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Russia and Nato ‘actively preparing for war’

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Welcome to the Caspian Daily, where you will find the 10 most important things you need to know on Caspian Sea Region. We appreciate ideas, reports, news and interesting articles. Send along to Caspian[at]moderndiplomacy.eu or on Twitter: @DGiannakopoulos

1The increase in the scale and number of military exercises by Russian and NATO is making armed conflict in Europe more likely, a think tank has warned. Ian Kearns, director of the London-based European Leadership Network, said that war games “are contributing to a climate of mistrust” that has “on occasion become the focal point for some quite close encounters between the NATO and Russian militaries.”Kearns is a co-author of a study which looks in detail at two military exercises held this year by Russia and NATO, which are deeply at odds over Moscow’s interference in Ukraine. He found signs that “Russia is preparing for a conflict with NATO, and NATO is preparing for a possible confrontation with Russia.”The exercises “can feed uncertainty” and heighten the risk of “dangerous military encounters”.The ELN study said NATO is planning around 270 exercises this year, while Russia has announced 4,000 drills at all levels.

2Iran’s frozen funds: how much is really there? Iran’s portfolio of foreign assets is diverse, and the segment that has been frozen as a result of Western and international economic sanctions is spread among several countries and dates from different times. The freeze date for some goes as far back as the 1979 Islamic Revolution.The conflicting estimates about the value of assets to be released within a year of the deal’s implementation are partly due to the fact that there are different types of assets: some will be very easy to recover, while others will likely remain tied up. Details are murky.In general, the value of all Iranian assets blocked since 1979 most likely exceeds $100 billion. Nader Habibi for the Fortune.

3How much will the Iran deal really affect the U.S. dollar? President Obama and Secretary of State John Kerry argue that if Congress doesn’t approve the Iran nuclear deal, the U.S. dollar will fall from grace. Recently, Kerry and Obama have argued that if the Iran deal doesn’t pass, the U.S. would be forced to slap sanctions on anyone doing business with Iran going forward. That could be some of the world’s largest banks or even our allies in Europe or China if they forge ahead with the deal and America doesn’t. That would not go down well. The fear is that these nations and banks might retaliate by ditching the dollar as their currency of choice.

4Azerbaijani and Turkey’s military officials have exchanged views on the military situation in the region.Azerbaijani Defense Minister Zakir Hasanov met outgoing military attaché of the Turkish Armed Forces to Azerbaijan Hasan Nevzat Tasdeler on August 11, the Azerbaijani defense ministry said.They stressed the importance of high-level reciprocal visits, and exchanged views on the military-political situation in the region, military-educational issues.The sides emphasized the necessity of solving the Armenia-Azerbaijan Nagorno-Karabakh conflict, saying this will help establish peace and security in the region.

5The foreign trade turnover of Kazakhstan with the countries of the Eurasian Economic Union (EEU) (Russia, Belarus, Armenia) declined by 21 percent and amounted to $7.806 billion in January-June 2015 compared to the same period of 2014, according to the State Statistics Committee under the Ministry of National Economy of Kazakhstan.Kazakhstan’s exports to the EEU countries decreased by 26.8 percent and amounted to $2.351 billion in the first half of 2015. Kazakhstan’s import from Russia, Belarus and Armenia decreased by 18.2 percent and amounted to $5.455 billion. Kazakhstan’s main trade partner in the EEU is traditionally Russia. Some $2.323 billion of Kazakhstan’s exports and $5.221 billion of Kazakhstan’s imports accounted for this country in the reporting period.

6The Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project has recently become much more popular. The problem is that security in the transit countries, which the pipeline should cross, i.e. Afghanistan and Pakistan, is at a very low level. Blowing up infrastructure in these countries is commonplace. For the years since the emergence of the idea of the TAPI gas pipeline, the situation has not improved. On the contrary, with the withdrawal of US and NATO troops from Afghanistan in 2014, the terrorist threat in the region only increased. Under these conditions, in case of the project implementation, its participants will have to take huge risks, without any guarantee. The question arises: is it worth it for Turkmenistan to take such a risk? Elena Kosolapova for Trend.

7President of Kazakhstan Nursultan Nazarbayev visited Almaty city on August 9, shortly after the city’s mayor was changed. Nazarbayev spoke about the progress achieved by Akhmetzhan Yessimov, the former Almaty Mayor. The latter took the office of Almaty Mayor in 2008 and only days ago was appointed Chairman of Astana EXPO-2017 National Company, the company steering Kazakhstan’s preparations for the EXPO. He explained that Yessimov’s experience was needed for organization of the upcoming EXPO-2017 in Astana. “EXPO-2017 is our future. Construction exhibition venues is just one part of this task. Another part, a more important one, is its content. EXPO-2017 is supposed to boost Kazakhstan’s transition to a new technological level based on alternative energy. The steering company needs an experienced leader capable of working with the government and regional akimats (local authorities) as well as with dozens of countries to attract investments and new technologies,” Nazarbayev said.

8Azerbaijan, the only Caucasus country with significant prospects for comprehensive development, is keen on diversifying its national economy, in particular the non-oil sector.A successful energy policy pursued by the government has enabled the South Caucasus country not only to stand on its own feet, but also to decrease dependence on petrodollars.Nariman Agayev, the Chairman for Research on Sustainable Development Center, believes that Azerbaijan can develop its non-oil sector by investing in the agricultural sector.He told local media that after three years, this sector of the national economy will bring significant revenues to the state budget.

9Saudis Looking for A Life of Problems. Iranian Foreign Ministry spokeswoman Marziyeh Afkham said on Tuesday that remarks by al-Jubeir in a joint press conference with his German counterpart Frank-Walter Steinmeier in Berlin on Monday showed that the JCPOA, which is aimed at ending an “unnecessary crisis,” has incurred the Saudi official’s “irrational wrath”.“When the senior representative of a regional government is infuriated to such extent by the political settlement of issues in the region and at the international level, it leaves no doubt that he has chosen a life of problems and crisis,” she said.She expressed regret that the Saudi minister’s remarks about the JCPOA were an “echo of the Zionist regime’s stance.”

10Ereymentau Wind Power has kicked off tendering to build a 50MW wind farm in Yereymentau city, Kazakhstan.The developer intends for prequalified firms, joint ventures and consortia of any nationality to tender for the turnkey project.Subsequent phases could push total project capacity up to 300MW.Funding sources for build include part of a loan from the European Bank for Reconstruction and Development’s Clean Technology Fund and the client, EWP.

Journalist, specialized in Middle East, Russia & FSU, Terrorism and Security issues. Founder and Editor-in-chief of the Modern Diplomacy magazine.

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Finance

Credit Suisse to pay $475 million to U.S. and U.K. authorities

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Credit Suisse Group AG has agreed to pay nearly $475 million to U.S. and U.K authorities, including nearly $100 million to the Securities and Exchange Commission, for fraudulently misleading investors and violating the Foreign Corrupt Practices Act (FCPA) in a scheme involving two bond offerings and a syndicated loan that raised funds on behalf of state-owned entities in Mozambique.

According to the SEC’s order, these transactions that raised over $1 billion were used to perpetrate a hidden debt scheme, pay kickbacks to now-indicted former Credit Suisse investment bankers along with their intermediaries, and bribe corrupt Mozambique government officials. The SEC’s order finds that the offering materials created and distributed to investors by Credit Suisse hid the underlying corruption and falsely disclosed that the proceeds would help develop Mozambique’s tuna fishing industry. Credit Suisse failed to disclose the full extent and nature of Mozambique’s indebtedness and the risk of default arising from these transactions.

The SEC’s order also finds that the scheme resulted from Credit Suisse’s deficient internal accounting controls, which failed to properly address significant and known risks concerning bribery.

“When it comes to cross-border securities law violations, the SEC will continue to work collaboratively with overseas law enforcement and regulatory agencies to fulfill its Enforcement mission,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Our action against Credit Suisse today is yet another example of our close and successful coordination with counterparts in Europe and Asia.”

“Credit Suisse provided investors with incomplete and misleading disclosures despite being uniquely positioned to understand the full extent of Mozambique’s mounting debt and serious risk of default based on its prior lending arrangements,” said Anita B. Bandy, Associate Director of the SEC’s Division of Enforcement. “The massive offering fraud was also a consequence of the bank’s significant lapses in internal accounting controls and repeated failure to respond to corruption risks.”

A London-based subsidiary of Russian bank VTB separately agreed to pay more than $6 million to settle SEC charges related to its role in misleading investors in a second 2016 bond offering. According to the SEC’s order, the second offering as structured by VTB Capital and Credit Suisse allowed investors to exchange their notes in an earlier bond offering for new sovereign bonds issued directly by the government of Mozambique. But the SEC found that the offering materials distributed and marketed by Credit Suisse and VTB Capital failed to disclose the true nature of Mozambique’s debt and the high risk of default on the bonds. The offering materials further failed to disclose Credit Suisse’s discovery that significant funds from the earlier offering had been diverted away from the intended use of proceeds that was disclosed to investors. Mozambique later defaulted on the financings after the full extent of “secret debt” was revealed.

The SEC’s order against Credit Suisse finds that it violated antifraud provisions as well as internal accounting controls and books and records provisions of the federal securities laws. Credit Suisse agreed to pay disgorgement and interest totaling more than $34 million and a penalty of $65 million to the SEC. As part of coordinated resolutions, the U.S. Department of Justice imposed a $247 million criminal fine, with Credit Suisse paying, after crediting, $175 million, and Credit Suisse also agreed to pay over $200 million in a penalty as part of a settled action with the United Kingdom’s Financial Conduct Authority.

VTB Capital consented to an SEC order finding that it violated negligence-based antifraud provisions of the federal securities laws. Without admitting or denying the findings, VTB Capital agreed to pay over $2.4 million in disgorgement and interest along with a $4 million penalty.

The SEC’s investigation was conducted by Lesley B. Atkins and Douglas C. McAllister with assistance from Wendy Kong of the Office of Investigative and Market Analytics, Carlos Costa-Rodriguez of the Office of International Affairs, and supervisory trial counsel Tom Bednar. The case was supervised by Ms. Bandy. The SEC appreciates the assistance of the U.S. Department of Justice’s Money Laundering and Asset Recovery Section and Fraud Section, the U.S. Attorney’s Office for the Eastern District of New York, the United Kingdom’s Financial Conduct Authority, the Swiss Financial Market Supervisory Authority, and the United Arab Emirates Securities and Commodities Authority.

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Development

Iraq: An Urgent Call for Education Reforms to Ensure Learning for All Children

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A girl student in Basra, Iraq, who benefits from a UNICEF/WFP education stipend programme. UNICEF

Learning levels in Iraq are among the lowest in the Middle East & North Africa (MENA) region and are likely to decline even further because of the impact the COVID-19 pandemic has had on education service delivery, including prolonged school closures.

These low learning levels are putting the future of Iraqi children and the country at risk. A new World Bank report says that while, now more than ever, investments are needed in education to recover lost learning and turn crisis into opportunity, these investments must be accompanied by a comprehensive reform agenda that focuses the system on learning outcomes and builds a more resilient education system for all children. 

The World Bank Group’s new report, Building Forward Better to Ensure Learning for All Children in Iraq: An Education Reform Path, builds on key priorities in education recently identified in the Government of Iraq’s White Paper and the World Bank Group’s Addressing the Human Capital Crisis: A Public Expenditure Review for Human Development Sectors in Iraq report, and provides actionable reform recommendations to boost learning and skills.

Human capital is essential to achieve sustainable and inclusive economic growth. However, according to the World Bank’s 2020 Human Capital Index (HCI), a child born in Iraq today will reach, on average, only 41% of their potential productivity when they grow up. 

At the heart of Iraq’s human capital crisis is a learning crisis, with far-reaching implications. Iraq’s poor performance on the HCI is largely attributed to its low learning levels. COVID-19 has led to intermittent school closures across Iraq, impacting more than 11 million Iraqi students since February 2020. This report highlights that, with schools closed over 75% of the time and opportunities for remote learning limited and unequal, Iraqi children are facing another reduction of learning‑adjusted years of schooling. Effectively, students in Iraq are facing more than a “lost year” of learning. 

Iraq can use lessons learned from the current health crisis, turn recovery into opportunity, and “build forward better,” to ensure it provides learning opportunities for all Iraqi children especially its poorest and most vulnerable children” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “The World Bank is ready to support Iraq in building a more equitable and resilient post-COVID-19 education system that ensures learning for all children and generates the dividends for faster and more inclusive growth”.  

The report Building Forward Better to Ensure Learning for All Children in Iraq: An Education Reform Path puts forward for discussion sector-wide reform recommendations, focusing on immediate crisis response as well as medium and long-term needs across six key strategic areas:  

1. Engaging in an Emergency Crisis response through the mitigation of immediate learning loss and prevention of further dropouts.

2. Improving foundational skills to set a trajectory for learning through improved learning & teaching materials and strengthened teacher practices with a focus on learning for all children.

3. Focusing on the most urgently needed investments, while ensuring better utilization of resources.

4. Improving the governance of the education sector and promoting evidence‑based decision‑making.

5. Developing and implementing an education sector strategy that focuses on learning and “building forward better”.

6. Aligning skills with labor market needs through targeted programs and reforms.

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Development

More Funding for Business and Trade to Help Lao PDR Recover from Pandemic

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The World Bank and the Government of Lao PDR have agreed to scale up a Competitiveness and Trade Project that will improve the ability of businesses to recover from the economic effects of COVID-19 as part of the government’s emergency response to the pandemic. The additional financing will provide a US$6.5 million grant through the Lao Competitiveness and Trade Multi-Donor Trust Fund supported by Australia, Ireland, and the United States.

The extra funding follows a request by the Ministry of Industry and Commerce for additional resources to help the government and private sector respond to the challenges posed by COVID-19 and related restrictions. The Lao economy, which had already been slowing since 2018 following floods, drought and crop disease outbreaks, has been hit badly by the pandemic since early 2020, causing poverty to rise by an estimated 4.4 percentage points.

This additional financing complements the government’s approach of providing rapid and direct relief to vulnerable firms and to adjusting government services to the effects of COVID-19. Helping viable businesses to survive and grow will help them maintain and create jobs, thereby driving economic recovery.

The ministry has been implementing the original Lao PDR Competitiveness and Trade Project since late 2018 with $13 million of credit and grants from the World Bank and the trust fund. The project works to improve the processes required to start and operate a business, and to reduce the costs of doing business in Laos. Measures to lower trade costs and facilitate trade flows include streamlining regulations to reduce the time that goods spend at borders. Business Assistance Facility grants are available to help companies improve their competitiveness, while the project also supports improved policy making and transparency, along with stronger public-private policy dialogue.

According to H.E. Somchith Inthamith, Deputy Minister of Industry and Commerce, “the new financing will be used to scale up and extend activities under the original project, such as decreasing the time required for goods to clear customs, and increasing the ability of our producers to connect to markets. Additional resources will be used to help new Lao firms set up, and aid existing companies seeking grants to mitigate the impact of COVID-19”.

Mariam Sherman, Country Director for the World Bank in Myanmar, Cambodia, and Laos, said that over a year into the COVID-19 pandemic, the country has faced significant economic stress, especially considering the effects of the crisis on important trade partners. “This project has been prepared with urgency”, she said. “It can help the Lao government accelerate policy changes and regulatory reforms that will improve the ease of doing business, facilitate trade, and support company competitiveness. Such reforms will help Lao firms weather shocks, increase their ability to do business on the ground, and provide access to international markets for necessary inputs and outputs”.

The Lao Competitiveness and Trade Multi-Donor Trust Fund is a continuing effort to improve the efficiency of development assistance for trade in the Lao PDR, by pooling resources from the World Bank, Australia, and Ireland for increased efficiency of implementation, reduced transactions costs and greater impact on-the-ground.

Since the start of the COVID-19 pandemic, the World Bank Group has committed over $125 billion to fight the health, economic, and social impacts of the pandemic, the fastest and largest crisis response in its history. The financing is helping more than 100 countries strengthen pandemic preparedness, protect the poor and jobs, and jump start a climate-friendly recovery. The Bank is also providing $12 billion to help low- and middle-income countries purchase and distribute COVID-19 vaccines, tests, and treatments.

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