Economy

Baltic politicians have lashed out at French and German leaders for discussing with Russian president Vladimir Putin how to unblock Ukrainian ports, highlighting the diverging views among western allies over how to handle diplomacy with Moscow.Leaders in eastern Europe have grown uneasy about the willingness of their western European counterparts to talk with Putin, reigniting suspicion that some EU countries are pushing Kyiv to cede territory to end the war.“It is incredible how the leaders of France and Germany are inadvertently paving the way for new acts of violence by Russia . . . How is it possible neither Paris nor Berlin have learned from history? Why is it presumed that Putin, currently waging a war on a major European people, intends to keep any promise?” asked Marko Mihkelson, head of the Estonian parliament’s foreign affairs committee.Artis Pabriks, Latvia’s deputy prime minister, said on Twitter: “It seems that there are number of so-called Western leaders who possess explicit need for self-humiliation in combination with total detachment from political reality.”German chancellor Olaf Scholz and French president Emmanuel Macron held a 80-minute phone call with Putin on Saturday in which the Russian president told them Moscow was willing to find ways to unblock grain exports from Ukraine’s Black Sea ports and could increase its own fertiliser and agriculture exports if relevant sanctions are lifted.It came two days after Italian prime minister Mario Draghi also discussed the issue with Putin in an attempt to ease a global food crisis that threatens developing countries in particular.There is a growing rift between many eastern European countries and the likes of Germany and France over the wisdom of speaking to Putin as the war enters into its fourth month. The Baltic countries believe such phone calls merely empower Putin, and that instead Europe should send more weapons to Ukraine.In the past three days, hundreds of ordinary Lithuanians crowdfunded €5mn to buy a Turkish military drone for Ukraine, according to the internet broadcaster Laisves TV, which started the fundraising.Mihkelson, invoking a phrase that Macron previously used to describe Nato, asked if the French and German leaders were not “being brain-dead” in their actions.He added: “Macron and Scholz should hang up the phone and book a trip to Ukraine post haste. I hope their peculiar actions are not motivated by fear of losing influence in democratic Europe which Ukraine would surely enter after winning the war.”Gabrielius Landsbergis, Lithuania’s foreign minister, said on Sunday that Russia “must be isolated” as countries around the world including India, Australia, Japan, South Korea and “little Taiwan” were watching what happened in Ukraine with anxiety. “Giving the occupier a chance to occupy territory means that it can be repeated elsewhere,” he added.Putin, Scholz and Macron discussed whether a negotiated solution could be found to open Odesa to allow grain exports to leave Ukraine, according to an Elysée briefing after the call. The French and German leaders “noted the Russian president’s promise to allow ships to access the port to export grain without it being used militarily by Russia — if the port was demined in advance”, according to the briefing.Some western capitals fear the looming food crisis and its devastating impact on poor households in Africa and the Middle East could trigger a new wave of migration to Europe.Kristi Raik, head of the Estonian Foreign Policy Institute, said that the French and German leaders risked giving legitimacy to “Putin’s lies and unacceptable demands”. She added: “I don’t share the view that no Western leader should ever talk to Putin. But the way Macron and Scholz are doing it is not just unhelpful, it is deeply counterproductive.” More

“A halt of gas imports from Russia could have a very strong effect on the already weakened Italian economy,” Confindustria said, adding the negative consequences would come from a major shortage of gas volumes for industry and services and an additional increase in energy costs.Last year Russia was Italy’s biggest supplier of natural gas, providing 29 billion cubic metres or 40% of total gas imported by the country. Following Russia’s invasion of Ukraine, the Italian government has been seeking alternative energy suppliers and its ministers have travelled to Africa and the Middle East to secure new contracts.As part of this effort, Italy’s energy group Eni and Algeria’s Sonatrach on Thursday signed a deal to accelerate the development of gas fields in Algeria and of green hydrogen.This move is expected to boost the North African country’s gas exports to Italy by some 3 billion cubic meters (bcm) per year. More

The energy-rich Gulf emirate plans to start licensing financial technology companies soon, he added. Fitch Ratings in April forecast Qatar’s GDP would grow 3.2% in 2022, from 1.6% in 2021, reflecting increased output from the soccer World Cup that the country is hosting in November and December and the post-pandemic recovery. More

Premier Li Keqiang issued a bleak warning on Wednesday about the perilous state of China’s economy, telling more than 100,000 officials in a nationwide video conference that they urgently needed to boost growth, reduce unemployment and secure the summer grain harvest.But the lack of any concrete new initiatives from the central government and muted state media coverage of the event suggest that there is still no easy way out of the economic crisis triggered by president Xi Jinping’s controversial zero-Covid policy. The strategy has brought commercial activity to a complete or near halt in dozens of cities over the past three months.Just a few hours after Li spoke, Chinese state television’s main evening news broadcast buried a brief and much softened version of his remarks in the middle of its bulletin. It led instead with a long item about Chinese police officers — who pride themselves on being “the handle on the Chinese Communist party’s knife” — heaping praise on Xi.The footage showed more than 1,400 uniformed officers applauding Xi and carried a clear message for cadres across the country that mounting concerns about the world’s second-largest economy would not supplant pandemic control as the party’s priority. “After watching the news, it feels pretty hopeless,” said one government official in eastern Jiangsu province, who is trying to help revive the local economy. “There was much more coverage of everyone applauding [Xi].”Xi Jinping remains committed to his contentious zero-Covid strategy © Leo Ramirez/AFP/Getty ImagesLi and Yi Gang, the central bank governor, deepened local officials’ malaise when they implied that there was relatively little that the government was willing or able to do to help them, even though the economic challenges, according to the premier, were “to a certain extent greater than those experienced in 2020”, when the Covid pandemic erupted out of central Hubei province. In the first quarter of 2020, China’s economy contracted 6.9 per cent year-on-year, the first officially recognised annual decline in more than 40 years.Li even raised the spectre of potential food shortages. While most international attention has focused on Shanghai’s strict measures, which began in late March and have only begun to ease gradually over the past week, lockdowns and regional transport restrictions have also affected large agricultural regions, such as Jilin province.“Harvesting absolutely cannot stop,” he told the officials, according to an off-record transcript of Wednesday’s emergency meeting that was confirmed by three people briefed on the premier’s comments. “[Food security] is a fundamental responsibility of local party [cadres] and governments. If you cannot stabilise [agricultural] production, you will be held accountable.”Li and Yi, however, offered only a modest expansion of a corporate tax relief initiative and new policy loans of Rmb800bn ($118.7bn), an amount equivalent to just 0.7 per cent of gross domestic product. During the depths of the global financial crisis in 2008 and 2009, Beijing unleashed a stimulus effort equivalent to 13 per cent of annual economic output.“Recently, a few provinces submitted reports to the State Council [China’s cabinet] asking to borrow money,” Li said. “[But current] transfer payments to local governments are the largest in history . . . So let me give you the bottom line, the rest depends on you local governments.”Analysts argue that in areas where strict lockdowns have sapped demand from companies and consumers, more bank credit is about as effective as — according to the analogy attributed to John Maynard Keynes — “pushing on a piece of string”.“Without the central government stepping up, the upside for fiscal support is capped,” said Trey McArver at Trivium, a Beijing-based consultancy. “A V-shaped recovery is extremely unlikely.”David Zhang, who owns a small market research firm in Beijing, said that “cheap loans for SMEs won’t help — my problem is a lack of business and rising operating costs”.

Zhang, whose revenues have fallen by more than 50 per cent over recent months, added that “the situation is worse than in 2020”.Many small business owners also complain that Li’s tax rebates often come with conditions that make them impossible for struggling small and medium-sized enterprises to claim. In some regions, cash-strapped local tax bureaus will only give one party in any given transaction tax relief, which is usually grabbed by larger state-owned enterprises and foreign investors at the expense of their smaller, and predominantly private sector, SME suppliers.“Most of our clients are bigger than us and there is no way they will give up tax benefits to help us,” said Li Bin, who runs a small advertising company in Nanjing, near Shanghai. “We are too small to make our clients sacrifice for us.“Business is very bad.” More

European leaders have stepped up diplomatic efforts to loosen Russia’s hold on Ukraine’s grain supplies as Kyiv’s prospects in the eastern Donbas region worsen and the risk of a global food crisis mounts.German chancellor Olaf Scholz and French president Emmanuel Macron discussed the situation with Vladimir Putin in a phone call on Saturday. Putin told them Moscow was willing to find ways to unblock grain exports from Ukraine’s Black Sea ports and could increase its own fertiliser and agriculture exports if relevant sanctions are lifted.Their conversation came two days after Italian prime minister Mario Draghi broached the issue with the Russian president in a bid to ease the global food crisis that threatens to inflict hardship in emerging market economies.Ukraine and some of its western allies have accused Russia of blockading the port of Odesa, holding up the export of large shipments of grain.Putin, Scholz and Macron discussed whether a negotiated solution could be found to open Odesa to allow grain exports to leave Ukraine, according to an Elysée briefing after the call. The French and German leaders “noted the Russian president’s promise to allow ships to access the port to export grain without it being used militarily by Russia — if the port was demined in advance”, according to the briefing.Berlin said the call lasted 80 minutes and was “devoted to Russia’s ongoing war against Ukraine and efforts to end it”.The risk of a global food crisis has been intensifying since Putin launched his all-out invasion of Ukraine, a major grain producer and exporter, on February 24. Russian fertiliser and agricultural exports have also been disrupted, for which Moscow blames western sanctions.Putin told Macron and Scholz that Russia “is ready to contribute to finding options for unimpeded grain exports”, according to a summary of his words released by the Kremlin in a statement.“Increased supplies of Russian fertilisers and agricultural products, which, of course, will require the lifting of relevant sanctions, will also help to ease tensions on the global food market,” the Kremlin reported Putin as saying.Ukraine’s president Volodymyr Zelensky discussed the Black Sea blockade in a call with UK prime minister Boris Johnson.“We talked about strengthening defence support for Ukraine, intensifying work on security guarantees, supplying fuel to Ukraine. We must work together to prevent a food crisis and unblock Ukrainian ports,” Zelensky wrote on Twitter.Johnson highlighted “the intensive work taking place with international partners to find ways to resume the export of grain from Ukraine to avert a global food crisis” and said “the UK would work with G7 partners to push for urgent progress”, Downing Street said in a statement.Italian leader Draghi discussed the issue with Zelensky in a call on Friday, and has previously raised the issue with US president Joe Biden. Some Western capitals fear the looming food crisis and its devastating impact on poor households in Africa and the Middle East could trigger a new wave of migration to Europe.Russian forces have stepped up their attacks on Ukraine’s forces in the eastern Donbas region and claim to have taken full control of Lyman, a railway hub. The area has been home to the fiercest fighting in the three-month old conflict after Ukraine retreated from it. Kyiv said the battle was ongoing.Ukraine claimed it had driven back Russian forces from Sievierodonetsk, the only major city not yet under Russian control in Luhansk, which makes up the Donbas together with neighbouring Donetsk.Luhansk’s governor Serhiy Haidai said Ukrainian troops “managed to push back the Russians to their previous positions” after two-thirds of the city was encircled, but warned that Russian forces were “not abandoning their attempts to encircle our troops and disrupt logistics”.Putin also discussed the military situation with Macron and Scholz, the Kremlin said. He said Russia was open to returning to the negotiating table and blamed Kyiv for stalling talks.The Elysée said Macron and Scholz repeated that any end to the war must respect Ukraine’s sovereignty and territorial integrity. They also asked Russia to release 2,500 soldiers who defended the Azovstal steel plant in Mariupol and have since been held by Russia, arguing that they were effectively prisoners of war.In a late-night address, Zelensky said he was confident Ukraine would retake the areas Russia was attacking with more western military aid.“We are protecting our land in the way that our current defence resources allow. We are doing everything to increase them. And we will increase them,” Zelensky said. “If the occupiers think that Lyman or Severodonetsk will be theirs, they are wrong. Donbas will be Ukrainian.”Additional reporting by Joe Miller in Frankfurt and Amy Kazmin in Rome More

Emerging market bonds are suffering their worst losses in almost three decades, hit by rising global interest rates, slowing growth and the war in Ukraine.The benchmark index of dollar-denominated EM sovereign bonds, the JPMorgan EMBI Global Diversified, has delivered total returns of around minus 15 per cent so far in 2022, its worst start to the year since 1994. The decline has only been slightly eased by the broad rally across global markets in recent days, which ended a seven-week losing streak for Wall Street stocks. Nearly $36bn has flowed out of emerging market mutual and exchange traded bond funds since the start of the year, according to data from EPFR; equity market flows have also gone into reverse since the start of this month.“It’s certainly the worst start I can remember across the asset class and I’ve been doing EMs for more than 25 years,” said Brett Diment, head of global emerging market debt at Abrdn.Developing economies were hit hard by the coronavirus pandemic, straining their public finances. Rising inflation, slowing global growth and the geopolitical and financial disruption caused by Russia’s war in Ukraine have added to the economic pressures they face. The investment outflows threaten to worsen their woes by tightening liquidity.David Hauner, head of EM strategy and economics at Bank of America Global Research, said he expected the situation to get worse.“The big story is that we have so much inflation in the world and monetary policymakers continue to be surprised by how high it is,” he said. “That means more monetary tightening and central banks will continue until something breaks, the economy or the market.”

Yerlan Syzdykov, global head of emerging markets at Amundi, said higher yields in developed markets like the US — driven by central banks’ rate rises — make EM bonds less attractive. “At best you will make zero, at worst you will lose money [this year],” he said.Hauner said that rate rises in major developed market economies were not necessarily bad for EM assets if they were accompanied by economic growth. “But that is not the case now — we have a major stagflation problem and central banks are raising rates to kill rampant inflation in some places, such as the US. This is a very unhealthy backdrop for emerging markets.”China, the world’s biggest emerging market, has faced some of the heaviest selling. Concerns about geopolitical risk, including the possibility that China will invade Taiwan in the wake of Russia’s invasion of Ukraine, had been exacerbated by the economic slowdown as the government imposed draconian lockdowns in pursuit of its zero-Covid policy, said Jonathan Fortun, economist at the Institute of International Finance, which monitors cross-border portfolio flows to emerging markets.Chinese assets have received large so-called passive inflows over the past two years, he noted, following the country’s inclusion in global indices which meant that fund managers attempting to mirror their benchmarks automatically bought Chinese stocks and bonds. This year, however, such flows had gone into reverse, with more than $13bn leaving Chinese bonds in March and April and more than $5bn leaving Chinese equities, according to IIF data.“We are pencilling in negative outflows from China for the remainder of this year,” Fortun said. “This is a very big deal.”Fund managers have not allocated some of the money withdrawn from China to other EM assets, he said, resulting in a widespread retreat: “Everyone is turning from the whole EM complex as an asset class and going to safer assets.”The shock to commodity prices caused by the war in Ukraine has added to the strain on many developing countries that rely on imports to meet their needs for food and energy. But this has also delivered some winners among commodity exporters. Diment at Abrdn noted that, while local currency bonds in the JPMorgan GBI-EM index have delivered total returns of minus 10 per cent so far this year in dollar terms, there is wide divergence between countries. Bonds issued by Hungary, which is close to the war and relies on Russian energy imports, have lost 18 per cent in the year to date. Those of Brazil, a big exporter of industrial and food commodities, are up 16 per cent in dollar terms.Diment said valuations of EM debt “arguably look pretty attractive now” and that Abrdn has seen net inflows so far this year into its EM debt funds.However, Hauner at Bank of America argued that the bottom will only be reached when central banks shift their attention from fighting inflation to promoting growth. “That may happen sometime by the autumn but it doesn’t feel like we are there yet,” he said.Syzdykov said it depended on whether the surge in inflation ebbs, returning the global economy to an equilibrium between low inflation and low interest rates. The alternative is that the US goes into recession next year, adding to the drag on global growth and pushing EM yields higher still, he warned. More

Listen to This ArticleTo hear more audio stories from publications like The New York Times, download Audm for iPhone or Android.GONZALES, Calif. — It looks like a century-old picture of farming in California: a few dozen Mexican men on their knees, plucking radishes from the ground, tying them into bundles. But the crews on Sabor Farms’ radish patch, about a mile south of the Salinas River, represent the cutting edge of change, a revolution in how America pulls food from the land.For starters, the young men on their knees are working alongside technology unseen even 10 years ago. Crouched behind what looks like a tractor retrofitted with a packing plant, they place bunches of radishes on a conveyor belt within arm’s reach, which carries them through a cold wash and delivers them to be packed into crates and delivered for distribution in a refrigerated truck.The other change is more subtle, but no less revolutionary. None of the workers are in the United States illegally.Both of these transformations are driven by the same dynamic: the decline in the supply of young illegal immigrants from Mexico, the backbone of the work force picking California’s crops since the 1960s.The new demographic reality has sent farmers scrambling to bring in more highly paid foreign workers on temporary guest-worker visas, experiment with automation wherever they can and even replace crops with less labor-intensive alternatives.“Back in the day, you had people galore,” said Vanessa Quinlan, director of human resources at Sabor Farms. These days, not so much: Some 90 percent of Sabor’s harvest workers come from Mexico on temporary visas, said Jess Quinlan, the farm’s president and Ms. Quinlan’s husband. “We needed to make sure we had bodies available when the crop is ready,” he said.For all the anxiety over the latest surge in immigration, Mexicans — who constitute most of the unauthorized immigrants in the United States and most of the farmworkers in California — are not coming in the numbers they once did.There are a variety of reasons: The aging of Mexico’s population slimmed the cohort of potential migrants. Mexico’s relative stability after the financial crises of the 1980s and 1990s reduced the pressures for them to leave, while the collapse of the housing bubble in the United States slashed demand for their work north of the border. Stricter border enforcement by the United States, notably during the Trump administration, has further dented the flow.“The Mexican migration wave to the United States has now crested,” the economists Gordon Hanson and Craig McIntosh wrote.As a consequence, the total population of unauthorized immigrants in the United States peaked in 2007 and has declined slightly since then. California felt it first. From 2010 to 2018, the unauthorized immigrant population in the state declined by some 10 percent, to 2.6 million. And the dwindling flow sharply reduced the supply of young workers to till fields and harvest crops on the cheap.The state reports that from 2010 to 2020, the average number of workers on California farms declined to 150,000 from 170,000. The number of undocumented immigrant workers declined even faster. The Labor Department’s most recent National Agricultural Workers Survey reports that in 2017 and 2018, unauthorized immigrants accounted for only 36 percent of crop workers hired by California farms. That was down from 66 percent, according to the surveys performed 10 years earlier.The immigrant work force has also aged. In 2017 and 2018, the average crop worker hired locally on a California farm was 43, according to the survey, eight years older than in the surveys performed from 2007 to 2009. The share of workers under the age of 25 dropped to 7 percent from a quarter.The radish harvest at Sabor Farms. “Back in the day, you had people galore,” the company’s human resources director said. Desperate to find an alternative, farms turned to a tool they had largely shunned for years: the H-2A visa, which allows them to import workers for a few months of the year.The visa was created during the immigration reform of 1986 as a concession to farmers who complained that the legalization of millions of unauthorized immigrants would deprive them of their labor force, as newly legalized workers would seek better jobs outside agriculture.But farmers found the H-2A process too expensive. Under the rules, they had to provide H-2A workers with housing, transportation to the fields and even meals. And they had to pay them the so-called adverse effect wage rate, calculated by the Agriculture Department to ensure they didn’t undercut the wages of domestic workers.It remained cheaper and easier for farmers to hire the younger immigrants who kept on coming illegally across the border. (Employers must demand documents proving workers’ eligibility to work, but these are fairly easy to fake.)That is no longer the case. There are some 35,000 workers on H-2A visas across California, 14 times as many as in 2007. During the harvest they crowd the low-end motels dotting California’s farm towns. A 1,200-bed housing facility exclusive to H-2A workers just opened in Salinas. In King City, some 50 miles south, a former tomato processing shed was retrofitted to house them.“In the United States we have an aging and settled illegal work force,” said Philip Martin, an expert on farm labor and migration at the University of California, Davis. “The fresh blood are the H-2As.” Immigrant guest workers are unlikely to fill the labor hole on America’s farms, though. For starters, they are costlier than the largely unauthorized workers they are replacing. The adverse effect wage rate in California this year is $17.51, well above the $15 minimum wage that farmers must pay workers hired locally.So farmers are also looking elsewhere. “We are living on borrowed time,” said Dave Puglia, president and chief executive of Western Growers, the lobby group for farmers in the West. “I want half the produce harvest mechanized in 10 years. There’s no other solution.”Produce that is hardy or doesn’t need to look pretty is largely harvested mechanically already, from processed tomatoes and wine grapes to mixed salad greens and tree nuts. Sabor Farms has been using machines to harvest salad mix for decades.“Processed food is mostly automated,” said Walt Duflock, who runs Western Growers’ Center for Innovation and Technology in Salinas, a point for tech entrepreneurs to meet farmers. “Now the effort is on the fresh side.”“It scares me that they are coming with H-2As and also with robots,” said José Luis Hernández, who emigrated from Mexico as a teenager.“We used to prune the leaves on the vine with our hands, but they brought in the robots last year,” said Ancelmo Zamudio, a vineyard worker.Apples are being grown on trellises for easy harvesting. Scientists have developed genetically modified “high rise” broccoli with long stems to be harvested mechanically. Pruning and trimming of trees and vines is increasingly automated. Lasers have been brought into fields for weeding. Biodegradable “plant tape” packed with seeds and nutrients can now be germinated in nurseries and transplanted with enormous machines that just unspool the tape into the field.A few rows down from the crew harvesting radish bunches at Sabor Farms’ patch, the Quinlans are running a fancy automatic radish harvester they bought from the Netherlands. Operated by three workers, it plucks individual radishes from the ground and spews them into crates in a truck driving by its side.And yet automation has limits. Harvesting produce that can’t be bruised or butchered by a robot remains a challenge. A survey by the Western Growers Center for Innovation and Technology found that about two-thirds of growers of specialty crops like fresh fruits, vegetables and nuts have invested in automation over the last three years. Still, they expect that only about 20 percent of the lettuce, apple and broccoli harvest — and none of the strawberry harvest — will be automated by 2025.Some crops are unlikely to survive. Acreage devoted to crops like bell peppers, broccoli and fresh tomatoes is declining. And foreign suppliers are picking up much of the slack. Fresh and frozen fruit and vegetable imports almost doubled over the last five years, to $31 billion in 2021.Consider asparagus, a particularly labor-intensive crop. Only 4,000 acres of it were harvested across the state in 2020, down from 37,000 two decades earlier. The state minimum wage of $15, added to the new requirement to pay overtime after 40 hours a week, is squeezing it further after growers in the Mexican state of Sinaloa — where workers make some $330 a month — increased the asparagus acreage almost threefold over 15 years, to 47,000 acres in 2020.H-2A workers won’t help fend off the cheaper Mexican asparagus. They are even more expensive than local workers, about half of whom are immigrants from earlier waves that gained legal status; about a third are undocumented. And capital is not rushing in to automate the crop.“There are no unicorns there,” said Neill Callis, who manages the asparagus packing shed at the Turlock Fruit Company, which grows some 300 acres of asparagus in the San Joaquin Valley east of Salinas. “You can’t seduce a V.C. with the opportunity to solve a $2-per-carton problem for 50 million cartons,” he said.While Turlock has automated where it can, introducing a German machine to sort, trim and bunch spears in the packing shed, the harvest is still done by hand — hunched workers walk up the rows stabbing at the spears with an 18-inch-long knife.These days, Mr. Callis said, Turlock is hanging on to the asparagus crop mainly to ensure its labor supply. Providing jobs during the asparagus harvest from February to May helps the farm hang on to its regular workers — 240 in the field and about 180 in the shed it co-owns with another farm — for the critical summer harvest of 3,500 acres of melons.Workers harvested asparagus by hand on a farm in Firebaugh, Calif.Losing its source of cheap illegal immigrant workers will change California. Other employers heavily reliant on cheap labor — like builders, landscapers, restaurants and hotels — will have to adjust.Paradoxically, the changes raking across California’s fields seem to threaten the undocumented local work force farmers once relied on. Ancelmo Zamudio from Chilapa, in Mexico’s state of Guerrero, and José Luis Hernández from Ejutla in Oaxaca crossed into the United States when they were barely in their teens, over 15 years ago. Now they live in Stockton, working mostly on the vineyards in Lodi and Napa.They were building a life in the United States. They brought their wives with them; had children; hoped that they might be able to legalize their status somehow, perhaps through another shot at immigration reform like the one of 1986.Things to them look decidedly cloudier. “We used to prune the leaves on the vine with our hands, but they brought in the robots last year,” Mr. Zamudio complained. “They said it was because there were no people.”Mr. Hernández grumbles about H-2A workers, who earn more even if they have less experience, and don’t have to pay rent or support a family. He worries about rising rents — pushed higher by new arrivals from the Bay Area. The rule compelling farmers to pay overtime after 40 hours of work per week is costing him money, he complains, because farmers slashed overtime and cut his workweek from six days to five.He worries about the future. “It scares me that they are coming with H-2As and also with robots,” he said. “That’s going to take us down.” More

NEW YORK/LONDON (Reuters) – Russia is on the cusp of a unique kind of debt crisis which investors say would be a first time a major emerging market economy is pushed into a bond default by geopolitics, rather than empty coffers.Until the Kremlin launched an attack on Ukraine on Feb. 24, few would have entertained the possibility of Russia defaulting on its hard currency bonds. Its strong solvency track record, bumper export revenues and an inflation-fighting central bank had made it a favourite of emerging market investors. But the U.S. Treasury’s decision not to extend a licence allowing Russia to keep up debt payments despite wide-ranging sanctions, have set Moscow on the road to default. The Russian finance ministry has wired some $100 million in interest payments on two bonds due on Friday to its domestic settlement house. But unless money shows up in foreign bondholders’ accounts, it will constitute a default by some definitions. And even if funds go through this time, payments of nearly $2 billion are due by the end of the year. One in late June is mandated to be settled outside Russia – a task experts predict will be impossible without the U.S. waiver.Emerging market debt crises are nothing new — Russia itself reneged on its rouble bonds in 1998. Geopolitics too have spilled into the debt sphere before, forcing defaults in Venezuela and Iran for instance.Yet in Iran’s case, small amounts of loan debt were hit by U.S. sanctions after its 1979 revolution, while Venezuela’s economy was already on its knees before U.S. curbs in 2019 pushed $60 billion in sovereign and sub-sovereign debt across the brink. Russia meanwhile continues to rake in oil and metals earnings. Even with half its $640 billion reserves’ war chest frozen by sanctions, the central bank has enough cash to repay the $40 billion outstanding in sovereign hard currency debt. “This is a completely different crisis from other emerging market crises, it’s not about ability or willingness to pay, they technically cannot pay,” said Flavio Carpenzano, investment director at Capital Group, an asset manager that – like many others – was exposed to Russia before war erupted. The impact is amplified by the fact this would be Russia’s first major foreign bond default since just after its 1917 Bolshevik revolution. Sanctions on Russia and its own countermeasures have effectively severed it from global financial systems. Comparisons with recent defaults such as Argentina in 2020 are inappropriate because most countries’ finances are strained when defaults happen, said Stephane Monier, chief investment officer at Lombard Odier.”This would be the first externally and politically driven default in emerging markets’ history,” Monier said.The Treasury license expiry means creditors may be unable to receive payments anyway, which Daniel Moreno, head of global emerging market debt at Mirabaud Asset Management, likened to “turning the world upside down.” “Me, the creditor, is now not willing to accept the payment,” he added. NO GOING BACKRussia’s international bonds, most of which started the year trading above par, have dropped in value to between 13-26 cents on the dollar. They have also been ejected from indexes.A key difference with past defaulters such as Argentina or Venezuela is that Russia’s attack on Ukraine — which it calls a special operation — has made it a pariah in many investors’ eyes, probably for years to come. “There is a huge stigma in actually holding these bonds, with emerging markets asset managers under pressure from their clients asking them not to invest in Russia and to liquidate their positions,” said Gabriele Foa, portfolio manager for the Algebris Global Credit Opportunity Fund. For now, a potential default is symbolic because Russia cannot borrow internationally anyway, nor does it need to. But what comes further down the line is crucial.Regime change in Russia could at some point end Western sanctions and allow it back into the fold. But first, creditors face a long and costly process to recover money, for instance by exchanging defaulted bonds with new ones.A default stigma would also raise future borrowing costs.By defaulting “you increase the cost of funding and it’s very likely this will happen to Russia too. They will need to pay a premium,” said Capital Group’s Carpenzano.The White House expects a default to have minimal impact on the U.S. or global economy but Carpenzano reckons events around Russia are forcing a re-assessment of geopolitical risks in emerging markets. “Geopolitical noise has increased and investors would like to be compensated for this higher risk,” he said, citing China’s hefty investment outflows in recent weeks. More