Russia, the EU: Cutting out the middleman.
Also: Ukraine, the US, Myanmar, Indonesia, Turkey and Honduras.
RUSSIA. EUROPE. Cutting out the middleman.
The EU seeks to curb Russian sanctions busting.
Sweden, which holds the Presidency of the European Council, announced on Wednesday the EU will impose new sanctions against Russia. These are the eleventh set of EU sanctions against Moscow since the invasion of Ukraine.
INTELLIGENCE. The sanctions include dozens more individuals and firms, and beef up the enforcement mechanisms for pre-existing measures – third countries must do more to ensure Moscow’s compliance. The Kremlin will now find it more difficult to obtain banned technologies from the UAE, Armenia, Kazakhstan and other transit hubs. The EU’s mechanism to be used to limit such third-country exports may, however, be too complicated to be practical.
FOR BUSINESS. Barring last-minute gripes in European capitals, where the sanctions are due to be ratified, they will come into force on Friday. EU negotiators were conscious of not aggravating Beijing or fouling Washington’s own footwork. Mooted restrictions on trade with five Chinese companies allegedly supplying banned technologies to Russia were excluded, though three Hong-Kong-based but Russian-controlled firms were included.
UKRAINE. UNITED STATES. My enemy’s friends.
Washington courts ambiguous powers in aid of Kyiv.
The US said on Wednesday that National Security Adviser Jake Sullivan will visit Copenhagen this weekend to meet with countries that have not condemned Russia, including Turkey and the BRICS: Brazil, India, China and South Africa.
INTELLIGENCE. The talks are a curious coda to a busy week of Ukraine summits in Europe. Volodymyr Zelenskyy conceded on Wednesday, at the Ukraine Recovery Conference in London, that his counteroffensive was progressing “slower than desired” but resisted pressure to speed it up. Placing diplomatic pressure on Russia’s friends and neutrals is seen as one way to tip the balance until Ukraine’s counteroffensive can make significant military headway.
FOR BUSINESS. While the West’s investment in Ukraine mushrooms – on Wednesday the UK announced $3 billion in World Bank loan guarantees and the US pledged $1.3 billion more in aid – it won’t deliver a return until there is enhanced cooperation from among the powers enabling Russia’s war machine. Exploratory dialogue is encouraging, but little will be agreed over one weekend. The tempo may change if Kyiv breaches Moscow’s prepared defences.
MYANMAR. Yuan for the money.
Beijing and Moscow provide sanctions relief.
Washington on Wednesday slapped new sanctions on Myanmar’s defence ministry and two of its state-owned banks for allegedly having facilitated transactions between the military junta, in power since 2021, and foreign markets.
INTELLIGENCE. The US Treasury Department alleges Myanmar has been purchasing and importing arms, dual-use goods, equipment and raw materials to manufacture weapons, including from China and Russia. But new measures may make little difference. On Tuesday, a regime official predicted no economic losses should banks be sanctioned again. Equivalent sanctions were imposed in 2003, before a reprieve in 2016 under the disposed civilian government.
FOR BUSINESS. Nay Pyi Taw’s markets are shot – GDP contracted by 18% in 2022, inflation is close to 20%, and foreign reserves are low – but the military has decades of experience operating on a shoestring. An economic crisis looms, but Russia will continue to help, as will China. Illicit goods, gemstones and casinos will also come in handy. China’s foreign minister visited in May, pledging further economic engagement. Fewer dollars, but a lot more yuan.
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INDONESIA. Sea change.
Jakarta moves regional drills away from the South China Sea.
Indonesia's military said on Thursday it had changed the location of ASEAN's first-ever joint naval exercises to the mouth of the Malacca Strait. Amid concerns from fellow participant Cambodia, it is the second move in two days.
INTELLIGENCE. Cambodia, a member of the Association of South East Asian Nations and a China ally, is ostensibly behind the move, but the direction likely came from Beijing. Jakarta usually avoids making waves, but its military leadership, including Defence Minister Prabowo Subianto – an aspirant in next year’s presidential elections – has become increasingly assertive, including by opening a base in 2018 on Natuna Island, near China’s maritime claims.
FOR BUSINESS. Indonesia has a strong nationalist streak, but President Joko Widodo has prioritised economic development over political point-scoring. Trade with China drove GDP growth of 5.3% in 2022, a nine-year high. Infrastructure has improved and supply chains have deepened. The risk is that anti-Chinese sentiment could return in the lead-up to elections. In May 1998, more than 1,000 Indonesian Chinese were killed in a spate of riots.
TURKEY. Taking flight.
Ankara is expected to hike interest rates, a lot.
Turkey’s central bank board prepared to meet on Thursday and, at the time of writing, was poised to sharply increase rates. The bank’s former leadership, appointees of President Erdogan, had kept rates low for two years to spur growth.
INTELLIGENCE. Before his re-election in May, Erdogan held to the idea that low rates cure high inflation. He changed tack post-election, appointing conventional candidates (including a former Goldman Sachs executive) to lead Turkey’s monetary policy. But even with Erdogan’s backing, courage will be required. The benchmark rate sits at 8.5%, while inflation is at 40% (after having reached 86% last year). The lira is down 15% against the dollar since May.
FOR BUSINESS. Rate hikes will cause pain but are necessary. Erdogan is preparing to soften the blow. Starting 1 July, Turkey’s minimum wage will increase 34% and the government has announced support for firms struggling to make payroll. Unless Turkey can control inflation without crashing the economy, Erdogan’s foreign adventurism might need to take a back seat. His hope is that a weak lira, cheap gas and a strong tourism season will help thread the needle.
HONDURAS. Dead of summer.
A state of lawlessness spurs migration.
Forty-eight women died during a prison riot outside Tegucigalpa on Wednesday. President Xiomara Castro said she would “take drastic measures” in response to the atrocity, during which inmates were burned to death by gangs.
INTELLIGENCE. Castro, who won office in 2021 pledging to tackle crime and corruption, claimed that the riots were planned “with the knowledge and acquiescence of security authorities”. The rot runs deep. She extradited her predecessor, Juan Orlando, to the US rather than have him tried for drug trafficking in domestic courts. Her husband, former president Manuel Zelaya, took refuge in Brazil’s embassy during a 2009 coup. Gangs operate with impunity.
FOR BUSINESS. Castro may be forced to take cues from northern neighbour El Salvador, where in 2022 a ‘state of exception’ was declared leading to around 2% of the population being arrested and an approval rating of 90% for President Nayib Bukele. Until then, Honduras will remain a major source country for US irregular migration. Since the start of 2023, numbers are up 330% on the same period in 2022, despite recent policy changes at the US border.
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