WEBVTT - Dollar Strength; Global Pain 0:00:03.880 --> 0:00:07.200 This is Bloomberg opinion. I'm Vonnie Quinn. This week people 0:00:07.240 --> 0:00:11.600 say that this is the worst crisis President nature from 0:00:11.640 --> 0:00:14.720 the British Ruth Pollard on tri Lanka's warning to the world, 0:00:15.000 --> 0:00:17.680 and later Stephen mim on the stronger dollar's role in 0:00:17.800 --> 0:00:22.160 hurting developing nations. First related to the global pain, oil 0:00:22.360 --> 0:00:25.639 paid for, of course in dollars. Let's get to Liam denning. Liam, 0:00:25.680 --> 0:00:27.680 oil prices have come down over the last few weeks. 0:00:27.680 --> 0:00:30.720 How has that affected supply and demand? Well, I think 0:00:30.720 --> 0:00:34.960 it's a reflection of anticipation of supply and demand. So 0:00:35.120 --> 0:00:38.040 you know, the run up we saw in the say, 0:00:38.120 --> 0:00:41.240 first and second quarter of the year was really explicitly 0:00:41.320 --> 0:00:45.000 linked to the disruption of Russia's invasion of Ukraine and 0:00:45.280 --> 0:00:49.800 fears of what that might mean for supply. As sanctions 0:00:49.840 --> 0:00:53.600 began to ramp up, as some buyers of Russian crew 0:00:53.760 --> 0:00:59.000 began to draw back voluntarily for fear of reputational or 0:00:59.000 --> 0:01:02.600 regulatory clash. There's an old saying in the industry which 0:01:02.640 --> 0:01:06.600 is that the cure for high are prices is higher prices. 0:01:06.720 --> 0:01:12.200 So quite quickly we saw this alternative narrative begin to 0:01:12.240 --> 0:01:15.640 come into the market, which is you know, the economy 0:01:15.720 --> 0:01:19.119 is just recovering from COVID, the global economy, and it's 0:01:19.120 --> 0:01:22.679 still suffering the effects of that recurrent shutdowns in China 0:01:22.720 --> 0:01:25.880 and that sort of thing. So people began to worry, well, 0:01:25.920 --> 0:01:29.800 we're seeing these high prices. Now everyone's panicking, But what 0:01:29.920 --> 0:01:33.400 if this all tips into a recession next year? And 0:01:33.440 --> 0:01:36.520 I think those are the two competing narratives we're seeing. 0:01:36.760 --> 0:01:41.319 I think the reality is that expectations of disruption to 0:01:41.480 --> 0:01:46.360 Russian oil supply were probably a bit overplayed at the beginning. 0:01:46.360 --> 0:01:48.760 People were talking about, you know, two to three million 0:01:48.760 --> 0:01:51.919 barrels of Russian supply immediately getting knocked off the market. 0:01:52.800 --> 0:01:55.800 Some has been, but nowhere near that figure. You know, 0:01:55.840 --> 0:01:58.240 the Russians have found ways to sell the oil at 0:01:58.240 --> 0:02:02.600 a discount. In the meantime, we are definitely seeing pressure 0:02:02.680 --> 0:02:07.880 on the European economy from all sorts of Ukraine related pressures, 0:02:08.280 --> 0:02:11.120 notably around what's going to happen with natural gas, and 0:02:11.160 --> 0:02:16.560 we are starting to see signs of American drivers, still 0:02:16.639 --> 0:02:19.320 the single biggest pool of oil demand on the planet, 0:02:19.800 --> 0:02:23.480 starting to maybe take notice of those high gasoline prices 0:02:23.960 --> 0:02:26.000 that we've seen, even though they have been coming down 0:02:26.360 --> 0:02:28.240 I actually saw a board dollar or something at the 0:02:28.240 --> 0:02:30.400 MOMP the other day. Yeah, so, so you know, they 0:02:30.400 --> 0:02:33.520 went above five bucks for the first time ever in June. 0:02:33.560 --> 0:02:36.560 I believe it was, and that does appear to have 0:02:36.600 --> 0:02:41.200 had an effect in the context of broader inflationary pressure exactly. Now. 0:02:41.200 --> 0:02:44.080 Open Plus meets Wednesday, and it of course includes Russia. 0:02:44.280 --> 0:02:48.080 Will Russia counter calls for a more Persian crewed I 0:02:48.120 --> 0:02:53.120 think they will do so probably in the background Plus 0:02:53.240 --> 0:02:55.480 in some ways is in a strong position, right. You know, 0:02:55.720 --> 0:03:00.520 all prices are high, everyone's worried about tight supply. We 0:03:00.600 --> 0:03:04.440 haven't seen US shale raw back as it might have 0:03:04.520 --> 0:03:07.680 done a few years ago because of the constraints placed 0:03:07.720 --> 0:03:10.120 on it by investors. On the other hand, it's also 0:03:10.200 --> 0:03:13.000 in a difficult position. The likes of Saudi Arabia and 0:03:13.040 --> 0:03:16.239 the UAE, the big players in Open Plus, certainly don't 0:03:16.240 --> 0:03:18.960 want to tip the global economy into a recession that 0:03:19.000 --> 0:03:22.600 doesn't do them any good. As much as they are 0:03:23.320 --> 0:03:27.600 trying to deal with what they see as a United 0:03:27.639 --> 0:03:30.799 States that is pulling back from the Middle East, they 0:03:30.840 --> 0:03:34.720 also face a reality that they still depend overwhelmingly on 0:03:34.800 --> 0:03:38.360 the United States for their defense, for weapons, sales, for 0:03:38.400 --> 0:03:42.000 the presence of the fleet, for defending shipping lanes, etcetera, etcetera. 0:03:42.320 --> 0:03:44.960 So they are playing this balancing act of trying to 0:03:45.960 --> 0:03:50.560 keep Russia within OPEC and not the place exactly, and 0:03:50.600 --> 0:03:52.560 they had to at the time because they had kind 0:03:52.560 --> 0:03:56.280 of lost their position of influencing prices. So they're trying 0:03:56.320 --> 0:03:59.160 to keep Russia on board and not be seen to, 0:03:59.640 --> 0:04:03.920 for example, direct lots of oil towards Europe to help 0:04:03.960 --> 0:04:07.360 it out. At the same time, they don't want to 0:04:07.400 --> 0:04:10.160 completely break with the US, you know, and don't forget. 0:04:11.960 --> 0:04:13.920 Will that have made a difference. It didn't seem to 0:04:13.960 --> 0:04:15.720 at the time. They were keeping their options open and 0:04:15.760 --> 0:04:18.240 felt like, I actually think it's hard to say, you know. 0:04:18.279 --> 0:04:20.680 I think that the broad reaction was that it was 0:04:20.760 --> 0:04:25.080 kind of a mayor tour, like nothing happened. I think, frankly, 0:04:25.120 --> 0:04:27.760 it's too early to say, you know. I think Biden's 0:04:27.800 --> 0:04:30.920 aim was a couple of things. One was to essentially 0:04:30.960 --> 0:04:33.200 get over this issue he has had with the Crown 0:04:33.240 --> 0:04:35.680 Prince of Saudi Arabia, his whole call to make him 0:04:35.680 --> 0:04:39.039 a prior on the campaign trail without completely being seen 0:04:39.080 --> 0:04:42.840 to get down on his knees and at the same 0:04:42.880 --> 0:04:46.960 time affirm that the US was still a presence in 0:04:47.040 --> 0:04:50.560 the Middle East. We won't really know how much of 0:04:50.600 --> 0:04:53.120 an effect that's had for a while because it will 0:04:53.160 --> 0:04:56.880 come through actions. You know, what will Biden do the 0:04:57.000 --> 0:05:00.600 next time a missile gets lobbed in from Yemen? What 0:05:00.640 --> 0:05:03.240 will he do with the next call for for an 0:05:03.320 --> 0:05:06.160 arms sale. It's it's hard to say. I want to 0:05:06.200 --> 0:05:07.800 talk to you a little bit about natural gas in 0:05:07.839 --> 0:05:10.880 Europe as well. There's a relationship there between the two obviously, 0:05:10.920 --> 0:05:13.039 but natural gas is trading sort of ten times higher 0:05:13.040 --> 0:05:16.280 than it was ten times. I mean, that's a huge 0:05:16.520 --> 0:05:20.880 increase and there's almost no supply where capacity now, and 0:05:20.880 --> 0:05:23.200 there is a fear that Russia will cut it to zero, 0:05:23.240 --> 0:05:25.599 which is very possibly. Could this's what one turbine working 0:05:25.680 --> 0:05:29.520 or something. Yeah, I mean I think working with quotation marks. 0:05:32.520 --> 0:05:34.960 We saw them do this actually with the deliveries from 0:05:35.000 --> 0:05:37.640 the Caspian pipeline not too long ago, where you know, 0:05:37.920 --> 0:05:41.960 a documentation issue was was getting in the way. I think. Look, 0:05:42.000 --> 0:05:45.200 the way to think about this is Europe is very 0:05:45.240 --> 0:05:49.080 dependent on Russian gas, you know, Russian gas imports. I 0:05:49.120 --> 0:05:54.360 think last year was something like of western Europe's gas consumption. 0:05:55.160 --> 0:06:00.120 You can't do without that. The Russians quite coincidentally and 0:06:00.240 --> 0:06:03.280 down their gas storage in Europe last four which was 0:06:03.320 --> 0:06:06.680 actually when we began to see these price increases come in, 0:06:06.800 --> 0:06:11.599 way before the acts of Ukraine. And I think the 0:06:11.640 --> 0:06:15.560 way President Vladimir Putin of Russia looks at this is 0:06:16.600 --> 0:06:18.240 there was this view at the beginning of the war 0:06:18.520 --> 0:06:21.400 that well, Russia would be crazy to turn off the 0:06:21.400 --> 0:06:24.400 gas supply to Europe because you know, it's a big 0:06:24.440 --> 0:06:29.159 source of revenue. Putin has invested billions upon billions in 0:06:29.360 --> 0:06:34.600 revitalizing the old Soviet legacy gas supply system to Europe, 0:06:34.800 --> 0:06:38.360 So why would he throw that away? Well, it looks 0:06:38.400 --> 0:06:42.000 like he has already thrown it away immunition, right, But 0:06:42.120 --> 0:06:45.240 regardless of what happens with this war and what happens after, 0:06:45.880 --> 0:06:50.320 the energy relationship between Russia and Western Europe is fundamentally broken. 0:06:50.680 --> 0:06:53.960 At this point. Pewton knows that he's crossed that rubicon already. 0:06:54.000 --> 0:06:56.120 So now what is he interested in? Well, what he's 0:06:56.160 --> 0:06:59.440 interested in is winning this war that he expected to 0:06:59.560 --> 0:07:03.520 last may be two hours, clearly didn't. And now he's 0:07:03.560 --> 0:07:07.680 locked in this grinding battle against Ukraine. And by extension, 0:07:08.480 --> 0:07:11.440 the West, because it's the West that's supplying the weapons 0:07:11.480 --> 0:07:14.960 that Ukraine is using. And I think from Pewton's point 0:07:14.960 --> 0:07:19.880 of view, Russia is suffering. Its economy is suffering as 0:07:19.960 --> 0:07:22.760 much as people point to, you know, a strong ruble 0:07:22.840 --> 0:07:25.760 and that sort of thing. Over time, the lack of 0:07:25.800 --> 0:07:29.679 access to technology, the brain drain of people leaving, the 0:07:29.880 --> 0:07:34.360 effective dismantling of parts of the Russian gas system over time, 0:07:34.760 --> 0:07:37.080 that's all going to really hurt the economy. This year, 0:07:37.080 --> 0:07:38.960 the I m F is predicting Russia will have its 0:07:39.000 --> 0:07:42.080 deepest recession since the early nineties, which is the post 0:07:42.120 --> 0:07:46.400 Soviet chaos. However, will put and be voted out of office? 0:07:46.920 --> 0:07:50.600 Not very likely. He looks at the West. He sees, 0:07:51.080 --> 0:07:55.720 you know, several governments having already fallen, recently, Italy, the 0:07:55.840 --> 0:08:02.640 UK Prime ministers, parliamentary loss as parliamentary majority, Democrats struggling 0:08:02.640 --> 0:08:04.960 with high gasoline prices as they head to the mid terms, 0:08:05.640 --> 0:08:08.320 and he thinks to himself, if I can just push 0:08:08.360 --> 0:08:11.520 on enough pain points economically, I can get these people 0:08:11.560 --> 0:08:15.000 to back off. And he may be right about that. 0:08:15.080 --> 0:08:17.080 You know, one of the things I've noticed about the 0:08:17.120 --> 0:08:21.320 European Union's response to this is rhetorically, at least, they're 0:08:21.320 --> 0:08:23.680 not really admitting what the issue is. And the issue 0:08:23.760 --> 0:08:27.120 is Europe is already in an energy war with Russia. 0:08:27.360 --> 0:08:30.920 That's how Russia sees it. Europe is still talking of 0:08:30.920 --> 0:08:34.360 this as essentially an economic problem, you know, it's inflationary, 0:08:34.480 --> 0:08:37.320 or it's going to cause cost of living increases and 0:08:37.480 --> 0:08:40.280 hardship and that sort of thing. No, it may have 0:08:40.880 --> 0:08:43.640 a significant chunk of its energy supplies simply cut off, 0:08:44.120 --> 0:08:48.280 with implications that can range from high prices, through two 0:08:48.320 --> 0:08:51.480 factories being shut down, people being thrown out of work, 0:08:51.960 --> 0:08:54.439 all the way through effects to the labor economy in 0:08:54.480 --> 0:08:56.800 every and if you have a severe winter, all the 0:08:56.800 --> 0:09:00.920 way through to people being forced to us between paying 0:09:00.920 --> 0:09:04.160 their gas bill or paying for food, or literally freezing 0:09:04.200 --> 0:09:06.800 in their homes. This is a more existential threat than 0:09:06.840 --> 0:09:09.360 just some high gas prices, and what it demands is 0:09:09.360 --> 0:09:12.720 a war economy. And what I found interesting about, you know, 0:09:12.800 --> 0:09:15.600 the agreement that was reached this week for the EU 0:09:15.679 --> 0:09:17.600 to have this mechanism to cut gas in mind by 0:09:18.960 --> 0:09:23.040 you know, Hungary's Victor Auburn actually denounced it on Facebook 0:09:23.080 --> 0:09:25.120 as a step towards a war economy, and you know, 0:09:25.160 --> 0:09:27.480 we can leave all bands politics aside. But what I 0:09:27.480 --> 0:09:29.880 found amusing is yes, that's exactly what it is, and 0:09:29.920 --> 0:09:32.120 that's exactly what Europe needs. It needs to think of 0:09:32.160 --> 0:09:35.880 this as a war and measures like rationing and planning 0:09:36.160 --> 0:09:39.719 and coordinating the gas policy to deal with the war situation. 0:09:39.960 --> 0:09:43.199 So what happens next? Then? At what point do leaders 0:09:43.240 --> 0:09:46.199 stop denying what's happening and trying to deal with this? 0:09:46.280 --> 0:09:48.880 And I guess Germany is the obvious example. Do we 0:09:48.920 --> 0:09:53.320 see mandates bigger mandates? Doesn't seem like asking people to 0:09:53.360 --> 0:09:56.400 cut their usage by for some time is going to 0:09:56.400 --> 0:09:59.680 do much. I would look at it slightly differently, and 0:09:59.679 --> 0:10:04.360 that I think agreements like that are a step towards 0:10:04.400 --> 0:10:07.959 grappling with the reality of the situation. I think you can, 0:10:08.240 --> 0:10:10.560 In fact, I think you've seen signs of it in 0:10:10.760 --> 0:10:14.760 different places. You know, for example, here in the US, 0:10:15.080 --> 0:10:20.160 we've seen President Biden invoke the Defense Production Act, not 0:10:20.280 --> 0:10:24.000 necessarily for oil or gas, but he did it for 0:10:24.160 --> 0:10:28.960 critical minerals for batteries, and that's quite a far reaching 0:10:29.080 --> 0:10:34.439 Paris and emergency. We've seen him spr use the SPR 0:10:34.559 --> 0:10:38.760 exactly to adjust the taxes on gasoline prices. I think 0:10:38.800 --> 0:10:42.160 we're going to see this kind of action. Well, I'd 0:10:42.160 --> 0:10:44.640 say there's two parts. We're going to see this kind 0:10:44.679 --> 0:10:47.760 of action happen, particularly as we get closer to winter, 0:10:48.400 --> 0:10:52.880 and particularly if Pewton decides, well, if the Europeans want 0:10:52.920 --> 0:10:55.000 to get off Russian gas, there's no way I'm going 0:10:55.040 --> 0:10:57.000 to wait around and help them do that. I'll just 0:10:57.040 --> 0:10:59.600 cut it off because as much as he'll take some 0:10:59.679 --> 0:11:03.680 fine actual hit, oil is really the mainstay of Russian revenue. 0:11:03.679 --> 0:11:06.560 The gas is really much more a geopolitical tool. So 0:11:06.640 --> 0:11:09.160 he will be quite willing to cut it off, I believe. 0:11:09.960 --> 0:11:14.560 And as that reality sinks in, European leaders in particular 0:11:14.559 --> 0:11:17.280 are going to be faced with a choice. Are they 0:11:17.360 --> 0:11:20.760 going to back up the rhetoric that they've been talking 0:11:20.800 --> 0:11:24.560 about with regards to Ukraine, of defending values, of defending 0:11:24.559 --> 0:11:30.960 European security and therefore adopt more kind of coordinated planned 0:11:31.080 --> 0:11:33.680 war economy measures whatever you want to call it on 0:11:33.720 --> 0:11:37.800 the energy side, or are they going to back down. Well, 0:11:37.840 --> 0:11:40.120 and they need to be voted into office to right, 0:11:40.200 --> 0:11:42.800 so they're thinking of their own domestic elections, And I mean, 0:11:43.040 --> 0:11:45.079 is it a case of once people are back in 0:11:45.120 --> 0:11:48.079 parleman Macon has Obviously he won't have a legislative majority, 0:11:48.120 --> 0:11:50.080 but he's back in power. I mean, has he got 0:11:50.080 --> 0:11:52.400 more leeway now than say, some of the other economies 0:11:52.400 --> 0:11:55.760 where there may not even be a government. I think 0:11:55.800 --> 0:11:59.200 this is part of the problem Europe has that Pewton 0:11:59.280 --> 0:12:02.080 tries to exploit. And we saw it, for example, in 0:12:02.080 --> 0:12:08.119 this the wrangling o you saw particularly Southern European countries 0:12:08.600 --> 0:12:12.559 say well, we kept our house in order and Germany didn't, 0:12:12.559 --> 0:12:14.840 so why should we have and obviously back for the 0:12:14.920 --> 0:12:19.280 euro exactly now we laugh about this, but that is 0:12:19.320 --> 0:12:23.760 exactly a sort of division that Peutin seeks to exploit. Clearly, 0:12:23.800 --> 0:12:28.160 some economies are much more exposed, Germany being the prime example. 0:12:28.880 --> 0:12:31.440 It's very difficult to say how this will play out, 0:12:31.440 --> 0:12:34.240 because you can say, under one scenario, we have a 0:12:34.280 --> 0:12:38.200 freezing winter, there's a deep procession in parts of more 0:12:38.240 --> 0:12:41.520 Than and southern Europe, maybe people literally freezing to death 0:12:41.520 --> 0:12:44.280 in their homes, and a lot of people just say 0:12:44.760 --> 0:12:48.920 why are we doing this Ukraine. On the other hand, 0:12:49.120 --> 0:12:53.400 it's possible that Peutin overplays his hand, does something pretty 0:12:53.480 --> 0:12:57.160 terrible like that, and that actually leads to people saying 0:12:58.120 --> 0:13:01.520 this is untenable and as bad as this situation is, 0:13:02.000 --> 0:13:05.439 we simply can't tie ourselves to a situation where you 0:13:05.920 --> 0:13:08.040 do what Russia says. At the same time, it's much 0:13:08.120 --> 0:13:10.319 easier as a citizen of a country to say that 0:13:10.360 --> 0:13:13.040 when you have your air conditioning or you have your heating, 0:13:13.080 --> 0:13:16.000 because that's what decisions depend upon, right, the electorate's mood, 0:13:16.080 --> 0:13:17.960 and it's not going to be very good if they're freezing, 0:13:18.200 --> 0:13:21.480 and that's absolutely what Putin will count on. I mean, 0:13:21.480 --> 0:13:24.920 the counterpoint I would say is, I think there are 0:13:24.920 --> 0:13:27.120 two things that are quite obvious to a lot of 0:13:27.200 --> 0:13:30.640 voters in Europe. One is Putin's invasion of Ukraine is 0:13:30.920 --> 0:13:35.280 wholly unjustified, awful. We've seen all the images, We're probably 0:13:35.280 --> 0:13:38.559 going to see a lot more over time. The second 0:13:38.559 --> 0:13:42.760 thing is it's quite obvious that the gas isn't flowing 0:13:43.120 --> 0:13:47.000 because Russia has turned it off. So if any sort 0:13:47.040 --> 0:13:51.360 of political support is to be built for seeing this through, 0:13:51.679 --> 0:13:55.400 it will have to rely on reinforcing those messages over 0:13:55.400 --> 0:13:57.960 and over again. But no question, this is going to 0:13:58.000 --> 0:14:01.680 be an extraordinarily hard winter for Europe. It's simply tied 0:14:01.760 --> 0:14:06.320 to literally via a pipeline. A country that effectively sees 0:14:06.320 --> 0:14:08.560 the worst as its enemy, and it's come to the 0:14:08.600 --> 0:14:12.199 fore now, Liam Denning there, do get in touch via 0:14:12.200 --> 0:14:14.640 Twitter a Vanney Quinn or email v Quinn at Bloomberg 0:14:14.720 --> 0:14:19.200 dot net opinions and comments. Always welcome to Sri Lanka 0:14:19.240 --> 0:14:22.960 now and Ruth Pollard. So, Ruth, Sri Lanka is in default, 0:14:23.040 --> 0:14:27.440 inflation is above seventy. We saw protesters sacked the presidential 0:14:27.480 --> 0:14:30.400 palace the flight of then President got A Biraja Paxa, 0:14:30.440 --> 0:14:33.560 who later resigned. Now the former Prime Minister of Ranil 0:14:33.640 --> 0:14:37.440 Wickramasinger has the presidency. He was voted into the presidency. 0:14:37.600 --> 0:14:40.320 Why did lawmakers vote him in? In particular, I think 0:14:40.440 --> 0:14:44.000 when Neil is seen by lawmakers as a known quantity. 0:14:44.280 --> 0:14:47.720 He's pretty well respected on the global stage, having the 0:14:48.280 --> 0:14:52.200 Prime minister six different times over the past couple of decades, 0:14:53.040 --> 0:14:55.800 and he's seen as I guess, the safe pair of 0:14:55.840 --> 0:14:59.600 hands to leave the negotiations with the International Monetary Fund 0:15:00.000 --> 0:15:02.760 for a much needed bail out package for Sri Lanka. 0:15:03.240 --> 0:15:05.720 He's got a lot of support from got A Buya 0:15:05.800 --> 0:15:09.280 Rudget Parks's ruling party in order to take power. So 0:15:09.440 --> 0:15:12.640 that's really important to bear in mind, right, and he 0:15:12.760 --> 0:15:16.440 had promised a type of unity government, and yet of 0:15:16.520 --> 0:15:19.760 the eighteen cabinet ministers that he can appoint, they all 0:15:19.800 --> 0:15:23.080 seem to be from his party, with the exception of 0:15:23.080 --> 0:15:25.800 perhaps two from one opposition party. That's not what the 0:15:25.800 --> 0:15:28.800 protesters were looking for, is it not at all? And 0:15:28.880 --> 0:15:31.880 indeed Renal is seen as part of the problem by 0:15:31.960 --> 0:15:36.200 the protesters. He has been been from the political elite 0:15:36.360 --> 0:15:39.800 and therefore a really big part of what led Sri 0:15:39.920 --> 0:15:43.440 Lanka to this really really dire situation that it finds 0:15:43.440 --> 0:15:46.920 itself in now. The protests obviously they were calling for 0:15:47.080 --> 0:15:49.600 the resignation. That's got a buyout past there, and they 0:15:49.680 --> 0:15:53.000 complained some victory over having forced him from office and 0:15:53.040 --> 0:15:56.120 indeed forced him to flee the country. But Renal will 0:15:56.200 --> 0:15:59.320 have to find some layers really differentiating himself from the 0:15:59.360 --> 0:16:02.160 rudget parks a government. And one way that he could 0:16:02.160 --> 0:16:05.520 do that is to acceed to the protests of demands 0:16:05.680 --> 0:16:08.760 she really cut back on the extraordinary powers of the 0:16:08.800 --> 0:16:12.600 presidency that got to buyer awarded himself during his short 0:16:12.720 --> 0:16:15.080 term in office. It remains to be seen whether he 0:16:15.120 --> 0:16:18.200 will do that. I guess for him the priority is 0:16:18.480 --> 0:16:20.920 talks with the i m F. Sri Lanka does have 0:16:20.960 --> 0:16:23.680 a big social safety net, but that hasn't helped. People 0:16:23.680 --> 0:16:26.360 are suffering and they're angry. That's right. I mean he 0:16:26.720 --> 0:16:29.640 has two priorities. I think one of them is obviously 0:16:29.920 --> 0:16:32.480 pushing ahead with these talks with the i MS as 0:16:32.480 --> 0:16:35.320 well as at the same time speaking assistance from Bile. 0:16:35.360 --> 0:16:40.160 Actual vendors like Japan, India and China today have been 0:16:40.280 --> 0:16:42.880 sort of sitting on the sidelines and waiting to see 0:16:42.920 --> 0:16:45.680 what happens before they come up with any kind of 0:16:45.720 --> 0:16:49.520 cold hard cash. India has provided a lot of aid 0:16:49.560 --> 0:16:53.400 in terms of delaying loan payment and sending fuel and 0:16:53.640 --> 0:16:57.200 wheat and essential medicine to Sri Lanka, but what it 0:16:57.280 --> 0:17:00.000 really means is cold hard cash to keep the economy 0:17:00.000 --> 0:17:03.880 you're going. The other priority for Vicumous is to keep 0:17:03.920 --> 0:17:09.119 the protests at say, while he tries to stabilize the country. Now, 0:17:09.320 --> 0:17:12.200 he did that to some extent by this violence overthrow 0:17:12.400 --> 0:17:16.119 the protests as camp out by the presidential residents last week, 0:17:16.680 --> 0:17:19.720 and obviously that move was widely con then but if 0:17:19.720 --> 0:17:22.280 he does wind back the powers of the presidency and 0:17:22.359 --> 0:17:25.080 show some good will towards the protests, then that will 0:17:25.119 --> 0:17:27.920 go a long way to maintain his stability in the country. 0:17:28.320 --> 0:17:31.480 China's role, what will it be? President ji Jinping has 0:17:31.520 --> 0:17:34.520 promised aid, but in fact Belton Road Initiative spending has 0:17:34.560 --> 0:17:38.520 volunto zero. What are China's intentions? It's very difficult to 0:17:38.560 --> 0:17:41.959 see what China's plan is. Could Sri Lanka beyond not 0:17:42.080 --> 0:17:45.560 getting caught up in the slow car crash that we've 0:17:45.600 --> 0:17:49.040 seen Sri Lanka going through in terms of its default 0:17:49.280 --> 0:17:52.760 and the political instability that has come after it. China 0:17:53.119 --> 0:17:55.960 has invested a lot instrumenta over the years as part 0:17:55.960 --> 0:17:59.439 of its Belton Road program, but that only makes us 0:17:59.560 --> 0:18:02.439 tempt sense of subject that Sri Lanka owns. So we 0:18:02.520 --> 0:18:05.879 have to put China's role in in very clear context. Now, 0:18:05.920 --> 0:18:08.400 a lot of the projects that China has funded as 0:18:08.400 --> 0:18:11.120 widely seen as white elements, when many of them are 0:18:11.160 --> 0:18:14.280 flustered in the Rugi pasta heart Landers hand. Then TOTA 0:18:14.880 --> 0:18:17.960 investors had been looking to Sri Lanka as an example 0:18:18.320 --> 0:18:21.160 of an emerging market economy that might default and now 0:18:21.280 --> 0:18:24.720 has defaulted. What kind of an example is this for 0:18:24.880 --> 0:18:28.080 investors in terms of other developing countries? That might default, 0:18:28.119 --> 0:18:31.400 given that all the particulars are so individual. In this case, 0:18:31.640 --> 0:18:34.600 Sri Lanka is very much seen as a warning in 0:18:34.640 --> 0:18:37.960 the South Asia region. Of course, we're all watching Pakistan 0:18:37.960 --> 0:18:42.399 and with great interest. It too has uncustainable levels of 0:18:42.480 --> 0:18:46.200 foreign debt that had just managed to negotiate a deal 0:18:46.320 --> 0:18:50.480 with the IMF that may be stabilized somewhat. Of course, 0:18:50.480 --> 0:18:53.399 it is deeply reliant on by election vendors such as 0:18:53.400 --> 0:18:56.560 Staudi Arabia and China to back in that I MS 0:18:56.640 --> 0:19:00.159 loan and create even more stability. But it is in 0:19:00.160 --> 0:19:03.400 a very difficult financial situation and it's certainly not out 0:19:03.440 --> 0:19:06.480 of the woods yet. Rules you've seen this before. Is 0:19:06.520 --> 0:19:09.520 this the worst crisis that Sri Lanka has seen? It's 0:19:09.560 --> 0:19:12.800 obviously been through very many of them. Yeah, I mean 0:19:12.840 --> 0:19:16.240 obviously discivil war which went for decades was a terrible 0:19:16.280 --> 0:19:19.199 crisis that the country faced. But when I was in 0:19:19.400 --> 0:19:23.119 Sri Lanka last week, people from one information to the 0:19:23.119 --> 0:19:25.880 other said to me that this is truly the worst crisis. 0:19:25.920 --> 0:19:28.159 They have never had a situation where they've had to 0:19:28.240 --> 0:19:30.640 queue for fuels, the days and days and days where 0:19:30.640 --> 0:19:34.359 they've had no access to potential medicines and where people 0:19:34.359 --> 0:19:37.560 have been taking blood pressure medications, for example, every other 0:19:37.640 --> 0:19:41.480 day in order to conserve those pharmaceutical where schools haven't 0:19:41.520 --> 0:19:44.600 been able to operate. Exams can't be done because there's 0:19:44.600 --> 0:19:47.119 no money to print them on paper. And of course 0:19:47.119 --> 0:19:49.800 there's a food crisis. Farmers have not been able to 0:19:50.280 --> 0:19:53.800 harvest crops for sometimes two seasons now, and they're not 0:19:53.840 --> 0:19:56.680 even sure if they can plant next season's crops because 0:19:56.680 --> 0:20:00.040 there's no money to import fertilizns. So people say the 0:20:00.640 --> 0:20:05.400 West Class expressage for nightcract beside from the British Ruth 0:20:05.440 --> 0:20:08.119 Pollary with us from New Delhi. By the way, do 0:20:08.200 --> 0:20:11.320 get in touch. Comments and opinions always welcome at Bonney 0:20:11.359 --> 0:20:14.080 Quinn on Twitter or email v Quinn at Bloomberg dot net. 0:20:14.760 --> 0:20:17.480 Happy to have Stephen mim with US Now columnist and 0:20:17.680 --> 0:20:20.800 University of Georgia history professor. We're going to talk about 0:20:20.800 --> 0:20:22.639 how the strength of the US dollar has been a 0:20:22.720 --> 0:20:26.720 constant threat to developing nations. Stephen, the Dollar Index d 0:20:26.880 --> 0:20:28.879 x Y was below ninety for the first half of 0:20:28.960 --> 0:20:31.919 last year for context. Right now we're above one oh seven, 0:20:32.040 --> 0:20:34.120 and we've had a little reprieve this month, but we've 0:20:34.160 --> 0:20:38.800 been essentially strengthening all that time explained to us why 0:20:38.840 --> 0:20:42.600 this is so significant for other economies. It's very significant 0:20:42.720 --> 0:20:47.199 because every time the dollar strengthened, there's concurrent weakening of 0:20:47.240 --> 0:20:50.639 other currencies, and it's not just the Euro. The currencies 0:20:50.680 --> 0:20:53.200 that are hit the worst and that have the greatest 0:20:53.280 --> 0:20:57.240 impact are the currency issue by so called emerging economies 0:20:57.359 --> 0:21:01.800 in Asia, Latin America, Africa, elsewhere the world, and this 0:21:01.920 --> 0:21:06.040 weakening is something that poses some dangers for these eCos. 0:21:06.720 --> 0:21:10.120 We know that already Sri Lanka and Russia are in default, 0:21:10.440 --> 0:21:13.320 both for idiosyncratic reasons, but also at least in Sri 0:21:13.400 --> 0:21:15.760 Lanka's case, partially because the US dollar is so strong. 0:21:15.920 --> 0:21:19.080 We're looking at another couple of dozen countries daring default 0:21:19.119 --> 0:21:21.960 in the face. How much relief would we need to 0:21:21.960 --> 0:21:24.280 see on d X Y in order for these economies 0:21:24.320 --> 0:21:28.440 to actually feel some relief, well, a significant amount, which 0:21:28.480 --> 0:21:32.240 is highly unlikely at this point. I'm afraid because there 0:21:32.240 --> 0:21:34.480 are all sorts of signals being given by the sort 0:21:34.520 --> 0:21:38.320 of reserve that they will be serious about finding inflation, 0:21:38.440 --> 0:21:42.000 and that the war against inflation, particularly at this moment 0:21:42.320 --> 0:21:46.720 of global chaos, is one that will inevitably lead to 0:21:46.720 --> 0:21:49.320 the strengthening the dollar. And the key here, of course, 0:21:49.400 --> 0:21:52.040 is that the strengthening of dollar means that the death 0:21:52.600 --> 0:21:57.199 of these emerging economies will start to rise the burden 0:21:57.240 --> 0:22:01.480 of those debts because they're denominated in dollars more often 0:22:01.520 --> 0:22:03.560 than not. And this is where we get the idea 0:22:03.640 --> 0:22:07.840 of original sin explained to us. What economists have deemed 0:22:07.880 --> 0:22:11.200 original sin. Obviously not in the theological sense, right right, 0:22:11.280 --> 0:22:14.199 But you know, economists are oftentimes blamed for being not 0:22:14.320 --> 0:22:16.720 very creative. But Barry I. Can Green, who's one of 0:22:16.720 --> 0:22:19.879 the economistic question who coined this phrase, have to be 0:22:19.960 --> 0:22:23.120 credited for coming up with a creative way of understanding 0:22:23.680 --> 0:22:26.160 or framing the question of why is it that many 0:22:26.200 --> 0:22:29.919 countries around the world are not permitted or unable to 0:22:30.040 --> 0:22:36.080 borrow in their own domestically issue currencies. Instead, they're forced 0:22:36.119 --> 0:22:40.800 to borrow in other countries currencies, namely, more often than not, dollars. 0:22:41.600 --> 0:22:46.320 And he called this phenomenon original sin because when you 0:22:46.359 --> 0:22:48.840 look at a country like Argentina, for example, but it 0:22:48.920 --> 0:22:53.680 is a serial defaulter, we often assume that the problem 0:22:53.720 --> 0:22:58.640 here lies with the institutions of Argentina or other other 0:22:58.800 --> 0:23:03.159 failings of the tree question the emerging marketing question, and 0:23:03.200 --> 0:23:06.200 what I can green argued instead is that before any 0:23:06.240 --> 0:23:10.480 of this became a problem, these countries began borrowing in 0:23:10.640 --> 0:23:15.720 other countries current and that created the conditions for default. 0:23:15.880 --> 0:23:19.400 Because when you borrow, especially sovereign debt and in other 0:23:19.440 --> 0:23:24.000