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The International Monetary Fund urges governments to rein in spending or risk investor mistrust

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The International Monetary Fund has warned that governments must place more importance on preserving their finances, or risk undermining the confidence of investors in the bond market who buy their debt.

Higher interest rates and high inflation have made it even more important for countries to build fiscal resilience so they can deal with a more “shock-prone” world, the International Monetary Fund said on Wednesday in its annual Fiscal Monitoring Report.

In contrast to the message of previous years, the International Monetary Fund She ditched her calls for governments to borrow more, saying high debt levels are no longer appropriate now because interest rates need to rise to overcome the widespread inflation threat.

“In a shock-prone world, the trade-offs facing fiscal policymakers are tougher than before,” said Vitor Gaspar, head of fiscal policy at the International Monetary Fund.

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Policies that have provided broad support for energy cuts and food prices All were costly and ineffective, the IMF said. Instead, governments should provide only targeted, temporary cost-of-living support to the most vulnerable. And the wider world must help the poorest countries cope with the rising cost of food.

“For poor countries facing food stock concerns, trade-offs are a matter of life and death,” Gaspard added.

He admitted that the recommendations were difficult for politicians to put into practice. But higher interest rates would increase the cost of servicing government debt, while any inflation benefit in reducing debt burdens would only provide a temporary respite.

“As people adapt [to rapidly rising prices]Inflation premiums are reflected in the interest cost of servicing the public debt. . .[investing]In Treasuries become less attractive.

Governments should not fight monetary policymakers, who have been trying to defeat inflation.

“Fiscal consolidation sends a strong signal that policy makers are cooperating in their fight against inflation,” the report stated, adding that alignment would better keep inflation expectations steady and would leave central bankers in a position where it would not be necessary to further hike interest rates.

Tax increases and spending cuts were a better alternative than losing investor confidence. The report stated: “While gradual and steady fiscal tightening is politically difficult, it is less disruptive than a sudden financial downturn caused by a loss of market confidence.”

The words sounded like a barely convincing criticism of the last UK budget “mini”which included permanent unfunded tax cuts equivalent to approximately 2 percent of national income.

However, Gaspard preferred to focus on the steps ministers had taken to address market concerns, commending the UK government for sharing it with its economic institutions and promising to put in place a cost-effective fiscal plan by the end of the month. He said he had been “reassured” of the UK government’s ambition to restore financial credibility.

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Nor was he willing to directly criticize Germany’s broad energy support of €200 billion, saying the package was too recent with the fund “not on top of the details”.

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The Chinese president arrives in Saudi Arabia on a “historic” visit to deepen relations, by Reuters

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© Reuters. A picture of the flags of the participating countries ahead of the China-Arab Summit in Riyadh, Saudi Arabia, December 7, 2022. REUTERS/Mohammed bin Mansour

By Aziz El Yacoubi and Eduardo Baptista

RIYADH (Reuters) – Chinese President Xi Jinping arrived in Saudi Arabia on Wednesday for a visit that Beijing hailed as its biggest diplomatic initiative in the Arab world, as Riyadh expands its global alliances beyond a longstanding partnership with the West.

The meeting between the global economic powerhouse and the Gulf energy giant comes at a time when Saudi relations with Washington are strained over US criticism of Riyadh’s human rights record and Saudi support for oil production curbs ahead of mid-term elections in November.

The White House said on Wednesday that Xi’s visit is an example of China’s attempts to exert influence and that this will not change US policy toward the Middle East.

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“We recognize the influence that China is trying to cultivate around the world,” White House National Security Council spokesman John Kirby (NYSE:) told reporters.

And official Saudi media reported that Xi was received upon his arrival by the Prince of Riyadh, Prince Faisal bin Bandar Al Saud, the Minister of Foreign Affairs, Prince Faisal bin Farhan Al Saud, and the ruler of the sovereign wealth fund, Yasser Al-Rumayyan.

Crown Prince Mohammed bin Salman is expected to give Xi a warm welcome, in contrast to the quiet reception for US President Joe Biden whose criticism of Saudi Arabia’s de facto ruler formed the backdrop to a tense meeting in July.

The Saudi cabinet meets on Wednesday to approve the 2023 state budget for the world’s largest oil exporter.

Foreign Ministry spokesman Mao Ning said Xi’s trip includes direct talks with Saudi Arabia, a broader meeting with Gulf Arab states, and a summit with Arab leaders that will be “a milestone in the history of the development of Sino-Arab relations.” .

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Mao added that Beijing hopes to make a strong statement on strengthening “unity and cooperation”.

For Riyadh, frustrated by what it sees as Washington’s gradual disengagement from the Middle East and the slow erosion of its security guarantees, China offers an opportunity for economic gain without the tensions that have overshadowed the US relationship.

“Beijing does not burden its partners with political demands or expectations and refrains from interfering in their internal affairs,” wrote Saudi journalist Abdul Rahman Al-Rashed in the Saudi newspaper Al-Sharq Al-Awsat.

Unlike Washington, Beijing maintains good relations with Riyadh’s regional rival Iran, another supplier of oil to China, and has shown little interest in addressing Saudi political or security concerns in the region.

Saudi Arabia, the birthplace of Islam, has backed China’s policies in Xinjiang, where the United Nations says human rights abuses have been committed against Uighurs and other Muslims.

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The growing influence of China in the Middle East has alarmed the United States. China, the world’s largest energy consumer, is a major trading partner for oil and gas producers in the Gulf. Saudi Arabia is the largest supplier of oil.

The official Saudi Press Agency said the Chinese delegation was expected to sign deals worth $30 billion with Riyadh.

While economic relations are still anchored in energy interests, bilateral relations have expanded in light of the Gulf’s infrastructure and technological push, as part of economic diversification plans.

The United States, which for decades has been Saudi Arabia’s main security guarantor and remains its main defense supplier, has expressed security concerns about China’s growing involvement in sensitive infrastructure projects in the Gulf.

Riyadh said it would continue to expand partnerships to serve economic and security interests, despite US reservations about Gulf relations with both Russia and China.

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The Great Chip War – and the Challenge to Global Diplomacy

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On December 6, US President Joe Biden joined Morris Chang, founder of the Taiwan Semiconductor Manufacturing Company, in Arizona for a symbolic “tool insertion” ceremony to celebrate the latest step in the chip maker’s investment in a new factory in the US.

Chris Miller could not have wished for a better way to stress the timing of his book Chip war. On the eve of Biden’s visit to Arizona, Miller won the Financial Times Business Book of the Year Award. His book is a highly objective history of semiconductor development and how TSMC and a few other manufacturers dominated the global supply of advanced microchips.

Chang and Biden Featured in Arizona alongside CEOs of Apple and Nvidia, two of TSMC’s biggest customers. Companies like TSMC are facing multiple reasons to rethink the geography of their supply chains. And it’s not just politicians who are calling them out. . . But so are their customers,” Miller told the Financial Times this week.

Taiwan lies on geopolitical and seismic fault lines. Until recently, companies trusted that seamless globalized networks would underpin their supply of chips. But boards are suddenly concerned about the “risks of Taiwan”. They are considering the possibility Military confrontation between the United States and China It is grappling with the fallout from the trade war on chip development and offering.

Academics call this situation “interdependence as a weapon,” with Miller writing that “rather than defusing conflicts and encouraging cooperation,” the interlocking interests of economic powers create “new venues for competition.” Encourage more investment in domestic chip manufacturing, such as the United States and China European Union Trying to do with subsidies and tax breaks is one way to offset these risks.

This was not the “ill-considered assumption” with which Miller began work on his book five years earlier. He believed that the risk of “mutually assured economic destruction” would prevent the superpowers from using their position in the chip supply chain to put pressure on each other. And then, for the five years of writing it, it seemed like every day I read the Financial Times and there was a new terrifying data point coming in, suggesting that wasn’t the case.

For example, the pandemic has had a significant impact on the demand for chips used in the automotive industry and other industries, causing shortages and confirming dependence on manufacturers such as TSMC, South Korea’s Samsung. The Russian invasion of Ukraine undermined expectations of geo-economic stability. Only in October Chip war It hits bookshelves, United States Enforce export controls On China, to slow down Try to be self-sufficient in the advanced semiconductor industry.

Miller explains the main difference between the concept of mutual assured destruction that preserved the nuclear peace during the Cold War and the economic version. There is a very clear limit to nuclear use. [The weapons] They are used or not used, while in the economic interdependence space, there is no limit to that [shows] You’ve crossed the line. And in fact, there are a lot of different lines one can cross.

Miller, an economic historian specializing in Russia, began examining the gulf that opened up between the American and Soviet militaries in the 1980s, in part because of the former. Semiconductors superiority. He shifted the focus of his work when he realized that “the key technology enabling the military regimes that convinced the Soviets they were losing the arms race was also the key technology regulating the competition between the United States and China today.”. The fact that China was spending more money importing chips than it was spending on oil—a data point so striking that a bewildered Miller downloaded it from the United Nations Trade Database several times to verify it—fueled his interest, even though he started out with no knowledge. deep technological.

But Chip war It is more than just geopolitical and technological history. It’s also the story of notable innovators and entrepreneurs, like Chinese-born Zhang, who fled to the US via Hong Kong, and rose through the ranks at Texas Instruments, a leader in early chip technologies. Chang proposed the idea of ​​a world-changing chip “foundry” in the 1970s, making semiconductors for multiple customers. TI rejects the plan and later thwarts Chang’s ambition to become CEO. As a result, it was eventually in 1985 when the Taiwan government called and gave him a blank check to develop his idea for a foundry there. It is now becoming increasingly difficult for competitors to rival TSMC’s success, sophistication and the enormous scope of its creativity.

Miller wonders what would have happened if Chang had become CEO of TI instead. “I think it’s easy to imagine the ways TSMC could [by now] He stands for Texas Semiconductor Manufacturing Company, he says. Another missed opportunity, says Miller, was the failure of American chipmaker Intel to build on its success in semiconductor innovation under another American immigrant, Andy Grove, its Chief Executive Officer. “Intel has been very strong for a very long time and hasn’t taken some of the risks that it needed to take,” says Miller. Missing a smartphone, for example, is missing early [artificial intelligence] Transformation of the industry, I think a little loss of Paranoia that made Groff an effective, if terrifying, manager. “

Miller, associate professor of international history at Tufts University’s Fletcher School of Law and Diplomacy, places great emphasis on the importance of often underestimated abilities, such as managerial excellence, Suppliers Manufacturing proficiency and efficiency. It was important in the race to secure semiconductor supremacy as the original breakthrough innovations, or the government support that encouraged them, he suggests.

For example, he singled out ASML, a Dutch manufacturer of very complex chipmaking tools. “They describe their job as managing a complex supply chain,” says Miller, which includes sourcing parts from other manufacturers. “They’re brilliant engineers. But in some ways the real brilliance is actually in assembling components that, when you say it that way, sound low value added.”. ” Indeed, ASML’s assembly ingenuity adds enormous value: The company’s most advanced ultraviolet lithography machines for etching the most advanced chips contain hundreds of thousands of tiny parts and cost $100 million a piece, according to Miller.

If anything, Miller says, he has become less sanguine in the past five years about how to reconcile the overlapping and sometimes contradictory interests of customers, manufacturers and governments in semiconductors.

In an effort to increase pressure on China over chips, the “fundamental problem” for US policymakers, as a semiconductor executive cited in the book puts it, is that “our number one customer [China] is our number one contender.” Miller says the Biden administration’s biggest challenge in chip diplomacy is convincing its allies that it can “balance security considerations with economic considerations,” when “there are voices on both sides of the issue — people are more concerned about security, people More concerned about keeping markets open.”

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It is possible that economic self-sacrifice risks preserving the peace between China and Taiwan and between the United States and China, says Miller, but “if you ask me how confident I am about that, I don’t see much reason to be so confident.”


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Analysis – Eastern Europeans Count Their Christmas Coins As Food Costs Rise By Reuters

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© Reuters. FILE PHOTO: People buy food at a market in Budapest, Hungary, on December 3, 2022. REUTERS/Martun Munos

By Krisztina Than

TIZZISLAR, Hungary (Reuters) – Consumers in Eastern Europe are saving enough to put their favorite carp and pork dishes on the Christmas table as food inflation, especially in Hungary and the Baltic states, outpace that in the broader European Union.

Eurostat data showed that food prices in Hungary were 45.2% higher in October than a year earlier, with 10 countries in the eastern EU facing food inflation of more than 20%. The cost of food was 33.3% higher in Lithuania and 30% higher in Latvia than in October 2021.

And while there are signs that general inflation has peaked in some countries, food prices are still rising strongly, adding to cost-of-living pressure and forcing central banks to keep interest rates high even as economies begin to slow sharply.

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Experts say domestic factors are exacerbating a global trend driven by rising energy and fertilizer costs, including lower food industry productivity in some former communist countries, heavy exposure to imports, and higher wages in tight labor markets.

In Hungary, a severe drought has devastated corn and wheat crops this year and caused animal feed prices to skyrocket, while a weaker forint has pushed up import costs.

On their farm in Tiszaeszlar, eastern Hungary, the Lajos Kander family raises more than 2,000 “Mangalica” pigs, a traditional breed known for its meat.

Kendrons usually grow corn and wheat and produce their own raw materials. But the drought has forced them to buy some fodder at the market, with Lagos Kander saying fall maize and wheat prices have nearly doubled since 2021.

“In 2023 we will face serious difficulties as we will have to buy feed and we will see what price we can make up for the lost amount,” he said, adding that energy costs, wages and veterinary medicine have also gone up.

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The farm pays 29 forints per kWh for power under a contract that expires December 31, after which the bill will rise to 138 forints per kWh. Fortunately, they do have some solar panels. Meanwhile, the annual cost of vaccinating pigs tripled to 4.5 million forints.

The Kanders raised prices by about 20-25%, but Lagos Kander said further cost increases would be hard to pass: “Companies have to swallow some of those costs…so we can work around this situation. And we might want to get 2,000 forints for a kilo of pig, (but) no one will buy it.”

Food is now the main driver of Hungarian inflation, which Thursday’s data is expected to show accelerated to 22.2% in November, with the removal of fuel price caps set to give another boost in the future.

Headline inflation in the Czech Republic slowed to 15.1% in October, but food prices grew, while in Poland, inflation in food and non-alcoholic beverages reached 22.3% in November, ahead of the overall CPI at 17.4%.

** For an interactive graphic:

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The governor of the Hungarian National Bank, Gyorgy Matulci, said on Monday that the inflation rate will be between 15-18% next year, with food accounting for more than 50% of other hikes.

He said that “Hungary’s food industry operates with unacceptably low productivity, monopolies, with a large share of imports and higher energy inputs”.

In Lithuania, a Baltic country whose small and open economies are vulnerable to the volatility of international commodity markets, central bank governor Gediminas Simkus struck a more optimistic note.

He said last week: “Next time, we will see that the monthly inflation will decrease slightly, because the peaks in the prices of raw materials and energy foodstuffs have already occurred and we hope that they will not be repeated again.”

Poor birthday

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Rising prices began to dampen consumption.

Food sales fell 5.6% in Hungary in October, as families faced annual increases of more than 34% for meat and fish and 80% for bread made savings. Meanwhile, Czech shoppers experienced a 105% increase in sugar prices while flour cost 45.4% more in Poland.

At a Budapest market, 75-year-old Eva Rasch said she could not afford the traditional festive meal of carp this year.

“This will be a poorer Christmas, as our pensions are small and we need to pay for utilities and medicines,” she said, adding that she and her husband live on pensions totaling 200,000 forints ($507.74) per month.

“We’ll have some gravy and stuffed cabbage and meat and roast potatoes at Christmas,” Ratch said. “I despair that this will continue, and for how long?”

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A survey by Barometr Providenta showed Poles will spend an average of 1,259 zlotys ($281) this Christmas, 307 zlotys more than a year ago, although nearly half of those surveyed said they would buy cheaper products to preserve on lower costs.

Inflation in Hungary is expected to start to decline very slowly in the first half of next year.

“There are still no lasting indications that inflation dynamics are improving in Hungary,” Goldman Sachs (NYSE) said.

** For an interactive graphic:

($1 = 393.9000 forint)

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($1 = 4.4741 zlotys)

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