More stories

  • in

    India’s Economy Is Growing Quickly. Why Can’t It Produce Enough Jobs?

    The disconnect is a result of India’s uneven growth, powered and enjoyed by the country’s upper strata.NEW DELHI — On paper, India’s economy has had a banner year. Exports are at record highs. Profits of publicly traded companies have doubled. A vibrant middle class, built over the past few decades, is now shelling out so much on movie tickets, cars, real estate and vacations that economists call it post-pandemic “revenge spending.”Yet even as India is projected to have the fastest growth of any major economy this year, the rosy headline figures do not reflect reality for hundreds of millions of Indians. The growth is still not translating into enough jobs for the waves of educated young people who enter the labor force each year. A far larger number of Indians eke out a living in the informal sector, and they have been battered in recent months by high inflation, especially in food prices.The disconnect is a result of India’s uneven growth, which is powered by the voracious consumption of the country’s upper strata but whose benefits often do not extend beyond the urban middle class. The pandemic has magnified the divide, throwing tens of millions of Indians into extreme poverty while the number of Indian billionaires has surged, according to Oxfam.The concentration of wealth is in part a product of the growth-at-all-costs ambitions of Prime Minister Narendra Modi, who promised when he was re-elected in 2019 to double the size of India’s economy by 2024, lifting the country into the $5 trillion-or-more club alongside the United States, China and Japan.The government reported late last month that the economy had expanded 8.7 percent in the last year, to $3.3 trillion. But with domestic investment lackluster, and government hiring slowing, India has turned to subsidized fuel, food and housing for the poorest to address the widespread joblessness. Free grains now reach two-thirds of the country’s more than 1.3 billion people.Those handouts, by some calculations, have pushed inequality in India to its lowest level in decades. Still, critics of the Indian government say that subsidies cannot be used forever to paper over inadequate job creation. This is especially true as tens of millions of Indians — new college graduates, farmers looking to leave the fields and women taking on work — are expected to seek to flood the nonfarm work force in the coming years.A job fair in Chennai last month.Idrees Mohammed/EPA, via Shutterstock“There is a historical disconnect in the Indian growth story, where growth essentially happens without a corresponding increase in employment,” said Mahesh Vyas, the chief executive of the Center for Monitoring Indian Economy, a data research firm.Among the job seekers despairing over the lack of opportunities is Sweety Sinha, who lives in Haryana, a northern state where unemployment was a staggering 34.5 percent in April.As a child, Ms. Sinha liked to pretend to be a teacher, standing in front of her village classroom with fake eyeglasses and a wooden baton, to fellow students’ great amusement.Her ambition came true years later when she got a job teaching math at a private school. But the coronavirus upended her dreams, as the Indian economy contracted 7.3 percent in the 2020-21 fiscal year. Within months of starting, she and several other teachers were laid off because so many students had dropped out.Ms. Sinha, 30, is again in the market for a job. In November, she joined thousands of applicants vying for much-coveted work in the government. She has also traveled across Haryana seeking jobs, but turned them down because of the meager pay — less than $400 a month.“Sometimes, during nights, I really get scared: What if I am not able to get anything?” she said. “All of my friends are suffering because of unemployment.”But for Indian politicians, a high unemployment rate “is not a showstopper,” said Mr. Vyas, the economist, adding that they were far more concerned with inflation, which affects all voters.India’s reserve bank and finance ministry have tried to tackle inflation, which is battering many countries because of pandemic-related supply chain problems and the war in Ukraine, by restricting exports of wheat and sugar, raising interest rates and cutting taxes on fuel.The bank, after raising borrowing rates in May for the first time in two years, increased them again on Wednesday, to 4.9 percent. As it did so, it forecast that inflation would reach 6.7 percent over the next three quarters.Reserve bank officials have also employed an array of fiscal and monetary tactics to continue supporting growth, which cooled in the first quarter of 2022, falling to 4.1 percent. Household consumption, a major driver of India’s economy, has dropped in the last few months.“We are committed to containing inflation,” said the bank’s governor, Shaktikanta Das. “At the same time, we have to keep in mind the requirements of growth. It can’t be a situation where the operation is successful and the patient is dead.”While the Bank of England and the Federal Reserve in the United States have said their countries need to accept lower growth rates because of high commodity prices, India’s reserve bank is not in that camp, said Priyanka Kishore, an analyst at Oxford Economics. “Growth matters a lot for India,” she said. “There’s a political agenda.”Working at a brick factory in Bangalore.Manjunath Kiran/Agence France-Presse — Getty ImagesThe ban on food exports is a sharp turnabout for Mr. Modi. In response to Russia’s blockade on Ukrainian ports, which has led to a global shortage of grains, he had said in April that Indian farmers could help feed the world. Instead, with the global wheat shortfalls driving up prices, the Indian government imposed an export ban to keep domestic prices low.Temporary interventions like these are easier than addressing the fundamental problem of large-scale unemployment.“You have wheat in your godowns and you can ship it out to households and get instant gratification,” Mr. Vyas said, referring to storage facilities, “whereas trying certain policies for employment is far more protracted and intangible.”Those policies, analysts say, could include greater efforts to build up India’s underdeveloped manufacturing sector. They also say that India should ease regulations that often make it difficult to do business, as well as reducing tariffs so manufacturers have an easier time securing components not made in India.Exports have been a source of strength for the Indian economy, and the rupee has depreciated by about 4 percent against the U.S. dollar since the beginning of the year, which would normally boost exports.But inflation in the United States and war in Europe have started to affect sales for Indian-made clothes, said Raja M. Shanmugam, the president of a trade association in Tiruppur, a textile hub in the state of Tamil Nadu.“All the input cost is increasing. Even earlier this industry worked on wafer-thin margins, but now we are working on loss,” he said. “So a situation which is normally a happy situation for the exporters is not so anymore.”The struggles of working-class Indians, and the millions of unemployed, may eventually cause a drag on growth, economists say.Zia Ullah, who drives an auto-rickshaw in Tumakuru, an industrial city in the southern Indian state of Karnataka, said his income was still only about a quarter of what it was before the pandemic.The $20 he used to earn daily was enough to cover household expenses for his family of five, and school fees for his three children.“Customers are preferring to walk,” he said. “No one seems to have money these days to take an auto.”Mr. Ullah, 55, said the cost of food had climbed so much that he had to cut down on meals and take two of his children out of school.“Only one, the elder daughter, goes to school now,” Mr. Ullah said. “The rest look around for work in the area.”Hari Kumar contributed reporting. More

  • in

    White House Struggles to Talk About Inflation, the ‘Problem From Hell’

    Inflation is upending voter confidence and posing a glaring political liability that looms over the Biden administration’s major policy decisions.WASHINGTON — President Biden was at a private meeting discussing student debt forgiveness this year when, as happens uncomfortably often these days, the conversation came back to inflation.“He said with everything he does, Republicans are going to attack him and use the word ‘inflation,’” said Representative Tony Cárdenas, Democrat of California, referring to Mr. Biden’s meeting with the Congressional Hispanic Caucus in April. Mr. Cárdenas said Mr. Biden was aware he would be attacked over rising prices “no matter what issue we’re talking about.”The comment underscored how today’s rapid price increases, the fastest since the 1980s, pose a glaring political liability that looms over every major policy decision the White House makes — leaving Mr. Biden and his colleagues on the defensive as officials discover that there is no good way to talk to voters about inflation.The administration has at times splintered internally over how to discuss price increases and has revised its inflation-related message several times as talking points fail to resonate and new data comes in. Some Democrats in Congress have urged the White House to strike a different — and more proactive — tone ahead of the November midterm elections.But the reality the White House faces is a hard one: There is little politicians can do to quickly bring price increases to heel. Federal Reserve policy is the nation’s main solution to inflation, but the central bank tempers price gains by making money more expensive to borrow to cool off demand, a slow and potentially painful process for the economy.“For a president, inflation is the problem from hell — you can’t win,” said Elaine Kamarck, a senior fellow at the Brookings Institution and the founding director of the Center for Effective Public Management. “Because it’s so difficult economically, politically it is even worse: There’s nothing you can do in the short run to solve it.”Consumer prices increased by 8.3 percent in the year through April, and data this week is expected to show inflation at 8.2 percent in May. Inflation averaged 1.6 percent annual gains in the five years leading up to the pandemic, making today’s pace of increase painfully high by comparison. A gallon of gas, one of the most tangible household costs, hit an average of $4.92 this week. Consumer confidence has plummeted as families pay more for everyday purchases and as the Fed raises interest rates to cool the economy, which increases the risk of a recession.A gallon of gas surpassed $5 at a Sunoco station in Sloatsburg, N.Y., last month.An Rong Xu for The New York TimesThe White House has long realized that rising prices could sink Mr. Biden’s support, with that risk telegraphed in a series of confidential memos sent to Mr. Biden last year by one of his lead pollsters, John Anzalone. Inflation has only continued to fuel frustration among voters, according to a separate memo compiled by Mr. Anzalone’s team last month, which showed the president’s low approval rating on the economy rivaling only his approach to immigration.“Economic sentiment among the public remains poor, with most worried about both inflation and the possibility of a recession in the coming months,” according to the memo, dated May 20. The information was sent to “interested parties,” and it was not clear if the White House had received or reviewed the memo.The polling data shows that about eight in 10 Americans “consider the national economy to be in poor condition” and that “concerns are high about the potential for an economic recession in the near future.”Economic anxieties have been echoed by members of Congress, leading academics and pop culture standard bearers. “When y’all think they going to announce that we going into a recession?” Cardi B, the Grammy-winning rapper, wrote in a tweet that went viral this weekend.The White House knows it is in a tricky position, and the administration’s approach to explaining inflation has evolved over time. Officials spent the early stages of the current price burst largely describing price pressures as temporary.When it became clear that rising costs were lasting, administration officials began to diverge internally on how to frame that phenomenon. While it was clear that much of the upward pressure on prices came from supply chain shortages exacerbated by continued waves of the coronavirus, some of it also tied back to strong consumer demand. That big spending had been enabled, in part, by the government’s stimulus packages, including direct checks to households, expanded unemployment insurance and other benefits.Some economists in the White House have begun to emphasize that inflation was a trade-off: To the extent that Mr. Biden’s stimulus spending spurred more inflation, it also aided economic growth and a faster recovery.“Inflation is absolutely a problem, and it’s critical to address it,” Janet L. Yellen, the Treasury secretary, recently told members of Congress. “But I think at the same time, we should recognize how successful that plan was in leading to an economy where instead of having a large number of workers utterly unable to find jobs, exactly the opposite is true.”Treasury Secretary Janet Yellen has said she supports relaxing tariffs on Chinese goods to ease prices.Jason Andrew for The New York TimesBut the president’s more political aides have tended to sharply minimize that the March 2021 package, known as the American Rescue Plan, helped to goose inflation, even as they have claimed credit for strong economic growth.“Some have a curious obsession with exaggerating impact of the Rescue Plan while ignoring the degree high inflation is global,” Gene Sperling, a senior White House adviser overseeing the implementation of the stimulus package, wrote on Twitter last week, adding that the law “has had very marginal impact on inflation.”Brian Deese, the director of the National Economic Council, acknowledged in an interview last week that there were some disagreements among White House economic officials when it came to how to talk about and respond to inflation, but he portrayed that as a positive — and as something that is not leading to any kind of dysfunction.“If there wasn’t healthy disagreement, debate and people feeling comfortable bringing issues and ideas to the table, then I think we would be not serving the president and the public interest well,” he said.He also pushed back on the idea that the administration was deeply divided on the March 2021 package’s aftereffects, saying in a separate emailed comment that “there is agreement across the administration that many factors contributed to inflation, and that inflation has been driven by elevated demand and constrained supply across the globe.”How to portray the Biden administration’s stimulus spending is far from the only challenge the White House faces. As price increases last, Democrats have grappled with how to discuss their plans to combat them.The president and his top political aides have trotted out a few main talking points, including blaming President Vladimir V. Putin’s invasion of Ukraine for what Mr. Biden calls the “Putin price hike,” pointing to deficit reduction as a way to lower inflation and arguing that Republicans have a bad plan to deal with rising costs. Mr. Biden regularly acknowledges the pain that higher prices are causing and has emphasized that the problem of taming inflation rests largely with the Fed, an independent entity whose work he has promised not to interfere with.The administration has also highlighted that inflation is widespread globally, and that the United States is better off than many other nations.Student Loans: Key Things to KnowCard 1 of 4Corinthian Colleges. More

  • in

    Persistent Inflation Puts Yellen in the Spotlight

    WASHINGTON — At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers that it was time to “act big” on a pandemic relief package, playing down concerns about deficits at a time of perpetually low interest rates and warning that inaction could mean widespread economic “scarring.”A year and a half later, prices are soaring and interest rates are marching higher. As a result, Ms. Yellen’s role in crafting and selling the $1.9 trillion American Rescue Plan, which Congress passed in March of last year, is being parsed amid an intensifying blame game to determine who is responsible for the highest rates of inflation in 40 years. After months of pinning rising prices on temporary supply chain problems that would dissipate, Ms. Yellen acknowledged last week that she had gotten it “wrong,” putting the Biden administration on the defensive and thrusting herself into the middle of a political storm.“I think I was wrong then about the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unanticipated “shocks” that boosted food and energy prices.Republican lawmakers, who have spent months blaming President Biden and Democrats for rising prices, gleefully seized upon the admission as evidence that the administration had mismanaged the economy and should not be trusted to remain in political control.The Treasury Department has scrambled to clarify Ms. Yellen’s remarks, saying her acknowledgment that she misread inflation simply meant that she could not have foreseen developments such as the war in Ukraine, new variants of the coronavirus or lockdowns in China. After a book excerpt suggested Ms. Yellen favored a stimulus package smaller than the $1.9 trillion that Congress approved last year, the Treasury released a statement denying that she had urged more spending restraint.At this tenuous moment in her tenure, Ms. Yellen is expected to face tough questions on inflation when she testifies before the Senate Finance Committee on Tuesday and the House Ways and Means Committee on Wednesday. The hearings are ostensibly about the president’s budget request for the 2023 fiscal year, but Republicans are blaming Mr. Biden’s policies, including the $1.9 trillion stimulus package, for high prices for consumer products, and Ms. Yellen’s comments have given them grist to cast his first term as a failure.“How can Americans trust the Biden administration when the same people that were so wrong are still in charge?” said Tommy Pigott, rapid response director for the Republican National Committee.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Measuring Inflation: Over the years economists have tweaked one of the government’s standard measures of inflation, the Consumer Price Index. What is behind the changes?Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.The glare is particularly uncomfortable for Ms. Yellen, an economist and former chair of the Federal Reserve, who prides herself on giving straight answers and staying above the political fray.In recent weeks, Ms. Yellen has had to defend the Biden administration’s economic policies even as fault lines have emerged within the economic team. She has expressed reservations about the lack of progress in rolling back some of the Trump administration’s China tariffs, which she views as taxes on consumers that were “not strategic,” and she has been reluctant to support student debt forgiveness proposals, which could further fuel inflation if people have more money to spend.Over the weekend, Ms. Yellen came under fire again after an excerpt from a forthcoming biography of her indicated that she had sought unsuccessfully to pare down the pandemic aid bill because of inflation concerns. The Treasury Department released a rare Saturday statement from Ms. Yellen denying that she argued that the package was too big.“I never urged adoption of a smaller American Rescue Plan package,” she said, insisting that the funds have helped the United States economy weather the pandemic and the fallout from Russia’s war in Ukraine.Throughout the last year, Ms. Yellen has been an ardent public defender of the Biden administration’s economic agenda. She has clashed publicly at times with critics such as Lawrence H. Summers, a former Treasury secretary, who warned that too much stimulus could overheat the economy.For months, Ms. Yellen — and many other economists — talked about inflation as “transitory,” saying rising prices were the result of supply chain problems that would dissipate and “base effects,” which were making the monthly numbers look worse in comparison with prices that were depressed during the early days of the pandemic.By May of last year, Ms. Yellen appeared to acknowledge that the Biden administration’s spending proposals had the potential to overheat the economy. She noted at The Atlantic’s Future Economy Summit that the policies could spur growth and that the Fed might have to step in with “modest” interest rate increases if the economy revved up too much.“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Ms. Yellen said.But economic indicators still suggested that inflation remained under control through much of that spring. In an interview with The New York Times last June, Ms. Yellen said she believed that inflation expectations were in line with the Federal Reserve’s 2 percent target and that while wages were increasing, she did not see a “wage price spiral” on the horizon that could cause inflation to become entrenched.“We don’t want a situation of prolonged excess demand in the economy that leads to wage and price pressures that build and become endemic,” she said, adding that she did not see that happening.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • in

    Seizing Russian Assets to Help Ukraine Sets Off White House Debate

    WASHINGTON — The devastation in Ukraine brought on by Russia’s war has leaders around the world calling for seizing more than $300 billion of Russian central bank assets and handing the funds to Ukraine to help rebuild the country.But the movement, which has gained momentum in parts of Europe, has run into resistance in the United States. Top Biden administration officials warned that diverting those funds could be illegal and discourage other countries from relying on the United States as a haven for investment.The cost to rebuild Ukraine is expected to be significant. Its president, Volodymyr Zelensky, estimated this month that it could be $600 billion after months of artillery, missile and tank attacks — meaning that even if all of Russia’s central bank assets abroad were seized, they would cover only half the costs.In a joint statement last week, finance ministers from Estonia, Latvia, Lithuania and Slovakia urged the European Union to create a way to fund the rebuilding of cities and towns in Ukraine with frozen Russian central bank assets, so that Russia can be “held accountable for its actions and pay for the damage caused.”Confiscating the Russian assets was also a central topic at a gathering of top economic officials from the Group of 7 nations at a meeting this month, with the idea drawing public support from Germany and Canada.The United States, which has led a global effort to isolate Russia with stiff sanctions, has been far more cautious in this case. Internally, the Biden administration has been debating whether to join an effort to seize the assets, which include dollars and euros that Moscow deposited before its invasion of Ukraine. Only a fraction of the funds are kept in the United States; much of it was deposited in Europe, including at the Bank for International Settlements in Switzerland.Russia had hoped that keeping more than $600 billion in central bank reserves would help bolster its economy against sanctions. But it made the mistake of sending half those funds out of the country. By all accounts, Russian officials were stunned at the speed at which they were frozen — a very different reaction from the one it faced after annexing Crimea in 2014, when it took a year for weak sanctions to be imposed.Those funds have been frozen for the past three months, keeping the government of President Vladimir V. Putin from repatriating the money or spending it on the war. But seizing or actually taking ownership of them is another matter.At a news conference in Germany this month, Treasury Secretary Janet L. Yellen appeared to close the door on the United States’ ability to participate in any effort to seize and redistribute those assets. Ms. Yellen, a former central banker who initially had reservations about immobilizing the assets, said that while the concept was being studied, she believed that seizing the funds would violate U.S. law.Treasury Secretary Janet L. Yellen has cautioned against seizing Russian central bank assets to help pay for Ukraine’s reconstruction.Ina Fassbender/Agence France-Presse — Getty Images“I think it’s very natural that given the enormous destruction in Ukraine and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” she said. “It’s not something that is legally permissible in the United States.”But within the Biden administration, one official said, there was reluctance “to have any daylight between us and the Europeans on sanctions.” So the United States is seeking to find some kind of common ground while analyzing whether a seizure of central bank funds might, for example, encourage other countries to put their central bank reserves in other currencies and keep it out of American hands.In addition to the legal obstacles, Ms. Yellen and others have argued that it could make nations reluctant to keep their reserves in dollars, for fear that in future conflicts the United States and its allies would confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer significant sanctions relief to Moscow once the reserves have been drained from its overseas accounts.Treasury officials suggested before Ms. Yellen’s comments that the United States had not settled on a firm position about the fate of the assets. Several senior officials, speaking on the condition of anonymity to discuss internal debates in the Biden administration, suggested that no final decision had been made. One official said that while seizing the funds to pay for reconstruction would be satisfying and warranted, the precedent it would set — and its potential effect on the United States’ status as the world’s safest place to leave assets — was a deep concern.In explaining Ms. Yellen’s comments, a Treasury spokeswoman pointed to the International Emergency Economic Powers Act of 1977, which says that the United States can confiscate foreign property if the president determines that the country is under attack or “engaged in armed hostilities.”Legal scholars have expressed differing views about that reading of the law.Laurence H. Tribe, an emeritus law professor at Harvard University, pointed out that an amendment to International Emergency Economic Powers Act that passed after the Sept. 11, 2001, terrorist attacks gives the president broader discretion to determine if a foreign threat warrants confiscation of assets. President Biden could cite Russian cyberattacks against the United States to justify liquidating the central bank reserves, Mr. Tribe said, adding that the Treasury Department was misreading the law.“If Secretary Yellen believes this is illegal, I think she’s flatly wrong,” he said. “It may be that they are blending legal questions with their policy concerns.”Mr. Tribe pointed to recent cases of the United States confiscating and redistributing assets from Afghanistan, Iran and Venezuela as precedents that showed Russia’s assets did not deserve special safeguards.Russia-Ukraine War: Key DevelopmentsCard 1 of 4On the ground. More

  • in

    Pakistan Raises Fuel Prices in Effort to Stabilize Economy

    The interim government’s move was seen as a bid to revive a $6 billion bailout from the International Monetary Fund.ISLAMABAD, Pakistan — Pakistan’s government on Friday sharply increased fuel prices for consumers, paving the way to revive a $6 billion bailout package from the International Monetary Fund and stabilize the country’s cratering economy amid deepening political turmoil.The move raising gasoline and diesel prices by about 20 percent — or about 15 cents — a liter staved off concerns that Pakistan, which already faces double-digit inflation, would join a wave of global defaults as the financial shocks from the pandemic, the war in Ukraine and rising interest rates batter many poorer nations.But the decision may cost the new coalition government popular support, analysts say, adding to the political uncertainty that has embroiled the country since Prime Minister Imran Khan was ousted in a no-confidence vote in Parliament early last month.“The price hike signals that the government has decided to bite the bullet and make choices that are necessary, even if they cost near-term political capital,” said Uzair Younus, the director of the Pakistan Initiative at the Atlantic Council. “The hike will ease markets and reduce uncertainty. It will be critical for the government to maintain momentum and continue making decisions that get Pakistan out of the current crisis.”Since his ouster, Mr. Khan has held a series of political rallies, drawing huge crowds and heavily criticizing the current coalition government and the military, blaming them for his removal from office. Some officials now fear that the government’s move to appease the I.M.F. could hand Mr. Khan a wave of public outrage that he could manipulate on the streets.Former Prime Minister Imran Khan, at top center in dark vest, leading an antigovernment rally in Islamabad on Thursday.Aamir Qureshi/Agence France-Presse — Getty ImagesDiscussions between the I.M.F. and the new interim government, led by Shehbaz Sharif, had been deadlocked for weeks over the terms of reviving the bailout, which was announced in 2019 and later suspended after Pakistan’s previous government failed to meet some loan conditions, like cutting energy subsidies.Pakistan has hoped for a release of a roughly $900 million seventh tranche of the $6 billion I.M.F. bailout package. Earlier this week, a fresh round of talks between the I.M.F. and the new Pakistani government in Doha, Qatar, appeared to fail after fund officials declined to accept the Pakistani request to delay the ending of government subsidies.Mr. Sharif had been reluctant to end government energy subsidies and roll back unfunded subsidies to oil and power sectors — a key I.M.F. demand — fearing public backlash that could diminish his party’s chance of success in the next general elections.Those elections are scheduled to be held next year, but the new government has come under mounting public pressure from Mr. Khan’s supporters to hold them earlier.On Thursday, Mr. Khan warned the government to announce the next elections and dissolve Parliament within six days. The warning came just after he led thousands of supporters to the capital Wednesday evening. Angry supporters clashed with the police in the capital and several other Pakistani cities. At least 1,700 protesters were arrested by the police in Punjab, the country’s most populous province.That political pressure has added to the new government’s reluctance to embark on meaningful economic reforms that, while important to stabilize the economy in the years to come, would cause immediate pain to Pakistanis’ wallets, analysts say.The interim government, led by Shehbaz Sharif, center, has been deadlocked in talks with the International Monetary Fund.Saiyna Bashir for The New York TimesLate Thursday night, drivers desperate to fill their tanks before the price increase went into effect after midnight flocked to gas stations across major cities. Many drivers’ incomes have already been squeezed by soaring inflation in recent years that has pushed up the price of basic goods.“There is no rise in our income proportional to the rise in the price of fuel and other essential items,” said Saleem Khan, 44, as he waited to fill his motorcycle’s tank at a gas station in the port city of Karachi.Mr. Khan makes around 18,000 rupees, or about $90, a month working in a restaurant in the city. In previous months, he could send nearly 10,000 rupees every month to his relatives in Bajaur, a tribal district bordering Afghanistan.“This month, it seems I’ll be able to send barely 7,000 rupees to my family,” he said.Nearby, Rasheed Ahmed, a garment factory worker, sat on his motorcycle, worrying how he would pay for basics like food and rent with the fuel price increase.“We thought the ousting of Imran Khan will help the country in decreasing the fuel prices, but the current rulers are crueler than the previous government,” Mr. Ahmed, 34, said.The new coalition government has struggled to find its bearings since coming to power in early April and is in a particularly precarious position. It has no electoral mandate, but was chosen by Parliament to take over after Mr. Khan’s ouster. And it is a tenuous coalition of political parties that previously clashed frequently and only came together around the singular aim of removing Mr. Khan from office. Mr. Sharif’s party also faces internal divisions over policy decisions.A market in Islamabad last month. Many Pakistanis are worried about their ability to afford basic necessities as inflation rises.Saiyna Bashir for The New York TimesMr. Khan’s government, before its removal from office, was also facing increasing public discontent over rising inflation. Mr. Khan claims that the economy was improving under his government, but in order to soothe the public’s flaring tempers, he announced he was cutting petroleum and energy prices — a move that eased public discontent but added to the country’s fiscal deficit.Understand the Political and Economic Turmoil in PakistanCard 1 of 5A chaotic time. More

  • in

    U.S. Will Start Blocking Russia’s Bond Payments to American Investors

    WASHINGTON — The Biden administration will start blocking Russia from paying American bondholders, increasing the likelihood of the first default of Russia’s foreign debt in more than a century.An exemption to the sweeping sanctions that the United States imposed on Russia as punishment for its invasion of Ukraine has allowed Moscow to keep paying its debts since February. But that carve-out will expire on Wednesday, and the United States will not extend it, according to a notice published by the Treasury Department on Tuesday. As a result, Russia will be unable to make billions of dollars of debt and interest payments on bonds held by foreign investors.The move represents an escalation of U.S. sanctions at a moment when the war in Ukraine continues to drag on, with Russia showing few signs of relenting. Biden administration officials had debated whether to extend what’s known as a general license, which has allowed Russia to pay interest on the debt it sold. By extending the waiver, Russia would have continued to deplete its U.S. dollar reserves and American investors would have continued to receive their guaranteed payments. But officials, who have been trying to intensify pressure on Russia’s economy, ultimately determined that a Russian default would not have a significant impact on the global economy.Treasury Secretary Janet L. Yellen signaled how the Biden administration was leaning at a news conference in Europe last week, when she said that the exemption was created to allow for an “orderly transition” so that investors could sell securities. It was always intended to be for a limited time, she said. And she noted that Russia’s ability to borrow money from foreign investors has already essentially been cut off through other sanctions imposed by the United States.“If Russia is unable to find a legal way to make these payments, and they technically default on their debt, I don’t think that really represents a significant change in Russia’s situation,” Ms. Yellen said. “They’re already cut off from global capital markets, and that would continue.”Although the economic impact of a Russian default might be minimal, it was an outcome that Russia had been trying to avoid and the Biden administration’s move represents an escalation of U.S. sanctions. Russia has already unsuccessfully tried to make bond payments in rubles and has threatened to take legal action, arguing that it should not be deemed in default on its debt if it is not allowed to make payments.“We can only speculate what worries the Kremlin most about defaulting: the stain on Putin’s record of economic stewardship, reputational damage, the financial and legal dominoes a default sets in motion and so on,” said Tim Samples, a legal studies professor at the University of Georgia’s Terry College of Business and an expert on sovereign debt. “But one thing is rather clear: Russia was keen to avoid this scenario, willing even to make payments with precious non-sanctioned foreign currency to avoid a major default.”Sanctions experts have estimated that Russia has about $20 billion worth of outstanding debt that is not held in rubles. It is not clear if the European Union and Britain will follow the lead of the United States, which would exert even more pressure on Russia and leave a broader swath of investors unpaid, but most of the recent sanctions actions have been tightly coordinated.The prospect of a Russian default has already saddled some big U.S. investors with losses. Pimco, the investment management firm, has seen the value of its Russian bond holdings decline by more than $1 billion this year and pension funds and mutual funds with exposure to emerging market debt have also experienced declines.In the near term, Russia has two foreign-currency bond payments due on Friday, both of which have clauses in their contracts that allow for repayment in other currencies if “for reasons beyond its control” Russia is unable to make payments in the originally agreed currency.Russia owes about $71 million in interest payments for a dollar-denominated bond that will mature in 2026. The contract has a provision to be paid in euros, British pounds and Swiss francs. Russia also owes 26.5 million euros ($28 million) in interest payments for a euro-denominated bond that will mature in 2036, which can be paid back in alternative currencies including the ruble. Both contracts have a 30-day grace period for payments to reach creditors.The Russian finance ministry said on Friday that it had sent the funds to its payment agent, the National Settlement Depository, a Moscow-based institution, a week before the payment was due.The finance ministry said it had fulfilled these debt obligations. But more transactions are required with international financial institutions before the payments can reach bondholders.Adam M. Smith, who served as a senior sanctions official in the Obama administration’s Treasury Department, said he expected that Russia would most likely default sometime in July and that a wave of lawsuits from Russia and its investors were likely to ensue.Although a default will inflict some psychological damage on Russia, he said, it will also raise borrowing costs for ordinary Russians and harm foreign investors who were not involved in Russia’s invasion Ukraine.“The interesting question to me is, What is the policy goal here?” Mr. Smith said. “That’s what’s not entirely clear to me.”Alan Rappeport reported from Washington, and Eshe Nelson from London. More

  • in

    Debate Over Tariffs Reveals Biden’s Difficulties on China Trade

    Sixteen months into the Biden presidency, U.S. officials are still divided over what to do about a trade legacy left by President Donald J. Trump.WASHINGTON — President Biden’s decision on Monday to try to align with Asian partners to form an economic bloc against China comes at a moment of frustration over his administration’s economic approach to Beijing, with some White House advisers pushing the president to move away from the Trump-era policies he criticized and others arguing that Mr. Biden risks being seen as weak on China if he relents.Some officials have grown frustrated that U.S. trade relations with China are still defined by policies set by President Donald J. Trump, including tariffs imposed on more than $360 billion of products and trade commitments made during a deal the United States and China signed in early 2020.Concerns about the United States’ economic approach to China have taken on new urgency amid rapid inflation. Treasury Secretary Janet L. Yellen and other officials have argued that the full suite of tariffs served little strategic purpose and could be at least partly lifted to ease the financial burden on companies and consumers.But those ideas have met pushback from other senior administration officials, such as some top White House aides, the U.S. trade representative and labor groups. They argue that removing the tariffs — which were put in place to punish China over its economic practices — would constitute unilateral disarmament given that Beijing has yet to address many of the policies that prompted the measures. With the midterm elections looming, some administration officials are worried that removing tariffs would make Democrats vulnerable to political attacks, according to interviews with more than a dozen current and former officials.The business community is also losing patience with the absence of a clear trade strategy nearly a year and a half into Mr. Biden’s presidency. Executives have complained about a lack of clarity, which they say has made it difficult to determine whether to continue investing in China, a critical market.The challenges in figuring out how to confront Chinese trade practices have become harder amid Russia’s invasion of Ukraine. The United States was originally moving toward making changes to its trade relationship with China in early 2022, a senior administration official said, but with Beijing aligning with Moscow, Mr. Biden felt it was prudent to see how events unfolded in Ukraine with respect to the global economy and U.S. allies.Biden administration officials are conflicted over whether to remove tariffs on Chinese goods.Doug Mills/The New York TimesSome elements of the administration’s trade strategy are becoming clearer this week. Mr. Biden announced in Japan on Monday that the United States would begin talks with 12 countries to develop a new economic framework for the Indo-Pacific region. The countries would aim to form a bloc that would provide an early warning system for supply chain issues, encourage industries to decarbonize and offer U.S. businesses reliable Asian partners outside China.The framework would not contain the binding commitments for market access that are typical of most trade deals, which have proved to be a hard sell for many Democrats after the United States withdrew from the Trans-Pacific Partnership, President Barack Obama’s signature trade agreement.U.S. officials say their goals for the framework will be ambitious and include raising labor and environmental standards and creating new guidelines for how data flows between countries. But some analysts have questioned whether the framework can encourage those changes without offering Asian countries the U.S. market access that is typically the incentive in trade pacts. And U.S. labor groups are already wary that some commitments could lead to further outsourcing for American industries.The framework also does not try to directly shape trade with China. Many Biden administration officials have concluded that talks with China have proved largely fruitless, as have negotiations at the World Trade Organization. Instead, they have said they would try to confront China by changing the environment around it by rebuilding alliances and investing more in the United States, including through a $1 trillion infrastructure spending bill.Senior U.S. officials hold a similar view as their counterparts in the Trump administration that the world’s dependence on the Chinese economy has given Beijing enormous strategic leverage. A classified China strategy that was largely finished last fall argues that it is important for U.S. security to delink some industries and diversify supply chains, people familiar with the strategy say.The administration was supposed to offer a glimpse of the classified strategy in a major speech laying out economic and security goals for China, which Washington officials and China experts expected to occur last fall. The White House first considered having Mr. Biden deliver the speech but settled on Secretary of State Antony J. Blinken.Yet the speech — which revolves around the slogan “Invest, Align and Compete,” according to those familiar with it — has been delayed for several reasons, including the war in Ukraine and Mr. Blinken’s contracting Covid-19 this month. Some China experts in Washington have interpreted the delays as another sign of uncertainty on China policy, but U.S. officials insist that is not true.Katherine Tai, the U.S. trade representative, and other officials have argued against dropping the tariffs.Pete Marovich for The New York TimesMr. Blinken is expected to give the China speech shortly after he and Mr. Biden return from Japan, people familiar with the planning said.The speech avoids explicitly addressing how the administration will deal with Mr. Trump’s tariffs, they say. Businesses have long complained that they hurt U.S. companies and their consumers rather than China. That concern has been heightened by the fact that prices are rising at their fastest rate in 40 years, creating a political problem for the White House, which has struggled to explain how it can alleviate soaring costs other than relying on the Federal Reserve.But Republicans and Democrats who want more aggressive policies toward China — and toward some American companies that do business there — would try to draw blood if Mr. Biden eased the tariffs.“We need to rebuild American industry, not reward companies that keep their supply chains in China,” Senator Marco Rubio, Republican of Florida, said this month after voting against a legislative amendment allowing carve-outs to the tariffs.At a news conference in Japan on Monday, Mr. Biden said he would meet with Ms. Yellen when he returned from his trip to discuss her call to remove some of the China tariffs.“I am considering it,” the president said. “We did not impose any of those tariffs; they were imposed by the previous administration, and they are under consideration.”Public rifts among Biden officials have been rare, but when it comes to tariffs, the debate has spilled into the open.“There are definitely different views in the administration, and they’re surfacing,” said Wendy Cutler, the vice president at the Asia Society Policy Institute and a former U.S. trade negotiator. “There are those who think that the tariffs didn’t work and are contributing to inflation. Then you have the trade negotiator side that says: ‘Why would we give them up now? They’re good leverage.’”The discussion over how and when to adjust these tariffs mirrors a bigger debate over whether globalized trade has done more to help or harm Americans, and how the Democratic Party should approach trade.Katherine Tai, the United States trade representative; Tom Vilsack, the agriculture secretary; Jake Sullivan, the national security adviser; and others have argued against dropping the tariffs. Ms. Yellen, Commerce Secretary Gina Raimondo and other officials have pointed out the benefits to companies and consumers from adjusting them, people familiar with the discussions said.Ms. Yellen has long been a voice of skepticism regarding the tariffs and has grown more frustrated with the pace of progress on trade developments, people familiar with her thinking said. She made the case last week for removing some of the tariffs as a way to offset rising prices.“Some relief could come from cutting some of them,” Ms. Yellen said, explaining that the tariffs were harming consumers and businesses. “There are a variety of opinions, and we really haven’t sorted out yet or come to agreement on where to be on tariffs.”Daleep Singh, a deputy national security adviser, was more blunt in an April 21 webinar. “We inherited these tariffs,” he said, “and while they may have created negotiating leverage, they serve no strategic purpose.”For products that do not strengthen critical supply chains or support national security, “there’s not much of a case for those tariffs being in place,” Mr. Singh said. “Why do we have tariffs on bicycles or apparel or underwear?”Treasury Secretary Janet L. Yellen has grown more frustrated with the pace of progress on trade developments, according to people familiar with her thinking.Sarahbeth Maney/The New York TimesBut labor leaders, progressive Democrats and some industry representatives have made various arguments for maintaining tough tariffs, with several pointing to data showing that imports from China are not the main drivers of inflation.“For a Democratic president to get rid of tariffs imposed by a Republican and basically give a free handout to the Chinese Communist Party is not something that’s really politically wise in any form,” said Scott N. Paul, the president of the Alliance for American Manufacturing, which represents steel companies and workers.Economists also believe the impact from removing the tariffs would be modest. Jason Furman, an economist at Harvard University and a former chairman of Mr. Obama’s Council of Economic Advisers, estimates that removing all the China tariffs would shave half a percentage point off the Consumer Price Index, which grew 8.3 percent in April from a year earlier.Still, Mr. Furman said, when it comes to lowering inflation “tariff reduction is the single biggest tool the administration has.”Progressive Democrats like Representative Tim Ryan, Democrat of Ohio, have argued for maintaining tough tariffs on China.Dustin Franz for The New York TimesThe Office of the United States Trade Representative started a statutory review of the tariffs this month and says its approach to analyzing them is on track. “We need to make sure that whatever we do right now, first of all, is effective and, second of all, doesn’t undermine the medium-term design and strategy that we know we need to pursue,” Ms. Tai said in an interview on May 2.Some Biden administration officials appear to favor an outcome that would lift certain tariffs while increasing other trade penalties on China, a process that would take at least several months. That could happen through a separate investigation under the so-called Section 301 process into China’s use of industrial subsidies. More

  • in

    A Weak Euro Heads to an Uncomfortable Milestone: Parity With the Dollar

    The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

    The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”Also in the dollar’s favor is the aggressive action of the Federal Reserve. With inflation in the United States hovering around its highest rate in four decades, the central bank has ramped up its tightening of monetary policy with successive interest rate increases, and many more are predicted. Traders are betting that U.S. interest rates will climb another 2 percentage points by early next year to 3 percent, the highest level since 2007.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More