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Council on Foreign Relations Daily News Brief
January 27, 2014

Top of the Agenda

Stocks Drop on Emerging Market Woes

Global stocks continued to fall on Monday, extending a decline from last week, as investors worried that a slowdown in China's growth coupled with expectations of further reductions in the U.S. Federal Reserve's monetary stimulus has caused sharp declines in emerging market currencies (AP). Safe-haven assets such as the Japanese yen and gold rallied, and U.S. stock futures indicate a firmer open on Monday after the S&P 500 index had its worst week since June 2012 last week (Reuters). The Turkish lira extended its record-breaking slide, and other emerging market currencies such as the South African rand and the Polish zloty were under pressure on Monday (WSJ).

Analysis

"This latest panic is partly about politics. Look at the list of worst-hit countries. Turkey's currency has collapsed due to a corruption scandal that has engulfed its prime minister. Venezuela, which also devalued last week, is a wreck. South Africa is facing a wave of industrial unrest. Ukraine is being racked by huge protests. The Thai baht has so far held up surprisingly well—but our correspondent believes the country's very unity is now at stake," writes the Economist in an editorial.

"The remedy for undue global sensitivity to U.S. monetary policy isn't a different approach by the Fed; rather, it's burden-sharing. Eventually, other currencies, such as the euro and the renminbi, need to function alongside the dollar as reserve currencies. In the meantime, better U.S. fiscal policy—less budget contraction now, when the economy needs stimulus, and more later— would also lighten the Fed's load," Bloomberg writes in an editorial.

"This should be the moment when Argentina turns to the international capital markets to bolster its international reserves. But the government's populist rhetoric and hostile demeanour have kept investors away. It needs a solid external endorsement to calm any fears of an imminent collapse. Unfortunately, none will be forthcoming," writes Walter Molano in the Financial Times.

 

Pacific Rim

Japan’s Trade Deficit Hits Record High

Japan's trade deficit hit a record high of 11.47 trillion yen ($112 billion), as the cost of energy imports post-Fukushima eclipsed exports that were spurred by a cheap yen relative to the dollar (Telegraph).

This CFR Backgrounder explains Prime Minister Shinzo Abe's vision for Japan's economy, dubbed Abenomics.

CHINA: Six people were shot dead by police and six died in explosions in China's western region of Xinjiang, home to the Muslim Uighur minority. Authorities blamed the violence on "terrorists" (BBC).

This CFR Backgrounder explains the East Turkestan Islamic Movement, a Muslim separatist group founded by militant Uighurs.

 

South and Central Asia

Afghanistan Exit May Curb U.S. Drone Mission

U.S. intelligence agencies are concerned that they could lose their bases used for drone strikes against al-Qaeda in Pakistan if President Obama is forced to withdraw all American forces from Afghanistan by the end of the year (NYT).

AFGHANISTAN: Kabul said it expects to release within two weeks some alleged Taliban prisoners who the United States says are responsible for dozens of NATO and Afghan deaths (AFP).

 

Middle East

Syrian Government Pressured to Allow Aid Convoys

Syria's government came under pressure to allow aid trucks into besieged rebel-held areas in Homs as negotiators in Geneva try to keep talks on track by focusing on humanitarian efforts (Reuters).

This CFR Issue Guide provides background and analysis on the Geneva II peace talks on Syria.

EGYPT: The military-backed government in Cairo altered the electoral schedule it set in July and will hold presidential elections before a parliamentary vote, a reversal that will give Egypt's next president, expected to be Gen. Abdel Fattah al-Sisi, expansive legislative powers (WSJ).

 

Africa

Al-Shabab Commander Killed in Missile Strike

Sahal Iskudhuq, a commander in the Somali militant group al-Shabab who was believed to be close to the group's top leader, was killed by a missile fired by a suspected drone. Al-Shabab blamed the United States for the air strike (al-Jazeera).

This CFR Backgrounder explains the origins and evolution of al-Shabab.

CENTRAL AFRICAN REPUBLIC: Secretary of State John Kerry said the United States may impose sanctions against political leaders responsible for encouraging violence between Christians and Muslims in the Central African Republic (AP).

 

Europe

Ukraine’s Ruling Party Urges End to ‘Coup’ Attempt

Ukraine's ruling party called on the country's prosecutor-general to investigate "anticonstitutional" actions taken by antigovernment protestors, described by President Viktor Yanukovich's party as "fascist youths" who are "trying to carry out a coup" (RFERL).

RUSSIA: Amid charges of waste and corruption over the cost of hosting the Winter Olympics, President Vladimir Putin has stoked the debate by estimating the cost at $7 billion, far below the $12 billion he pledged to spend on the games in 2007 (NYT).

 

Americas

Venezuela Grapples with Weakening Currency, 56 Percent Inflation

Economists are doubtful that Venezuela's adjustments to avoid devaluing its currency, first by creating a dual exchange rate system and then by introducing price controls to check inflation, will work, and they expect the black market rate for dollars to increase even higher (FT).

This CFR Backgrounder explains currency crises in emerging markets.

 

 

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