06-06-2022

MoNDAy, JUNE 6, 2022
4
Acting Editor & Publisher : Jobaer Alam
e-mail: editor@thebangladeshtoday.com
Monday, June 6, 2022
Inflation worry
The common man equates it with rising prices while the
economist calls it inflation. Whatever the name given to the
phenomenon known as inflation in economics, some varieties
of it are certainly highly undesirable. However, contrary to the
common conception that all forms of inflation are evil, the reality can
be otherwise.
Inflation which is driven by demand can be actually beneficial for
a large number of players in the economic scene. Businesses may be
better off due to it as the expanded demand situation produces the
incentive for them to increase production which in turn increases
their total profits. During demand-pull inflation, the prices of final
goods and services tend to be more flexible in an upwards direction
than the prices of many of the factors of production (i.e., prices of
raw materials, rent, wages, etc. ) which are fixed on fairly long-term
contracts.
Thus, it would not be so much a cause for concern if the current
rising inflation rate in Bangladesh seemed to be of the demand-pull
type. But this is not the case as the inflation here appears to be of the
cost-push type which, if not tamed, has all the potentials of
deepening the economic gloom. A recent issue of the London based
renowned Economist magazine has assessed the inflation rate in
Bangladesh and made a forecast about inflation's further rise in the
country in 2023 which is worrying. Its forecast was that the rate of
inflation in Bangladesh could increase to 6 per cent in 2023 from 5.3
per cent and 3 per cent in previous years. Certainly, the inflation
forecast contrasts sharply with what had been the rather bearable
rate of inflation below 3 per cent for some consecutive years before
2018.
Why the inflation type in Bangladesh is judged as the cost-push
one should be obvious. There is hardly a sign that demand for many
non essential products are on the rise. Any assessment of the
demand situation of non essentials in the market would surely show
up a stagnant demand condition for most of these products. The
demand for products and services such as food, transportation, etc.,
that people consider as indispensable are inelastic. The demand for
these products or services do not taper off as their prices or charges
rise. People in many cases are likely to even incur debt to go on
consuming foods in the same quantities notwithstanding the rise in
their prices. This inelastic demand situation for essential goods is
now being exploited by a class of businessmen in the country who
are resorting to the most unethical raising of prices of essential
commodities in the sure knowledge that people will buy them in the
same amounts and in the same frequency regardless of higher costs.
But the rising prices of essential commodities is cutting into
people's purchasing power and reducing their disposable incomes
which, if left uneroded, could create demand for goods and services
of the non-essential categories. Thus, the essentials' markets being
costlier, is helping to slacken demand for a large number of goods
and services of the non essential categories the demand for which
are income elastic.
On the other hand, energy price is central to production activities
in different fields. Prices of different forms of energy-electricity, gas
and fuel oil-were substantially increased several times during the
last three years and another round of increases are being discuseed
. Higher energy prices had the unwanted impact of making
production processes costlier by increasing one of the most
important factor costs of production. Wages, rents and other costs
may or may not have been adjusted upwards in this period. But
higher energy prices have certainly set the stage for price increases
across the board for many commodities, the demand for higher
wages, higher rents and increases of charges for services in many
areas.
Thus, the ravages of inflation, as a whole, are not only creating
distresses for common consumers by whittling their purchasing
power and decreasing their propensity to save, the same is also
poised to take a toll in the form of reduced investment, loss of
competitiveness and adverse balance of payments situation from the
macro economy.
Cost-push inflation is never good for the macro economy because
its prime casualty are productive activities. When there is cost-push
inflation, profits are squeezed and this situation leads firms to
decrease production activities as there exists not the same scope for
increasing production and profits like under inflation of the
demand-pull type. Decrease in production activities and other cost
cutting measures can worsen unemployment instead of creating
more employment. Economic growth in these circumstances, suffer,
giving rise to all the attendant problems of low growth such as less
employment creation, less income and no change in the poverty
situation which can feed a vicious cycle of continuing stagnating
demand in the economy which in turn discourages newer
investment activities leading to a static situation in respect of the goal
of economic expansion.
Investment activities are the keys to economic growth but these
activities are not encouraged because creditors feel reluctant to
extend greater credits to investors under inflationary conditions
because debtors repay in monetary units which have less purchasing
power than those which they borrowed. Or the creditors might
increase interest rates or keep them unchanged at a higher level as
hedges against inflation. At any rate, the cumulative effect of
inflation comes as a damper for investment when investment is the
only way to get the economy to expand for the benefits of the same
to be experienced at the micro levels.
Furthermore, higher export prices of commodities due to inflation
might fetch temporary gains to exporters but the same are likely to
disappear in the medium and long terms as the higher priced export
products might be considered uncompetitive in relation to other
foreign suppliers of the products who could be prepared to supply at
comparatively lower prices. Higher prices of domestically produced
goods are also likely to cause a decrease in their consumer appeal
and increase in the appeal to consumers for products originating
from import activity or smuggling. Domestic production may
decline from these factors and turn worse the associated problems
of unemployment, loss of income and further depression of the
demand situation. Considering all of these factors and more, it is
high time for those in charge of economic governance to look at the
rising inflation rate as a serious ill which must be treated effectively
with no loss of time.
Iran’s seizure of Greek tankers threatens regional maritime security
Iran's Islamic Revolutionary Guard
Corps revealed on Friday that it had
seized two oil tankers belonging to
Greece, which has accused Tehran of
piracy for its taking of Delta Poseidon
and Prudent Warrior.
In already-jittery energy markets, the
attacks have had a destabilizing effect, at
least temporarily, leading to a
significant spike in oil prices around the
world.
The twin attacks, together with other
recent threats to freedom of navigation,
have highlighted the need to counter
Iran's disruptive conduct and safeguard
trade routes and waterways.
The Gulf Cooperation Council and the
US are working together to enhance
regional maritime security against such
threats. In March, the joint GCC-US
maritime security working group met in
Riyadh to coordinate the two sides'
response to all types of maritime threat.
They are also planning additional policy
coordination meetings in the near
future, while practical cooperation is
ongoing under bilateral and other
multilateral frameworks, such as the
Combined Maritime Forces, which was
set up in 2002.
The CMF is a multinational maritime
partnership whose express purpose is to
"uphold the international rules-based
order by countering illicit nonstate
actors on the high seas and promoting
security, stability and prosperity across
approximately 3.2 million square miles
of international waters, which
encompass some of the world's most
important shipping lanes."
Its main focus is promoting security,
stability and a safe maritime
environment. Its mandate also includes
combating narcotics, smuggling and
piracy, as well as engaging and
cooperating with regional and other
partners to strengthen and improve its
DR. ABDEL AZIZ ALUWAISHEG
capabilities to achieve those goals.
When requested, the CMF will also
respond to environmental and
humanitarian incidents.
The CMF has 34 member nations:
Australia, Bahrain, Belgium, Brazil,
Canada, Denmark, Egypt, France,
Germany, Greece, Iraq, Italy, Japan,
Jordan, the Republic of Korea, Kuwait,
Malaysia, the Netherlands, New
Zealand, Norway, Pakistan, the
Philippines, Portugal, Qatar, Saudi
Arabia, the Seychelles, Singapore,
Spain, Thailand, Turkey, the UAE, the
UK, the US, and Yemen. It is
commanded by US Navy Vice Adm.
Brad Cooper, who also serves as
commander of US Naval Forces Central
Command and the US Navy's Fifth
Fleet. All three commands are colocated
at US Naval Support Activity
Bahrain. The deputy commander is the
British Royal Navy's Commodore
Adrian Fryer. Other senior staff roles at
CMF headquarters are filled by
personnel from member nations.
It has had three combined task forces
under its command for some time: CTF
152 deals with maritime security inside
the Arabian Gulf; CTF150 deals with
maritime security outside the Arabian
Gulf; and CTF 151 deals with countering
piracy. The CMF last month announced
the establishment of a new
multinational task force, known as CTF-
MAxIMILIAN HESS
153, to patrol the Red Sea and the Gulf
of Aden.
At any given time, CTF-153 will have
two to eight vessels patrolling the
waterway between Egypt and Saudi
Arabia, through the Bab Al-Mandab
Strait to the waters off the Yemen-
Oman border, according to Cooper. He
said that the creation of the new task
force "reflects a regional consensus on
the importance of maritime security."
CTF-153 will first be led by the Fifth
Fleet's Capt. Robert Francis before
command rotates to other CMF
member countries.
The augmentation of CMF task forces
is motivated by a recognition that Iran
has been escalating its destabilizing
activities over recent months, including
missile and drone attacks on land and in
the sea, as well as the harassment of oil
tankers.
Last July, just a few days before
Ebrahim Raisi was sworn in as Iran's
president, there was a brazen drone
attack on the Mercer Street tanker off
the coast of Oman; it was an early
indicator of the new leadership's
direction. At the time, the foreign
ministers of the G7 nations (Canada,
France, Germany, Italy, Japan, the UK
and the US), plus the EU, described that
attack as "deliberate and targeted" and
without justification.
Then-Chief of the British Defense
Staff Gen. Nick Carter said that Western
powers needed to retaliate for such
tanker attacks, "otherwise, Tehran will
feel emboldened." Carter told the BBC
that, if a regime of deterrence is not
restored in the Gulf, there will be more
attacks and a higher risk of
"miscalculation" by Iran. "What we
need to be doing, fundamentally, is
calling out Iran for its very reckless
behavior," he said.
There has been no direct retaliation
for the attack on Mercer Street, but
significant efforts have been made to
restore deterrence through upgrading
the capabilities of existing security
frameworks, including the CMF.
After the addition of the new CTF-153,
the CMF's framework and mandate is
sufficient to deal with many threats to
maritime security in the region,
especially when working closely with
national capabilities. However, with the
escalation in the number and
sophistication of recent attacks, more
needs to be done to restore deterrence.
The Red Sea in particular is vast and
largely unpatrolled, creating an inviting
space for mischief-makers.
With the escalation in the number and
sophistication of recent attacks, more
needs to be done to restore deterrence.
A potential source of maritime threats
is Yemen. Although there has been a
fragile truce in place for the past two
months, the Houthis have previously
sent many explosives-laden remotecontrolled
boats into the Red Sea to
attack Saudi and other targets. Iran has
been the main party responsible for
providing the Houthis with drones and
missiles.
Dr. Abdel Aziz Aluwaisheg is the GCC
assistant secretary-general for political
affairs and negotiation, and a columnist
for Arab News.
100 days of economic war: Can the West win against Russia?
For 100 days Ukrainians have been
resisting a brutal Russian invasion; they
fight alone but are financially backed by
the West.
The US Senate just passed a $40bn
aid package with bipartisan support, at
least $15bn of which will go to the
Ukrainian armed forces. Much of the
remainder is earmarked for the other
front in the conflict with Russia: the
geo-economic war.
Despite these efforts, however,
Russia's economy remains on its feet -
largely thanks to record-high
hydrocarbon prices and continued
European gas purchases - allowing the
bloody conflict which already claimed
thousands of civilian lives and destroyed
most of Ukraine to continue at full force.
The dire fact that, after all this suffering,
Ukrainians still seem to face at least
another 100 days, if not more, of
ruthless invasion, bloody offensives and
unspeakable atrocities calls for a reexamination
of the West's strategy and
tactics in its economic war against
Russia.
Since the beginning, the West's
primary weapon on the economic front
has been sanctions - severing key
banking linkages, barring Russian
businesses from dollar markets, and
freezing a significant portion of Russia's
war chest. Russian exports, especially
coal exports, have also been targeted.
However, Europe is still having
gruelling discussions over how to fully
ban Russian fuel. So far, the West
appears to have opted to pursue what
can be defined as a "supply-side
strategy" to weaken the Russian
economy but simultaneously failed to
efficiently plan for the predictable costs
such a strategy would inflict on itself.
There are growing calls for further
restrictions and heated discussions over
whether - and how - to put in place a full
embargo on Russian hydrocarbons and
banking. But all parties to the
discussions are aware that the added
cost from such moves would be high.
And as Western attention slowly moves
away from the war - a luxury that
Ukrainians cannot afford - there is a risk
that the resolve for passing more
sanctions may soon weaken.
Putin has demonstrated clearly,
however, that no matter which direction
the West decides to take, he will
continue to prioritise military spending,
even if it means resorting to autarky and
impoverishing his own people.
All this means, that if it really wants to
end Ukraine's devastation promptly and
hold Russia to account for its lawless
actions, the West not only needs to
tighten its sanctions regime against the
Kremlin but also learn to use this
effective weapon of economic warfare in
a much smarter way.
Failure to envisage and prepare for the
It has had three combined task forces under its command for
some time: CTF 152 deals with maritime security inside the Arabian
Gulf; CTF150 deals with maritime security outside the Arabian Gulf;
and CTF 151 deals with countering piracy. The CMF last month
announced the establishment of a new multinational task force,
known as CTF-153, to patrol the Red Sea and the Gulf of Aden.
costs of the war's economic impact thus
far has already undermined the efficacy
of sanctions. And failure to plan for the
ramifications of still-to-be-introduced
measures would risk further weakening
the West's hand in this economic battle.
If Europe implements further
sanctions without developing strategies
to protect European nations from their
costs, it may end up bolstering far-right
arguments against economic resistance
to Putin's regime, such as concerns
raised by France's Marine Le Pen over
how hydrocarbon sanctions may result
in inflation and economic devastation.
Populist right-wing politicians like
Hungary's Viktor Orban or Italy's
Matteo Salvini are also chomping-atthe-bit
for the opportunity to rush back
into Putin's arms, and would use any
further costs acquired from new
sanctions to try and turn public opinion
against the Western efforts to
economically punish and restrain
Russia.
This is not to say in any way that the
West should ease sanctions. On the
contrary, while Ukrainians continue to
fight for their country's survival, not one
inch should be conceded on the supplyside
efforts. But to build the necessary
political support for sustaining, and
winning, the economic war against
Russia, the West also needs to
implement a demand-side strategy.
State investment, international supplychain
and production coordination, and
the underwriting of risk by leading
Western nations can help Ukraine fight
and bankrupt Putin's war machine.
US politics, Canada's
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that matter.
The West has a soft underbelly - from
Greece's opposition to Russian shipping
sanctions, to the Netherlands' refusal to
pump more gas in Groningen, to the
opposition in the United States from the
Trumpist right as well as the far left to
allocating more aid for Ukraine.
And while the West has had
significant success building a sanctions
alliance, including Singapore and
Switzerland, the Global South - at risk
from Russian threats to global
agricultural markets and wary of
previous Western policy disasters - is
hesitant to fully put its weight behind a
sanctions regime. To increase the
success of its sanctions regime, the West
needs the support of more nations, and
to achieve this, it needs to ensure it has
developed strategies to protect not only
itself but any potential allies from costs.
There is no way that the West can expect
would-be allies such as Serbia to refuse
Russian gas deals when no genuine
Europe can put forward solutions too, for example socialising
the cost of major increases in gas drilling in the Netherlands.
Such a policy can be implemented far more quickly than
building new LNG terminals, though efforts to build new
energy infrastructure should also receive significant state
support. European export credit agencies should be part of the
fight, significantly expanding their capita could make them a
key factor in making sanctions support and compliance more
attractive for the developing countries.
alternative is on offer.
Nearly one-quarter of the funding
authorised in US President Joe Biden's
Ukraine aid bill is earmarked for
mitigating the war's economic impact on
Ukraine and third countries. It is a start,
but it does not go far enough - Ukraine's
own reconstruction bill is already in the
hundreds of billions of dollars. It is a
band-aid approach, whereas what is
required is the grafting of a new limb to
replace the Russian one Putin has
severed, for Putin's war on Ukraine is a
war against the current world order.
Several Western nations have already
taken significant steps to try and preserve
the status quo and protect themselves
from potential future aggressions by
Russia. For example, many European
states re-embraced defence spending and
Germany even altered constitutional debt
limits to do so.
However, even this newfound sense of
Western unity is insufficient in such a
globalised era - India, for example, is
happy to buy Russian oil at a discount to
global prices. Furthermore, the longer
the war drags on, the more enticing
Moscow's offers to jointly challenge the
US-led order may seem to Beijing,
which has so far refrained from offering
Russia direct economic support.
The West needs to adopt a new
"neomercantilist" approach to
sanctions, embracing "the need for
strategic trade protectionism and other
forms of government economic activism
to promote state wealth and power".
The nature of the geo-economic war is
to remove Russia's state wealth and
power while avoiding the same for the
West and its allies. That does not mean
the ultimate aim should be to end
liberalism and the free-trading world,
but neomercantilist tools can and
should be employed to protect it in the
long run from Russia's existential
threat.
Some of the groundwork for this has
already been done, such as the US
efforts to restructure development
support under the Development
Financial Corporation (DFC). Other
worthwhile proposals include the
Department of Energy offering to sell oil
options and potentially pledge secure
supplies to allies, to help limit
uncertainty. But these efforts do not go
far enough. Just as Congress authorised
Biden's $40bn Ukraine bill, for
example, it rejected a proposal to
effectively expand DFC.
Europe can put forward solutions too,
for example socialising the cost of major
increases in gas drilling in the
Netherlands. Such a policy can be
implemented far more quickly than
building new LNG terminals, though
efforts to build new energy
infrastructure should also receive
significant state support. European
export credit agencies should be part of
the fight, significantly expanding their
capita could make them a key factor in
making sanctions support and
compliance more attractive for the
developing countries.
Another vector of this approach
should be a Western acknowledgement
that food system inequality, fragility and
interdependency mean Russia's
blockades will potentially be far more
crippling to the Global South. A
Western merchant marine and aid plan
should be developed immediately to
mitigate this and build credibility with
would-be-allies threatened by Putin's
perfidiousness.
Finally, the US must remember it has
a geo-economic lever more powerful
than any other - the use of federal
reserve swap lines. The selective
offering of such support could help
bring even the most reticent partners
into line with Western sanctions given
its potential to provide economic and
monetary stability.
Demand-side policies are the carrots
to the supply-side policies' sticks in the
West's geo-economic war against
Russia. They must be the focus of the
coming offensives, for without them this
war will be far more costly and difficult
to win.
Maximilian Hess is a Fellow at the
Foreign Policy Research Institute and a
Political Risk consultant based in
London.