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Tuesday, May 28, 2024

Challenges in Economic Diplomacy Amidst U.S. Dysfunction

Janet L. Yellen, the United States Secretary of the Treasury, will be travelling to Morocco this week to meet with her international colleagues. Morocco is a country that has been at the forefront of the global economic recovery following a pandemic, but is also experiencing potentially destabilising political turmoil.

During the summer, the United States came dangerously near to defaulting on its debt, and this month, as Republicans argued over federal spending levels and whether to provide more help to Ukraine, a shutdown of the government seemed certain. The events of the last several weeks culminated in the resignation of Representative Kevin McCarthy as House speaker last week, prompting serious doubts about the United States’ ability to govern itself, let alone lead the rest of the world.

As the annual meetings of the International Monetary Fund and the World Bank get underway in Marrakesh on Monday, the political dynamic is anticipated to put a pressure on the credibility of the United States. Ms. Yellen will likely lobby European governments to increase aid to Ukraine and will also lobby creditors like China to reduce the debts of developing nations like those in Africa.

The discussions come as tensions rise throughout the world after Hamas strikes on Israel over the weekend, which have the potential to spark a wider regional war. Oil prices might rise, commerce could be disrupted, and international tensions could rise as a result of the potential for a larger war, all of which would provide new economic issues for policymakers.

Ms. Yellen admitted that the political paralysis in the United States is causing alarm and anxiety in other countries during an interview on Sunday while en route to Marrakesh. While acknowledging the difficulties faced by democracies everywhere, she expressed confidence that America’s friends will remain behind the Biden administration’s initiatives to safeguard Ukraine and combat climate change.

While America has traditionally served as an economic bulwark against Russia’s conflict in Ukraine, this role has been weakened by domestic political factors, most notably Republican resistance to increasing economic assistance for Ukraine. As a result of its massive debt, the United States has been unable to restore its economic credibility.

“The rest of the world can only look aghast with trepidation at our dysfunction,” said Mark Sobel, a former longtime Treasury Department official an undoubtedly diminish faith in U.S. leadership, stability, and dependence on the dollar’s global role, even if other nations have always expected some hurly-burly behaviour from the United States.

Former head of the IMF’s China division Eswar Prasad said that some of the world’s most vulnerable economies might be negatively affected by economic volatility in the United States.

Unpleasant, Mr. Prasad said, especially for countries seeking to prop up their economies and financial systems.

The meeting is occurring at a critical time for the international economy. Inflation remains an issue, and growth is sluggish, but it looks like the globe will escape a recession and have a “soft landing.” The current war between Russia and Ukraine and China’s slowing economy are also headwinds.

It has become more challenging for countries to manage their debt loads as a result of the increased borrowing charges that central banks have implemented to moderate inflation.

The United States is not immune to this issue; the country’s gross national debt is at slightly over $33 trillion. Concerns regarding the long-term viability of the United States’ debt have increased, and as a result, foreign investors’ interest for government bonds has waned. As a result, it is more difficult for the United States to advise other countries on how to handle their own finances.

Convincing other countries to maintain substantial economic help to Ukraine while its battle with Russia grinds on likely be Ms. Yellen’s greatest challenge. It is uncertain how the United States will continue to help Ukraine prop up its economy while European nations deal with economic stagnation and Congress is in chaos.

Ms. Yellen said she would convey to her colleagues the need of continuing to back Ukraine. She urged Congress to approve more cash, saying the Biden administration had few viable choices for providing aid on its own.

The cost of letting Ukraine fall to Russia, Ms. Yellen claimed, would be larger than the cost of supporting Ukraine, which the United States cannot afford.

Ms. Yellen said that the United States could not afford to let a democratic country in Europe fall to Russia because of the long-term consequences for both its own and its neighbours’ national defence.

Chris Matthews
Chris Matthews
I am a Political News Journalist of The National Era
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