In Geopolitics This Week
Challenges and Pitfalls to the Use of Sanctions by the US and its Allies, Pakistan Agrees to IMF Bailout Terms, Moldova’s Government Collapses Reigniting Instability Fears, and other stories.
Challenges and Pitfalls to the Use of Sanctions by the US and its Allies
The use of sanctions against Russia as a response to its invasion of Ukraine has been central to the strategy deployed by NATO countries. Despite concerns that individual states' economic interests would hinder the coalition, these have yet to materialize.
An analysis of media reporting, government announcements, and political debates from the past 12 months highlights the political objectives and constraints faced by NATO leaders, including unity of justifications and threats, assessment of differential costs, and ambiguity of sanctions measures. Although the impact of sanctions on the Russian economy has been significant, the transition from rhetoric to reality has been challenging for NATO leaders and the consequences have been less immediate than promised. Cooperation and cohesion among Ukraine's allies remains a key pillar of their war effort.
US sanctions have reshaped the global economic order, with Washington finding sanctions an appealing policy tool for decades. Sanctions have been key for successive presidential administrations in the United States, targeting over 9,000 individuals, companies and economic sectors through 70 different sanctions programs. However, the effectiveness of sanctions may be ending due to changes in the international economic system and shifts in global geopolitics.
In many ways the employment of sanctions by the US as a tool of foreign policy has backfired, imposing costs on the US and its allies while encouraging targeted states towards policies to insulate their governments and economies from US pressure. The power of sanctions comes from the risk associated with non-compliance, but the long-term goal of changing the behaviour of states remains elusive.
Pakistan Agrees to IMF Bailout Terms
Pakistan’s Finance Minister Ishaq Dar announced on Friday that Pakistan and the International Monetary Fund (IMF) have come to an agreement regarding the terms for the release of approximately $1.1 billion in funding. Dar stated that the payment was delayed due to standard procedures. This announcement was made just a few hours after an IMF delegation finished ten days of negotiations in Islamabad aimed at securing the much-needed funds for maintaining the stability of Pakistan's economy.
Pakistan signed a $6bn bailout package with the IMF in 2019 and an additional $1bn was added a year later. The government will now look to implement fiscal measures demanded by the IMF, including raising $627m through new taxes and increasing fuel taxes, with diesel levies to be doubled to 5 rupees per litre in March and April. A staff-level agreement must be reached and approved by the IMF headquarters in Washington prior to the disbursement of the funds.
The IMF has set conditions for the release of the funds, including a return to a market-based exchange rate and an increase in fuel prices. These measures, recently implemented by Pakistan, have resulted in a surge in inflation and caused shortages in imported goods. Further fiscal tightening could therefore worsen the country's economic situation.
In many ways, Islamabad has failed to appreciate the severity of the economic situation. Pakistan is currently facing an economic meltdown, with a balance of payment crisis, record inflation, and a plummeting rupee, all while the country's foreign exchange reserves fell to $2.9bn. As such, Pakistan needs to receive the funding as soon as possible, as the former Deputy Governor of the central bank, Murtaza Syed emphasized when he stated that “if the process takes more than a month, it could become more challenging” for the country.
Moldova’s Government Collapses Reigniting Instability Fears
The government of Moldova collapsed this week after a no-confidence motion was passed by lawmakers amid public outrage over the government's involvement in the theft of $1 billion from the country's banks. This political turmoil adds to the challenges faced by the country, including economic struggles due to the Russo-Ukrainian war and Moscow's efforts to maintain its influence in Moldova. The former prime minister was arrested in connection to the theft, which is believed to be linked to one of Moldova's wealthiest individuals.
In response to the government collapse, President Maia Sandu nominated Dorin Recean, her security and defence policy advisor, as the next Prime Minister. The nomination emphasizes the importance of defence and domestic security in the new government's agenda, and indicates that pro-EU policies will continue. However, the new government must navigate the challenge of improving economic engagement with the EU without inciting resistance from local forces aligned with Moscow.
The no-confidence motion was proposed by opposition parties advocating for closer ties with Moscow. The pro-Russian opposition parties are calling for the dissolution of Parliament and early elections, but these steps are unlikely to occur at this time.
The collapse of the government poses a threat to Moldova's European prospects, potentially driving the country into economic and social chaos. The country's pro-European leaders in parliament hope for a new government to be formed without a fresh election, and the country remains torn between integrating with the EU and aligning with Moscow.