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An Overview of the Three Seas Initiative

Three Seas Initiative
The Three Seas Initiative, which Polish President Andrzej Duda and former Croatian President Kolinda Grabar-Kitrovic founded in 2015, is an economic forum of 12 Eastern and Central European nations created as a means for Eastern Europe to boost economic development, expand infrastructure and promote cooperation in the energy sector. The Three Seas Initiative works by securing investment for infrastructure, energy and digitization projects to rectify the gap between East-West and North-South infrastructure in Europe. As more investments continue to support digital infrastructure, energy and transportation projects, people in poverty in Eastern Europe are likely to experience greater economic prosperity through the increasing trade opportunities and greater access to markets through economic investment.

Three Seas Initiative Projects

As of July 2021, the Three Seas Initiative has 90 interconnection projects with a total estimated investment value of €180.9 billion. Registered in 2018, the Rail-2-Sea project is a Three Seas Initiative plan to build a railway connecting the port of Gdansk and the port of Constanta across Poland, Slovakia, Hungary and Romania. This plan will further link the Baltic Sea to the Black Sea over four different branches of a railway, each with its local plans for modernization.

Another Three Seas Initiative infrastructure plan is the Rail Baltica plan. This plan aims to increase infrastructural integration between Baltic Sea nations. More specifically, in a partnership with Finland, Rail Baltica is creating infrastructure to construct “missing cross-border connections” and “integrate the Baltic States in the European rail network” while dissolving “transport infrastructure bottlenecks.”

These plans are all, in one way or another, increasing economic interconnection and mobility between Eastern European nations. These infrastructural developments will provide more opportunities for people living in Eastern Europe by providing greater access to European markets and more efficient supply chains. The cheapening of consumer goods through trade is especially beneficial to low-income Eastern European citizens who could potentially afford better and more daily necessities.

Impact of the Three Seas Initiative

Nations within the Three Seas Initiative saw greater economic growth and faced less economic shock from the COVID-19 pandemic compared to other European Union (EU) nations. According to a July 2021 speech by IMF Managing Director Kristalina Georgieva, “During 2015-2019 they [Three Seas Initiative nations] averaged 3.8% GDP growth a year, nearly double the rate of EU-15.” Furthermore, the economies of Three Seas nations only contracted by approximately 4% whereas Western European economies shrunk by approximately double that.

Throughout the initiative, the poverty rates of many nations, especially in Southeast Europe, have declined. For example, Romania had a poverty rate of 25.4% in 2015, the founding year of the Three Seas Initiative. Right before the pandemic in 2019, Romania’s poverty rate declined to 23.8%.

The Three Seas Initiative similarly oversaw a decrease in the risk of poverty in Hungary with 28.2% of people facing the risk of poverty in 2015 in comparison to 17.8% in 2019. Slovenia saw a decrease in poverty as well, albeit relatively minor from 13.9% in 2015 to 12% in 2018, and it only rose .4% in 2019.

The Three Seas Initiative has vast potential to deepen economic ties within Europe, foster sustainable European energy and reduce poverty. As it carries out more projects, the U.S. and the EU can continue to encourage economic investment and development of the Three Seas Initiative countries. Such economic investment and capital inflow have the potential to make Eastern Europe more prosperous while lifting people out of poverty.

– Alexander Richter
Photo: Wikimedia Commons

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IMF’s Role in Preventing a Post-Pandemic Debt Crisis

Post-pandemic debt crisis
With the 2020 onset of the COVID-19 pandemic came a drastic slow in economic activity and collapse in government revenue, prompting a widespread increase in both government and private debt levels. Currently, at the beginning of 2021, with no concrete prediction for the end of the COVID-19 pandemic, businesses and the private sector continue to accumulate great foreign currency debt. There is a steady increase in government loans for funding and there has been at least a 20% reduction in 2020 remittances from global citizens and diasporas. Developing nations report skyrocketing borrowing needs that are usually that advanced economies can usually only manage. Additionally, central bank purchases of corporate bonds to boost the money supply of local firms have stifled the debt ratings of local firms in emerging markets and developing economies. As a result, our world is facing rising budget pressures, which a wave of sovereign debt downgrades that are likely to lead to a post-pandemic debt crisis are accompanying.

Context and the Role of the IMF

In comparison to the end of 2019, in addition to already unusually elevated figures and debt distress, expectations have determined that 2021 debt ratios will increase by 20% GDP in advanced economies, 10% in emerging market economies and 7% in low-income economies. Unfortunately, the emerging and developing world have much smaller borrowing capacities, and so for some, a post-pandemic debt crisis appears imminent.

In the past, debt crises have set the global economy into long-lasting instability. In order to prevent such an economic downfall on top of a global health crisis, many of the leading international organizations such as the International Monetary Fund (IMF) have prepared to help keep nations afloat. While the IMF has provided over $30 billion in emergency funding to its member countries in a response to the pandemic, it has also given direct attention to implementing measures that contribute to debt-service relief. Here are some of these measures.

4 Measures to Contribute to Debt-Service Relief

  1. Catastrophe Containment and Relief Trust (CCRT): Undergoing establishment in 2015 as a response to the Ebola outbreak and receiving modification in March 2020 for the COVID-19 pandemic, CCRT allows the IMF to provide grant funding for debt relief to the poorest and most vulnerable nations that a natural disaster or public health crises have hit. The purpose of the CCRT is to aid eligible low-income member countries to meet the balance of payment needs that disasters create. This stops the reassigning of resources to debt service, preventing a post-pandemic debt crisis.
  2. Debt Service Suspension Initiative (DSSI): In a collaboration between the IMF Managing Director and the President of the World Bank, a call emerged for the bilateral creditors to suspend debt service payments from the poorest member countries until the end of 2020, extended to June 2021. Accepted in April 2020, this debt suspension allows 73 low and lower-middle-income countries to temporarily receive relief from their debt service payments. In addition to releasing the countries’ resources to COVID-19 relief, this initiative prompted the International Institute of Finance (IIF) to also call for private-sector creditors to grant debt payments forbearance to their debtors in a similar way. Many private firms have volunteered to aid in debt relief as a result.
  3. Short Term Liquidity Line (SLL): With the increase in global uncertainty, the IMF has established a short-term liquidity line (SLL) with the unique design of being a liquidity backstop for its member countries who have superior policy and fundamentals, but are in need of increased immediate liquidity needs as a result of the external shocks that came with this global pandemic. This liquidity line has a lower cost structure than other typical IMF lines of liquidity such as the Flexible Credit Line (FCL). This allows for a country to retain cost savings relative to reserves, and benefits related to lower yields on public debt.
  4. Capacity Development: In addition to its financial support, the IMF is also offering real-time policy guidance and capacity development to more than 160 of its 190 member countries. This advice is for specifically navigating debt management strategies, cash management, financial supervision, cybersecurity and economic governance through the pandemic. The IMF has collaborated with tax administrations and budget officers to restore and support halted or slowed business operations. It has also launched online learning platforms available to government officials, members and the general public for the widespread reach of solutions to aid in economic recovery during and post-pandemic.

Cause for Optimism

With the measures above, as well as the collaborative effort of the entire globe, according to the IMF Managing Director Kristalina Georgieva, “the global economy is beginning to climb back from the depths of the crisis, but this calamity is far from over.”

Thankfully, the IMF continues to show its commitment to providing financial support, capacity development and debt relief, especially for its poorest, most affected and vulnerable member countries in this unprecedented time, as the world works to stave off an impending debt crisis.

– Rebecca Harris
Photo: Flickr

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G20 Pledges to Support the Global Economy

G20 Initiatives to Support the Global EconomyThe G20 is a group of 20 leading nations (19 countries and the European Union) that gather for high-level discussions on macro-financial, socio-economic and development issues on a global scale. Together, they comprise almost 90% of global GDP and 80% of global trade. This year, the G20 summit will be held from November 21-22, in Riyadh, Saudi Arabia.

Supporting the Global Economy Amid COVID-19

This October, the G20 highlighted the importance of prioritizing the global fight against COVID-19 and doing “whatever it takes” to support the global economy. As part of their plan to bring COVID-19 under control, the G20 has pledged to invest upwards of $5 trillion to support the global economy. This is in response to the widespread economic consequences of the pandemic and subsequent lockdowns.

The U.N. has previously spoken out about the importance of the G20 coming together to develop a plan for tackling the novel coronavirus. In March 2020, the U.N. Secretary-General António Guterres addressed the G20 directly in New York, saying that “solidarity is essential, among the G20 and with the developing world, including countries in conflict.” He added that the pandemic requires a “war-time plan to fight it.”

“While the liquidity of the financial system must be assured, our emphasis must be on the human dimension. We need to concentrate on people, keeping households afloat and businesses solvent, able to protect jobs,” Guterres continued.

Guterres also called for debt relief, economic and social support to developed countries and a stimulus package.

Solutions to Support the Global Economy

To support the global economy as a whole, the G20 will likely be required to heed the aforementioned requests from the U.N. Additionally, economic forecasts show that developing countries are at much greater risk of economic anxiety due to the socio-economic effects of the novel coronavirus pandemic, in contrast to developed countries which are already showing signs toward economic recovery.

The G20 has now also agreed for the first time on a “Common Framework” to handle low-income countries facing debt, which is a monumental step forward for global debt relief. This framework is expected to be finalized at the November meeting.

Kristalina Georgieva, the managing director of the IMF has commented on this achievement. “I am encouraged by G20 discussions on a Common Framework for Sovereign Debt Resolution as well as on our call for improving the architecture for sovereign debt resolution, including private sector participation,” said Georgieva on October 15, 2020.

The G20 has also agreed to extend the Debt Service Suspension Initiative (DSSI) by six months. This means it will now freeze official bilateral debt payments until the end of 2020. The G20 has also stated that another six-month extension will be considered in April. This is significant progress from the G20’s past stance regarding the global debt agenda.

– Katherine Musgrave
Photo: Flickr

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European Parliament Defends Aid

European_parliament
“If we don’t have the money, people die. Member states must realize that sound financing is not only morally proper but that it is in their own interest to bring down the flames,” said Kristalina Georgieva, the humanitarian aid chief of the European Parliament’s Committee on Development, in a powerful statement against slashing the bloc’s humanitarian aid budget.

The European Parliament is strongly opposing proposed cuts to the European Union’s humanitarian aid budget in a time where many member states are struggling to finance their own domestic crises. The Parliament will negotiate the 2014 and 2015 budgets in October and November with the European Council. Last week, the Committee on Development held several meetings to discuss the crises in Gaza, Iraq, Libya, Syria and Ukraine.

The chairwoman of the Committee on Development, British MEP Linda McAvan, encouraged member states to muster up the 250 million euros necessary to finance humanitarian aid this year, calling on the European Council to demonstrate a true commitment to aid when planning the budget.

“We are in a critical situation. There is a growing backlog on outstanding payments,” said Austrian member of the European Parliament, Paul Rübig, after hearing proposals by member states to slash the aid budget in a committee meeting. “It is unacceptable if the EU cannot pay its bills on time, it would diminish Europe’s stature in the world.”

The Parliament has lamented the red tape stretched out by the E.U. that stops humanitarian aid from reaching its destination in a timely manner, effectively diminishing the impact of the money.

“We need to make our budgetary procedure simpler and faster,” said Elmar Brok, the chair of the European Parliament’s Foreign Affairs Committee, during a debate on the E.U.’s handling of international crises. Brok has spoken out on the imperative nature of a strong E.U. foreign policy to bring stability and mitigate crises on the continent. “Currently, there is too much bureaucracy, and money given too late for humanitarian actions is wasted money.”

There are many political consequences if the proposed budget cuts are approved. Many struggling countries could potentially fail to reach targets set by the International Monetary Fund without the budget support they receive from the European Union. Georgieva has remarked on the “belt of instability” that surrounds Europe, including Ukraine, Gaza and Ebola-ridden West Africa, stating that juggling such complex crises has been a daunting task for the continent.

“Our member states are at their best when there is a clear purpose, then they mobilize well. But the E.U. is not good at dealing with multiple crises or with forgotten crises that have fallen off the media spotlight. Unfortunately, needs are going up in a world of finite resources,” said Georgieva.

The Committee on Development has also had discussions regarding the development agenda for the near future. MEPs from several nations emphasized that the agenda would need to include or strengthen issues like environmental sustainability, gender equality, rule of law and agriculture.

– Annie Jung

Sources: Public Finance International, Devex, European Parliament
Photo: Flickr