In Geopolitics Today: Monday, August 21st
Libya's Central Bank Reunites After Years of Division, Chile's New Lithium Model Draws Global Interest, and other stories.
IMF Engaging with Argentina's Opposition
The International Monetary Fund (IMF) has reportedly engaged in separate video conferences with the economic teams of Argentina's two main contenders for the upcoming October 22 presidential elections: La Libertad Avanza (LLA) and Juntos por el Cambio (JxC). Candidate Javier Milei of LLA, a prominent economist, conveyed his intention to implement a substantial economic adjustment, even exceeding the IMF's requested measures. Milei's proposed plan encompasses significant fiscal adjustments, exchange rate unification, expense reduction to address financial deficits, economic liberalization, comprehensive state reform, modernization of labor laws, and a monetary overhaul that could lead to the closure of the Central Bank.
During the discussions, Milei reportedly assured the IMF that despite the necessary adjustments, Argentina would avoid defaulting on its obligations to both the IMF and sovereign debt. The IMF emphasized that the discussions offered an opportunity to exchange views on Argentina's economic outlook and policy priorities, underscoring the Fund's ongoing engagement with various political and economic stakeholders. IMF's Western Hemisphere Director Rodrigo Valdés, accompanied by his team, along with prominent figures from both LLA and JxC, participated in these discussions. Argentina's Economy Minister and presidential candidate Sergio Massa of Unión por la Patria (UP) is anticipated to engage with the IMF in Washington next week, focusing on the impending disbursement.
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Libya's Central Bank Reunites After Years of Division
In a significant development for Libya's political and economic landscape, the country's central bank announced its reunification between two rival branches. The division had mirrored the wider political fragmentation in Libya, with one branch backing the Tripoli-based government in the west, and the other affiliated with military leader Khalifa Haftar in the east.
The reunification of the Central Bank of Libya (CBL) is expected to have wide-reaching implications, particularly for the country's financial stability and unity. The two branches had been separated since 2014, causing challenges in implementing consistent monetary policies and overseeing the distribution of oil revenues, crucial for Libya's economy. The move toward reunification was initiated in December 2021, driven by efforts to overcome the divisive consequences of the split. As Libya strives to consolidate stability and restore its economy, the reunification of its central bank is a step toward creating a more cohesive and functioning governance structure. The unification is expected to aid the development of consistent financial policies and restore confidence in the Libyan dinar.
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Typhoon Doksuri Unleashes Floods in China
Typhoon Doksuri has made a significant impact on China, triggering severe flooding in the country's north. After crashing onto the mainland over Fujian Province, the typhoon pushed northward, causing extensive rainfall over the Beijing-Tianjin-Hebei region. The ensuing floods resulted in casualties, evacuations, and substantial damage to property and infrastructure.
The scale of the disaster has exposed challenges in China's emergency response protocols and leadership. Reports indicate that the government's initial response was slow, leading to criticism of inadequate relief efforts. Notably, President Xi Jinping's absence from public appearances during this crisis and the government's handling of the disaster have sparked concerns about the administration's responsiveness and priorities. The floods have also raised questions about China's food security. With increased instances of extreme weather events predicted, the government will need to allocate significant resources for disaster preparation, mitigation, and relief. The economic consequences, including property damage, disruptions to the rice harvest, and potential impacts on consumption-based growth, are likely to test China's resilience.
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The US Brokers Defence Commitments Between Japan and South Korea
US President Joe Biden has orchestrated a landmark trilateral defence agreement with Japanese Prime Minister Fumio Kishida and South Korean President Yoon Suk Yeol at Camp David, signalling a significant step towards unity for the long-standing US allies. The agreements, encompassing joint military exercises, ballistic missile defence cooperation, and the security of defence supply chains, underline a renewed commitment to counter China's influence and manage North Korea's nuclear and missile programs.
The trilateral cooperation includes regular multi-domain exercises spanning air, land, sea, undersea, and cyber components. The leaders have also established a security hotline and pledged to meet annually to foster enduring relationships. Biden's administration aims to reinforce these partnerships in the Indo-Pacific region to ensure a sustained security presence, countering China in the South China Sea and North Korea's missile launches. The three nations additionally aim to address vulnerabilities in supply chains related to critical minerals, batteries, semiconductors, artificial intelligence, and quantum computing, areas often dependent on Chinese-dominated markets. Their collaboration extends to enhancing export controls to limit China's access to critical technologies, aimed at safeguarding not only security but also economic resilience.
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ECOWAS Plans Military Intervention in Niger
The Economic Community of West African States (ECOWAS) is reportedly finalizing plans for a military intervention in Niger in response to the recent coup that ousted President Mohamed Bazoum. The coup has escalated tensions in the region, raising concerns about the potential for conflict. ECOWAS' determination to restore a favourable government in Niger has led to the establishment of a potential date for invasion, with France expressing its full support for ECOWAS' decision to action a standby military force on the borders of Niger.
Military intervention, even by regional actors with international backing, comes with significant risks. Potential complications include the need for substantial backing from Nigeria, which has the most effective army in ECOWAS, for any intervention to succeed. Additionally, rushed military action could lead to further destabilization in the region. The junta's popularity and potential resistance, and the risk of the intervention being perceived as foreign interference, could all pose significant challenges. The outcome of this situation is uncertain, and there is a possibility of a wider regional conflict if the junta perceives the intervention as an attack against their country.
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Chile's New Lithium Model Draws Global Interest
Chile's President Gabriel Boric's proposed public-private model for lithium mining has attracted interest from over 50 global companies. Traditionally, US-based Albemarle and Chile-based Sociedad Quimica y Minera de Chile (SQM) have dominated the Atacama salt flat, a major source of global lithium production. Under Boric's model, the government would have a controlling stake in strategic operations, while private firms retain control of non-strategic projects.
Boric aims to negotiate larger stakes for the government in the current contracts of Albemarle and SQM, with these discussions supervised by the state-owned copper producer Codelco. However, the president's plan requires approval from Chile's National Congress, where he lacks a majority. While Boric has pledged to respect existing contracts, the shift in the lithium mining landscape could lead to renegotiations of exploitation contracts. The government intends to create a new state-owned lithium mining company, potentially impacting existing players' operations. Chile's plan also includes incentivizing exploration of other salt flats to diversify lithium sources. The country’s approach reflects a broader trend of resource nationalism and protectionism in Latin America, affecting industries from energy to mining. These shifts could reshape global supply chains and create uncertainties for companies operating in the region.