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    Yellen Says U.S. Is Considering New Sanctions on Iran and Hamas

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    Treasury Secretary Janet L. Yellen said on Wednesday that the Israel-Gaza war was a potential concern for the global economy and signaled that additional U.S. sanctions could be coming in response to the attack on Israel by Hamas.Questions about the economic impact of the war were growing as Ms. Yellen offered a forceful defense of Israel and pushed back on the notion that U.S. sanctions against Iran — a key backer of Hamas — have become too lenient. Ms. Yellen said the Treasury Department continued to review its sanctions on Iran, Hamas and Hezbollah, the Lebanese militant group that is also a longtime adversary of Israel.“We have not in any way relaxed our sanctions on Iranian oil,” Ms. Yellen said at a news conference on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Marrakesh, Morocco. “We have sanctions on Hamas, on Hezbollah, and this is something that we have been constantly looking at and using information as it becomes available to tighten sanctions.”She added: “We will continue to do that.”The Treasury secretary also did not rule out reversing a decision made last month — to unfreeze $6 billion of Iranian funds in exchange for the release of American hostages — if it is determined that Iran was involved in the attack by Hamas.At the time of the exchange, the United States informed Iran that it had transferred about $6 billion in Iranian oil revenue from South Korea to a Qatari bank account. The money is supposed to be used only for food, medicine and other humanitarian goods.“These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, and the funds have not been touched,” Ms. Yellen said, adding: “I wouldn’t take anything off the table in terms of future possible actions.”The crisis in Israel poses a new challenge for the world economy and the Biden administration, which has spent the last year working to combat inflation in the United States and to corral energy prices that have become volatile because of Russia’s war in Ukraine. Another war in the Middle East complicates those efforts by threatening to constrain oil supplies and send prices higher.Ms. Yellen said geopolitical “shocks” continued to pose risks to the world economic outlook.“Of course, the situation in Israel poses additional concerns,” she said.Economic officials across the Biden administration are closely tracking developments in global oil markets this week. Global oil prices jumped on Monday after the terrorist attacks in Israel but were falling slightly on Wednesday. Administration officials are concerned that a sustained increase in the cost of crude could hurt economic growth and dent Mr. Biden’s approval rating, by pushing up the price of gasoline for American drivers.Ms. Yellen said she continued to believe that the U.S. economy could achieve a so-called soft landing — where inflation eases without a recession — but was closely watching for any economic fallout from the new conflict in the Middle East.“While we’re monitoring potential economic impacts from the crisis, I’m not really thinking of that as a major driver of the global economic outlook,” Ms. Yellen said. “We will see what impact it has. Thus far, I don’t think we’ve seen anything suggesting it will be very significant.”International policymakers gathered in Morocco for a week of meetings, as the global economic recovery is losing momentum. The prospect of a new regional conflict gave other policymakers more reason to feel anxious about a sluggish world economy that has been battered by war, a pandemic and inflation in recent years. Central banks around the globe have been raising interest rates to tame rapid inflation, and investors had begun to hope that a recent slowdown in price gains could signal an end to those rate increases.“I think central bank governors are concerned about what might happen to energy prices if the Israel-Gaza conflict were to turn into a bigger regional conflict and have implications for supply of oil on markets,” Gita Gopinath, the first deputy managing director of the I.M.F., said in an interview on Wednesday.Ms. Gopinath added that higher oil prices could elevate prices more broadly, complicating interest rate decisions for central bankers. She suggested that it was too soon to say how the economic impact of the conflict in the Middle East might compare with the effects of the war in Ukraine, but that overlapping crises were a headwind.“The geopolitical risks are certainly piling up in Russia’s invasion of Ukraine and we’re seeing now in Israel and Gaza,” she said.That sentiment was echoed on Wednesday by Ajay Banga, the World Bank president, who said at a news conference that he now expected interest rates to be “higher for longer” despite signs that inflation was cooling.“I believe that wars are completely and extremely challenging for central banks who are trying to find their way out of a very difficult situation,” Mr. Banga said.It is not yet clear what steps the Biden administration would take to contain oil prices if the Israel-Gaza war intensifies or how that might affect its efforts to curb Russia’s oil revenues.Ms. Yellen suggested on Wednesday that the “price cap” policy that the Group of 7 devised last year, which forbids Russia to sell oil over $60 a barrel using Western banking and insurance services, had been successful.“Global energy prices have been largely unchanged while Russia has had to either sell oil at a significant discount or spend huge amounts on its alternative ecosystem,” she said.Jim Tankersley More

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    Fragile Global Economy Faces New Crisis in Israel-Gaza War

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    A war in the Middle East could complicate efforts to contain inflation at a time when world output is “limping along.”The International Monetary Fund said on Tuesday that the pace of the global economic recovery is slowing, a warning that came as a new war in the Middle East threatened to upend a world economy already reeling from several years of overlapping crises.The eruption of fighting between Israel and Hamas over the weekend, which could sow disruption across the region, reflects how challenging it has become to shield economies from increasingly frequent and unpredictable global shocks. The conflict has cast a cloud over a gathering of top economic policymakers in Morocco for the annual meetings of the I.M.F. and the World Bank.Officials who planned to grapple with the lingering economic effects of the pandemic and Russia’s war in Ukraine now face a new crisis.“Economies are at a delicate state,” Ajay Banga, the World Bank president, said in an interview on the sidelines of the annual meetings. “Having war is really not helpful for central banks who are finally trying to find their way to a soft landing,” he said. Mr. Banga was referring to efforts by policymakers in the West to try and cool rapid inflation without triggering a recession.Mr. Banga said that so far, the impact of the Middle East attacks on the world’s economy is more limited than the war in Ukraine. That conflict initially sent oil and food prices soaring, roiling global markets given Russia’s role as a top energy producer and Ukraine’s status as a major exporter of grain and fertilizer.“But if this were to spread in any way then it becomes dangerous,” Mr. Banga added, saying such a development would result in “a crisis of unimaginable proportion.”Oil markets are already jittery. Lucrezia Reichlin, a professor at the London Business School and a former director general of research at the European Central Bank, said, “the main question is what’s going to happen to energy prices.”Ms. Reichlin is concerned that another spike in oil prices would pressure the Federal Reserve and other central banks to further push up interest rates, which she said have risen too far too fast.As far as energy prices, Ms. Reichlin said, “we have two fronts, Russia and now the Middle East.”Smoke rising from bombings of Gaza City and its northern borders by Israeli planes.Samar Abu Elouf for The New York Times Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said it’s too early to assess whether the recent jump in oil prices would be sustained. If they were, he said, research shows that a 10 percent increase in oil prices would weigh down the global economy, reducing output by 0.15 percent and increasing inflation by 0.4 percent next year. In its latest World Economic Outlook, the I.M.F. underscored the fragility of the recovery. It maintained its global growth outlook for this year at 3 percent and slightly lowered its forecast for 2024 to 2.9 percent. Although the I.M.F. upgraded its projection for output in the United States for this year, it downgraded the euro area and China while warning that distress in that nation’s real estate sector is worsening.“We see a global economy that is limping along, and it’s not quite sprinting yet,” Mr. Gourinchas said. In the medium term, “the picture is darker,” he added, citing a series of risks including the likelihood of more large natural disasters caused by climate change.Europe’s economy, in particular, is caught in the middle of growing global tensions. Since Russia invaded Ukraine in February 2022, European governments have frantically scrambled to free themselves from an over-dependence on Russian natural gas.They have largely succeeded by turning, in part, to suppliers in the Middle East.Over the weekend, the European Union swiftly expressed solidarity with Israel and condemned the surprise attack from Hamas, which controls Gaza.Some oil suppliers may take a different view. Algeria, for example, which has increased its exports of natural gas to Italy, criticized Israel for responding with airstrikes on Gaza.Even before the weekend’s events, the energy transition had taken a toll on European economies. In the 20 countries that use the euro, the Fund predicts that growth will slow to just 0.7 percent this year from 3.3 percent in 2022. Germany, Europe’s largest economy, is expected to contract by 0.5 percent.High interest rates, persistent inflation and the aftershocks of spiraling energy prices are also expected to slow growth in Britain to 0.5 percent this year from 4.1 percent in 2022.Sub-Saharan Africa is also caught in the slowdown. Growth is projected to shrink this year by 3.3 percent, although next year’s outlook is brighter, when growth is forecast to be 4 percent.Staggering debt looms over many of these nations. The average debt now amounts to 60 percent of the region’s total output — double what it was a decade ago. Higher interest rates have contributed to soaring repayment costs.This next-generation of sovereign debt crises is playing out in a world that is coming to terms with a reappraisal of global supply chains in addition to growing geopolitical rivalries. Added to the complexities are estimates that within the next decade, trillions of dollars in new financing will be needed to mitigate devastating climate change in developing countries.One of the biggest questions facing policymakers is what impact China’s sluggish economy will have on the rest of the world. The I.M.F. has lowered its growth outlook for China twice this year and said on Tuesday that consumer confidence there is “subdued” and that industrial production is weakening. It warned that countries that are part of the Asian industrial supply chain could be exposed to this loss of momentum.In an interview on her flight to the meetings, Treasury Secretary Janet L. Yellen said that she believes China has the tools to address a “complex set of economic challenges” and that she does not expect its slowdown to weigh on the U.S. economy.“I think they face significant challenges that they have to address,” Ms. Yellen said. “I haven’t seen and don’t expect a spillover onto us.” More

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    Yellen May Face Questions in Morocco Over U.S. Dysfunction

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    Treasury Secretary Janet Yellen calls on Congress to authorize more economic support for Ukraine.As Treasury Secretary Janet L. Yellen arrives in Morocco this week to meet with her international counterparts, she will be representing a nation that has led the world’s post-pandemic economic recovery but is now struggling with potentially destabilizing political dysfunction.America came perilously close to defaulting on its debt over the summer and tiptoed toward a government shutdown last month as Republicans fought over the proper levels of federal spending and whether to bankroll more aid to Ukraine. Those events culminated in last week’s ouster of Representative Kevin McCarthy as House speaker, a development that is raising questions about whether the United States can actually govern itself, let alone lead the world.The political dynamic is expected to strain the credibility of the United States at the annual meetings of the International Monetary Fund and the World Bank, which begin on Monday in Marrakesh. Ms. Yellen is expected to press European governments to provide more funding for Ukraine and push creditors like China to relieve the debts of poor countries, including many African nations.The meetings are taking place amid heightened global uncertainty because of the weekend attacks that Hamas waged upon Israel, which threaten to spiral into a regional conflict. The possibility of a wider war could pose new economic challenges for policymakers by pushing oil prices higher, disrupting trade flows and inflaming tensions between other nations. As she traveled to Morocco, Ms. Yellen affirmed America’s support for Israel.“The United States stands with the people of Israel and condemns yesterday’s horrific attack against Israel by Hamas terrorists from Gaza,” Ms. Yellen said in a post on X, formerly Twitter, on Sunday. “Terrorism can never be justified and we support Israel’s right to defend itself and protect its citizens.”In an interview on Sunday during her flight to Marrakesh, Ms. Yellen acknowledged that other nations feel concerned and anxious about the political gridlock that has gripped the United States. However, she pointed out that other democracies face similar obstacles and that she believed America’s allies would continue to be supportive of the Biden administration’s efforts on issues such as protecting Ukraine and addressing climate change.“I think they have been delighted over the last two years to see the United States resume a very strong global leadership role and they want to work with us and they want us to be successful,” Ms. Yellen said.Yet America’s role as an economic bulwark against Russia’s war in Ukraine has been undercut by its own domestic politics, including Republican opposition to providing more economic support to Ukraine. The United States’s huge debt load and its inability to find a more sustainable fiscal path has also hurt its economic credibility.“The rest of the world can only look aghast with trepidation at our dysfunction — lurching from threats of default, to shutdowns, the adjournment of the House because there is no speaker,” said Mark Sobel, a former longtime Treasury Department official who is now the U.S. chairman of the Official Monetary and Financial Institutions Forum, a think tank. “While foreign governments have always expected a degree of hurly-burly U.S. behavior, the current level of dysfunction will surely erode trust in U.S. leadership, stability and reliance on the dollar’s global role.”Eswar Prasad, the former head of the I.M.F.’s China division, added that instability in the U.S. economy could be problematic for some of the world’s most vulnerable economies that rely on America to be a source of stability.“For countries that are already struggling to prop up their economies and financial markets, the added uncertainty from the political drama in Washington is most unwelcome,” Mr. Prasad said.The gathering comes at a delicate moment for the global economy. While the world appears poised to avoid a recession and achieve a so-called soft landing, the fight against inflation remains a challenge and output remains tepid. Economic weakness in China and Russia’s ongoing war in Ukraine continue to be headwinds.The higher borrowing costs that central banks have deployed to tame inflation have also made it more difficult for countries to manage their debt loads.That is a problem across the globe, including in the United States, where the gross national debt stands just above $33 trillion. Foreign appetite for government bonds has been weak in recent months and concerns about the sustainability of America’s debt have become more prevalent. That is making it somewhat more challenging for the United States to counsel other nations on how they should manage their finances.The most challenging task for Ms. Yellen will be persuading other nations to continue to provide robust economic aid to Ukraine as its war with Russia drags on. European nations are coping with economic stagnation, and with Congress in disarray, it is unclear how the U.S. will continue to help Ukraine prop up its economy.Ms. Yellen said she would tell her counterparts that supporting Ukraine remains a top priority. Explaining that the Biden administration lacks good options for providing assistance on its own, she called on Congress to authorize additional funding.“Fundamentally we have to get Congress to approve this,” Ms. Yellen said. “There’s no gigantic set of resources that we don’t need Congress for.”Dismissing concerns that the U.S. cannot afford to support Ukraine, Ms. Yellen argued that the cost of letting the country fall to Russia would ultimately be higher.“If you think about what the national security implications are for us if we allow a democratic country in Europe to be overrun by Russia and what that’s going to mean in the future for our own national defense needs and those of our neighbors, we can’t not afford it,” Ms. Yellen said. More

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    Russia’s Economy Is Increasingly Structured Around Its War in Ukraine

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    The nation’s finances have proven resilient, despite punishing sanctions, giving it leeway to pump money into its military machine.“Everything needed for the front,” Russia’s finance minister declared, echoing a Soviet slogan from World War II as he talked about the government’s latest spending plans.The government still calls its invasion of Ukraine a “special military operation,” but the new budget figures make clear that the economy is increasingly being restructured around war.Nearly a third of the country’s spending next year — roughly $109 billion — will be devoted to “national defense,” the government announced late last month, redirecting money that might otherwise have flowed to health care, education, roads and other sectors. More tellingly, 6 percent of the nation’s total output is being funneled toward Russia’s war machine, more than double what it was before the invasion.Since Russia sent soldiers across the border in February 2022, its economy has had to adapt to dramatic changes with astonishing speed. The European Union, its biggest trading partner, quickly broke economic relations, upending well-established supply chains and reliable sources of income from abroad. The United States used its financial might to freeze hundreds of billions of dollars in Russian assets and cut the country off from the global financial system.Nineteen months later, the economic picture is decidedly mixed. The Russian economy has proved to be much more resilient than many Western governments assumed after imposing a punishing string of sanctions.Moscow has found other buyers for its oil. It has pumped money into the economy at a rapid pace to finance its military machine, putting almost every available worker into a job and raising the size of weekly paychecks. Total output, which the Russian Central Bank estimates may rise as much as 2.5 percent this year, could outpace the European Union and possibly even the United States.Yet that is only part of the story. As Laura Solanko, a senior adviser at the Bank of Finland Institute for Economies in Transition, said: “When a country is at war, gross domestic product is a fairly poor measure of welfare.” Producing bullets adds to a country’s growth rate without necessarily improving the quality of life.The insistent demand for foreign currency — to pay for imported goods or provide a safe investment — has also caused the value of the ruble to sink at a precipitous pace. Last week, it fell to a symbolic break point of 100 to the dollar, further fueling inflation and raising anxiety levels among consumers.Shoppers buying meat at the central market in Rostov-on-Don, Russia, in 2021. Inflation in Russia has driven up the price of meat and other products since the start of the war in Ukraine.Sergey Ponomarev for The New York TimesThe spike in government spending and borrowing has seriously stressed an already overheated economy. The central bank rapidly raised interest rates to 13 percent over the summer, as annual inflation continued to climb. Higher rates, which make it more expensive for businesses to expand and consumers to buy on credit, is likely to slow growth.Consumers are also feeling the squeeze for daily purchases. “Dairy products, especially butter, meat and even bread have gone up in price,” said Lidia Adreevna as she shopped and examined prices at an Auchan supermarket in Moscow. She blamed the central bank.“Life changes,” she offered, “nothing stays forever, not love, or happiness.”Other pensioners at the store also spoke about increases in meat and poultry prices, something almost half of Russians have noticed in the past month, according to survey data from the Moscow-based Public Opinion Foundation published Friday. Respondents also noted increases in the price of medicine and construction materials.Moscow imposed a temporary ban on diesel and gasoline exports last month in an effort to ease shortages and slow rising energy prices, but the restrictions further reduced the amount of foreign currency coming into the country.The exodus of funds is so worrying that the government has warned of reinstating controls on money leaving the country.With a presidential election scheduled in March, President Vladimir V. Putin acknowledged last month that accelerating inflation fueled by a weakened ruble was a major cause of concern. Getting a handle on price increases may discourage the government from embarking on its usual pre-election social spending.Lower standards of living can be “uncomfortable even for an authoritarian government,” said Charles Lichfield, deputy director of the Atlantic Council’s Geoeconomics Center.Since Russia imports a wide range of goods — from telephones and washing machines to cars, medicine and coffee — he said a devalued ruble makes “it more difficult for consumers to buy what they’re used to buying.”A Karachi Port Trust security guard keeping watch over the Clyde Noble, a Russian crude oil tanker berthed at the Karachi Port in Pakistan in June. Pakistan received discounted Russian crude oil as part of a new deal between Islamabad and Moscow.Rehan Khan/EPA, via ShutterstockThe United States, the European Union and countries allied with Ukraine have doggedly tried to cripple Russia with sweeping sanctions.The impact was swift and sharp in the spring of 2022. The ruble tumbled, the central bank increased rates to 20 percent to attract investors, and the government imposed strict controls on capital to keep money inside the country.But the ruble has since bounced back and interest rates come down. Russia found eager buyers elsewhere for its oil, which was selling at vastly discounted prices; liquefied natural gas; and other raw materials. More recently, Russia has become adept at evading the $60 per barrel price cap on oil imposed by the Group of 7 nations as global oil prices have once again started to rise.China is among the nations that have stepped up to buy energy and sell goods to Russia that they previously might have exchanged with European nations. Trade with China rose at an annual rate of 32 percent in the first eight months of this year. Trade with India tripled in the first half of the year, and exports from Turkey rose nearly 89 percent over the same period.Meanwhile, the war is gobbling up other parts of Russia’s budget aside from direct military spending. An additional 9.2 percent of the budget is slated for “national security,” which includes law enforcement. There is money for injured soldiers and for families of those killed in battle, and for “integrating new regions,” a reference to occupied territory in Ukraine.Sergei Guriev, a Russian economist who fled the country in 2013 and is now provost at Sciences Po in Paris, said accurately assessing the Russian economy is difficult. The existing economic models were designed before the war and based on different assumptions, and the published budget figures are incomplete.What that means for Russian households on a daily basis is harder to discern.“Overall, it’s very hard to compare quality of life before and after the war,” Mr. Guriev said. “It’s hard to know what Russians think. People are afraid.”Valerie Hopkins More

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    Las Vegas Hospitality Workers Authorize Strike at Major Resorts

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    Unions representing 60,000 workers across Nevada have been in talks with the resorts since April. The vote is a crucial step toward a walkout.Hospitality workers in Las Vegas have voted overwhelmingly to authorize a strike against major resorts along the Strip, a critical step toward a walkout as the economically challenged city prepares for major sporting events in the months ahead.The authorization vote on Tuesday by members of Culinary Workers Union Local 226 and Bartenders Union Local 165, which collectively represent 60,000 workers across Nevada, was approved by 95 percent of those taking part, according to union officials.Although a vote is a forceful step, it does not guarantee that workers will strike before hashing out a new contract deal with the major resorts. Contracts for roughly 40,000 housekeepers, bartenders, cooks and food servers at MGM Resorts International, Caesars Entertainment and Wynn Resorts expired on Sept. 15, after being extended from a June deadline. Other workers remain on extended contracts that can be terminated at any time.The locals, which are affiliated with the union Unite Here, have been in negotiations with the resorts since April over demands that include higher wages, more safety protections and stronger recall rights so that workers have more ability to return to their jobs during a pandemic or an economic crisis. (Union officials have said there are about 20 percent fewer hospitality workers in the city than before the Covid pandemic.)The authorization vote was approved by 95 percent of those taking part, union officials said.Bridget Bennett for The New York Times“No one ever wants to go on strike,” said Ted Pappageorge, the head of Local 226. “But working-class folks and families have been left behind, especially since the pandemic.”In a statement, MGM Resorts said it was optimistic the two sides could come to an agreement.“We continue to have productive meetings with the union and believe both parties are committed to negotiating a contract that is good for everyone,” said the company.Wynn Resorts and Caesars Entertainment declined to comment on the vote. Negotiations continue next week between the union and the companies.The contract battle comes as the tourism-dependent state, where the rebound from the pandemic’s economic toll has been slower than in other regions, has hedged its bets on a big sports bump.In November, Formula 1 will arrive with the Las Vegas Grand Prix, an international event that is expected to draw hundreds of thousands of tourists. A few months later, the region will be the site of the Super Bowl.“No one ever wants to go on strike,” said Ted Pappageorge, the head of Culinary Workers Union Local 226. “But working-class folks and families have been left behind, especially since the pandemic.”Bridget Bennett for The New York TimesThe authorization vote also comes amid major labor battles nationwide.Thousands of members of the United Automobile Workers union have been on strike against the three major Detroit automakers for nearly two weeks. And while the Writers Guild of America recently reached a tentative agreement with major Hollywood studios after a monthslong walkout, contract talks with tens of thousands of striking actors are at an impasse.In Southern California, thousands of hotel workers with Unite Here Local 11 have staged several months of temporary strikes.The Culinary Union, which is a major base for Democrats in Nevada, a swing state, held a similar strike authorization vote in 2018 among 25,000 workers. A contract agreement with major hotels was reached before any strike occurred.For Chelsea MacDougall, who works as a gourmet food server at the Wynn Las Vegas, watching months of negotiations with few results has been frustrating. Inside an arena crowded with fellow union workers — some waving signs that read “One Job Should Be ENOUGH,” alluding to low pay — she voted to authorize a walkout.“This is our next show of force to companies,” said Ms. MacDougall, 36, who makes $11.57 an hour before tips. “The workers deserve a living wage.” More

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    U.S. and China Agree to New Economic Dialogue Format

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    The regular talks are intended to give both countries a venue to resolve differences.The United States and China have created a new structure for economic dialogue in an effort to improve communication between the world’s largest economies and stabilize a relationship that has become increasingly strained in recent years.The Treasury Department said on Friday that the United States and China had agreed to create economic and financial working groups that will hold regular meetings to discuss policy and exchange information. The announcement follows visits to Beijing by three of President Biden’s cabinet members over the summer that were intended to ease tensions over economic and geopolitical matters that has been festering for years between the two countries.The Treasury Department said that the new working groups would create “ongoing structured channels for frank and substantive discussions.” Treasury officials will report to Ms. Yellen, who traveled to Beijing in July. China’s representatives, from its ministry of finance and the People’s Bank of China, will report to Vice Premier He Lifeng.“These working groups will serve as important forums to communicate America’s interests and concerns; promote a healthy economic competition between our two countries with a level playing field for American workers and businesses; and advance cooperation on global challenges,” Ms. Yellen said in a statement.The U.S. and China still have major economic disagreements on tariffs, technology controls and investment restrictions. The Biden administration has been especially concerned recently about the treatment of American companies operating in China.The creation of a working group linking the Treasury Department directly with Chinese officials on economic and financial issues represents the revival of a decades-long approach to bilateral relations that was dismantled under former President Donald J. Trump.Congress took away the Treasury’s authority over trade relations in the 1970s, transferring that authority to the newly created Office of the United States Trade Representative, which was also made a cabinet agency. Congress acted after complaints from American industries and labor unions that Treasury and the State Department had been making trade concessions to other countries to win allies against the Soviet Union in the Cold War.Under former Presidents George W. Bush and Barack Obama, the Treasury led interagency negotiating teams in talks with China. Treasury’s leadership limited the influence of American trade officials, as a succession of Treasury secretaries assigned a high priority to economic policy coordination with China and to opening China’s financial markets to Wall Street firms.Mr. Trump dismantled the interagency working group system and said that each agency would negotiate separately with China. Vice Premier Liu He, the predecessor of Vice Premier He Lifeng in handling international economic policy, tried repeatedly to reach trade arrangements with then Treasury Secretary Steven T. Mnuchin, bypassing Robert E. Lighthizer, who was Mr. Trump’s trade representative.But Mr. Trump did not endorse those arrangements and instead backed Mr. Lighthizer, who ended up negotiating a limited trade agreement that was signed by both countries in January 2020, and remains in place.In August, Gina Raimondo, the commerce secretary, announced during her trip to Beijing and Shanghai that the United States and China agreed to hold regular conversations about commercial issues and restrictions on access to advanced technology.A senior Treasury official said that a consensus was reached during Ms. Yellen’s trip in July to form the groups, which are meant to allow both sides to voice concerns and look for ways to work together. The economic group will focus on challenges such as restructuring debt for low- and middle-income countries in distress, while the financial group will delve into topics like financial stability and sustainable finance.Ms. Yellen said on Friday that the new structure was an important step forward in the bilateral relationship.“It is vital that we talk, particularly when we disagree,” she said. More

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    Can Ghana’s Debt Trap of Crisis and Bailouts Be Stopped?

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    Emmanuel Cherry, the chief executive of an association of Ghanaian construction companies, sat in a cafe at the edge of Accra Children’s Park, near the derelict Ferris wheel and kiddie train, as he tallied up how much money government entities owe thousands of contractors.Before interest, he said, the back payments add up to 15 billion cedis, roughly $1.3 billion. “Most of the contractors are home,” Mr. Cherry said. Their workers have been laid off.Like many others in this West African country, the contractors have to wait in line for their money. Teacher trainees complain they are owed two months of back pay. Independent power producers that have warned of major blackouts are owed $1.58 billion.The government is essentially bankrupt. After defaulting on billions of dollars owed to foreign lenders in December, the administration of President Nana Akufo-Addo had no choice but to agree to a $3 billion loan from the lender of last resort, the International Monetary Fund.It was the 17th time Ghana has been compelled to turn to the fund since it gained independence in 1957.This latest crisis was partly prompted by the havoc of the coronavirus pandemic, Russia’s invasion of Ukraine, and higher food and fuel prices. But the tortuous cycle of crisis and bailout has plagued dozens of poor and middle-income countries throughout Africa, Latin America and Asia for decades.Joshua Teye, a teacher in Suhum, Ghana. The government’s fiscal crisis has cut investment in schools dangerously short.Francis Kokoroko for The New York TimesThese pitiless loops will be discussed at the latest United Nations General Assembly, which begins on Tuesday. The debt load for developing countries — now estimated to top $200 billion — threatens to upend economies and unravel painstaking gains in education, health care and incomes. But poor and low-income countries have struggled to gain sustained international attention.In Ghana, the I.M.F. laid out a detailed rescue plan to get the country back on its feet — reining in debt and spending, raising revenue and protecting the poorest — as Accra negotiates with foreign creditors.Still, a nagging question for Ghana and other emerging nations in debt persists: Why will this time be any different?The latest rescue plan outlined for Ghana addresses key problems, said Tsidi M. Tsikata, a senior fellow at the African Center for Economic Transformation in Accra. But so did many of the previous ones, he said, and still crises recurred.The last time Ghana turned to the fund was in 2015. Within three years, the country was on its way to paying back the loan, and was among the world’s fastest-growing economies. Ghana was held up as a model for the rest of Africa.Agricultural production was up, and major exports — cocoa, oil and gold — were rising. The country had invested in infrastructure and education, and had begun a cleanup of the banking industry, which was riddled with distressed lenders.Yet Accra is again desperately in need. The I.M.F. loan agreement, and the delivery of a $600,000 installment in May, have helped stabilize the economy, settle wild fluctuations in currency levels and restore a modicum of confidence. Inflation is still running above 40 percent but is down from its peak of 54 percent in January.Cocoa pods at a cocoa farm. Ghana’s economy is dependent on exports of raw materials like cocoa, oil and gold, which rise and fall wildly in price.Francis Kokoroko for The New York TimesDespite the I.M.F.’s blueprint, though, Mr. Tsikata, previously a division chief at the fund for three decades, said the chance that Ghana wouldn’t be in a similar position a few years down the road “rests on a wing and a prayer.”The effects of devastating climate change loom over the problem. Within the next decade, a United Nations analysis estimates, trillions of dollars in new financing will be needed to mitigate the impact on developing countries.In Ghana, the government owed $63.3 billion at the end of 2022 not just to foreign creditors but also to homegrown lenders — pension funds, insurance companies and local banks that believed the government was a safe investment. The situation was so unusual that the I.M.F. for the first time made settling this domestic debt a prerequisite for a bailout. A partial restructuring, which cut returns and extended the due dates, was completed in February. While the haircut may have been necessary, it undermined confidence in the banks.As for foreign lenders, there are thousands of private, semipublic and governmental creditors, including China, which have different objectives, loan arrangements and regulatory controls.The magnitude and type of debt means “this crisis is much deeper than the type of economic difficulties Ghana has faced in the past,” said Stéphane Roudet, the I.M.F.’s mission chief to Ghana.The dizzying proliferation of lenders now characterizes much of the debt burdening distressed countries around the globe — making it also more complex and difficult to resolve.“You don’t have six people in a room,” said Joseph E. Stiglitz, a Nobel Prize winner and a former chief economist at the World Bank. “You have a thousand people in a room.”Victoria Chrappah, a trader, recounts the unfavorable business climate, as fluctuating exchange rates affect prices of imported goods from China.Francis Kokoroko for The New York Times‘Last Year Was the Worst of All.’Outside Victoria Chrappah’s narrow stall in Makola Market, snaking lines of sellers hawked live chickens, toilet paper packs and electronic chargers from giant baskets balanced on their heads. As restructuring negotiations with foreign lenders continue, households and businesses are doing their best to cope. Ms. Chrappah has been selling imported bathmats, shower curtains and housewares for more than 20 years.“Last year was the worst of all,” she said.Inflation surged, and the cedi lost more than half its value compared with the U.S. dollar — a blow to consumers and businesses when a country imports everything from medicine to cars. The Bank of Ghana jacked up interest rates to cope with inflation, hurting businesses and households that rely on short-term borrowing or want to invest. The benchmark rate is now 30 percent.Because of the rapidly depreciating currency, Ms. Chrappah explained, “you can sell in the morning at one price, and then you have to think of changing the price the following day.”Purchasing power as well as the value of savings has been halved. Doreen Adjetey, product manager for Dalex Swift, a finance company based in Accra, said a bottle of Tylenol to soothe her 19-month-old baby’s teething pain cost 50 cedis last year. Now it’s 110.A month’s worth of groceries cost more than 3,000 cedis compared with 1,000. Before, she and her husband had a comfortable monthly income of 10,000 cedis, worth about $2,000 when the exchange rate was 5 cedis to the dollar. At today’s rate, it’s worth $889.Joe Jackson, the director of business operations at Dalex, said default rates for small and medium-size enterprises “are through the roof,” jumping to 70 percent from 30 percent.The real estate and construction market has also tanked. “There’s been a drastic drop in the number of homes in the first-buyer segment of the market,” said Joseph Aidoo Jr., executive director of Devtraco Limited, a large real estate developer.Construction of an apartment complex in Accra. The real estate and construction market has suffered along with the rise in the cost of borrowing. Francis Kokoroko for The New York TimesWhen the pandemic struck in 2020, paralyzing economies, shrinking revenues and raising health care costs, fear of a global debt crisis mounted. Ghana, like many developing countries, had borrowed heavily, encouraged by years of low commercial rates.As the Federal Reserve and other central banks raised interest rates to combat inflation, developing countries’ external debt payments — priced in dollars or euros — unexpectedly ballooned at the same time that prices of imported food, fuel and fertilizer shot up.As Ghana’s foreign reserves skidded toward zero, the government began paying for refined oil imports directly with gold bought by the central bank.Even so, while the series of unfortunate global events may have supercharged Ghana’s debt crisis, they didn’t create it.The current government, like previous ones, spent much more than it collected in revenues. Taxes as a share of total output are also lower than the average across the rest of Africa.To make up the shortfall, the government kept borrowing, offering higher and higher interest rates to attract foreign lenders. And then it borrowed more to pay back the interest on previous loans. By the end of last year, interest payments on debt were gobbling up more than 70 percent of government revenues.“The government is bloated and inefficient,” said E. Gyimah-Boadi, the board chair of Afrobarometer, a research network. Half-completed schools, hospitals and other projects are abandoned when a new administration comes in. Corruption and mismanagement are also problems, several economists and business leaders in Ghana said.More fundamentally, Ghana’s economy is not set up to generate the kind of jobs and incomes needed for broad development and sustainable growth.“Ghana’s success story is real,” said Aurelien Kruse, the lead country economist in the Accra office of the World Bank. “Where it may have been a bit oversold,” though, is that “the fast growth has not been diversified.” The economy is primarily dependent on exports of raw materials like cocoa, oil and gold, which peak and swoop in price.Manufacturing accounts for a mere 10 percent of the country’s output — a decline from 2013. Without a thriving industrial sector to provide steady employment and produce exportable goods, Ghana has no other streams of revenue from abroad, which can build wealth and pay for needed imports.This model — the import of expensive goods and the export of cheap resources — characterized the colonial system.Senyo Hosi, executive chairman of Kleeve & Tove, an investment company based in Accra, said he had an agribusiness that produced rice in the Volta region and worked with more than 1,000 growers. He can’t do required upgrades to equipment, though, because 30 percent interest rates make borrowing impossible. “I stopped production,” he said.Delivery riders for an online food delivery app. Francis Kokoroko for The New York Times‘For Us It Means Shutdown.’As the global financial system struggles to restructure hundreds of billions of dollars in existing debt, the question of how to avoid the debt trap in the first place remains more urgent than ever. Large chunks of money are required to invest in desperately needed roads, technology, schools, clean energy and more. But dozens of countries lack the domestic savings needed to pay for them, and grants and low-cost loans from international institutions are scarce.Road works continue on sections of the National Route Six, a carriageway connecting Ghana’s capital to its second largest city, Kumasi.Francis Kokoroko for The New York Times“The fundamental issue is the need for financing,” said Brahima S. Coulibaly, a senior fellow at the Brookings Institution.So governments turn to international capital markets, where investors are foraging the world for high returns. Both political leaders and investors often look for short-term wins, whether in the next election or earnings call, said Martin Guzman, a former finance minister of Argentina who handled his country’s debt restructuring in 2020.This free flow of capital around the globe has resulted in a flood of financial crises. “Inequality is embedded in the international financial architecture,” a United Nations Global Crisis Response Group concluded in an analysis.Even worthy investments — and not all of them are — don’t always generate enough revenue to repay the loans. When bad times hit or foreign lenders get spooked, governments are left in the lurch. This process can be accelerated in Africa, where research has found there is an exaggerated perception of risk, which lowers credit ratings and raises financing costs.Without a safety cushion to fall back on, a small government cash crunch can turn into a disaster. Think of a household in a tough stretch that can’t cover next month’s rent and is evicted. Now instead of being a few hundred dollars in debt, the members of the household are homeless.“For us,” said Ken Ofori-Atta, Ghana’s finance minister, a credit downgrade “means shutdown.”Ghana’s finance minister, Ken Ofori-Atta, at his home in Accra: “For us, a credit downgrade means shutdown.”Francis Kokoroko for The New York TimesSeveral organizations have sketched out escape routes from the debt trap, including more low-cost lending from multilateral banks like the World Bank.Debt Justice, which advocates for debt forgiveness, along with many economists, argues that some of the $200 billion in debt must be erased. It has also called for governments and lenders to publicly reveal the amount and terms of loans, and what the money was used for so it can be better tracked and audited.Other research groups have looked at ways to stabilize the evolving African bond market and help governments survive short-term shortfalls as well as boom-and-bust swings in commodity prices.Mr. Ofori-Atta said he had “extreme confidence” that Ghana would have strong growth after it emerged from this debt tunnel.But the problem of finding manageable amounts of low-cost investment capital remains.Where does an African country — or any developing country — get the type of financing it needs to grow? Mr. Ofori-Atta asked.Before the cycle of debt crises is broken, that question will have to be answered. More

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    What Retail Sales and Other Data Say About China’s Economy

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    Consumers are spending a little more, but apartment prices and the pace of construction keep falling.China’s trains, planes, stores and beaches were a little fuller last month than a year ago, and the pace of activity picked up at factories, particularly those making mobile phones and semiconductors.A batch of numbers released on Friday by China’s National Bureau of Statistics showed a modest improvement in the country’s overall retail sales and industrial production during August. A series of small steps taken by the government over the summer, including two rounds of interest rate cuts, seems to be yielding a slightly better-than-expected improvement in the country’s economy.“The national economy has accelerated its recovery, production and supply have increased steadily, market demand has gradually improved,” Fu Linghui, China’s director of national economic statistics, said at a news conference.But many foreign economists were more guarded.“Some may be of the view that China’s economy has already bottomed out, but we remain cautious,” said a research note from Nomura, a Japanese bank.Real estate remains a persistent risk.The broad troubles of China’s real estate sector continue to cast a long shadow over the country’s economic prospects. Property investment plummeted nearly a fifth in August from the same month a year ago, an even steeper decline than in July.Construction sites around China appear visibly less busy, although activity has not stopped entirely and tower cranes still dot the skyline.Construction of new apartment towers has faltered because of falling apartment prices.Based on data released on Friday for prices of new apartments in 70 large and medium-sized cities across China, Goldman Sachs calculated that prices were falling in August at a seasonally adjusted annual rate of 2.9 percent, compared with 2.6 percent in July.Construction sites around China appear visibly less busy, although activity has not stopped entirely and construction cranes still dot the skyline.Qilai Shen for The New York TimesThe statistics for new apartments considerably understate the speed and extent of price declines, however, as local governments have put heavy pressure on developers not to cut prices.Prices of existing homes in 100 cities across China fell an average of 14 percent by early August from their peak two years earlier, according to the Beike Research Institute, a Tianjin research firm. Rents have fallen 5 percent.Construction and related activities, including public works projects, make up at least a quarter of the Chinese economy. The government has tried to offset the plunge in apartment construction by demanding that already deeply indebted local and provincial governments undertake a debt-fueled wave of large projects, including new subways, municipal water systems, highways, public parks, high-speed rail lines and other infrastructure.Banks are being squeezed.Loans that China’s banks have made to property developers, dozens of which have defaulted on debt payments, are in trouble. So are loans to local governments and their financial affiliates involved in real estate. Banks are allowed to demand immediate repayment if work on a construction project has stopped, but they are reluctant to do so. Demand for new real estate loans remains weak.The central bank, the People’s Bank of China, announced on Thursday that it was freeing banks to set aside smaller reserves and start extending more credit. The move was widely seen as intended to accommodate an upcoming large batch of bond issuance by local and provincial governments to pay for their infrastructure projects.Investment in fixed assets was held back by property woes.Overall investment in what are known as fixed assets was up 3.2 percent for the first eight months of this year compared to the same months last year — infrastructure spending plus some manufacturing investment offset the property nosedive. The pace through August represented a slowdown from 3.4 percent the prior month.The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago.Agence France-Presse — Getty ImagesThe production of semiconductors rose 21.1 percent in August from a year earlier. The government has more heavily subsidized chip-making as the United States has restricted the export to China of a few of the highest-speed computer chips and of the gear to manufacture them.The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago after adjusting for considerable deflation in wholesale prices for factory goods over the past year. The increase had been 3.7 percent in July.Consumers are changing how they spend.Retail sales were up 4.6 percent in August from the same month last year, as rising energy prices likely pushed up retail sales, Nomura said.A main reason that retail sales rebounded was because a year ago, people in China were still living under stringent “zero Covid” measures that restricted their activity.Beer and wine production dropped from a year ago while output rose for bottled water, carried by many Chinese people during outdoor activities, and production of fruit and vegetable juices climbed sharply. More