Biden’s Gaza dilemma
Campus protests have put the President in a spot
It might not quite be another defining moment in American politics or for that matter, in the run up to the Presidential elections of November 2024.
But the Biden re-election campaign is getting enough indications that the Democratic National Convention scheduled in Chicago this August could be a re-run of the raucous 1968 Convention in that windy city when protestors defied police bans and permits, resulting in absolute mayhem. And the ominous signs for Joe Biden are coming at a time when polls are showing a small lift for a beleaguered Presidency, nationally and in the swing states.
What is taking place in some 30-odd campuses across America is something that cannot be wished away as a bunch of misguided youngsters; a law and order problem for campus police; or that of rising anti-Semitism in colleges and universities.
Whether it was the anti-Vietnam war protests of the 1960s or the anti-apartheid movement of the 1980s, college students in the US have always been at the forefront of political change.
CAMPUSES ROILED
Across US campuses — right now principally in California, New York and Texas — students are aware of the bottomline: that universities that have billions in endowments have to invest to keep their nests growing. And the pressures faced by Ivy Leagues of today are no dierent than what they confronted some four decades ago when it came to South Africa and erstwhile Rhodesia over apartheid.
Students who have pitched protest tents in campuses are urging universities to disinvest their holdings in Israel or from war related entities that are associated with the goings on in Gaza. As of now the intended targets are broad-based rather than specific organisations of the military-industrial complex.
Students are also demanding the curtailment of academic ties with Israeli institutions till such time there are signs of a permanent ceasefire.
For the Biden administration to side with the students in the name of free speech and expression is to miss the point.
The youngsters want a clear disassociation of the US from the goings on in the Gaza, something support
Student
that the White House has been hearing from within the administration and the Democratic Party.
Progressive Senators like Bernie Sanders of Vermont have been urging President Biden not for a cuto in aid to Israel but to leverage aid for tangible payos on the ground, something Washington has been unable to do with Prime Minister Benjamin Netanyahu.
Critics of disinvestment argue that the amounts put in by Universities in entities doing business with the Jewish state may not even work out to 0.1 per cent, but protestors believe that a start should be made. And in the context of the Gaza, at least one poll has shown that American youngsters favour a permanent ceasefire by a five to one margin. And this in spite of the Palestinian issue not being perceived as a major foreign policy issue.
Though some extraneous issues have the tendency to sneak into targeted protest movements, by and large the protestors are united in their stance against o¨cial American involvement in what is being seen as a genocide in the Gaza, a moral issue that cuts across the student community.
At a time when Biden is struggling to hold on to the Democratic Party, the segment he cannot aord to jeopardise would be the 18-29 year olds.
After listening to Walter Cronkite’s characterization of the American involvement in the Vietnam War in the aftermath of the Tet Oensive in 1968, President Lyndon Johnson threw in the towel saying “If I have lost Cronkite, I have lost Middle America”.
The problem for Biden in 2024 is that he does not have journalists like Cronkite around; or for that matter have any political comfort zone to let this Gaza issue slide any further.
Once again, low and middle income countries (LMICs) are at the brutal receiving end of the fickle trajectory of international capital flows. As Figure 1 indicates, net financial flows to such countries, which increased rapidly after the Global Financial Crisis that began and was created by advanced economies, peaked in 2014.
Thereafter, they have been on a downward trend, which has accelerated dramatically from 2021, to the point that they turned negative in 2023, and are expected to fall further in 2024. In 2023, LMICs as a group (excluding China) sent an estimated $21.4 billion (which they could ill aord to do) outside — and by 2024 that number is expected to more than double, such that these countries will be sending as much as $50.5 billion, mostly to rich economies and multilateral financial institutions.
Some of this is obviously because of the fickleness and volatility of private capital markets, which exhibit both irrationality and herd behaviour that adversely aect recipient countries. It is evident from Figure 2 that private capital markets exhibited significantly increased appetite for investments in LMICs, especially after 2009, when expansionary monetary policies and very low-to-negative interests in the advanced economies provided financial investors with cheap money to invest even in areas that were earlier considered to be too “risky”.
From an average of around $68 billion in the decade up to 2009, private capital inflows grew dramatically thereafter, peaking at $252 billion in 2017. This is why private players currently hold more than half of the debt of LMICs.
DECLINE IN INFLOW
But from 2018 onwards, the fall in gross private inflows to LMICs has been dramatic, such that gross inflows in 2022 were less than half of the 2017 level, at $124 billion. Other sources of capital — from bilateral aid to funds from multilateral institutions — have failed to counterbalance these tendencies.
Indeed, the fall in gross inflows has been matched by sharp, even dramatic, increases in interest payments and other charges imposed upon LMICs, making debt repayment obligations extremely onerous.
This only partly reflects the increase in base interest rates as central banks in advanced economies began a process of tightening their monetary policies. As the base interest rate rose, the spreads on debt issued by LMIC borrowers — both sovereign and private debtors — rose even more, as we have shown in an earlier analysis.
As a result, even as net debt inflows have fallen, debt service obligations have increased massively, as shown in Figure 3.
As a result, 26 countries (including Angola, Pakistan and Vietnam to name just a few) had net negative transfers, paying a total of $48 billion more in debt service than they received in all forms of new external finance. It has been estimated that the number of countries experiencing such negative transfer could increase to 44 in 2025, with net outflows of $102 billion.
In a way, this should not surprise us: the inherent instability, pro-cyclicality and boom-and-bust cycles of private financial markets have been common knowledge for a while, and both advanced economies and lower-income countries have been victims of this in many episodes of financial crisis over the past half-century.
But what is especially surprising and even alarming, is that the tendency to pro-cyclicality is not confined to private players, but appears to be widespread among the multilateral financial institutions that were after all created to counter these tendencies.
We now know that there have been sharp declines in net lending by the very institutions that should have dramatically increased their lending to LMICs in the recent period, when private markets were no longer delivering the required resources.
IMF TRANSFER DIP
Table 1 shows the change in net financial resource transfer between 2022 and 2023, and the numbers are shocking. Net transfers by the IMF fell by a whopping $19 billion, counting both non-concessional lending, while those by the World Bank Group (specifically the IBRD and the IDA) fell by $6 billion. The regional development banks similarly showed declines in net resource transfer.
There could not be any more telling or severe indictment of the functioning of these institutions. There have been, and continue to be, major concerns with the programming of these institutions, especially the IMF and its hatchet-like insistence on fiscal consolidation in declining economies (despite statements claiming that they no longer support this).
But these numbers suggest something even more appalling: these institutions are not fulfilling their basic role of providing countercyclical financial resources to countries in need when markets fail to deliver them. This was the basic purpose of the IMF and the reason why it was set up, so to fail on this most basic requirement is actually beyond belief.
This is made worse by the IMF’s insistence on retaining the practice of imposing surcharges and fees upon countries that have been forced to take on large IMF loans or persist with IMF programmes for an extended period.
The very fact that some countries have taken repeated IMF programmes is a sign of the failure of the institution to enable or support eective recovery — and this cannot be blamed on the recipient country alone, since there is at least equal fault f of the IMF and the policy conditions it has imposed.
Yet the IMF continues to add to the woes of countries in severe economic distress: the surcharges have been estimated to increase the cost of borrowing by as much as 57 per cent for the five top surcharge-paying countries alone.
Clearly, international financial institutions are in need of more than just tinkering reform —they will need a drastic overhaul if they are to start fulfilling their basic roles in the global economy.