Global economy sailing into a ‘perfect long storm’

Leandro Mortenegro

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The world’s finance ministers and central bankers are descending on Washington, D.C., next week, and the gathering will have the feel of an economic Last Supper.

A recession in advanced economies is now all but certain, and the International Monetary Fund will officially downgrade its 2023 growth forecasts next week. Germany is likely to admit it’s already in recession, and inflation expectations remain elevated.

Tharman Shanmugaratnam, Singapore’s central bank chair and head of the Group of Thirty — a global council of economic and financial leaders — is warning that we’re headed into a “perfect long storm.” For policymakers, he says, “there are no good options anymore.”


U.S. Treasury Secretary Janet Yellen said in a speech Thursday she will propose that the World Bank and regional development banks begin addressing “borderless challenges” directly, moving beyond today’s country-specific loans. Yellen wants to see “extra financing without substituting resources away from other priorities.”

One example of this could be green capital — where the bank funds protection of public goods, like a stable climate and biodiversity.

Development and climate campaign groups including ONE and E3G told Global Insider $1 trillion needs to be allocated by multilateral financial institutions for climate and development resilience. Yellen didn’t go that far yesterday, but she did announce an almost $1 billion loan to the Clean Technology Fund to help other countries end their coal industries.

Mafalda Duarte, CEO of the Climate Investment Funds, which manages CTF, told POLITICO that the U.S. loan should be a prompt for multilateral development banks to be more innovative in how they finance climate action.


World Bank’s ongoing climate controversy: A new report from a coalition of NGOs asserted Thursday that the bank has funded $14.8 billion in fossil fuel projects since 2015. A World Bank spokesperson disputed the report findings to Global Insider, saying “it makes inaccurate assumptions about the World Bank Group’s lending.” The Bank says it “has not made any coal investments for over a decade” and delivered $31.7 billion for climate-related investments in 2022.”

World Bank President David Malpass, in a recent interview with Global Insider, denied that he’s doing too little on climate.

While international financial institutions operate at the whim of members, there is so far no organized pressure campaign from the U.S. or other members to force the organizations to shift gears on climate or other issues.

Debt flexibility needed to stave off economic collapse: The neediest countries risk a wave of bankruptcies as recession hits. Yellen conceded Thursday that “some countries will need considerable debt relief” given an unprecedented combination of unserviceable loans, weak currencies and food and energy price shocks.

Former Treasury Secretary Larry Summers and Masood Ahmed say what’s at stake is “whether developing countries suffer a lost decade of economic opportunity.”

The IMF has made its emergency funding more flexible, but is yet to make substantial changes to its regular funding and the charges it applies for financial support.

A World Bank spokesperson told Global Insider “we welcome the discussion on capital adequacy and Secretary Yellen’s leadership,” adding that the bank is “actively working to expand donor guarantees, grant resources, and climate-related trust funds.”

The World Bank has been scaling up its funding in recent years, but Summers argues it has a track record of being slow to hand it out. World Bank accounts show its commitments increased by $30 billion between 2018 and 2022, and it handed out almost three-quarters of that, around $22 billion.

China’s habit ofvariable rate loans is a pain point: Needy countries have often turned to China for capital over the past decade, rather than the IMF, World Bank or other multilateral development banks.

Instead of offering fixed rate loans, China has issued many bilateral loans to poor countries at variable rates, leaving them stuck using their weak currencies to pay ever higher interest bills denominated in Chinese yuan.

Ukraine is on a debt funding tour: Ukraine expects to run $36 billion over budget next year, a 50 percent budget deficit. The World Bank thinks post-war reconstruction could cost $350 billion. Ukraine’s government is pitching Wall Street investors, per WSJ.

G-20 TO CONSIDER RULES END CRYPTO WILD WEST ERA: The Financial Stability Board, a global financial standard-setter, thinks most of the cryptocurrency market should be subject to the same strict rulebook that governs traditional finance. The group will present recommendations to a G-20 finance ministers meeting in Washington on Wednesday ahead of the IMF fall meetings, the plan’s chief architect, Steven Maijoor, told POLITICO’s Bjarke Smith-Meyer.

JOIN GLOBAL INSIDER TODAY: On World Review with Ivo Daalder, your host will be speaking on how the U.S. is turning up the heat on the chip war with China. Tune in live from 11 a.m. ET.

NUCLEAR ARMAGEDDON: President Joe Biden told a Democratic fundraiser audience Thursday evening that the risk of nuclear “Armageddon” is the highest it has been in 60 years.


Russia annexation vote: Following Global Insider’s story Tuesday with Nahal Toosi on a “massive lobbying effort” by the U.S., EU and other allies to condemn Russia’s efforts to annex parts of Ukraine, the EU and Biden administration conducted background briefings confirming POLITICO’s reporting. A U.N. General Assembly emergency session will open Monday and vote Wednesday on Russia’s annexation attempt.

European diplomats are frustrated that African and Asian colleagues make positive noises about supporting Ukraine, but ultimately abstain when it comes time to vote on Russia’s invasion.

China’s Uyghur crackdown: In a tactical move aimed at shifting China’s voting record on Russia’s invasion of their country, Ukraine abstained Thursday on a vote in the U.N. Human Rights Council on whether to debate China’s sweeping crackdown on Uyghurs in Xinjiang.

The vote was lost 17-19, meaning the debate won’t happen. Tipping the balance: 10 countries joined Ukraine in abstaining. Surprisingly, several Muslim-majority countries voted no: Indonesia, Somalia, Pakistan, UAE and Qatar.


It’s hard to see the OPEC+ alliance plan to cut global oil production by 2 million barrels a day as anything but a slap in the face to the Biden administration. The move will drive up gasoline pump prices in the middle of a U.S. election campaign, at a moment when none of their own oil production profitability is threatened.

What fist bump? The Saudis keep playing Washington, and now Democrats in Congress are insisting on restructuring the U.S.-Saudi relationship. Rep. Tom Malinowski (D-N.J.) told my D.C. Playbook colleagues: “We have to stop acting like the suckers in this relationship.”

Sen. Bernie Sanders (I-Vt.), meanwhile, said “we must end OPEC’s illegal price-fixing cartel, eliminate military assistance to Saudi Arabia, and move aggressively to renewable energy.”


— OPEC+ only controls 40 percent of world oil output, leaving plenty of supply in play.

— This might not be the end of OPEC+ and Russian market interference.

— Trumpworld prides itself on its influence on the Saudis, but has been conspicuously silent about the OPEC+ move.

— OPEC+ is a cartel — and cartels are illegal under American and EU law. There is scope for lawsuits, antitrust cases and sanctions … for those with legal and financial creativity.

U.S. RESPONSE: The Biden administration is “disappointed” at MBS’ slap in the face, and will release 10 million barrels from the U.S. strategic reserve: equal to five days worth of OPEC+ production cuts (the reserve has up to 714 million barrels in it).

The White House is also preparing to ease sanctions on Venezuela (an OPEC+ member) to allow Chevron to resume pumping oil.

EUROPE’S RESPONSE: A new 44-country European Political Community met in Prague for the first time Thursday. Among other things, it is a forum for all of the continent’s fossil fuel producers and customers to coordinate on production and pricing.

The EU wants to implement a price cap on Russian oil in coordination with the rest of the G-7. The risk there: Russia will institute its own oil production cut of several million barrels per day, in addition to the OPEC+ cuts.


POLITICO’s Suzanne Lynch and Ilya Gridneff on how European Commission President Ursula von der Leyen has become the answer to Henry Kissinger’s eternal question of who to call when Washington wants to call Europe.

BRAZIL — ELIMINATED RIVALS BACK LULA FOR PRESIDENT: Third place candidate Simone Tebeturged her voters to back Luiz Inacio Lula da Silva (Lula) due to his “commitment to democracy.” Ciro Gomes, who finished fourth, also backed Lula. The combined vote share of those three candidates in the first round was 55 percent. Former center-right President Fernando Henrique Cardoso backed Lula.

IRAN — WHY YOU AREN’T HEARING MORE ABOUT ONGOING PROTESTS: Very few Western outlets now maintain a presence on-the-ground in Iran. NBC is an exception. Being there is dangerous and comes with sanctions risks. Not being there makes it harder to verify information before reporting it, and leads to a reliance on user-generated content. Oliver Darcy has more.


TRANS-ATLANTIC DATA PACT: President Biden today is expected to sign a long-awaited executive order rekindling EU-U.S. data flows. The order would rein in U.S. surveillance practices criticized by EU judges for violating Europeans’ rights.

TRANS-ATLANTIC AI GUIDELINES PROGRESS: With the White House publishing its long-awaited Blueprint for an A.I. Bill of Rights, U.S. and EU leaders will now be able to compare and align approaches at the next EU-U.S. Trade and Technology Council in early December. Officials expect to publish a “joint roadmap on AI evaluation and measurement tools for trustworthy A.I. and risk management,” according to a leaked document obtained by POLITICO.

The White House is pushing for a non-binding and transparency-focused approach, asking for algorithm owners to explain how they operate, and giving algorithm users complaint mechanisms. The European Commission is pushing a legally binding A.I. Liability Directive that would give European A.I. users the ability to file class-action lawsuits.

LAUGH OR CRY? DUBAI IS TRACKING ITS “GROSS METAVERSE PRODUCT”: The metric is said by ministers to include tourism, retail, real estate and government services, and Dubai is aiming to build a $4 billion industry by 2030. Is that a sign of a massive number of ticket sales from virtual experiences of games, museums and heritage sites — or a clever PR stunt shouting that Dubai represents the future? They jury’s out.

AWARDED:Sviatlana Tsikhanouskaya, leader of the Belarusian democratic movement, received an International Trailblazer Award from Georgetown University, Thursday, at the U.S. Ambassador’s residence in Paris.

DIPLOMAT DISCRIMINATION: In an internal survey of more than 8,600 foreign service officers and civil servants at the State Department, 44 percent of respondents reported experiencing discrimination, and 27 percent reported experiencing harassment, the Wall Street Journal’s Jessica Donati reported.

Global Insider has previously reported on State’s systemic diversity problems.

DULLES CONNECTION: It’s really happening — the D.C. silver line Metro extension to Dulles Airport is in a test phase and will likely open to passengers in November.

ELECTION CYCLE: Democrats Abroad in Belgium are conducting a cycling tour across Belgium to urge U.S. citizens to register to vote and return their ballots for the midterm elections. Today they’re traveling between regional centers Liege and Leuven, before hitting Brussels on Saturday.

John Bauters, the mayor of Emeryville, Calif., also has the cycling bug: He’s in the Netherlands studying local “sustainable mobility” policies, and spoke to POLITICO’s Aitor Hernández-Morales about the uphill battle to get Americans out of their cars.


WHITE HOUSE: Monica Gorman has taken over Liz Reynolds’ role at the National Economic Council and is now the special assistant to the president for manufacturing and industrial policy.

COUNCIL OF THE EUROPEAN UNION: A new secretary general for the body that convenes European national leaders and ministers may be announced today. My colleague Jacopo Barigazzi’s phone has been blowing up with diplomats’ reactions ever since the publication this week of his story on Thérèse Blanchet, the new frontrunner candidate. Her rival for the job is French Ambassador to the EU Philippe Léglise-Costa.

LONG READ:It’s time to reinvent Florida, again, argues Cynthia Barnett. Hurricane Ian is a signal that it’s time for a more sustainable future.


Josh Rogin is asking some very uncomfortable questions of Washington, including: “What if getting paid to lobby for the United States’ enemies — who happen to be the world’s worst tyrants — were no longer allowed?”

That’s the goal of a new Stop Helping Adversaries Manipulate Everything Act, proposed by Reps. Steve Cohen (D-Tenn.), Joe Wilson (R-S.C.), Jim Banks (R-Ind.) and Elissa Slotkin (D-Mich.). Groups from Transparency International to former United Nations ambassador Nikki Haley’s advocacy group Stand for America are supporting the bill.

Today all that’s required is disclosure. While that’s more than is required in most democratic jurisdictions globally, it’s a fairly low ethical bar.

After all, why should dictators stealing their people’s money get to spend it on former members of Congress and other officials lobbying for their interests? Rogin says the current rules don’t work anyway, and that free speech arguments in favor of allowing current practices are weak.

Big lobbying firms such as BGR, Squire Patton Boggs, the Glover Park Group, Mercury Public Affairs and others have taken millions from Russian and Chinese entities trying to navigate or avoid sanctions. Some have gotten out of the game since Russia’s latest invasion of Ukraine.

Thanks to editor Mike Zapler, Mark Scott, Jakob Hanke Vela, Vincent Manancourt and producer Hannah Farrow.

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