect domestic industries and consumers. Such controls, which are often self-defeating, reduce global trade in food commodities that already have become scarce. G20 countries should strengthen norms against such actions during food crises.
• Increase fertilizer production over the short run, and remake fertilizer types in the long run. Rising energy prices severely impact fertilizer production, which in turn reduces fertilizer use, particularly by poor farmers. G20 member states should take a variety of actions to combat fertilizer price spikes, including expanding fertilizer production plants around the world, reducing fertilizer trade barriers, making sure that fertilizers are applied as efficiently as possible by farmers, and ensuring that fertilizer subsidies are as effective as possible and oriented toward the greatest need. Over the longer run, fertilizers need to be made more sustainable, including through their decarbonization and integration into the circular economy. Governments should increase investment in projects, for example, that turn food waste—a massive problem on its own—into fertilizer.
• Make the world’s food system more resilient and sustainable through diversification and investment in nature-based solutions. The global food system is efficient but fragile, depending on too few breadbaskets delivering too few types of grains and with too much impact on the natural world. Diversification of food systems everywhere should be prioritized, including by geography (more breadbaskets) and by commodity (expansion of the number of crops that are grown and traded at scale). Greater investment in nature-based solutions is imperative, including in agroforestry, sustainable fishing and aquaculture, urban agriculture, soil conservation and soil sequestration, waste reduction and recycling, and more.
• Enhance and grow investments in innovation, ranging from research and development (R&D) to on-farm applications. Innovation is key to solving many of the world’s food security problems. Governments should expand investments in basic science (the underpinning of all technological advancement), support innovation ecosystems that can quickly identify and scale on-farm and off-farm food security solutions, and otherwise embrace innovative experimentation through public policies. As younger generations embrace technology, turning farming and other food-producing sectors into tech-centric endeavors can encourage younger people to build careers in these sectors.
• Boost agricultural extension services everywhere. Agricultural extension services provide smallholding farmers with greater knowledge, skills, and tools to advance their farming needs. Governments should expand such services to ensure that accurate and practical information and skills are transmitted as swiftly and thoroughly as possible. Such programs not only improve food production but also strengthen rural communities.

Peter Engelke is a deputy director and senior fellow with the Atlantic Council’s Scowcroft Center for Strategy and Security as well as a nonresident senior fellow with the Council’s Global Energy Center.

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Additionally, the United States and others have sent public (and, reportedly, private) messages on the severe consequences Russia will face if it indeed uses any type of nuclear weapon against Ukraine. Although unlikely, the chances of Russian use of nuclear weapons in its war against Ukraine are not negligible. After all, Putin surprised many (though not the US government) when he launched his February 24 offensive against Ukraine.

Laying out for the Russians the consequences of any nuclear use is a good idea. Those conversations must necessarily focus on military options as the most effective deterrent, but should not end with them. Even though Putin has eschewed traditional rational actor behavior in the political and economic sphere with his unprovoked and gruesome invasion of Ukraine, the West should still threaten severe political and economic steps in response to any Russian nuclear use. All these measures should be prepared for rapid application by the G7 and coordinated to at least some extent with other key countries, including China. Russia’s use of nuclear weapons against Ukraine would demand a fast, near-immediate response by a broad coalition of concerned states beyond just the current Western-aligned nations.

Impose a full economic, financial, and trade embargo. Turning Russia into Iran or North Korea, economically, should be the moral and logical starting point for any Russian use of a nuclear weapon in Ukraine. The G7 and EU countries have imposed extraordinary sanctions thus far over Russia’s invasion of Ukraine, but in large part, they have also been measured in their steps to avoid negative spillover to the global economy. Any nuclear weapon use by Putin in Ukraine must eviscerate any thoughts of a measured escalatory ladder. Morally, it would place Russia’s behavior far beyond the atrocities committed by similarly embargoed nations such as Iran, Syria—and even North Korea. Logically, it would also be incongruous for the West to hope that Russia under Putin can be a reliable participant in an international economic order that relies on mutually agreed-upon rules.

There may need to be some allowances for an extended wind-down of certain trade sectors (energy and perhaps some specified metals) and longer exemptions for continued food-related and medical trade, including Russian exports of grain and fertilizer. There would need to be carve-outs for humanitarian contingencies and measures to support the Russian people, such as authorizing communications apps and devices that allow beleaguered Russian dissidents and human-rights activists to communicate with the outside world. However, the baseline assumption for the day after Russian use of nuclear weapons against Ukraine should be that of a complete embargo: All Russian companies would be considered under full blocking sanctions with exceptions available. The overseas property of Russian oligarchs or Russian state companies should be made subject to nationalization.

Enforcement would include broad use of secondary sanctions against any foreign persons or nations, China included, that violate such sanctions. This would include the rapid imposition of sanctions on any bank, insurance company, logistics provider, or other financial or non-financial entity trading with Russia or facilitating prohibited trade. Given Russia’s use of practices to hide investments and their ownership, the United States, EU, United Kingdom, and G7 countries should consider regulatory (preferably) or legislative action forcing transparency and disclosure of any Russian investment or other significant ownership whether in a company, real estate, art, or financial instruments. The Russian state is familiar with money laundering and would almost certainly become more akin to a criminal enterprise, like North Korea, than a normal government, if it is placed under broad economic sanctions.

Sanctions on this level will have a significant, negative impact on the global economy. However, it is unlikely that they would be much more economically destabilizing than the use of a nuclear weapon on European soil. Western nations must make clear to Putin and his inner circle that they are ready to bear the economic consequences.

Seize Russian state assets. Within days of Putin’s February 24 attack on Ukraine, G7 countries locked down over three hundred billion dollars of Russian foreign-exchange reserves held in their countries. That effective freeze does not, however, allow the use of those funds for any purpose. We have noted elsewhere that there is widespread desire to make use of those funds for Ukraine’s reconstruction, given both Russia’s responsibility for the war and the problem of asking the taxpayers of G7 countries to pay to rebuild Ukraine while sitting on large amounts of Russian state funds.

There are enormous legal complications in doing so, however. Russian nuclear use would make taking those assets for use in Ukraine, including post-nuclear attack reconstruction, an immediate objective. Arguments over precedent should and probably would give way to a categoric imperative of acting against nuclear weapons use.

Remove Russia from international organizations. Although Russia was kicked out of the G8—thus making it the G7—back in 2014, it remains party to a number of international organizations. Should Russia use a nuclear weapon in Ukraine, its participation in other international organizations should be reviewed. The first place to begin curtailing Moscow’s participation should be in economically focused organizations, including the Group of Twenty (G20) and international financial institutions such as the World Bank and International Monetary Fund (IMF), and perhaps even the World Trade Organization. Expelling or curtailing membership in any of these bodies would be unprecedented and, interestingly, not explicitly in violation of their existing bylaws. Therefore, expelling Russia would entail a complex political and bureaucratic undertaking, and require substantial support of the governing members of each institution; the IMF would require at least 85 percent of voting members to agree to expel Russia, for instance. Political support for such a drastic action may be more forthcoming following a Russian nuclear strike.

There may be good arguments for keeping Russia engaged in international political organizations such as the United Nations and the Organization for Security and Co-Operation in Europe, as venues for potentially valuable diplomacy with the Kremlin even after nuclear weapons use. However, Russia’s membership even in those groups should be reviewed and reconsidered in light of such a dramatic escalation.

Now is the time to consider and prepare such severe responses, and to coordinate them ahead of time within existing G7 and transatlantic forums. There should be no illusions about the lengths to which Putin will go in Ukraine.

The West’s planned responses need not be made public but could usefully be communicated both to the Russian government and to other strategically important nations that stayed relatively neutral in the current conflict, such as China, India, Turkey, South Africa, and Saudi Arabia.

But this planning shouldn’t preclude the United States and its allies from responding to the horrors Putin is inflicting right now with conventional weapons. They should prepare for the worst while continuing to intensify current efforts across the board—military, economic, and political—to constrain Russia and help Ukraine defend itself and prevail.

Brian O’Toole is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He is a former senior adviser to the director of the Office of Foreign Assets Control (OFAC) at the US Department of the Treasury. Follow him on Twitter @brianoftoole.

Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council. He was the coordinator for sanctions policy during the Obama administration, assistant secretary of state for Europe and Eurasia during the Bush administration, and senior director at the National Security Council for the Clinton and Bush administrations. He also served as ambassador to Poland during the Clinton administration. Follow him on Twitter @AmbDanFried.

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But everything has a price. By imposing sanctions and freezing assets in response to Russia’s invasion of Ukraine, the G7 has reawakened a long-simmering debate about dollar alternatives. The idea of “de-dollarization,” or reducing a country’s reliance on the dollar, has gained momentum: From Russia to China—and to many non-aligned countries in between—there is a fear that overreliance on the dollar gives the United States too much leverage.

But what are the realistic alternatives to the dollar that US and allied policymakers should be paying attention to?

How money moves

Let’s start with SWIFT: The Society for Worldwide Interbank Financial Telecommunications is a messaging system that banks use to conduct international transactions. Despite some misconceptions, no actual financial transactions occur on SWIFT: Its value lies in the role it plays in safe, secure, and efficient communication between banks. When it was founded in the 1970s, it connected 239 banks across fifteen countries. Today, it connects over eleven thousand financial institutions in more than two hundred countries and territories, making it the primary mode of communication about international transactions. SWIFT is a private cooperative, owned by two thousand entities; it is headquartered in Brussels and overseen by a group of banks including the US Federal Reserve (Fed), the European Central Bank, and several individual banks in the European Union, in addition to the banks of Japan, England, and Canada. The United States and the European Union, therefore, play a key role in its governance. 

Since SWIFT does not hold any bank accounts, the actual fund clearance and settlement occurs using the Fed-owned Clearing House Interbank Payments System (CHIPS). On average, CHIPS cleared close to $1.8 trillion in transactions daily. The system has forty-three direct participants, which are all US banks or foreign banks with US branches, and eleven thousand indirect participants, which are banks without US branches who are engaged in the system through their accounts with direct participants. Through its participants, CHIPS covers over 96 percent of dollar-denominated cross-border transactions. CHIPS works in parallel with the Fed-owned Fedwire Funds Service to actually clear and settle transactions.

Together, SWIFT, CHIPS, and Fedwire broadly cover almost all dollar-denominated international transactions. They create a network effect that is nearly impossible to rival. How do their alternatives stack up in comparison? 

Today’s challengers: Russia and China

Russia began developing its System for Transfer of Financial Messages (SPFS) after being hit by a round of sanctions following the 2014 annexation of Crimea. It functions as an alternative to SWIFT for transmitting information across four hundred domestic Russian banks and around fifty international entities primarily from Central Asia. Although reports have recently emerged about central banks in India, Iran, and China connecting to SPFS, the system is still primarily a mode for domestic interbank communication in Russia. 

On the other hand, China’s Cross-Border Interbank Payments System (CIPS) is an alternative to the CHIPS system. It was created in 2015 to function as a settlement and clearance mechanism for yuan transactions. Like CHIPS, it is supervised by a central bank (in this case, the People’s Bank of China) and requires direct participants to be within its jurisdiction. Interestingly, participants can message each other through the CIPS messaging system, but 80 percent of transactions on CIPS rely on the SWIFT infrastructure. This is partly a result of the need to translate messages, which is more efficiently done through the SWIFT network. CHIPS has ten times as many participants as CIPS and processes forty times as many transactions as CIPS.

Yuan transactions only amount to 3.2 percent of all transactions using SWIFT. China’s political goals to internationalize its currency, which led to the creation of CIPS, conflict with the capital controls on the yuan, making the yuan less attractive as a currency than the dollar. That doesn’t mean there isn’t interest in expanding the role of CIPS: unverified reports suggest that the volume of transactions through CIPS has grown by 50 percent per year. 

Both CIPS and SPFS offer incomplete alternatives to the powerhouse combination of SWIFT, CHIPS, and Fedwire. These challengers have a smaller network and smaller scope, but most importantly, they do not impact the prevalence of dollar-denominated international transactions. 

Still, it is important to note that they were both created following the imposition of stricter financial sanctions on the countries that designed these systems. As US officials tighten sanctions measures, there will be more incentive for countries to participate and grow the network of these alternative payment rails. This is an important balancing act for sanctions policymakers. 

The idea of getting around the dollar isn’t limited to US adversaries like Russia or competitors like China. Countries like India, Indonesia, Brazil, and South Africa are all exploring changes in the way they process cross-border payments and the possibility of reducing their reliance on the SWIFT system.

Playing a new card

Looped into these payment networks are credit- and debit-card schemes connecting consumers to merchants across the world. Visa, Mastercard, and American Express are the three largest companies that allow cross-border and domestic payments. Visa and Mastercard each reach close to 53 million global merchants in over two hundred countries. Chinese banks in 2002 launched an alternative payment network: UnionPay, which enjoyed a monopoly over China’s domestic markets until 2020, when China began to allow international card schemes. Today, UnionPay connects 55 million merchants in 180 countries, including 37 million merchants located outside of China. 

Since Visa and Mastercard suspended their services in Russia, UnionPay has emerged as one of the only options for cross-border transactions for Russians. Another one of those options is Mir, Russia’s homegrown card scheme. Mir, which was developed during the 2014 round of sanctions on Russia, has become popular because it is used for pension and public-sector payments domestically and can be used by Russians living abroad. Over one hundred million Mir cards have been issued, and several countries, including Turkey and Iran, have expressed interest in joining Mir’s network. Additionally, Russian banks have been doing business with UnionPay for several years, and given UnionPay’s large network, Mir could partner with UnionPay to expand its reach with marketing or even co-branded cards.

A focus on fintech

Increasingly, fintech alternatives to traditional payments are cropping up in the form of wallets and platforms that enable primarily retail payments. AliPay and WeChat Pay, run by Chinese fintech companies, are the two most popular digital wallets globally. AliPay and WeChat Pay each have more than a billion users, while their closest competitors (ApplePay and GooglePay) have around four hundred million to five hundred million users each. While reports differ, some sources say AliPay is in use in up to 110 countries and WeChat Pay is in use in up to fifty countries. The digital wallets are primarily used in domestic payments, and transactions are designated in the local currency of the country. 

Central bank digital currencies (CBDC) have become popular among countries looking for an alternative to the dollar-based financial system because they can be faster, cheaper, and more efficient than the existing cross-border payments rails. According to Atlantic Council research, there are now twelve cross-border CBDC experiments underway. One of the projects, Multiple CBDC Bridge (mBridge), connects Thailand, Hong Kong, China, and the United Arab Emirates in a multi-currency exchange bridge, which offers a cheaper, more efficient, less risky, and faster transaction pipeline than existing systems. Wholesale CBDCs, which are intended for institutional transfers between banks, are a new way in which countries are both solving problems in the payments architecture while creating new networks of payments transfers. These systems, though not yet ready for full launch, could help countries bypass SWIFT and develop an alternative financial architecture. 

Central Bank Digital Currency Tracker

Our flagship Central Bank Digital Currency (CBDC) Tracker takes you inside the rapid evolution of money all over the world. The interactive database now tracks over 130 countries— triple the number of countries we first identified as being active in CBDC development in 2020.

Over time, these innovations could erode the way the dollar’s global dominance is used to make sanctions effective. That’s certainly the hope in Beijing: According to the International Monetary Fund (IMF), the People’s Bank of China has three hundred staff members solely dedicated to its CBDC—that’s larger that the entire staff of most other countries’ central banks. 

How to keep the dollar on top

De-dollarization is not a new idea—but both fintech innovation and the weaponization of the dollar via sanctions have breathed new life into an old debate. Given China’s capital control over yuan transactions and its lack of liquidity, the dollar still reigns as the preferred stable and easily convertible currency for international payments. Transactions done with credit cards or fintech solutions still form a small portion of global foreign exchange flows and are not the main target of sanctions. And given the Fed’s interest rate hikes, the dollar’s value is surging.

But threats to the dollar are looming in the distance: The yuan’s share in global payments has seen an uptick this year, and given the energy crisis, countries could be convinced to offer ruble or yuan swap lines and increase the share of these currencies in their balance sheets. Over time, if the United States does not lead with allies in their own technological innovation, many countries will seek alternatives. There have been some early steps in this direction: Last week, the Biden administration released a slew of reports on digital asset regulations. Some of these reports detailed the possible design for a dollar-based CBDC. But since that may be years away, the Fed is set to test the Fednow Service in 2023, creating a much faster payments system within the United States. 

While the dollar isn’t going anywhere any time soon, it may find it has some unexpected company in the international financial system sooner than it would like. 

What is there to do? US leadership must work to curb the growing fragmentation in the global payments landscape. This can be achieved by clarifying domestic regulations, especially when it comes to the Fed’s authority in issuing digital dollars and the role of dollar-backed stablecoins. The United States cannot lead without a model; and for this, it will have to encourage innovation on CBDCs but also in the form of more efficient private-sector payments options. Finally, the United States has a crucial role in setting global standards and needs to be more active at the Group of Twenty (G20) and IMF on these issues. This would serve two purposes: It would ensure that innovation in the payments landscape does not lead to more fragmentation and also would make clear which countries are interested in collaborating—and which ones truly want to carve out a different path. 

Ananya Kumar is the assistant director for digital currencies at the Atlantic Council’s GeoEconomics Center.

Josh Lipsky is the senior director of the GeoEconomics Center.

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With US domestic political winds pushing against global leadership, coupled with the climate and COVID-19 crises, China seized an empty space. Despite its obvious shortcomings in dealing with the virus domestically, Beijing has tried to turn this struggle into an opportunity to boost its international influence by flooding the world with medical aid and vaccines. And on climate, it went from blocking key international agreements to being the world’s biggest investor in renewables.

The way China’s new Global Development Initiative (GDI) was announced last September shows how much the country’s status and role in global governance has changed. At the General Debate of the 76th Session of the United Nations (UN) General Assembly, President Xi Jinping was given the floor to state that the world needs to work together to address the immediate challenges threatening the delivery of the Sustainable Development Goals (SDGs) while promoting more balanced and inclusive multilateral collaboration. The declaration was well-received, but it was more of an aspirational call to action than an actual roadmap, since its goals remained purposefully unclear.

In some ways, this is a positive development. The United States and its allies had long encouraged China to strengthen its participation in multilateral organizations in order to move it away from a purely bilateral aid model. And it did: Over the past decade, China has more than quadrupled its discretionary contributions to multilateral development institutions and funds and gained voting shares across nearly all international financial institutions (IFI). Over the same period, US contributions have shrunk. 

But there are fears that a growing Chinese presence in multilateral organizations and massive initiatives like the BRI could give Beijing undue influence over the developing world. With the GDI, China wants to lead what it hopes is a new era in development—not only by investing money, but also by leading the conversation. But letting China adopt this leading role means risking the spread of Beijing’s approach of decoupling human rights from governance and, consequently, fueling the rise of autocratic societies in the developing world. 

While China’s involvement in international development is beneficial—since alleviating poverty requires all possible resources and help—the West cannot let China lead this dance alone if it wants to preserve democracy and foster true prosperity around the world. This is why it must match China’s investments in IFIs, as well as regaining voting shares and pursuing key leadership positions in those institutions.

International development as an influence-builder 

China’s vision contrasts strongly with that of the West. For rich countries and traditional multilateral institutions, international development amounts to assistance provided to poor countries through aid, low-interest lending, and grants. But China sees this as an investment in its own influence—hoping that lending and trade will lead to economic opportunities for both China and its developing partners.

The BRI is the direct application of this vision. Yet with suspicions of debt-trap diplomacy and disappointing returns for local communities, partners began to question whether China’s path to prosperity was the best one. The country’s slowing growth, the drop in domestic demand, and the worsening of the global economic environment sparked suspicions that China needed to adjust its model. The GDI is here for that.

Today, China holds influence in traditional multilateral institutions such as the World Bank and the UN Development Program, which are the best platforms to advance its plan. No other country has raised its contributions like China has over the past ten years—and the developing world is watching. Like the BRI in its infancy, the contours of the GDI are not quite defined, but China’s intentions are clear: Projecting soft power by leading the conversation about global governance. Xi wants his country to be the leading voice pushing for multipolar global governance, in which smaller countries gain a stronger voice (and, in turn, reinforce Chinese influence).  

This message resonates within the developing world. The West’s failure to deliver vaccines to poor countries has increased resentment toward US-centric global governance, and while the West remains focused on the war in Ukraine, China continues to build its soft power elsewhere. The story being sold—that China is the one that hasn’t forgotten about you—is enticing and already gaining praise within developing countries and international organizations.

In less than a year after its launch, more than fifty-five countries have voiced their support for the initiative—calling themselves the Group of Friends of Global Development Initiative, which hosts working sessions at the UN. Last May, the GDI was discussed at the World Economic Forum Annual Meeting in Davos. The international community is commending the initiative, even though it does not provide tangible solutions yet.

Indeed, part of China’s vision of international development aligns with that of the international community’s, focusing on issues such as climate and health. But it differs on two essential points: human rights and internet governance—two essential tools to build authoritarian capitalistic societies. 

Riches over rights

On the surface, China’s promotion of the GDI seems to emphasize the importance of protecting and promoting human rights, a notion echoed by Xi when he called for countries to make global partnerships more equitable and balanced to achieve the 2030 development agenda. But in reality, China has supported a state-centric approach to development and an unconventional interpretation of human rights, in which it considers economic development itself as a human right, preceding all other rights. 

It said so as early as 1993, when China’s delegation to the World Conference on Human Rights that year stated: “For the vast number of developing countries to respect and protect human rights is first and foremost to ensure full realization of the rights to subsistence and development. The argument that human rights are the precondition for development is unfounded. When poverty and lack of adequate food and clothing are commonplace and people’s basic needs are not guaranteed, priority should be given to economic development. Otherwise, human rights are completely out of the question.”

While China’s development model has been heavily focused on rapid growth, thanks to capital accumulation and investment, high savings and low consumption rates have made that growth unsustainable and have resulted in distortions in the economy. China has one of the world’s highest national saving rates, which is explained by the government’s promotion of low consumption and high precautionary household savings (which in turn results in high levels of investment and growth). Officials have effectively stimulated savings by vacating the one-child policy and spending little on a number of fundamental human rights, such as health care, education, and other forms of social assistance. 

China’s significant urban transition has also resulted in excluding its rural areas from opportunity. Millions of children were left behind by China’s urbanization, experiencing poverty, lack of quality education, poor health, and deteriorating living conditions that are worse than in many other parts of the world. Co-author Yomna Gaafar witnessed such challenges when she volunteered in 2017 as a teacher for left-behind children in China’s rural in Jiangxi Province—where there was a shortage of resources and overcrowding. She witnessed students parenting themselves and even their younger siblings, since their parents had to leave to seek work in major cities in response to China’s rapid economic growth.

Today, China has changed its stance on human rights from a defensive to a proactive one. With the GDI, China is attempting to break Western hegemony over global human-rights governance. Leaders from countries that struggled to find a way out of poverty through traditional systems are offered a quick “people-centered” development model centered around wealth and material goods. But it is doubtful that a country widely criticized for seeking to effectively imprison an entire ethnic minority is truly planning on changing its ways. 

Don’t let China take the lead

It is inevitable that China will play a dominant role in global governance. This is why the West must take action now to mitigate the propagation of Chinese ideology in the developing world. 

First, it needs to seize the initiative in attracting investments by cutting down on stifling bureaucracy. International lenders and investors should compete with the terms set by China so that the developing world no longer sees Beijing as a better business partner. One could hope that the Biden administration will keep that in mind when implementing its Partnership for Global Infrastructure and Investment (PGII). 

Second, the international community should focus on what actually works. For this purpose, the Atlantic Council has built the Freedom and Prosperity Indexes, which offer lessons for policymakers to help understand what matters most for development. 

China has lifted many of its people out of poverty. But the main lesson is that true prosperity is not just gross national income per capita; freedom is still the best way to achieve prosperity. And on key components, such as political freedom (where it ranks 158 out of 174), property rights, and investment freedom, China underperforms when compared to free countries.

International organizations, development agencies, and nongovernmental organizations should continue to endorse economic, political, and legal freedoms as the best path to prosperity despite China’s influence. The United States and its allies and partners in the free world should urgently develop a strategy to mitigate Chinese global influence. The West tends to forget how powerful a tool international development can be to structure global governance. 

Through its PGII, which for now is a mere answer to China’s BRI, the United States is proving itself to be several steps behind. Infrastructure and investments are only one part of the puzzle. However daunting, competing with China where it is the strongest—infrastructure development—is a necessary step toward courting potential partners in the developing world. 

But it must be also complemented by a clear plan for how to regain the trust of developing countries. Part of that means providing support to vulnerable countries during crises, and, for instance, not allowing Americans to simply throw away COVID-19 vaccines (which opened an avenue for China to step in). Then there is leading by example: When Europe requalifies natural gas as sustainable energy, it loses legitimacy to discuss climate policies. And when it does, the leader of renewables—China—happily grabs the seat. 

When navigating a generation-defining war and dealing with global inflation, all this might seem like a low priority. But the game of influencing global governance is a long one. To start, the West must play a more active role in multinational organizations, such as IFIs, in a way that would balance out China’s growing influence within those platforms. It is a low-cost effort, but one which will prove essential in the long run.

Joseph Lemoine is the deputy director of the Atlantic Council’s Freedom and Prosperity Center.

Yomna Gaafar is an assistant director at the Freedom and Prosperity Center.

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The portents of disaster were on display during the recent turmoil in Sri Lanka, where epic government mismanagement sent the country into a thirty-five-billion-dollar debt default amid severe food-and-fuel shortages. While Sri Lanka waits for China, Japan, and commercial lenders—which together represent two-thirds of the country’s debt—to restructure its loans, markets worry that other low- and middle-income countries soon won’t be able to meet their obligations either.

The human cost is becoming all too clear: The rapid rise of food and fuel prices, along with those of other key commodities, is taking a toll upon the most world’s most vulnerable, as several United Nations agencies have highlighted in recent weeks. Hunger is growing and millions are at risk of falling into extreme poverty.

Worse still, the international community doesn’t seem prepared to do much about it.

When they met last week in Indonesia, for instance, the Group of Twenty (G20) finance ministers failed to even to issue a communiqué. With Russian officials participating, divisions within the group over the invasion of Ukraine were at the heart of the discord. At a challenging moment for the global economy, international cooperation was absent from the negotiations.

To get ahead of emerging market defaults, it’s essential that governments focus on devising a road map for debt restructuring that ends the pattern of delaying negotiations by two key creditors—China and commercial lenders—and ensures that there is adequate money to help debtors to fund essential services before restructuring agreements are in place.

A limited debt-crisis toolbox 

The advanced economies’ policy of battling the pandemic with loose monetary policy and increased spending has run its course in the face of the supply disruptions and commodity inflation that followed the Ukraine invasion. As a result, central bank tightening in response to inflation in the United States and Europe is causing an exodus of capital from developing countries. The Institute of International Finance calculates that net capital outflows from emerging-market stocks and bonds over the past four months have totaled $20.7 billion—a figure that likely understates the full extent of the capital flight. It’s a trend likely to continue as interest rates continue to rise and investors seek safer harbors.

As a result, countries and companies are watching their bills soar, especially for those whose debts are affected by changes in interest rates. The International Monetary Fund (IMF) estimates that 30 percent of emerging market countries and 60 percent of low-income countries already are in or nearing debt distress.

Capital outflows have a pernicious impact on balance sheets. First, countries need to replace that money by borrowing offshore at higher rates, which only becomes more expensive as more investors leave. Second, the soaring dollar, currently at a twenty-year high, hits sovereign and corporate borrowers by increasing interest and principal repayments in local currency terms. Corporate borrowers with inadequately hedged dollar exposure could suffer the consequences, as happened to many companies during the 1997-98 Asian financial crisis. Rating agency S&P Global warned this month that “[a]s rates increase, we think currency risk will feature more into… the ability and willingness of companies to fund in U.S. dollars and into distressed situations.”

The problem is that the principal vehicles for global cooperation—the Group of Seven (G7) and G20, along with the IMF—have limited tools to deal with a global debt crisis. This difficulty has only become more complex as global economic power has shifted over the past two decades from the West toward China. Similarly, the role of bondholders and other commercial lenders has increased in importance since the 2008 global financial crisis.

The international community has struggled to devise a comprehensive mechanism to deal with sovereign defaults. But the COVID-19 crisis—which hit the poorest developing countries hardest—forced the G20 to jury-rig a combination of a debt-service moratorium (which ended last year) and a restructuring process called the Common Framework, which is built around “creditor committees” of government lenders.

But that process has been exceedingly slow to get off the ground in the first three countries to seek restructuring—Chad, Ethiopia, and Zambia—in large part because Beijing is resistant to debt reductions (as opposed to delayed payments). 

Private-sector lenders have done little to contribute to a solution to the debt problem since the pandemic hit. Despite holding a large proportion of developing-country debt, they refused to join the debt-service moratorium and often oppose debt reduction. In Chad, for example, the giant Swiss commodities trader Glencore, which holds over one-half of the country’s debt, has refused to agree to a debt reduction.

Delays in the debt-restructuring process are costly for the affected countries: The IMF requires creditors to provide “financing assurances” of debt restructuring or refinancing in order to proceed with its own loans. When it was just G7 governments hammering out deals through the Paris Club of sovereign lenders, the process often could be completed in weeks; now it’s taking months—resulting in deeper pain among those most exposed to the human impact of a default, as has occurred in Sri Lanka. Ironically, Beijing was rebuffed by the IMF when it called for a Zambia lending program to proceed before a debt agreement had been reached.

A stumbling block in Beijing

To its credit, the international community has taken steps to free up resources to assist countries facing severe economic difficulties. Last year, the IMF approved the issuance of $650 billion in reserve assets to member countries, with wealthy countries slowly starting to make their shares of the issuance available to poorer nations. But even a process as unwieldy—and so far ineffective—as the G20 Common Framework is only available to the poorest countries. There is no systematic path forward for emerging-market countries like Sri Lanka and others that may yet default. 

The key stumbling block is China, which—despite its professed commitment to international standards—is likely to remain resistant to international rules that affect its massive exposure as a sovereign lender. There have been recent examples of effective debt workouts for middle-income countries: Ecuador in 2020, for instance, and Suriname last year. The lessons of those two restructurings, which involved Chinese loans, need to be closely examined. Otherwise, more countries like Sri Lanka will be left without recourse. 

One immediate need is to consider a return to temporary suspension of interest payments—for both poor and middle-income countries—to give countries breathing room, and to introduce some form of bridge financing if financial assurances to the IMF are not forthcoming in a timely fashion. The “chair’s summary” issued at the conclusion of the finance ministers in Indonesia meeting (in lieu of the absent communiqué) makes clear that the debt issues received attention. But there appears to be little political stamina to take on these weighty issues. 

With interest rates and inflation soaring and the winds of crisis building across the globe, world leaders soon will have little choice but to return to these issues in order to avoid a catastrophe.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of “Has Asia Lost It? Dynamic Past, Turbulent Future.” Follow him on Twitter: @vshastry.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

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As Ukrainians are fighting for their freedom, Western countries are imposing new sanctions on entities and individuals supporting Ukraine’s invasion. It’s an evolving story changing by the day. Whether sanctions can hinder or even stop Ukraine’s invasion remains to be seen, but they are devastating Russia’s banking and financial system and pushing Russia towards risk of default. This is sanctions on steroids. In this special edition of the Global Sanctions Dashboard, we walk you through these whirlwind weeks of sanctioning Russian oligarchs and central bank reserves, cutting Russia off SWIFT, and some of Russia’s options for sanction-proofing its economy.

Sanctioning Russian Central Bank and cutting Russia off SWIFT

The most impactful and surprising development was the sanctioning of the Central Bank of Russia (CBR) by the US, EU, and UK. By freezing the bank’s assets in their jurisdictions, Western allies hope to deprive Moscow of one of the key planks of its “Fortress Russia” self-reliance strategy: the CBR’s $630 billion stockpile in reserves.  

The CBR was not expecting to be sanctioned so heavily and so early. Indeed, Western unity on this new, bold move to target a G20 central bank came as a surprise to everyone last weekend. The CBR has innovated quickly to keep monetary policy tools, including foreign currency buffers, at its disposal. But this has also forced it to break taboos—capital controls, closed stock markets, allowing banks to hold off on updating asset values. Breaking such taboos may come at a long-term price. The CBR has taken years to build credibility as a credible international actor and, until now, capital controls hadn’t been part of Russia’s policy mix since the 1990s. 

The main preoccupation which appears to be driving CBR and government behavior is the supply of accessible hard currencies. With 53% of reserves frozen and no Western or even Chinese banks willing to provide swap lines, the CBR may not be able to meet the liquidity requirements of banks and indebted corporates. They have responded by forcing the conversion of 80% of export revenue into rubles, introducing soft capital controls and even missing interest payments on some debt.

Export revenue has suffered noticeably as large energy corporations and brokers have begun to see reputational risk in being associated with Russia. Nonetheless, several hundred million dollars worth of export revenue is still flowing in every day. This confirms the GeoEconomics Center’s view on excluding Russian banks from the SWIFT system. Transactions can still take place as long as both parties are willing to find alternatives to the messaging service. This doesn’t rule out disruptions for smaller transactions and will add to the list of reasons why investors are shunning Russian assets.

US Sanctions cripple major Russian banks’ operations

Looking at this visual of sanctioned Russian entities, you’ll notice the sheer number of US-sanctioned banks and financial institutions. The reason is that when the US designates a company, it goes after all subsidiaries at least 50% owned by the initial target. Following this rule, OFAC designated four major Russian banks along with their subsidiaries on February 24: Sberbank (25 subsidiaries), VTB Bank (20 subsidiaries), Otkritie (12 subsidiaries), and Sovcombank (22 subsidiaries). This is a further unprecedented measure designed to drain the Kremlin’s ability to finance war. Although sanctions have so far not stopped Russian troops, they have definitely crippled Russian major banks’ operations and sent the broader economy into freefall. 

For example, Russia’s top two banks, Sberbank and VTB, will be practically unable to transact in dollars. Sberbank is Russia’s most significant financial institution, holding the largest market share of deposits in the country. However, if Sberbank tries to process payments in dollars, the transaction will be rejected once it reaches US financial institutions. Similarly, assets of VTB Bank, which is the second largest financial institution and majority-owned by the government of Russia, are already frozen and inaccessible for the Kremlin. As the Russian state loses access to its reserves to prop up the local financial system and the ruble continues to lose ground, Russia’s major financial institutions could risk failure.

Belarus’s involvement in the Ukraine invasion

Notably, OFAC’s list of sanctioned entities includes Belorussian companies alongside Russian ones. Belarus is the only country actively supporting Russia’s invasion of Ukraine. According to the Treasury Department, a significant portion of Belarus’ financial system is now subject to US sanctions, after designating two state-owned banks (Belinvestbank and Bank Dabrabyt). The UK joined the US in sanctioning Belorussian entities and designated two state enterprises – JSC Aircraft Repair Plant and JSC Integral, a military semiconductor manufacturer. Lukashenko is Putin’s only regional military ally, the only leader actively helping his war.

Sanctioning Russian oligarchs and kleptocrats

Another highlight of the latest Western sanctions is the targeting of Russia’s top elites – starting with President Putin himself – and extending to his close allies’ sons who run state-owned enterprises. Some of the interesting examples of sanctioned family members include FSB Director Alexander Bortnikov’s son Denis Bortnikov, who is Chairman of the Management Board at VTB Bank; also Sergei S. Ivanov, who runs state-owned diamond company Alrosa and whose father happens to be Putin’s close ally. All the assets of these kleptocrats, including Putin’s, have been frozen in the EU, US and UK and they are banned from traveling in the sanctioning countries. We expect more oligarchs to make their way onto sanctions lists in the coming days and weeks.

However, when it comes to sanctioning the assets of oligarchs and kleptocrats, the hardest part is enforcement. Acknowledging this, the Biden administration is launching a new “KleptoCapture” task force, consisting of officers from the FBI, IRS, Homeland Security Investigations, and other agencies. The task force will be in charge of tracing Russian kleptocrats’ dark money and tracking down Russians who are evading sanctions through the Western financial system.

Can Russia sanction-proof its economy?

Neither cryptocurrencies nor digital Ruble can sanction-proof the Russian economy. There are two concurrent conversations about Russia’s use of digital currencies for sanctions: (1) the use of commercial cryptocurrencies to evade financial sector sanctions and (2) the potential use of the digital Ruble, Russia’s central bank digital currency. The first option is not viable because all US-based cryptocurrency exchange platforms will be complying with the US sanctions and blocking the wallets of Russian individuals targeted by sanctions. Also, cryptocurrencies have tracking features, which makes illicit use easy to find and punish, as is seen by the OFAC sanctions on SUEX last September.

Similarly, the Russian CBDC cannot shield the Russian economy from Western sanctions because digital Ruble is in very early stages and focused only on a domestic, retail CBDC. The project is not a part of any wholesale, bank-to-bank CBDC development, which makes moving any digital ruble outside of Russia impossible. Equally importantly, as a CBDC is a fiat currency, any potential use of the digital ruble would suffer from the devaluation effects of the Ruble, which makes holding or accepting it very unattractive. Thus, digital currencies cannot remedy the Russian economy, at least in the short term. 

Dedollarization is also not an option for mitigating the effects of sanctions, at least not in the short or even medium term. Russia has been working on dedollarization since the US imposed sanctions back in 2014, including Rosneft’s replacement of dollars with euros for invoicing exports in 2019. However, with more use of the Euro, Russia has become more exposed to EU sanctions and as we have seen, the EU is currently just as eager to sanction Russia as the US, if not more. Coordinated sanctions policy from the West is undermining Russia’s efforts of sanction-proofing its economy through dedollarization. 

On the radar 

While you probably have heard the word “unprecedented” many times recently, it’s the best word anyone can think of to describe the sanctions packages Western countries are announcing every day against Russia. According to the White House press release, over 30 countries, representing more than half of the global economy, have sanctioned Russia and made Moscow a global economic pariah. Another notable circumstance is that Western countries are ready to accept the negative effects of sanctions on their economies and are looking for energy alternatives in anticipation of gas cutoffs from Russia. March is likely to see more sanctions from the US and its allies, but it remains to be seen whether sanctions can affect the situation on the ground in Ukraine in any substantial way. At time of this writing, it remains unclear whether the US and its partners will touch the third rail– Russian energy exports.

Global Sanctions Dashboard

The Global Sanctions Dashboard provides a global overview of various sanctions regimes and lists. Each month you will find an update on the most recent listings and delistings and insights into the motivations behind them.

Explore Here

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

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This month’s topline events

Biden at the G20. On only his second overseas trip as president, Joe Biden joined the leaders of the world’s most powerful economies in Rome for the annual G20 Leaders’ Summit. While Chinese president Xi Jinping and Russian president Vladimir Putin were notably absent (joining virtually instead), the G20 endorsed a previous agreement to set a global corporate minimum tax of fifteen percent and agreed to boost the global COVID vaccine supply.

• Shaping the order. Biden’s presence at the G20 and his administration’s efforts to drive forward the global tax accord showcased American leadership on the global stage. But the absence of any significant new commitments, particularly on the climate front, highlighted the difficulty of garnering consensus on key challenges in an increasingly fractious international system.
  
• Hitting home. The global tax deal could discourage US companies from sheltering revenue in offshore tax havens and relocating facilities overseas, potentially preserving American jobs.
  
• What to do. While the G20 provides an important venue to engage with global powers, the Biden administration should continue to bolster cooperation with likeminded democracies in other venues where action is more likely to succeed.

Defending Taiwan. For the second time in two months, Biden stated the United States was committed to defending Taiwan in the event of an attack by China – a position that would depart from a long-held US policy of “strategic ambiguity” on Taiwan. A White House spokesperson later suggested the remarks did not signify a change in policy. Separately, Taiwan’s president acknowledged for the first time the presence of US troops on the island for training purposes, while Chinese Foreign Minister Wang Yi warned the US and its partners not to interfere in Taiwan’s affairs.

• Shaping the order. Biden’s pledge to defend Taiwan, despite being walked back, suggests the US may be preparing the ground for an eventual shift in policy from “strategic ambiguity” to “strategic clarity” on Taiwan – a move that Beijing will almost certainly view as provocative but one that could help deter a future Chinese attack.
  
• Hitting home. Deterring an attack against Taiwan would help preserve regional peace and avoid a potential military confrontation, which could have far-reaching economic impacts.
  
• What to do. The administration and Congress should continue to move toward a policy of strategic clarity to defend Taiwan against any potential attack, while bolstering the military capabilities of Taipei and other US allies in the region.

Assad’s Revival. After years of diplomatic isolation, Syrian president Bashar al-Assad was invited to speak with Jordan’s King Abdullah for the first time since the regime began its brutal crackdown against a popular uprising in 2011. Other Arab states, including Egypt, Bahrain, and the United Arab Emirates, moved to revive diplomatic and economic ties as Assad continues to consolidate his grip on power.

• Shaping the order. Throughout the Syrian uprising, the Assad regime has engaged in a campaign of violent oppression and committed mass atrocities against its own people, including through the use of chemical weapons, leading to the deaths of hundreds of thousands of civilians. Yet the recent flurry of diplomatic engagement with Syria suggests that if their crackdown is successful and they wait long enough, violent dictators can be re-legitimized – a serious setback to the advance of a rules-based democratic order.
  
• Hitting home. Assad’s revival could bolster support for Hezbollah and other terrorist groups, increasing the threat of violence against Americans and US allies in the region.
  
• What to do. The US should maintain its policy of isolation and sanctions against Syria until the regime is held accountable for its atrocities, and should strongly encourage US allies, including in Europe and the Arab world, to hold the line on normalizing relations with Damascus.

Quote of the month

“At this moment, the global political landscape is undergoing drastic change. Free and democratic countries around the world have been alerted to the expansion of authoritarianism, with Taiwan standing on democracy’s first line of defense. …The situation in the Indo-Pacific region is becoming more tense and complex by the day …[D]emocratic countries are working to strengthen our broad-based, mutual cooperation in order to respond to regional and global developments.”

– Taiwan President Tsai Ing-wen’s National Day speech, October 10, 2021

State of the Order this month: Unchanged

Assessing the five core pillars of the democratic world order    

Democracy ( ↓ )

• As noted, Jordan’s King Abdullah spoke with Syrian president Bashar al-Assad for the first time since the Syrian uprising began, as other Arab states welcomed re-engagement with Damascus, despite the regime’s commission of mass atrocities and use of chemical warfare against civilians.
• Sudan’s military seized power, arresting the country’s prime minister and dissolving the transitional government, sparking widespread protests and undermining Sudan’s fragile transition toward democracy.
• The United States rejoined the UN Human Rights Council, three years after former President Donald Trump’s withdrawal, as the Biden administration seeks to strengthen US support for human rights.
• On balance, the democracy pillar was weakened.

Security ( ↓ )

• According to Mark Milley, chairman of the US Joint Chiefs of Staff, China has tested a hypersonic missile designed to evade America’s missile defense systems, a move that he described as very close to a “Sputnik moment.” A new Pentagon assessment also indicated that China will likely have at least 1,000 deliverable nuclear warheads by 2030, a significant expansion from the 200 warhead arsenal it possessed last year.
• US officials issued new warnings about China’s ambitions to develop artificial intelligence and other advanced technologies that could give Beijing a decisive military edge and eventual dominance over key economic sectors.
• China and Russia held joint naval drills in the Pacific Ocean, an indication of the two nations’ growing political and military alignment.
• Russia shut down its mission to NATO, after NATO expelled eight members of the Russian delegation, alleging they were working as undercover spies. 
• In light of these developments, the security pillar was weakened.

Trade ( ↑ )

• The US and EU reached an agreement to suspend steel and aluminum tariffs imposed by the Trump administration and began discussions on a more sustainable pathway to resolve the issue.
• As noted, the G20 endorsed an agreement negotiated by the Organization for Economic Cooperation and Development and joined by over 130 nations that sets a minimum global corporate tax rate of fifteen percent.
• In light of these developments, the global trade pillar was strengthened.

Commons ()

• While pledging to end the financing of coal power plants in countries outside their own, the G20 failed to agree on firm commitments to end the use of coal or to take other significant actions to reduce global warming, as world leaders headed for a major global climate summit, known as COP26, in Scotland.
• G20 leaders pledged to vaccinate seventy percent of the world’s population against COVID by mid-2022, while the pandemic reached a grim milestone – killing more than five million people around the world.
• On balance, the global commons pillar was unchanged.

Alliances ()

• On the margins of the summit, Biden met with French president Emmanuel Macron in an attempt to smooth relations amid tensions over the recent AUKUS submarine deal between the US, Australia, and Britain. Biden acknowledged that the US had been “clumsy” in its approach and that France is “an extremely valued partner,” as the two leaders agreed to strengthen cooperation in the Indo-Pacific and on counterterrorism in Africa.
• Relations between France and Australia remained strained, as President Macron suggested that Australian Prime Minister Scott Morrison had lied about the submarine deal. The two leaders met in Rome to begin efforts to repair their damaged relationship.   
• Overall, the alliances pillar was unchanged.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order     

• Former US Secretary of State Madeleine Albright, writing in Foreign Affairs, argues that it would be a grave error for the United States to waver in its commitment to democracy, which she suggests is poised for a comeback.
• Taiwanese President Tsai Ing-wen writes in Foreign Affairs that if Taiwan were to fall, the consequences for the democratic alliance system would be catastrophic, as it would signal that in today’s global contest of values, authoritarianism has the upper hand over democracy.
• Eliot Cohen, in The Atlantic, contends that if America succumbs to its internal divisions and its desire to withdraw from international politics, the world order, such as it is, will crumble.

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

• Matthew Kroenig, in a new Forward Defense report, outlines a strategy for the US and its allies to deter Chinese strategic attack as China continues its strategic forces buildup that could threaten the US-led, rules-based international order.
• Fred Kempe, in CNBC, argues the US-China bilateral relationship is increasingly significant – and potentially perilous – as both countries struggle to manage brewing tensions amid their domestic challenges and competing visions of global leadership.
• Matthew Kroenig and Jeffrey Cimmino, in The Dispatch, argue that the US and its allies should work closely to deter a Chinese attack on democratic Taiwan to avoid full-scale war.
• Dan Fried and Brian O’Toole, in the New Atlanticist, offer steps to improve the US Treasury Department’s latest sanctions policy review by implementing more discrete, achievable goals and clarifying guidance across sanctions programs.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

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In other words, the G20 risks becoming a miniature United Nations (UN)—a venue for endless discussion rather than swift action. Here’s a breakdown of this weekend’s missed opportunities:

No new shots…

This year’s summit in Rome failed to produce a concrete action plan to expedite the global distribution of COVID-19 vaccines. While developed countries have put at least one shot in the arms of 63.5 percent of their populations, low-income countries (LIC) have managed a mere 4.75 percent vaccination rate, according to UN figures. The goal of vaccinating at least 40 percent of the global population by the end of this year (and 70 percent by mid-2022), as recommended by the World Health Organization (WHO), has been met with only vague promises to “boost the supply of vaccines.” This is the most important challenge facing the world; beside leaving people vulnerable to COVID-19, failing to adequately vaccinate enough people will also threaten global economic recovery. Adding a discordant note, Chinese President Xi Jinping and Russian President Vladimir Putin—both absent from Rome—took the virtual platform to complain about the West’s refusal to recognize their COVID vaccines, demanding equal treatment of all vaccines approved by the WHO.

…or new pledges.

No new net-zero emission pledges emerged from this year’s summit—during which leaders agreed only to achieve “global net zero greenhouse gas emissions or carbon neutrality by or around mid-century.” While twelve member countries have re-committed to reach net zero by 2050, others (including China and Russia) insisted on setting their own target dates around 2060. As a result, the prospects for this week’s UN Climate Change Summit in Glasgow, Scotland appear dim—with India announcing Monday that it didn’t plan to hit net zero until 2070. The G20 also failed to set specific timeframes to phase out the use of coal as an energy source—thanks to opposition by Russia, China, India and Australia—agreeing only to end the provision of international public finance for new coal-power generation abroad by the end of this year. Meanwhile, reliance on coal in electricity generation has increased in several countries, including China, while priorities among key countries have increasingly diverged. China, India, South Africa, and Brazil emphasized that rich countries’ long-pledged but undelivered one hundred billion dollars per year in climate-change financing (until 2025) needs to actually come through to assist developing countries’ transitions to renewable energy.

Debtors’ prison

Important G20 initiatives to address the crushing debt burden of LICs—which has risen to $860 billion in 2020, according to the World Bank—have proven to be ineffectual. The Debt Services Suspension Initiative (DSSI) is scheduled to expire at the end of this year, and while seventy-three LICs are eligible for DSSI benefits, the fifty countries that made use of them received merely $12.7 billion in deferred payments. (And this amount will still be added to their overall debt stocks.) Key creditors, including from the private sector, have been conspicuous in their absence. Beyond the DSSI, the broader Common Framework for Debt Treatment hasn’t fared any better, with only three countries—Ethiopia, Chad, and Zambia—currently undergoing negotiations for debt restructuring.

Drawing delays

Meanwhile, the $650 billion distribution of International Monetary Fund (IMF) Special Drawing Rights (SDRs) has actually been useful—even though only 3 percent of that total went to LICs and 30 percent to middle-income emerging-market countries. At the Rome summit, the G20 supported efforts by wealthy countries to voluntarily lend or donate parts of their SDR allocations, totaling one hundred billion dollars, to help vulnerable countries. The contributions will be channeled through existing IMF facilities such as the Poverty Reduction and Growth Trust and the newly proposed Resilience and Sustainability Trust. The problem is that this voluntary effort hasn’t made much progress, because the IMF is still trying to find ways to guarantee the SDR loans from rich countries so the amounts can still be counted as a part of their reserves (and therefore the rich countries don’t give up anything).

‘Unfulfilled’ hopes

In place of new bold initiatives, the G20 dutifully endorsed a global minimum corporate tax of 15 percent, rooted in June’s G7 summit and amid tax reform negotiations involving 136 countries. The Rome summit was also a venue for the announcement of the suspension of US tariffs on steel and aluminum from European Union countries that had been imposed by former US President Donald Trump. Leaders held a series of bilateral meetings on the sidelines, including a fence-mending session between Biden and his French counterpart, Emmanuel Macron, after the AUKUS defense pact stirred bad blood between the two.

Generally speaking, these developments are useful—but they hardly measure up to the description of the G20 as the premier forum for international economic cooperation. Departing the event, UN Secretary-General António Guterres tweeted, “I leave Rome with my hopes unfulfilled — but at least they are not buried.”

As US-China strategic competition intensifies and erodes mutual trust, major countries will increasingly use forums such as the G20 to vie for influence rather than exploring compromises for joint solutions to common problems. As a result, it appears likely that the effectiveness of the G20 could become a casualty of this new version of Cold War.

Hung Tran is a nonresident senior fellow at the Atlantic Council, former executive managing director at the Institute of International Finance, and former deputy director at the International Monetary Fund. 

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Established in the wake of the 1997 Asian financial crisis as a relatively low-profile conference of finance ministers, the G20 quickly rose to a high-profile convening of powerful heads of government in the aftermath of 2008 Global Financial Crisis. Institutionalized at the 2009 Pittsburgh Summit as the principal forum for coordinating international economic and financial cooperation, the G20 was instrumental in shaping the international response to the Global Financial Crisis. 

Its response to COVID, however, was strikingly different. Despite an initial commitment to “do whatever it takes” to support the global economy, few distinct commitments have emerged from the G20. Endorsed in April 2020, measures stipulated in the G20 Action Plan included a collection of uncoordinated national monetary and fiscal policies that member nations had already determined to undertake at the national level. Even while fiscal coordination was lacking, the G20 has also fallen short in banding together on vaccine rollouts, debt relief, and strengthening supply chains.

Hover over a country to compare its fiscal spending

Now, with the rotating Presidency held by Italy, this year’s Summit priorities of people, planet, and prosperity with the latter focusing on digitization seem to reflect the concerns of the G7 and not the G13. The G20 Summit seems to have forgotten another P — pandemic — that most of the world is still dealing with.

Splitting up into G7 and G13

G7 economies have far outperformed the rest of the G20 countries, with the exception of Australia, in terms of fiscal spending. A major divergence has emerged between the two groups in absolute terms as well as per capita terms. Collectively, the seven countries that comprise the G7 have spent more than five times the sum of the remaining thirteen countries. This divergence in fiscal spending is owed primarily to the relatively limited fiscal policy room in emerging markets, which has been constrained further by the tightening of financing conditions following the economic shock of COVID-19. 

What does this mean for the G20? 

The G20 was founded to bring together the most important industrialized and developing economies to discuss international economic and financial stability, in part to amplify the voice of large emerging markets at the international table. Although the forum has no decision-making powers, it can transform political consensus into action as its member states account for 80% of the global economy, 75% of global trade, and 60% of the global population. G20 nations further dominate the boards of international financial institutions and transnational regulatory bodies allowing the group to implement its agreements. The grouping has ample history of doing just that — in response to the Global Financial Crisis, the G20 leveraged international norms in addition to its member states’ influence at the International Monetary Fund and Financial Stability Board to implement and monitor compliance with a range of reforms in the global finance sector. 

But it seems that memory of the coordinated response has faded; the G20 is falling remarkably short of its promise and its own commitment to support the global economy through the pandemic. So far, the G20 has only agreed to a one year debt suspension through the Debt Service Suspension Initiative (DSSI), that is set to expire at the end of this year with limited expectations for bold new initiatives at the G20 Summit in Rome. The DSSI itself does not cover borrowing from multilateral official creditors like the World Bank or from private creditors, dissuading nearly half the 73 eligible countries, concerned about the impact it will have on their market access, from utilizing it.

While the G13 are mostly still stuck in the acute phase of global fiscal response — supporting private incomes, preserving employment, and shoring up health systems, the G7 countries have now graduated to the recovery phase — with a pivot toward investment in public infrastructure and ‘green’ investment. The G7 and the G13 countries are experiencing divergent economic realities, and as Finance Ministers and Heads of State from around the world convene in Rome, this gap will be difficult to overlook. 

In a world where the G20 rose to the challenges of the pandemic, it would have coordinated policy action to ensure a smooth transition in the movement of goods, capital, and people. With the rotating Presidency along with the agenda-setting power that accompanies it moving to Indonesia next year and to India in 2023, there is hope of a reorientation of priorities and a resurgence of broad international economic coordination. But the ship may have sailed by then, the G20 risks factionalizing into the G7 + G13.

Mrugank Bhusari is a Program Assistant with the Atlantic Council’s GeoEconomics Center. Follow him on Twitter: @BhusariMrugank

Niels Graham is a Program Assistant with the Atlantic Council’s GeoEconomics Center. Follow him on Twitter: @GrahamNiels

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The post G20 risks becoming G7 + G13 appeared first on Atlantic Council.

But the festive mood shouldn’t overshadow the need to address the entrenched inequality of the quota-based allocation of special drawing rights (SDRs)—an International Monetary Fund (IMF) composite currency unit that member countries can convert into a freely usable currency to finance imports and other needs.

The G20, which accounts for around 80 percent of global GDP, must enhance the impact of SDRs where they are most needed, such as in low-income countries (LICs). That would set the world on a path toward synchronized recovery in the short-term and global income convergence in the medium- and long-term.

“A historic decision”

In both size and scope, the $650 billion SDR allocation is the international community’s most ambitious response to the pandemic, increasing fiscal space and fortifying global financial stability. It has benefited all member countries and represents the largest such allocation in the IMF’s history—around triple the amount it injected into the international financial system during the 2008 financial crisis.

Across the developing world, the newly issued SDRs will reduce countries’ exposure to exchange-rate volatility and mitigate liquidity constraints associated with elevated balance of payment pressures. This will be especially impactful in Africa, where the allocation could help countries confront myriad challenges, including weathering currency gyrations, replenishing dwindling foreign-exchange reserves (which declined by 27 percent in 2020), and financing essential imports, such as COVID-19 vaccines.

In addition to preventing liquidity crises from morphing into insolvency crises, the SDRs will help sustain investor confidence and enhance the prospects for an inclusive global recovery.

By indiscriminately injecting liquidity into the global economy, the unconditional and countercyclical SDR allocation was always the most cost-effective and low-risk response to the pandemic-induced economic downturn. As IMF Managing Director Kristalina Georgieva said in August: “This is a historic decision—the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis.”

A distribution dilemma

But there is a problem: The global distribution of this financial shot in the arm is just as skewed as the supply of inoculations against COVID-19.

High-income countries that have drawn on effective advance purchase agreements and hoarded vaccines have also received nearly 60 percent of SDRs (or 65 percent when including China). This is despite the fact that they do not genuinely need SDRs, since most enjoy the exorbitant privilege of issuing a reserve currency. Conversely, LICs that do not enjoy the same privileges have been wildly disadvantaged: Only 0.5 percent of vaccines worldwide have been administered in LICs, compared to 77 percent in high- and upper-middle-income countries.

In practice, the effect of the allocation is expected to be more significant in LICs, where limited fiscal space and prohibitively high borrowing costs have limited the size and scope of government stimulus measures. Individually, these countries received a very low volume of SDRs and collectively a lower share (around 3 percent) of the total allocation, setting the stage for a two-speed recovery. Africa, which is home to most LICs, received just 5 percent of the total allocation (around $33 billion). That’s less than Japan and South Korea, which together received more than $37 billion (6 percent), or the European Union, which received $139 billion (21 percent).

The low allocation of SDRs to LICs is commensurate with their share of global GDP, which ultimately determines their IMF quotas. Currently, these nations account for less than 1 percent of global GDP; this partly reflects invariance in the drivers of growth and trade, which remains heavily dependent on commodities. The latest United Nations Conference on Trade and Development’s Commodities and Development Report classifies nearly 80 percent of the seventy low-income countries as commodity-dependent. This production structure exposes these nations to global volatility and adverse commodity terms of trade shocks.

A few high-income countries have pledged to recycle their unused SDRs to increase the volume of concessional lending to the most vulnerable LICs. More countries should support such efforts. A reallocation of around four hundred billion dollars in SDRs to countries that need them most would make a huge difference in terms of economic recovery and structural transformation. By injecting large amounts of investments to set these countries on a robust and long-run growth trajectory, it could also engineer a Big Push green growth development model which would narrow interregional income inequality and accelerate global income convergence.

Big push, big help

Operationally, a shift towards a Big Push model, supported by the effective redeployment of unused SDRs, would help LICs overcome several development challenges, including the unhealthy low-savings and poverty traps. At sufficient scale, this would provide long-term capital to finance the necessary massive investment in critical infrastructure to boost productivity and crowd-in private investment, which will help alleviate supply-side constraints and diversify sources of growth and trade.

The needs of these poorest countries are acute and their financing gaps have been exacerbated by the pandemic, which caused governments to dramatically raise social spending as fiscal revenues shrank. According to IMF estimates, LICs will need around two hundred billion dollars annually until 2025 to bolster their pandemic response—and an additional $250 billon to keep pace with advanced economies that are on a stronger recovery path. Under the best-case scenario of the effective mobilization of resources, LICs would be able to return to their pre-crisis convergence path with advanced economies no earlier than 2023.

In addition to rebuilding external buffers for greater resilience in the face of the looming tightening global financial conditions triggered by heightening inflationary pressures and expectations, the reallocation of unused SDRs could also provide the minimum level of resources for infrastructure investment required for self-sustaining growth. Over time, the growth of public investment and the expansion of industrial production will accelerate the development of regional value chains and create complementary demand—which will ignite a virtuous cycle of sustained and robust per-capita income growth.

The opportunity of injecting large-scale resources in LICs under the proposed Big Push model could transform the collective goodwill borne out of the pandemic into a more inclusive, global economic integration model that blurs the historical divide between developed and developing nations, and between high-income and low-income countries. It has the potential to alleviate climate-related challenges and reduce global income inequality, especially interregional inequality shaped by structural factors, such as sticky colonial development models of resource extraction that sustain commodity dependence.

The Big Push green growth development model engineered by the effective reallocation of unused SDRs could also rebrand the IMF not just as the world’s lender of last resort—but one that engages effectively with regional development banks to meet sustainable development goals.

Hippolyte Fofack is chief economist and director of research at the African Export-Import Bank (Afreximbank).

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With many of the leaders hopping to the United Nations climate change summit shortly after this gathering, climate will likely be a hot topic—but the leaders will also discuss the global supply chain crisis, a deal for a global minimum tax on corporations, debt relief for poor nations, and much more. We asked our experts for a guide to the most pressing issues and what to expect from the summit.

Meet our experts

• Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center and former International Monetary Fund (IMF) official

• Jeremy Mark, nonresident fellow at the GeoEconomics Center and former IMF official

• Nitya Biyani, contributor at the GeoEconomics Center

Josh says: It looks the leaders will convene a special meeting on supply chains—a last minute addition to the agenda. If you’d said that two years ago, people might’ve thought: “Boring.” But now they’re thinking: “Will I get my Christmas gifts in time?” How much can be accomplished? Arguably a lot: On the immediate issue of easing port congestion, there are some changes to global shipping patterns that could speed things up, as well as better information-sharing between nations. And on the longer-term goal of creating a more resilient trading system, the need for reform is staring the leaders in the face. Expect this to be one of the most newsy and consequential outcomes of the summit. 

Jeremy says: Normally, the G20 agenda is set throughout a year-long process led by the host government through a succession of working groups and ministerial meetings. So last-minute additions to the proceedings—such as this one—tend to be long on rhetoric and short on concrete proposals. There have been exceptions: For example, the 2009 London summit offered hastily assembled but concrete assistance to low-income countries hit hard by the global financial crisis. But the root causes of the supply chain problems—global shortages of shipping containers and the ships to carry them, a lack of warehouse space and truck drivers in the United States, and energy shortages in China that are hurting factory output—won’t easily respond to G20 declarations. That’s going to require months of hard work on the ground.

Josh says: This is the big win the Biden administration is touting as it goes into the summit. And for good reason: It’s hard to get 136 nations to agree on seating arrangements, let alone corporate taxes. It’s the most significant and sweeping change to the international tax system in decades, and it gives Team Biden leverage in the current negotiations on its Build Back Better plan because it can genuinely claim that there will no longer be a race to the bottom from competitors. But the stalemate in Congress won’t go unnoticed by other leaders. The tax deal will be featured prominently in communiqués, but it’s not truly done until Congress—and many other legislatures around the world—say it’s done. That’s why today’s potential breakthrough on infrastructure and social spending could give Biden wind at his back as he lands in Europe.

Nitya says: Eighteen of the twenty members are exploring central bank digital currencies (CBDCs), while seven of them are engaged in various cross-border pilot programs. The United States is lagging behind most other countries in its development of a CBDC. The absence of standard-setting and an international agreement on principles risks limiting the benefits of CBDCs—which in turn could result in a fragmented system. The creation of a working group within the Digital Economy Task Force, or an expansion of the scope of the International Financial Architecture to include CBDCs, would provide the right forum to begin international collaboration on the issue. 

Josh says: This is the sleeper issue of the summit. The Group of Seven (G7) finance officials surprised many observers this month with a statement of principles on digital currency. They called for more international coordination (and on paper, at least, Russia and China agree). Russia and China, like the United States, are also worried about the rise of cryptocurrencies and how it might impact their own monetary sovereignty. But China is far ahead in the race for its own central bank digital currency. If the United States tries to get the rest of the world to agree to some standards that balance privacy and security, expect China to leave its name off the signatory line.

Jeremy says: The G20 has already spoken on debt relief. The finance ministers’ meeting during the IMF and World Bank annual meetings earlier this month made it clear that the group is firmly committed to more of the same. That’s to say: The Debt Service Suspensions Initiative, which has provided about $5 billion of debt-service relief during the pandemic, will be allowed to lapse at the end of this year. Meanwhile, the G20 reaffirmed its commitment to the Common Framework for debt treatment, a blueprint for debt restructuring that, so far, has not resulted in a single penny of relief for the world’s most indebted low-income countries. 

The G20 has avoided action on a key stumbling block to debt restructuring: the unwillingness of private creditors to participate constructively in the process. That said, US National Security Advisor Jake Sullivan declared in a pre-summit briefing that the United States “is looking forward to a strong and ambitious statement” on plans to make use of a one-time issue of $650 billion of IMF Special Drawing Rights. A major portion of that sum was apportioned to G20 countries, and the governments are still trying to work out how their shares might best be shared with the poorest countries.

The post Expert briefing: What to watch at the G20 appeared first on Atlantic Council.

The post Sakhi with Notre Dame Events: Prioritizing Afghan Voices: How the International Community Can Assist Afghanistan appeared first on Atlantic Council.

Last week’s gathering of International Monetary Fund (IMF) and World Bank officials for their annual meetings and Group of Twenty (G20) policy discussions could have produced initiatives to address global economic threats such as COVID-19 and ballooning debt levels in low-income countries.

The events were overshadowed by the drama surrounding IMF Managing Director Kristalina Georgieva—who was implicated in the manipulation of data at the World Bank. But it also was a missed opportunity, marked by lengthy communiqués that expressed support for those hit hardest by the pandemic. Countries that remain on life support came away largely empty-handed.

Despite the IMF’s flagship World Economic Outlook revising downward its growth forecast for low-income developing countries, the G20 finance ministers’ communiqué lauded the IMF’s issuance of $650 billion in Special Drawing Rights (SDRs) to its membership in August. That program is aimed at giving countries more resources to respond to the crisis, but the wealthy G20 countries themselves were the major recipients of the allocation because the SDRs were divided to reflect each country’s weight in the global economy. 

That meant African countries received only $33.6 billion—an amount that Senegalese President Macky Sall dismissed as “a drop of water.”

Funding uncertainties

A new IMF lending facility called the Resilience and Sustainability Trust (RST) will “provide affordable long-term financing,” according to the communiqué, to help countries reduce pandemic- and climate change-related risks. Along with the low-income countries, it could also give loans to middle-income states that are ineligible for the existing Poverty Reduction and Growth Trust (PRGT) facility that has provided interest-free loans to low-income countries during the pandemic.

But there’s a catch: The communiqué says the RST will need to be funded with SDR donations “channeled” from rich countries—the mechanism for which remains mired in negotiations. On this sticking point, the G20 merely “appreciate[d] the recent progress by the IMF,” with no timeline for putting to use the funds they’re expected to provide.

Along with the new mechanism, the IMF will also go hat-in-hand to its membership to rebuild funding for two other assistance programs for low-income countries that face pandemic-driven shortfalls: the PRGT and the Catastrophe Containment and Relief Trust. 

Until the needs of these two programs are met, it would be a mistake to drain the limited SDR resources available from the international community for purposes such as climate-change remediation and pandemics—as important as they are—which IMF staff estimate could amount to thirty to fifty billion dollars of loan demand over ten years. 

The reality is simple: The IMF cannot afford to be all things for all countries.

The IMF communiqué also addressed the critical shortage of COVID-19 vaccines in developing countries, pledging that member countries would “take steps” to boost supplies and “remove relevant supply and financing constraints.” The IMF, along with other international organizations, says it will support the vaccination of at least 40 percent of the world’s population by the end of the year and 70 percent by mid-2022.

Yet the World Health Organization estimates that only 4 percent of Africa’s population has been fully vaccinated—with six-of-seven infections currently going undetected across the region. Between the developing world’s shortage of vaccines and its inadequate infrastructure to dispense them, these vaccination targets will prove illusory.

Debtors in distress

The G20 and IMF also failed to advance proposals to address existing debt problems more effectively.

This issue looms large partly because the G20 governments have decided not to extend the Debt Service Suspension Initiative (DSSI)—which enabled more than forty countries to suspend debt-service payments amid the pandemic—beyond December 31. But by one estimate, less than one-quarter of these countries’ obligations have been suspended; they still paid out $36.4 billion since the start of the pandemic, but largely to commercial creditors who never participated in the DSSI. 

The international community also did nothing to strengthen implementation of the Common Framework for Debt Treatment, a G20 program adopted last year to enable debt restructuring for low-income countries which has been an abject failure. Three countries—Chad, Ethiopia, and Zambia—have sought debt relief through the program, but little progress has been made. 

In Chad, government creditors have agreed on a restructuring arrangement, but progress has stalled because commercial creditors led by commodities giant Glencore are dragging their feet in negotiations that represent about 40 percent of the country’s obligations—most of it lent in exchange for control of oil-export revenue. In response, the IMF and World Bank took the unusual step of publicly calling on Glencore and other private creditors to commit to debt talks “without delay.”

China also has been a roadblock—signing onto the DSSI and Common Framework, and stating its support for international cooperation on the issue, but sometimes pursuing a unilateral approach that runs counter to the G20 agreement. For example, China’s state-run Export-Import Bank initially granted Kenya a debt-service moratorium for infrastructure loans, but in June the bank demanded that payments resume after the Kenyan government asked for an extension. 

Analysts point to a lack of coordination among Chinese lending institutions and the need to educate Chinese officials about international norms. But a government that’s forced its tech giants to change business practices is well-positioned to also encourage rapid change in overseas lending practices—if it wants to.

China’s policies also have reinforced Western commercial creditors’ resistance to the DSSI and Common Framework. Ever mindful of the potential impact of credit rating agencies’ decisions on their loan portfolios, international banks and bondholders have been careful about any actions that would result in their ratings being downgraded.

Limited lifelines

For now, the only source of funding for indebted countries will be the IMF and World Bank. Some observers maintain that IMF lending could cause private creditors to restrain future lending. But there’s no evidence that this crowds out the private sector; in fact, history shows that IMF loans fuel confidence in it.

So where does the inaction from the international community leave developing countries?

Their true lifeline comes from the sharp rise in commodity prices in recent months as advanced economies recover from the pandemic. Crude oil is above $80 a barrel—its highest price in three years—and various metals are at historic levels. But those same high prices also pose a threat to resource-poor countries, especially oil importers, while recent increases in food prices raise the prospect of social instability.

That’s why the IMF and G20’s recent pronouncements were disappointing. G20 leaders will hold their annual summit in Rome at the end of the month, but there is little expectation that the situation will change by then. So, with the IMF still trying to figure out how to effectively divide the SDR pie and no prospect of meaningful debt relief, low-income countries are left waiting for vaccines and hoping to survive a crisis that refuses to fade away.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter: @vshastry.

Further reading

New Atlanticist Jul 7, 2021

How rich countries can help Africa respond to the third wave of COVID-19

By Vasuki Shastry and Jeremy Mark

When the G20 finance ministers and central bank governors meet July 9 and 10 in Venice, Italy, they have an opportunity to respond to Africa’s third-wave crisis in a meaningful way. Will they take it?

Africa Coronavirus

EconoGraphics Aug 23, 2021

IMF delivers fiscal firepower

By Niels Graham and William Howlett

On August 23 the IMF released a historic $650 billion allocation of Special Drawing Rights (SDRs)

Inclusive Growth International Financial Institutions

New Atlanticist Oct 13, 2021

The IMF needs to prepare for the post-COVID world

By Martin Mühleisen

The institution has shifted its focus toward climate policy and development finance in the last two years, but it should not stray from its global stability mandate.

Economy & Business International Financial Institutions

The post Let them eat communiqués: Rich countries’ pandemic inaction appeared first on Atlantic Council.

How did Britain fare in Biden’s summitry?

After the G7, NATO and US-EU summits launching Biden’s high-level engagement with Europe, Europe Center senior fellow Ben Judah explored how the UK had fared for this #BritainDebrief. To find out, he spoke to Julia Friedlander, C. Boyden Gray senior fellow & director of the GeoEconomic Center’s Economic Statecraft Initiative, and formerly a CIA analyst and director for the European Union, Southern Europe and Economic Affairs at the National Security Council.

Was the G7 a success? How did the UK fare as host? What kind of world order is emerging from these summits and is it favorable to London?

You can watch #BritainDebrief on YouTube and as a podcast on Apple Podcasts and Spotify.

Former staff

Ben Judah

Former Director

Europe Center Transform Europe Initiative

Economy & Business European Union

The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

Learn more

The post #BritainDebrief – How did Britain fare in Biden’s summitry? A debrief from Julia Friedlander appeared first on Atlantic Council.

This month’s topline events

Biden Rallies the G7. On his first overseas trip as president, Joe Biden joined the leaders of the G7 group of democracies in Britain for a summit, resulting in commitments to provide one billion COVID-19 vaccines to developing nations, as well as agreements on a global minimum tax and a major new initiative to finance infrastructure projects in the developing world to counter the influence of China. Biden later traveled to Brussels for his first summit with NATO leaders, and separately, with EU leaders, securing joint statements of concern over China and Russia and pledging to work together to advance a rules-based international order. 

• Shaping the order. Biden’s participation in this sequence of summit meetings showcased a renewed US commitment to democratic alliances and signaled that America is back as a multilateral leader on the global stage. The summit statements reflect shared concerns over Russia and China and an emerging consensus among allies on the need to prepare for an era of strategic competition between democracies and autocracies, though the US and Europe continue to differ in certain areas on how assertively to deal with Beijing. 
• Hitting Home. Closer cooperation with allies could help place the United States in a stronger position to act on key challenges at home, including pandemic recovery, and to defend against threats to American security and economic interests.
• What to do. Biden should continue to push for a common strategy among allies to deal with China and Russia, strengthen and update global trade norms, and seek to create new mechanisms to promote democratic cooperation, including a potential D-10 and a technology alliance to harness advanced technologies and develop common norms and policies consistent with democratic values.  

A New Atlantic Charter. While in London, Biden joined British Prime Minister Boris Johnson in signing a New Atlantic Charter that sets forth a statement of shared values and common aspirations. Like the original Atlantic Charter signed by Britain and the US in 1941, the new document lays out eight fundamental principles for a stable and secure global order, including the need to address new challenges such as emerging technologies, cyber threats, and climate change.  The document was criticized by Russian foreign minister Sergey Lavrov as “ideologically tainted” and by China’s Global Times as “misreading the trend of time.”

• Shaping the order. The New Atlantic Charter offers an affirmative vision in stark contrast to a world dominated by autocracies like China and Russia and could serve to galvanize the free world to act together to address shared challenges. But what made the original Atlantic Charter so compelling was the action it inspired, including new rules and norms governing the behavior of states, and new institutions that the United States and its allies and partners used to defend and enforce these rules. To succeed in shaping a revitalized global order, this same spirit will be required again today. 
• Hitting Home. As with the original document, the Atlantic Charter 2.0 could provide a blueprint for organizing a world that fosters a new era of security and prosperity for America and its citizens.
• What to do. Biden should encourage other leading democracies that share the charter’s vision to sign on and work together to support it. The administration should follow by taking concrete steps to create new institutions that would advance the charter and rally the world’s democracies to action behind the principles in the charter.

Biden-Putin Meeting.  Biden ended his visit to Europe by meeting with Russian president Vladimir Putin in Geneva. During the nearly three hours of talks, Biden reportedly raised concerns over Russian cyberattacks; human rights violations, including the imprisonment of opposition leader Alexey Navalny; and aggression against Ukraine. The two leaders agreed to launch a strategic stability dialogue to deal with issues such as arms control and cyberattacks, and to send ambassadors back to each other’s capitals.

• Shaping the order. Biden’s call-out of Russia’s behavior on human rights  and foreign interference suggests that US-Russia relations are likely to continue to be framed as a clash of values and interests, in the context of US support for an international rules-based order. Despite the launch of a new strategic dialogue and efforts by the Biden administration to cast the meeting as “positive” and “constructive,” the Kremlin appears undeterred from its current course of malign activities.
• Hitting Home. As demonstrated by recent ransomware attacks against US companies, including Colonial Pipeline, cyberattacks originating from Russia continue to pose threats to the US and could disrupt Americans’ daily lives
• What to do. Washington should continue to press Moscow to take action against cybercriminals based in Russia, release Navalny, and cease its broader efforts to undermine the rules-based order, while working closely with allies on a common strategy to raise costs on Moscow for such behavior.   

Quote of the Month

“America is better positioned to advance our national security and our economic prosperity when we bring together like-minded nations to stand with us… Our alliances weren’t built by coercion or maintained by threats.  They’re grounded on democratic ideals and a shared vision of the future … where the rights of all people are protected… where nations are free from coercion or dominance by more powerful states; [and] where the global commons … remain open and accessible for the benefit of all.” 

– President Joe Biden, United Kingdom, June 9, 2021

State of the Order this month: Strengthened

Assessing the five core pillars of the democratic world order    

Democracy (↑)

• In response to Belarus’ forced landing of a Ryanair flight in May and the government’s ongoing crackdown against pro-democracy protestors, the United States, European Union, United Kingdom and Canada announced coordinated sanctions on dozens of Belarusian individuals and entities, with additional sanctions likely to come.
• G7 leaders, joined by the leaders of Australia, India, South Africa, and South Korea, signed an Open Societies Statement that reaffirmed shared commitments to democratic values, human rights, and freedom of expression.
• Hong Kong’s largest pro-democracy newspaper, Apple Daily, was forced to shut down and its editors faced arrest as Beijing expanded its assault on democratic institutions in the autonomous territory.
• With the actions against Belarus and the priority placed on support for democracy at the G7, NATO, and EU Summits, the democracy pillar was strengthened.

Security (↑)

• Meeting in Brussels, NATO leaders reaffirmed their commitments to collective defense and advancing a rules-based order, while citing a range of traditional and evolving security challenges, including those posed by Russia and China.
• Conservative cleric Ebrahim Raisi, a protégé of Iranian Supreme Leader Ayatollah Khamenei, was elected as Iran’s next president, in a move widely seen as orchestrated by Khamenei to ensure that his hardline vision for Iran, contentious with the United States and the West, is maintained.
• China and Russia announced the extension of a friendship and cooperation treaty, originally signed in 2001, that Chinese President Xi Jinping said demonstrated the importance of strategic cooperation between Moscow and Beijing in defending their common interests on the global stage.
• Ransomware attacks, reportedly organized by groups based in Russia, continued to target American companies, including the world’s largest meat supplier, JSB Foods, which paid $11 million to the hackers. 
• In light of the NATO summit pronouncements, the overall security pillar was strengthened.

Trade (↑)

• After years of negotiations, G7 nations agreed to a new global minimum tax of 15 percent on multinational corporations, regardless of where their headquarters are located. Over 130 nations, including all members of the G20, have now endorsed the agreement.
• The United States and the European Union agreed on a temporary resolution of a 17-year dispute over aircraft subsidies to Boeing and Airbus, suspending tariffs for five years and committing to a more open and transparent process for research and development funding.
• The United States and the EU also agreed to create a new Technology and Trade Council, aimed at devising new standards for emerging technology, promoting democratic values online, and advancing collaboration on cutting-edge research.
• With these important developments, the global trade pillar was strengthened.

Commons (↑)

• G7 leaders pledged to provide one billion coronavirus vaccines to the developing world over the next year, with the United States committing to half of this amount.
• The G7 also agreed to step up action on climate change by committing to cut emissions in half by 2030 and renewing a pledge to raise $100 billion a year to help developing countries move to cleaner energy sources. 
• China launched a rocket to send the first astronauts to its new space station, a significant step in what could become an intensifying space race between China and the United States.
• Overall, the global commons pillar was strengthened.

Alliances (↑)

• As discussed above, President Biden joined G7 leaders for a summit in Britain that reaffirmed US relations with key democratic allies. 
• Biden also joined NATO leaders for a summit in Brussels that showcased allied solidarity and resulted in a strongly-worded communique in which allies agreed to language calling out Russia and highlighting the “systemic challenges” posed by China.
• Biden participated in a separate US-EU summit meeting in Brussels demonstrating strong US support for the EU after years of sharp criticism by former president Trump, and which set forth a “Joint Transatlantic Agenda” aimed at building a more democratic world and upholding a rules-based order, potentially bringing together EU and US regulatory power.
• Overall, the alliances pillar was strengthened.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order     

• Joe Biden, in a Washington Post op-ed, contended that his trip to Europe was about rallying democracies to meet the challenges and deter the threats of a new age.
• Hal Brands, in Foreign Affairs, argues that Biden’s emerging foreign policy doctrine focuses on a grand strategy of fortifying the democratic world against the most serious set of threats it has confronted in generations.
• Mira Patel, writing for the Indian Express, suggests that the New Atlantic Charter is being seen as a rebuke of China and Russia and could help renew the US-UK “special relationship.”

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

• In an Atlantic Council report, From the G7 to a D-10: Strengthening Democratic Cooperation for Today’s Challenges, Ash Jain and Matthew Kroenig, in collaboration with Tobias Bunde, Sophia Gaston, and Yuichi Hosoya, suggest a new D-10 to foster strategic alignment and coordinated action among like-minded and influential democracies.
• Fred Kempe, writing for CNBC, contends that Biden’s trip to Europe was aimed at providing a narrative thread and building common cause among the world’s leading democracies against authoritarianism
• Andrew Marshall, in the New Atlanticist, provides an analysis of the New Atlantic Charter.
• In an op-ed in The Hill, David Gordon and Ash Jain contend that Biden needs a D-10 to rally the democracies in an era of strategic competition.
• Lisa Aronsson and Brett Swaney, in the New Atlanticist, highlight three priorities for NATO’s new Strategic Concept in light of increasing competition with Russia and China.
• Nilofar Sakhi, in the New Atlanticist, suggests that China, Russia, and Iran are seeking to expand their influence in Afghanistan, which they view as a battlefield for strategic competition with the United States.
• Dan Fried, in the New Atlanticist, analyzes whether Biden’s building of a foreign policy doctrine around democracy is likely to succeed.
• In a Fast Thinking commentary, Dan Fried and Ash Jain discuss the potential implications of the New Atlantic Charter.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

The post State of the Order: Assessing June 2021 appeared first on Atlantic Council.

Is Britain acting globally important for Biden’s foreign policy?

For a G7 special of #BritainDebrief, Europe Center senior fellow Ben Judah unpacked whether or not America actually needs a Global Britain? To answer the question, he spoke to Emily Tamkin, US editor of the New Statesman, based in Washington, DC.

Why does America need allies? Does America have any healthy alliances? What cost would an Britain that gave up global ambitions have on the US?

You can watch #BritainDebrief on YouTube and as a podcast on Apple Podcasts and Spotify.

Former staff

Ben Judah

Former Director

Europe Center Transform Europe Initiative

Economy & Business European Union

The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

Learn more

The post #BritainDebrief – G7 special: Does America need a global Britain? A debrief from Emily Tamkin appeared first on Atlantic Council.

This month, senior government officials who gathered virtually under the auspices of the IMF and World Bank authorized the issuance of $650 billion of the IMF’s Special Drawing Rights (SDRs), a reserve asset that will be exchangeable for hard currency. In addition, the Group of Twenty (G20) governments agreed to extend until the end of this year a moratorium on debt-service payments by the poorest countries on loans from G20 lenders. That moratorium already has freed up $5.7 billion for forty-three countries since it went into effect a year ago, with another $7.3 billion of deferral possible by the end of June, according to World Bank President David Malpass.

However, these measures will not be enough. Low-income countries were hit by the same recession that the advanced and emerging-market economies experienced in 2020, but the IMF projects that their rebound will be much slower. So the tens of millions of people in low-income countries who have fallen back into extreme poverty because of the pandemic have little hope for improvement in the coming year. More action is needed in several areas:

• No rich nations have stepped up to offer new country-to-country assistance to help poor nations counter the public-health and economic impacts of the pandemic. This presents a stark contrast to the willingness of Group of Seven (G7) countries to provide bilateral aid to African countries at the height of the 2008 global financial crisis.

• The G20 has made little concrete progress on implementing its framework for restructuring the debts of countries whose loan obligations have become unsustainable during the pandemic.

• The G20 so far has not responded to the failure of private-sector creditors—who hold a major portion of low-income country debt—to join its debt-relief and debt-restructuring initiatives.

• A broad swath of the globe has little prospect of gaining significant access to COVID vaccines before 2022, or even 2023, meaning that the virus and its variants could continue to spread, mostly affecting low-income countries.

These intertwined issues, if left unaddressed, could lead to a long delay in the resumption of growth across the developing world at levels that could offset the human impact of the crisis, meaning debt burdens will deepen. The IMF has offered a brighter economic outlook for 2021 than many would have expected a year ago, with global growth now expected to reach 6 percent this year, largely because of a resurgent US economy. But the fund issued a stark warning that the debts of countries that have achieved emerging-market status could become a serious burden if the pandemic continues. “The future presents daunting challenges,” wrote IMF Chief Economist Gita Gopinath. “The pandemic is yet to be defeated and virus cases are accelerating in many countries. Recoveries are also diverging dangerously across and within countries.”

The agreement to issue SDRs can help, although many bureaucratic obstacles remain. This summer the IMF will make available the equivalent of about $21 billion in SDRs to low-income countries as reserves—an allocation from the total $650 billion that represents their weighting in the global economy. But the assets will not be immediately available as currency. First, the fund’s membership will have to agree on the procedures for each country to make use of its allocations by exchanging them for other currencies. Second, the members will have to agree on how wealthier countries may redistribute their own SDR allocations to low-income countries. In the absence of significant bilateral assistance from wealthy countries—either grant aid or low-interest loans—the transfer of SDRs could be crucial to help low-income countries respond to the pandemic. US Treasury Secretary Janet Yellen has said that the United States looks forward to discussing ways to deploy SDRs to support low-income countries.

Debt restructuring remains another serious hurdle. Three African countries—Chad, Ethiopia, and Zambia—have asked to restructure their debt burdens under a Common Framework for Debt Treatments agreed to by the G20 last year, and more countries are expected to follow. But that process has remained stalled by procedural issues like the composition of creditor committees that would negotiate with the debtor governments. Governments involved in the negotiations over the Common Framework are still unsure how much money and influence China—the largest bilateral creditor to low-income countries, with hundreds of billions of dollars in loans—is prepared to commit to the restructuring.

There are also differences over the role of private-sector lenders, which range from Eurobond holders in Ethiopia, Zambia, and other countries to the commodities trading and mining giant Glencore, which holds the largest single portion of Chad’s debt. Private-sector lenders have declined to participate in the G20 debt-service moratorium in the absence of country-by-country negotiations, and their role in debt restructuring remains unclear.

While the private sector’s role merited several mentions in the communiqués issued this month by the G20 finance ministers and IMF, there was little evidence at the respective meetings that the governments were prepared to take a harder line against the financiers. However, officials have suggested that private-sector participation in the Common Framework will be an integral and unavoidable part of the G20’s overall strategy in dealing with debt distress. It is likely only a matter of time before we see the official sector deploy the necessary carrots (and sticks) to bring a recalcitrant private sector into the restructuring process. Over the past year, senior officials have spoken of mandating the participation of private bondholders in any restructuring of sovereign debts. Private-sector misgivings about the Common Framework forcing them to disclose proprietary information have also been discounted because officials see the public and private interest best served through greater transparency on all debt owed by low-income countries, but officials are prepared to be flexible about how certain categories of debt data are released publicly. 

Finally, there is the issue of “vaccination, vaccination, vaccination,” as Swedish Finance Minister Magdalena Andersson declared during an IMF press conference. Only a tiny percentage of COVID vaccines so far have been made available to developing countries. Pandemic-fighting tools for low-income countries, including the COVAX Facility to supply vaccines, face a $19 billion funding shortfall, even after the Biden administration, the World Bank, and other donors have chipped in $14.1 billion. India’s commitment to provide millions of shots to other countries has ground to a halt as it struggles with a severe resurgence of the virus, and questions have arisen about the effectiveness of China’s Sinovac vaccine, which has been supplied to countries from Indonesia to Turkey and Brazil. By some estimates, dozens of countries across the Global South will not receive adequate supplies of vaccines until 2023.

While the IMF has made important progress in finding ways to assist low-income countries during the pandemic, many others—especially creditor governments and private lenders—have failed to respond adequately. That means the developing world faces a deepening crisis just as some countries begin to gain the upper hand against COVID-19. Those diverging fortunes do not bode well for a global recovery.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter @JedMark888.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of the book Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter @vshastry.

The post A world apart: How wealthy nations can strengthen the COVID safety net appeared first on Atlantic Council.