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Lebanese-Chinese Partnership in the Midst of the Lebanese Economic Decline

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Chinese Ambassador to Lebanon Wang Kejian (R, front) and Lebanese Health Minister Hamad Hassan (L, front) sign at a handover ceremony of medical supplies donated by China in Beirut, Lebanon, April 16, 2020. (Photo by Bilal Jawich/Xinhua)

Unfortunately, it seems that the Lebanese economic scenario is similar to the Venezuelan scenario. I am not optimistic. There is no glimmer of hope on the horizon, and it is likely that 2021 will be “the year of the major Lebanese economic setback.” COVID-19 has established new economic rules on many countries with fragile economies, including Lebanon, as many of the huge global institutions have gone bankrupt and the world has turned to a social welfare system, especially in the days of quarantine and lockdown. However, the Lebanese crisis began before the pandemic. The Lebanese media has been equipped with psychological weapons to spread poisons against the Lebanese authority, and the scenes of riots, cracking, and insults supported both externally and internally have not ended. These tools perfectly performed their destructive mission.

The Lebanese economic crisis is due to an external decision taken by the United States administration, the decision to impoverish and starve. President Trump’s administration prevented the transfer of funds from abroad to Lebanon in dollars, thus receiving the money in Lebanese pounds coincided with the increase in the exchange rate of the Lebanese pound against the dollar. The second step is to prevent Lebanese banks from delivering deposits to depositors in dollars, so the depositor loses more than half the value of the deposits if he/she agrees to withdraw money according to the exchange value determined by the bank. The third step is to prevent international aid to Lebanon, both Arab and foreign. The World Bank has linked aid to Lebanon to crippling conditions such as demarcating the borders with Israel, while insisting on the maritime borders that contain oil but according to international conditions, in addition to keeping the Syrian refugees and passing demands such as resettlement. These conditions thwarted the efforts of the Lebanese delegation to the World Bank.

It is true that the Lebanese system is “democratic,” but the banking system in Lebanon is a “disguised dictatorship.” So the governor of the Banque du Liban is a ruler by his order, it is a detachment from state authority. Article 26 of the Monetary and Credit Law and the Establishment of the Central Bank stipulates that the ruler enjoys the broadest powers to manage the Central Bank and conduct its business. Consequently, no one is capable of stopping or putting an end to the governor of the Banque du Liban. The Central Bank has its own authority, which is independent of the rest of the Lebanese authorities. The governor of the bank exercises his authority alone and in some cases within agencies, but the final decision is up to him. The governor has acquired broad powers and continues to aspire to expand his powers even more despite the total economic collapse in Lebanon. The role of the governor’s four deputies is advisory and does not affect the ruler’s decisions. He appoints and dismisses employees and the implementation of the Monetary and Credit Law depends on him. The Lebanese law granted the bank’s governor many and wide powers, and he also became the custodian of the state’s financial and monetary policies.

Some point out that Lebanon is a cash-sufficient country, and the Lebanese state possesses immovable capital that pumps huge amounts of money, and I support this proposal. The Lebanese banks are filled with huge amounts of money from local, Arab and international depositors, in addition to the permanent remittances of expatriates, which constitute a vital economic artery to Lebanon in dollars. Consequently, the ruler’s suggestion that Lebanon is a collapsed and economically bankrupt country is a fragile part of the US scenario, which aims to “impoverish and starve” the Lebanese people by draining the Lebanese market of dollars by means previously mentioned, and then co modifying the dollar and manipulating its exchange rate. Every Lebanese banker who has agreed to implement these unfair economic decisions against Lebanon is a traitor and worse than the enemy against the Lebanese people. Honour requires stepping down and not behaving in the dark tunnel.

The official Lebanese system has always been directly or indirectly loyal to the West, for France was the guardian of Lebanon, and it is the country that granted Lebanon its independence, and a large group of Lebanese are still associated with this state. France is still morally present in Lebanon. The deteriorating political situation forced French President Emmanuel Macron to personally come to Lebanon and gather all political leaders and draw up a road map. Lebanon has been linked economically with the Arab Gulf states, as these countries were the main financiers for Lebanon in the reconstruction, financing of economic projects and the promotion of tourism. A large part of the Lebanese workforce is in the Gulf countries, as they transfer money in US dollars to Lebanon. Saudi Arabia, for example, was a sponsor of national reconciliation in the past, and it called for the Taif Agreement to end the Lebanese civil war, and the Lebanese government’s presidency has a moral connection with Saudi Arabia. Therefore, Saudi satisfaction is a permanent condition for the formation of governments in Lebanon. The US is the party with the greatest influence through Lebanon’s financial links and banking laws. The US has an economic and political moral force that greatly affects Lebanon. The current crisis that Lebanon is going through is mainly related to decisions of the US administration, just as it is the case with Venezuela, Iran and others.

Unfortunately, despite Lebanon’s historical ties with its Western allies, the recent decision was to abandon Lebanon and pursue a policy of impoverishment and starvation against a culturally, religiously and socially diverse country. A true friend is at a time of adversity and difficulties. It has become evident that Lebanon is nothing more than a tool in the hands of the West to achieve goals and pass interests in the Middle East. It seems that this tool is no longer useful and it has been abandoned. However, in the eastern part of the globe, states, governments and peoples have never followed the path of domination and imposing decisions on their friends, and I particularly mention the Chinese state. China’s foreign policy stipulates the principles of non-interference in the internal affairs of others, respect for the sovereignty of other countries and mutual benefit. All powerful countries in ancient and contemporary history enslaved people, plundered wealth, and widened the rift between them and the poor countries. However, it is clear that China does not aspire to be a pole or to rule the world alone as the US and its predecessors did. Chinese President Xi Jinping has said that China aspires to build a “participatory society with a shared destiny.”The Chinese state takes into account the interest of all nations and is therefore not selfish.

Lebanon has a bitter and unsuccessful experience with the West. The established alliances with most Western capitals led to economic collapse and catastrophic failure on all levels. On the other hand, the Chinese were and are still open to a partnership with Lebanon. Chinese Ambassador to Lebanon Wang Kejian indicated that China is open to partnering with Lebanon on the condition of formal governmental cooperation with the Chinese side. The most important Western and Arab capitals are moving east and expanding their economic and political relations with the Chinese, but it seems that Lebanon is forbidden to go east. The US decision was taken years ago to prevent Lebanon from allying with the Chinese or establishing a strategic partnership because that contradicts US interests, taking into account the geopolitics of Lebanon on the borders with Syria, Israel and the Mediterranean. The Lebanese government had previously requested a postponement of the partnership with the Chinese, while the neighbouring countries from all sides were flocking to partner with China, to name but a few: Egypt, Israel, the United Arab Emirates and others.

Some Lebanese still prefer everything coming from the West. This bad habit has brought the homeland through a dark tunnel, and a segment of the Lebanese is still insistent on partnering with the West and believes that there is no point in partnering with eastern countries. Lebanon at this stage lies in the abyss. It is not in an alliance with the East and is mortgaged to the West. This reality should not continue. Therefore, a bold decision must be made, either total dependence of the West and complete surrender or alliance with the East, thus replacing the Western allies with Eastern allies while retaining some Friendships and good relations with Western countries that respect Lebanon’s sovereignty and do not interfere with its internal affairs. My vision is that the only way out for a new Lebanon is through new alliances and a new system that will hand over the reins of affairs to specialized youth, away from political and official interference. This coincides with the proposal of the Chinese delegation regarding its partnership with Lebanon.

We do not have to wait and waste time. The time factor has become negative for Lebanon. It worsens the deterioration of the economic situation. I turn to His Excellency the President of the Republic to take this frank message into consideration, “The salvation of Lebanon is to go east and reach out to the Chinese.” On the election of the President of the Republic, General Michel Aoun, Chinese President Xi Jinping addressed him with a message on November 4, 2016 stating, “I attach great importance to developing Sino-Lebanese relations in order to make joint efforts with you to further develop friendly relations and mutual cooperation between China and Lebanon, which is beneficial on the two countries and the two peoples better.”The Chinese are open to cooperation, but this partnership will not become a reality except with official Lebanese cooperation, as Ambassador Wang Kejian pointed out. The issue of the Lebanese-Chinese partnership will remain present and we will not stop calling for it until it turns into a full partnership and that the Lebanese-Chinese relations rise to the level of the extraordinary relationship.

Mohamad Zreik is a doctor of international relations. His research interests focuses on Middle Eastern Studies, Chinese foreign policy, China-Arab relations, and international relations of East Asia.

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Bangladesh-Myanmar Economic Ties: Addressing the Next Generation Challenges

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Bangladesh-Myanmar relations have developed through phases of cooperation and conflict. Conflict in this case is not meant in the sense of confrontation, but only in the sense of conflict of interests and resultant diplomatic face-offs. Myanmar is the only other neighbor that Bangladesh has on its border besides India. It is the potential gateway for an alternative land route opening towards China and South-East Asia other than the sea. Historically, these two countries have geographic and cultural linkages. These two bordering countries, located in separate geopolitical regions, have huge possibilities in developing their bilateral economic relations. At the initial phase of their statehood, both countries undertook numerous constructive initiatives to improve their relations. Nevertheless, different bilateral disputes and challenges troubled entire range of cooperation. Subsequent to these challenges, Bangladesh and Myanmar have started negotiation process on key dubious issues. The economic rationales over political tensions in Bangladesh-Myanmar relations prevail with new prospects and opportunities.

Bangladesh-Myanmar relations officially began from 13 January 1972, the date on which Myanmar, as the sixth state, recognized Bangladesh as a sovereign nation. They signed several agreements on trade and business such as general trade agreement in 1973. The two countries later initiated formal trade relations on 05 September 1995. To increase demand for Bangladeshi products in Myanmar, Bangladesh opened trade exhibitions from 1995 to 1996 in Yangon, former capital of Myanmar. However, that pleasant bilateral economic relations did not last for long, rather was soon interrupted mainly by Myanmar’s long term authoritarian rule and isolationist economic policy. In the twenty-first century, Bangladesh-Myanmar relations are expected to move towards greater economic cooperation facilitated by two significant factors. First, the victory of Myanmar’s pro-democratic leader, Aung San Suu Kyi, in 2011 has considerably brought new dimensions in the relations. Although this relation is now at stake since the state power has been taken over by military. Second, the peaceful settlement of Bangladesh-Myanmar maritime dispute in 2012 added new dimension in their economic relations.

Bangladesh and Myanmar don’t share a substantial volume of trade and neither is in the list of largest trading partners. Bangladesh’s total export and import with Myanmar is trifling compared to the total export and import and so do Myanmar’s. But gradually the trades between the countries are increasing and the trend is for the last 5 to 6 year is upward especially for Bangladesh; although Bangladesh is facing a negative trend in Balance of Payment. In 2018-2019 fiscal year, Bangladesh’s total export to Myanmar was $25.11 million which is more than double from that of the export in 2011-12. Bangladesh imported $90.91 million worth goods and services from Myanmar resulting in $65 Million deficit in Balance of Payment in 2018-2019 fiscal year. For the last six or seven years, Bangladesh’s Balance of Payment was continuously in deficit in case of trade with Myanmar. The outbreak of COVID-19, closure of border for eight months and recent coup in Myanmar have a negative impact on the trade between the countries. 

Bangladesh mainly imports livestock, vegetable products including onion, prepared foodstuffs, beverages, tobacco, plastics, raw hides and skin, leather, wood and articles of woods, footwear, textiles and artificial human hair from Myanmar. Recently, due to India’s ban on cattle export, Myanmar has emerged as a new exporter of live animals to Bangladesh especially during the Eid ul-Adha with a cheaper rate than India. On the hand, Bangladesh exports frozen foods, chemicals, leather, agro-products, jute products, knitwear, fish, timber and woven garments to Myanmar.

Unresolved Rohingya crisis, Myanmar’s highly unpredictable political landscape, lack of bilateral connectivity, shadow economy created from illegal activities, distrust created due to different insurgent groups, maritime boundary dispute, illegal drugs and arms smuggling in border areas, skeptic mindset of the people in both fronts and alleged cross border movement of insurgents are acting as stumbling block in bolstering economic relations between Bangladesh and Myanmar.

Bangladesh-Myanmar relations are yet to blossom in full swing. The agreement signed by Sheikh Hasina in 2011 to establish a Joint Commission for Bilateral Cooperation is definitely a proactive step for enhancing trade. People to people contact can be increased for building mutual confidence and trust. Frequent visit by business, civil society, military and civil administration delegates may be organized for better understanding and communication. Both countries may explore economic potential and address common interest for enhancing economic co-operation. In order to augment trade, both countries may ease visa restrictions, deregulate currency restrictions and establish smooth channel of financial transactions. Coastal shipping (especially cargo vessels between Chittagong and Sittwe), air and road connectivity may be developed to inflate trade and tourism. Bangladesh and Myanmar may establish “Point of Contact” to facilitate first-hand information exchange for greater openness. Initiative may be taken to sign Preferential Trade Agreement (PTA) within the ambit of which potential export items from both countries would be allowed to enter duty free. In recent year, Bangladesh was badly affected by many unilateral decisions of India such as onion crisis. Myanmar can serve as an alternative import source of crops and animals for Bangladesh to lessen dependence upon India.

Myanmar’s currency is highly devaluated for a long time due to its political turmoil and sanctions by the west. Myanmar can strengthen its currency value by escalating trade volume with Bangladesh. These two countries can fortify their local economy in boarder areas by establishing border haats. Cooperation between these two countries on “Blue Economy” may be source of strategic advantages mainly by exporting marine goods and service. Last but not the least, the peaceful settlement of maritime boundary disputes between Bangladesh and Myanmar in 2012 may be capitalized to add new dimension in their bilateral economic relations. Both nations can expand trade and investment by utilizing the Memorandum of Understanding on the establishment of a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

With the start of a new phase in Bangladesh-Myanmar relations, which has put the bilateral relations on an upswing, it is only natural that both sides should try to give a boost to bilateral trade. Bilateral trade is not challenge free but the issue is far easier to resolve than others. At the same time, closer economic ties could also help in resolving other bilateral disputes. For Myanmar, as it is facing currency devaluation and losing market, increased trade volume will make their economy vibrant. For Bangladesh, it is a good opportunity to use the momentum to minimize trade deficits and reduce dependency on any specific country.

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The Monetary Policy of Pakistan: SBP Maintains the Policy Rate

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The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.

The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.

Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22. 

Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.

Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.

The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.

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Reforms Key to Romania’s Resilient Recovery

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Over the past decade, Romania has achieved a remarkable track record of high economic growth, sustained poverty reduction, and rising household incomes. An EU member since 2007, the country’s economic growth was one of the highest in the EU during the period 2010-2020.

Like the rest of the world, however, Romania has been profoundly impacted by the COVID-19 pandemic. In 2020, the economy contracted by 3.9 percent and the unemployment rate reached 5.5 percent in July before dropping slightly to 5.3 percent in December. Trade and services decreased by 4.7 percent, while sectors such as tourism and hospitality were severely affected. Hard won gains in poverty reduction were temporarily reversed and social and economic inequality increased.

The Romanian government acted swiftly in response to the crisis, providing a fiscal stimulus of 4.4 percent of GDP in 2020 to help keep the economy moving. Economic activity was also supported by a resilient private sector. Today, Romania’s economy is showing good signs of recovery and is projected to grow at around 7 percent in 2021, making it one of the few EU economies expected to reach pre-pandemic growth levels this year. This is very promising.

Yet the road ahead remains highly uncertain, and Romania faces several important challenges.

The pandemic has exposed the vulnerability of Romania’s institutions to adverse shocks, exacerbated existing fiscal pressures, and widened gaps in healthcare, education, employment, and social protection.

Poverty increased significantly among the population in 2020, especially among vulnerable communities such as the Roma, and remains elevated in 2021 due to the triple-hit of the ongoing pandemic, poor agricultural yields, and declining remittance incomes.

Frontline workers, low-skilled and temporary workers, the self-employed, women, youth, and small businesses have all been disproportionately impacted by the crisis, including through lost salaries, jobs, and opportunities.

The pandemic has also highlighted deep-rooted inequalities. Jobs in the informal sector and critical income via remittances from abroad have been severely limited for communities that depend on them most, especially the Roma, the country’s most vulnerable group.

How can Romania address these challenges and ensure a green, resilient, and inclusive recovery for all?

Reforms in several key areas can pave the way forward.

First, tax policy and administration require further progress. If Romania is to spend more on pensions, education, or health, it must boost revenue collection. Currently, Romania collects less than 27 percent of GDP in budget revenue, which is the second lowest share in the EU. Measures to increase revenues and efficiency could include improving tax revenue collection, including through digitalization of tax administration and removal of tax exemptions, for example.

Second, public expenditure priorities require adjustment. With the third lowest public spending per GDP among EU countries, Romania already has limited space to cut expenditures, but could focus on making them more efficient, while addressing pressures stemming from its large public sector wage bill. Public employment and wages, for instance, would benefit from a review of wage structures and linking pay with performance.

Third, ensuring sustainability of the country’s pension fund is a high priority. The deficit of the pension fund is currently around 2 percent of GDP, which is subsidized from the state budget. The fund would therefore benefit from closer examination of the pension indexation formula, the number of years of contribution, and the role of special pensions.

Fourth is reform and restructuring of State-Owned Enterprises, which play a significant role in Romania’s economy. SOEs account for about 4.5 percent of employment and are dominant in vital sectors such as transport and energy. Immediate steps could include improving corporate governance of SOEs and careful analysis of the selection and reward of SOE executives and non-executive bodies, which must be done objectively to ensure that management acts in the best interest of companies.

Finally, enhancing social protection must be central to the government’s efforts to boost effectiveness of the public sector and deliver better services for citizens. Better targeted social assistance will be more effective in reaching and supporting vulnerable households and individuals. Strategic investments in infrastructure, people’s skills development, and public services can also help close the large gaps that exist across regions.

None of this will be possible without sustained commitment and dedicated resources. Fortunately, Romania will be able to access significant EU funds through its National Recovery and Resilience Plan, which will enable greater investment in large and important sectors such as transportation, infrastructure to support greater deployment of renewable energy, education, and healthcare.

Achieving a resilient post-pandemic recovery will also mean advancing in critical areas like green transition and digital transformation – major new opportunities to generate substantial returns on investment for Romania’s economy.

I recently returned from my first official trip to Romania where I met with country and government leaders, civil society representatives, academia, and members of the local community. We discussed a wide range of topics including reforms, fiscal consolidation, social inclusion, renewably energy, and disaster risk management. I was highly impressed by their determination to see Romania emerge even stronger from the pandemic. I believe it is possible. To this end, I reiterated the World Bank’s continued support to all Romanians for a safe, bright, and prosperous future.

First appeared in Romanian language in Digi24.ro, via World Bank

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