The global economic crisis continues to expand. Despite the announcement of a tentative agreement on a $827 billion stimulus package in the U.S. Senate and announcement of a $200 billion lending facility by the U.S. Federal Reserve intended to encourage more lending by banks and credit card companies, the economic numbers continue to decline. Despite being relatively insulated from global markets, Brazil announced a large slump in output and a decline in jobs last week. Following an announcement that the national economy contracted by 4.6 percent in December—the largest contraction since reunification in 1990s—and more than 2 percent last year, the German Economic Minister, Michael Glos, offered to tender his resignation. Many observers are also concerned that some of the stimulus packages proposed by national governments may rekindle protectionist measures. (Indeed, the Financial Times now carries a special section, updated regularly, on “The New Protectionism.”)
In news from outside the financial crisis last week:
1. In the first major foreign policy speech of the Obama administration, Vice President Joe Biden proposed to “press the reset button” on relations with Russia, noting that despite policy differences in many areas, the U.S. and Russia could still work together on areas of mutual interest and concern. The conciliatory tone did not include a review of the U.S. missile defense system, which has angered Russia. In recent weeks, the Russian government has announced a series of initiatives, including plans to establish naval and air bases in Abkhazia, an air defense treaty with Belarus, and a collective security organization which includes many of the former Soviet republics.
2. A Pakistani court last week released Abdyl Qadeer Khan from house arrest. Khan is the nuclear scientist responsible for the development of Pakistan’s nuclear capabilities. He is also believed to have played a key role in the proliferation of nuclear equipment and know-how to North Korea, Iran, and Libya. Khan’s role in the Pakistani nuclear program made him a national hero, and many Pakistanis believe the evidence against him was fabricated. But under threat of sanctions, the Pakistani government placed Khan under house arrest five years ago. His release was greeted by disappointment from the United States and France. Despite the move, Pakistan is still hoping to woo more aid from—and potentially a closer relationship with—the United States.
3. With elections for the Israeli Knesset scheduled for Tuesday, polling over the weekend suggested the race would be much closer than anticipated. Early polling had suggested that the center-right Likud party would cruise to an easy victory, as most Israelis were identifying security as their primary concern and Likud was seen as strong on security. But recent polling data suggests that neither Likud nor the center-left opposition Kadima party will win a majority, forcing either to enter into negotiations with minority parties to form a government. Meanwhile, polls from Gaza show a sharp spike in support for Hamas following Israel’s three-week military offensive in the Palestinian territory, suggesting that Hamas may actually have been strengthened by the campaign.
4. The longstanding drought in Argentina continues. The drought, the worst in nearly fifty years, threatens the collapse of Argentina’s agricultural exports. As one of the world’s second largest exporter of agricultural commodities and livestock, the projected collapse of exports from Argentina threaten global food supplies. World food prices had declined form their record highs set in 2007-08 in part on projections of increased production from Argentina. Global market prices for rice, wheat, and soy have already increased 20 percent in the last two months, and with declines now projected for Argentina’s wheat, corn, and soy output, world prices are projected to continue to increase. In an unrelated development, the Chinese government declared an emergency in response to drought conditions in central and northern China. The Chinese drought undermined wheat production.
5. Relations between British Prime Minister Gordon Brown and French President Nicolas Sarkozy stumbled late last week after Sarkozy declared that Brown’s proposal to temporarily cut the value-added tax in an attempt to stimulate the economy would have “absolutely no impact,” arguing that Britain “doesn’t have any industry left” and its banks were “close to ruin.” Brown is already facing strong domestic opposition from the opposition Conservative Party, whose leader, David Cameron, sized on the French president’s comments.