The Middle East is divided. The Middle East has always been quite a complex region with tribal differences having manifested itself in a modern 21st century way. But the goal is the same: a pursuit of power. The Qatar crisis is the latest move that sees a power play between regional powers at the expense of the economy and citizens of the states involved. Egypt, Bahrain, United Arab Emirates, Yemen, Libya, Maldives and Saudi Arabia all cut diplomatic relations with the small Gulf state with the backing of Senegal, Jordan, Komor Islands and Mauritania. Just five days ago Eritrea joined this group showing how this is no longer just a Middle Eastern issue but an African one too. This is a large contingent of countries who may face opposition from Iran principally with Turkey and Kuwait being very sympathetic to Qatar.
The American Dilemma
The American President’s USP is getting ‘deals done’ when he went to the Middle East and did not want to jeopardise his trip by risking relations with many wealthy Gulf states, especially Saudi Arabia. Furthermore, relations have only recently been normalised with the Egyptians as Obama did not want to send an anti-democratic message by allowing the military coup to go unnoticed. The UAE and Saudi Arabia also donated $100m to Ivanka Trump’s proposed Women’s Entrepreneur Fund. This shows that these states have anticipated the self-interest of the American President will forgo statesmanship and diplomacy. Furthermore, Trump’s trip would be viewed as a waste of time if all his work is unravelled by traditional political issues. undone This puts him in a weak position, unable to dictate to other states what to do. This is especially the case considering the presence of a USA military base 10,000 troops strong based on Qatari soil. Furthermore, Trump with his business-minded ways would not want to lose the $45bn the Qataris pledged to invest just last year.
The Complications of Other Conflicts
Iran and Saudi Arabia find themselves on opposing sides in a Middle Eastern conflict once again with the ongoing military struggles in Yemen and Syria but now a political and economic one with Qatar. The problem with Middle Eastern diplomacy is that many countries are opposing each other and working together simultaneously depending on the conflict.
Take for example the fight against Daesh (ISIS). Qatar, Kuwait and Turkey are in coalition with all the states who sought to put conditions on Qatar. What will happen to the Islamic Military Alliance now in the fight against Daesh? The same can be asked of Yemen as both Qatar and Kuwait find themselves on the same side as Saudi Arabia, Jordan and Bahrain, what is to happen now?
The Muslim Brotherhood Motive
The anti-Qatar states claim that the emirate supports terrorism and demands the Muslim Brotherhood, and its Palestinian wing Hamas, be expelled and declared a terrorist organisation. This is a rather peculiar ploy as singling out Qatar as the sponsor of terrorism seems to make little sense. Tunisia has the biggest representation in Daesh, why not sanction them? Saudi Arabia is second in terms of membership with over 2,500 fighters as of 2016 and a past mired in radical Muslim-associated terrorist attacks. On top of this, in 2015, Saudi Arabia backed the creation of The Army of Conquest, primarily made up of both the al-Qaeda affiliate (the al-Nusra Front) and the ideologically similar Ahrar al-Sham. Nonetheless, Saudi Arabia is the chief architect in sanctioning Qatar for sponsoring terrorism. The hypocrisy is unparalleled. Furthermore, on the issue of recognising Hamas and the Muslim Brotherhood as extremists, Russia, Turkey, China and Switzerland all recognised and had some contact with the Muslim Brotherhood. Is the anti-Qatar group going to sanction all these nations too? Consider Turkey whose AKP party publicly endorsed the Muslim Brotherhood in the Egyptian elections and following the coup; this is further than Qatar ever went in terms of state support. The inconsistencies of the anti-Qatar arguments based on terrorism are overwhelming and has caused some to claim Egypt only declared the Muslim Brotherhood a terrorist organisation to consolidate power from the democratically elected government. There is no clearer illustration as to how this is not a fight against terrorism but a power struggle.
Saudi Arabia is clearly motivated by the fact that Qatar maintains relations with Iran. Iran was the first country to fly food packages to Qatar as well as let Qatar Airways use Iranian airspace after the anti-Qatar coalition banned them. Countless claims have been made by Iran supporters that “Tehran controls five Arab capitals,” being Damascus, Sana’a, Baghdad and Beirut. Could this be the 5th? Could the Saudis drive Qatar into Iranian hands? But also what of Turkey? 53% of Turkish citizens have an unfavourable view when it comes to supporting Saudi Arabia. Ankara and Riyadh have long seen themselves as alternative leaders to Western interventions and could turn the balance of power within the Middle East. Additionally, Iran sees the PKK as a terrorist organisation which would appease the ruling AKP, and they have already worked together in anti-terror operations in Iraq. There is also a large Turkish population in Iran thanks to the ethnic Azerbaijanis in the northwestern regions of the nation. This shows there is clearly scope for improving relations, but whether the Qatar crisis is enough of a catalyst remains to be seen.
Venezuelan Digital Currency Backed by Oil
Venezuela has announced plans to launch a digital currency, “the petro”, backed by the country’s oil and mineral reserves. The petro aims to help ease the country’s monetary crisis but sceptics claim the proposal has no credibility and will not help those in extreme need.
Why It’s Important
Hyperinflation has eroded the Venezuelan bolivia’s value by 97% this year, making imports incredibly expensive and causing many to abandon trust in the currency. The country’s oil reserves made up 95% of its exports in 2016, while oil and gas extraction accounted for 25% of GDP. Rich supplies of resources provide some initial credibility to the proposal, but President Maduro’s questionable track record when it comes to monetary policy is making many sceptical about the proposal. His currency controls and money printing have only added to the monetary crisis. Maduro has not announced when the digital currency would come into use or any details regarding how the country would create such a system.
Opposition leaders argue the country’s shortages of food and medication are far more pressing and that the digital currency will not address this. The digital currency may provide a more trusted medium of exchange, but it is unlikely to help those in excessive poverty.
Venezuela’s Inflation Is at 4000%. Here’s Why
Venezuela’s currency, the bolivar, has lost 96% of its value this year. As the currency becomes near worthless, imported food and medicine are in short supply. A humanitarian crisis is unfolding.
The government and state-owned oil company, PDVSA, owe bondholders $60bn alone and have recently defaulted on debt repayments. More defaults could mean investors seizing their stake in Venezuela’s oil.
Why Is Venezuela in Debt?
Acting upon the country endowment of natural resources made it an economic success in the mid-2000s.
Yet, while the price of oil skyrocketed during the late-2000s, former President Hugo Chávez matched this with Venezuelan public debt.
Once the price of oil dived in June 2008, lenders stopped extending credit to the country.
Defaults on government bonds are largely to blame for this inflation.
In 2016, OPEC found that oil reserves accounted for 95% of the country’s exports, while the oil and gas extraction combined made up 25% of its GDP.
Venezuela’s overdependence on oil and lack of saving during its heyday are the leading causes of the current crisis.
The Psychology Behind Saving
The idea that the poor do not save enough money just because they are simply “too poor to save” is wrong.
Gambian farmers have in the past saved in cash (wooden lockboxes with savings were smashed open in an emergency or once the savings goal was reached), stored crops, and consumer durables. Saving in livestock and jewellery enabled other farmers to convert cash into less liquid assets to prevent unwarranted and frivolous spending. A detailed household survey conducted in 13 countries found that for many people in the developing world saving may be counter-intuitive. The poor and the extremely poor, those living on less than $2 a day and on less than $1 a day, respectively, do have a significant amount of choice in regards how to spend their money.
The Developing World
The poor do not use all of their income to buy calories, but only allocate between 56% to 78% to food. Spending on tobacco and alcohol (considered non-essential and nonfood items), and festivals (weddings, funerals or religious events) plays a significant role in household budgeting. For example, the poor in rural areas of Mexico spent slightly less than half the budget on food, and 8.1% on alcohol and cigarettes. The poor and the extremely poor spend about the same on food, which suggests that the extremely poor feel no extra compulsion to purchase more calories. Instead, the remaining income is often saved across a variety of informal saving groups, including peer-to-peer banking and peer-to-peer lending.
It is often the poor, women and the rural communities who are the least banked (those without an access to formal banking services). Not surprisingly, without an access to savings accounts or other formal financial services, it is difficult for families to manage unexpected risks, like illnesses, or plan children’s education. But the desire to save and engage with financial services is still there, as shown by a large uptake in the savings plans in Kenya despite high-interest costs, high withdrawal fees, and close to negative interest rates.
Yet, inchoate financial infrastructure in the developing world cannot on its own explain undersaving. Behavioural economists argue that the poor are no different to the rich in their saving habits: both groups are subject to cognitive biases and inherent human irrationalities and face self-control problems. When it comes to saving, “present bias” (or procrastination, proverbially) occurs when people give stronger weight/preference to an earlier option or purchase that provides instant gratification, rather than setting some funds aside for emergency use. Due to income uncertainties, however, the consequences of this “live for today” behaviour are far more detrimental to the poor than on the rich.
The Developed World
Undersaving is not exclusive to the developing world. Household saving rates, the difference between disposable income and consumption, vary greatly across the world. In 2017, Switzerland and Luxembourg, closely followed by Sweden, are the three countries with the highest savings rates. However, a higher GDP per capita does not necessarily equate to a higher savings rate.
In other words, people with higher income in the developed world countries do not always save more. Consider the US with GDP per capita $57,466 and savings rate of 5.3% and the Czech Republic, GDP per capita $35,127 and a savings rate of 6.7%. Similarly, with GDP per capita of over $43,000, the UK’s household savings rate was 3.3% in 2016, the lowest level since 1963, while in Hungary ($27,008 GDP per capita) the savings rate has been on average 4.5% in the past three years.
Is it possible to fully comprehend the monetary hurdles of low-income families? Undoubtedly, consuming today might be a rational choice and a necessity to survive. But, biases deserve context. For many in the developing world saving at home still remains hard. Technological innovation in finance and growth of electronic wallets have already alleviated some of the hurdles of saving money, but technology is not the silver bullet that will address undersaving. An active and conscious commitment to saving and awareness of biases could have a strong beneficial impact on the lives of the poor.
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