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GRI Weekly Risk Outlook 15.12

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US Fed to give more precise details on timing of rate change at FOMC meeting on Dec 16-17. Greece announces snap elections for Dec 17, prompting stock drop. Mercosur summit will discuss impact of falling commodity prices. Bank of Japan likely to keep monetary policy tight and focus on inflation target despite tailwind from low oil prices. All in this week’s GRI Weekly Risk Outlook.

The US Fed: Enlightened Forward Guidance?

There is much expectation ahead of the Federal Open Market Committee (FOMC) meeting on Tuesday (16 Dec.) and Wednesday (17 Dec.), which is likely to give a greater insight on the future path of US monetary policy.

The prospect is that the Federal Reserve is likely to move away from its “considerable time” language and shed some light on the eventual timing of a progressive rate hike, most likely in Q3 2015. In the wake of a US hiring surge in November, unemployment and inflation figures have fallen below the Fed’s threshold targets and we therefore deem that the FOMC will start to provide a new form of forward guidance – most likely in the form of language emphasizing that the rate hike is on the cards, just not imminently.

With the significant fall in crude prices and the robust performance of the US economy, the Fed will probably tone down its inflation and unemployment forecasts. If the Fed is to continue shaping policy in a data-dependent manner, we expect Ms. Yellen to provide enlightened forward guidance to markets in the form of a more precise timeline prospectus destined to prepare markets for the unwinding of unconventional monetary policy in the US.

Greece: prospects of political turmoil ahead

Alluding to mounting pressure on the government to bring forward the date of Greece’s March 2015 general elections, the Greek Prime Minister announced last week that his decision to hold snap presidential elections were prompted by the need to restore political stability.

Shortly after the announcement of this decision, anxiety over the prospects of upcoming political turmoil prompted a 12.8% fall in the Athens stock exchange, the biggest drop recorded since December 1987. This has generated widespread investor concern in regards to the higher likelihood of Greece defaulting on its debt, particularly as short-term borrowing costs have been pushed above their long-term counterparts in the wake of the government’s failure to undertake the required reforms to secure the concluding bailout payment.

With PM Antonis Samaras putting forward Stavros Dimas as his candidate for the presidency in a first of three possible votes in parliament, we do not see any substantive guarantees that Mr. Dimas will secure the supermajority (200 seats out of a total of 300) that he needs to win. In the event that he does not get elected in the first round on December 17, the second and third rounds are scheduled for 23 and 29 December, respectively.

Under the scenario whereby Mr. Dimas does not secure his nomination for head of state in all of the three possible attempts, this will inevitably lead to the government’s (and possibly the parliament’s) dissolution, prompting the call for early elections.

In the current state of play, investors are weary of the prospect that early elections could bring Syriza to power, a party that wants to renegotiate Greece’s sovereign debt and bolster public spending – a proposal that puts Greece’s creditors at the edge of their seat.

Mercosur summit: Bloc solidarity for macroeconomic woes?

On 17 December, the Mercosur trade bloc is holding a summit in Parana (Argentina) where leaders from Uruguay, Paraguay, Venezuela, Brazil and Argentina are expected to centre discussions on the impact of falling commodity prices on members’ economies.

We expect Venezuela to bring up its current macroeconomic woes to its Mercosur partners, with the possibility of reaching out to its counterparts in an attempt to secure financial help in the event that Caracas is forced to default on its debt, a scenario that is looking ever so likely.

Moreover, given the location of the summit, we also expect Argentina’s President Ms. Kirchner to gather up support from the trade bloc partners in assisting Argentina with confronting its holdout creditors, who prompted Buenos Aires to default on its debt in July. In this sense, we see the upcoming Mercosur summit focussing on the internal struggles of the trade bloc as it faces the mounting headwinds of the global economy.

Bank of Japan’s Monetary Policy Conundrum

On Friday 19 December, the Bank of Japan (BoJ) will conclude a two-day meeting during which it will announce its monetary policy decisions in the wake of a snap general election. With the expectation that Shinzo Abe’s Liberal Democratic Party (LDP) will win with ease, the BoJ governor is confronted with a policy conundrum.

While the drop in oil prices stands out as a godsend to the economy – due to the so-called “tax-cut” effects – this phenomenon threatens BoJ Governor Mr. Haruhiko Kuroda’s endeavor to quickly achieve the BoJ’s 2% inflation target. Indeed, softer oil prices could push Japan’s core consumer price index to levels as low as 0.5% next spring, exacerbating the country’s disinflationary woes.

Following the BoJ’s surprise QQE move on 31 October, the oil market has continued on a downward trend, as has the yen. In the event that the yen continues to depreciate further, on the back of mounting speculation that the BoJ will become increasingly reactive to the slide in oil prices, this could indeed halt the decline in the inflation rate, but the benefits brought about by the “tax-cut” effects emanating from lower oil prices would be annulled.

We expect the BoJ to continue to play it safe and favour price stability through tight monetary policy. Indeed, we would not be surprised if Mr. Kuroda plays by the Central Banker’s rule of thumb: do not respond to downward pressures on inflation from soft oil prices – the knock-on consequences are inevitably one of elevated rate of inflation in the long-term.

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions impact economic outcomes. The WRO is put together by GRI analyst Jose Luengo-Cabrera.

Modern Diplomacy partnership with Global Risk Insights

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USA and Australia Worry About Cyber Attacks from China Amidst Pegasus Spyware

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Pegasus Spyware Scandal has shaken whole India and several other countries. What will be its fallout no one knows as we know only tip of iceberg. Amidst Pegasus Spyware Scandal USA and Australia both have shown serious concerns about Cyber Attacks on US and Australian interests. Both say that China is hub of malware software and both face millions of such attacks daily.

I am trying to understand why a software is needed to spy on a particular individual when all calls, messages, data, emails are easily accessible from server. In most of cases these servers are located in USA and some cases these are located in host country. In certain sensitive cases Government Agencies have their own server like Central Intelligence Agency and hundreds of other agencies and military establishment world over including India. Now point is who installs those servers.

A couple of years back I had talked to Mr Mike Molloy who is Chief Executive Officer of Orion Global Technologies previously known as Orion SAS. He had explained me how his company installs servers in host countries on request of private or gov bodies. He talks about contract and trust. That means even when a company or Gov buys a server or software for designated uses the “Secrecy” Factor remain on discretion of company which has supplied server or software.

Now  if all data, e-mail, chat, messages, calls are accessible to Gov as per law and technology (Through Server all components of Communication are accessible and thats why  me and you see start seeing call recording of a person even after many years later), I am unable to understand why a Gov will be needing a software to Spy on any one.

Now coming to where Australia and USA wants to carry the whole debate.

Australian Foreign Minister Sen Marise Payne said, “Australian Government joins international partners in expressing serious concerns about malicious cyber activities by China’s Ministry of State Security.

“In consultation with our partners, the Australian Government has determined that China’s Ministry of State Security exploited vulnerabilities in the Microsoft Exchange software to affect thousands of computers and networks worldwide, including in Australia. These actions have undermined international stability and security by opening the door to a range of other actors, including cybercriminals, who continue to exploit this vulnerability for illicit gain”, She further added.

She opined, ”The Australian Government is also seriously concerned about reports from our international partners that China’s Ministry of State Security is engaging contract hackers who have carried out cyber-enabled intellectual property theft for personal gain and to provide commercial advantage to the Chinese Government”.

She warned China by saying, “Australia calls on all countries – including China – to act responsibly in cyberspace.  China must adhere to the commitments it has made in the G20, and bilaterally, to refrain from cyber-enabled theft of intellectual property, trade secrets and confidential business information with the intent of obtaining competitive advantage”.

On other hand USA’s The National Security Agency (NSA), Cybersecurity and Infrastructure Security Agency (CISA) and Federal Bureau of Investigation (FBI) released a Cybersecurity Advisory on Chinese State-Sponsored Cyber Operations. National Security Advisor said, ”Chinese state-sponsored cyber activity poses a major threat to U.S. and allied systems. These actors aggressively target political, economic, military, educational, and critical infrastructure personnel and organizations to access valuable, sensitive data. These cyber operations support China’s long-term economic and military objectives”.

The information in this advisory builds on NSA’s previous release “Chinese State-Sponsored Actors Exploit Publicly Known Vulnerabilities.” The NSA, CISA, and FBI recommended mitigations empower our customers to reduce the risk of Chinese malicious cyber activity, and increase the defensive posture of their critical networks. 

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Afghan issue can not be understood from the simplistic lens of geopolitical blocs

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pakistan-terrorism

Authors: Tridivesh Singh Maini  and Varundeep Singh*

On July 14, 2021 a terror attack was carried out in Khyber Pakhtunkhwa (KPK) province in which a number of Chinese engineers, working on the Dasu hydropower project (a project which is part of the China Pakistan Economic Corridor) were killed. The attack predictably evinced a strong response from China. The Chinese foreign minister, Wang Yi speaking before a Shanghai Cooperation Organisation (SCO) Foreign Minister’s meeting asked the Taliban to disassociate itself from ‘terrorist elements’ and in a meeting with Pakistan Foreign Minister, Shah Mehmood Qureshi, asked Pakistan to bring the perpetrators to book. Earlier in April 2021, a car bomb attack took place at Serena hotel in Quetta which was hosting China’s Ambassador to Pakistan (four people were killed and twelve were injured)

Wang Yi significantly praised the Ashraf Ghani government, for its attempts towards building national unity and providing effective governance. Beijing clearly realizes that its economic investments in the country as well as big ticket infrastructural projects can not remain safe if there is no security. Afghanistan also criticized Pakistan for its role in sending 10000 Jihadis to Taliban, this is important in the context of the region’s geopolitics.

 Like all other countries, Beijing and Islamabad, would have expected uncertainty after the US withdrawal of troops but perhaps over estimated their capabilities in dealing with the turbulence which had been predicted by many.

Importance of Chinese Foreign Minister’s statements

Wang Yi’s statements are important because days earlier a Taliban spokesman, Suhail Shaheen had praised China and welcomed its role in the country’s reconstruction. He had also assured China that those involved in the insurgency in Xinjiang would not be given refuge in Afghanistan (one of China’s major concerns has been the support provided by Taliban to the East Turkmenistan movement)

While Beijing may have opened back channels with the Taliban and realized that it needs to adapt to the changing geopolitics, recent developments would have increased its skepticism vis-à-vis the Taliban. On the other hand, Russia has been more favorable towards the Taliban. Russia’s Deputy Chief of Mission in India, Roman Babushkin argued that the Taliban are a reality which needs to be accepted, and also that any military activities without a political process are insufficient.

Babushkin did make the point that for successful negotiations, Taliban needed to end violence.

‘that Taliban should deal with the problem of terrorism and other related issues in order to become legitimate, in order to [get] delisted [at the UN Security Council], in order to go ahead with the future Afghanistan and creation of the inclusive government

It would be pertinent to point out, that Zamir Kabulov, Russian President’s Afghanistan envoy went a step further and said that the Afghan government was not doing enough to make talks with Taliban a success.

China’s statements subtle warning to the Taliban, indicating its reservations, and praise of Ghani indicate a possibility of greater understanding between Washington and Beijing (even though Beijing has repeatedly attributed the current troubles in Afghanistan to Washington’s decision to withdraw troops).

Can US and China find common ground

 It remains to be seen if Biden who has exhibited dexterity on a number of complex issues reaches out to Xi Jinping to find common ground with regard to Afghanistan. Significantly, while US-Turkey relations had witnessed a downward trajectory and Biden has been critical of Turkish President Recep Tayyip Erdogan’s authoritarian tendencies and Human rights record, both leaders met on the sidelines of the NATO Summit in June 2021. During the meeting Turkey agreed to secure Kabul Airport. US National Security Advisor Jake Sullivan while commenting on Turkey’s assurance said

‘The clear commitment from the leaders was established that Turkey would play a lead role in securing Hamid Karzai International Airport, and we are now working through how to execute to get to that,’

Taliban earlier this week warned Turkey of ‘consequences’ if the Middle Eastern nation increased its troop presence in Afghanistan.

Conclusion

Russia’s statements with regard to the Taliban indicate that it is not totally on the same page as China (its prior experience in Afghanistan has made it more cautious and circumspect), and that the Afghan issue can not be understood from the simplistic lens of geo-political blocs and traditional lenses. All major stakeholders in Afghanistan, both within the region and outside, seem to be understandably befuddled by the turn of events. It is not just the US, but even China which would be worried not just from an economic stand point but the overall security implications of the turmoil in Afghanistan. The terror attack in KPK indicates that other CPEC related projects could also face threats from militant groups. Beijing would thus need to be quick to react to the overtures from the Taliban in order to secure its economic assets and lives of Chinese workers in neighbouring Pakistan.

 It is especially important for Washington, Beijing and other important stakeholders in the region to work together for dealing with the near term turbulence as well as long term challenges Afghanistan is likely to face.

*Varundeep Singh is an Independent Policy Analyst.

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Pegasus: Human rights-compliant laws needed to regulate spyware

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The UN human rights chief on Monday said the apparent widespread use of Pegasus spy software to illegally undermine the rights of those under surveillance, including journalists and politicians, was “extremely alarming” and confirmed “some of the worst fears” surrounding the potential misuse of such technology. 

“Various parts of the UN Human Rights system, including my own Office, have repeatedly raised serious concerns about the dangers of authorities using surveillance tools from a variety of sources supposed to promote public safety in order to hack the phones and computers of people conducting legitimate journalistic activities, monitoring human rights or expressing dissent or political opposition”, said High Commissioner Michelle Bachelet in a statement

According to reports, the Pegasus data leak allegations which surfaced through a consortium of media organisations over the weekend, suggests widespread and continuing abuse of the software, which the manufacturers insist, is only intended for use against criminals and terrorists. 

The Pegasus malware infects electronic devices, enabling operators of the tool to obtain messages, photos and emails, record calls, and even activate microphones, according to the consortium’s reporting. The leak contains a list of more than 50,000 phone numbers which reportedly belong to those identified as people of interest, by clients of the company behind Pegasus, including some governments.  

‘Indispensable role’ 

Surveillance software has been linked to the arrest, intimidation and even killing of journalists and human rights defenders, according to the senior UN official.  

Reports of surveillance also trigger fear and cause people to censor themselves.   

“Journalists and human rights defenders play an indispensable role in our societies, and when they are silenced, we all suffer”, she said, reminding all States that surveillance measures can only be justified in narrowly defined circumstances when necessary and proportional to a legitimate goal.  

‘Deep intrusions’ 

Given that Pegasus spyware, “as well as that created by Candiru and others, enable extremely deep intrusions into people’s devices, resulting in insights into all aspects of their lives”, the UN rights chief underscored, “their use can only ever be justified in the context of investigations into serious crimes and grave security threats.” 

If recent allegations about the use of Pegasus are even partly true, she maintained that the “red line has been crossed again and again with total impunity”. 

‘Due diligence’ 

Companies developing and distributing surveillance technologies are responsible for avoiding human rights abuses, she said, and they must take immediate steps to mitigate and remedy the damage their products are causing, or contributing to, and carry out “human rights due diligence” to ensure that they no longer play a part in “such disastrous consequences” now, or in the future. 

States also have a duty to protect individuals from privacy rights abuses by companies, she added.  

One key step in this direction is for States to require by law that the businesses meet their human rights responsibilities by becoming more transparent in their design and use of products and by putting in place effective accountability mechanisms. 

Better regulation key 

Reports also confirm “the urgent need to better regulate the sale, transfer and use of surveillance technologies and ensure strict oversight and authorization.” 

Governments should not only immediately stop using surveillance technologies in ways that violate human rights, but also “take concrete actions” to protect against such invasions of privacy by “regulating the distribution, use and export of surveillance technology created by others”, the High Commissioner said.  

Without human rights-compliant regulatory frameworks, Ms. Bachelet upheld that there are “simply too many risks” that the tools could be used to intimidate critics and silence dissent.

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