Dozens of men and boys, covered head to toe in coal dust, stream in and out of the mine shafts bored deep into a mountain in northern Afghanistan.
In the mines below Nahrain in Baghlan province, children as young as eight work as labourers, loading the fossil fuel on to donkeys which carry it to trucks bound for Kabul. They work with no machinery or safety gear.
Thanks to the global surge in commodity prices amid the Ukraine war and Covid-related disruption, business is booming at Afghanistan’s coal mines. This gives the Taliban a crucial revenue stream as the militant group — after seizing control a year ago — seeks to revive an economy shattered by international isolation and sanctions.
“It was good luck for the Taliban that the price of coal immediately went up after they came,” said Malang, a 60-year-old man helping carry coal to waiting trucks.
Since the departure of Nato forces and the Taliban’s ousting of the western-backed government, Afghanistan has suffered a dramatic economic collapse. The economy contracted at least 20 per cent last year as the international aid that made up three-quarters of the previous government’s budget was halted and $9bn in foreign reserves was frozen.
To reboot the economy, the Taliban have aggressively increased coal exports, brushing aside environmental and ethical concerns in a bid to boost, control and tax trade in the commodity as well as other resources from minerals to fruit.
Much of the coal makes its way along precarious mountain roads to Kabul and on to Pakistan, from where some is sent to China. David Mansfield, author of a report on cross-border trade under the Taliban, estimates that coal exports to Pakistan have doubled to around 4mn tonnes a year since the group took power.
The previous government had begun work on a green transition, but the Taliban have embraced fossil fuels, according to Abdallah al-Dardari, the UN Development Programme’s Afghanistan chief. After the Taliban took over, the plans to green the economy “fell apart . . . People went ahead and started exploiting the coal mines [and] coal started booming”, he said.
The Taliban have so far proven surprisingly effective at controlling the trade, cracking down on rampant bribery and smuggling, said Mansfield: “We’ve seen a massive shift . . . The Taliban have been quite adept in terms of regulating and controlling [the] border points.” As well as boosting revenues, this has allowed them to consolidate power by preventing regional warlords and factions from having independent revenue sources, he added.
Although imports have fallen sharply, the UN expects Afghanistan’s total exports to increase this year to about $1.8bn from $1.2bn in 2019.
Afghanistan’s rich mineral wealth has long tantalised governments and investors. Some estimates put the total value of its vast reserves of everything from lithium to gemstones at as much as $1tn. But decades of instability have limited exploration and mining.
In 2007, the Chinese state-owned China Metallurgical Group Corporation secured the rights to Mes Aynak, one of the world’s largest known copper reserves. However mining at the site south-east of Kabul is yet to begin.
Workers carry coal by hand to a truck which will travel to Kabul © Oriane Zerah/FT
The Taliban funded their own insurgency partly by regulating and taxing trade in everything from precious stones, such as lapis lazuli, to the widespread opium poppy crop.
Nooruddin Azizi, Afghanistan’s commerce minister, said in an interview that Kabul was in talks with investors from China, Russia and elsewhere to strike mining and fossil fuel deals.
“The attention that the Islamic Emirate has given to trade is better than any of the previous regimes,” he said, using the Taliban’s name for Afghanistan. “We want to make economic trade separate from military matters. We don’t have any problems trading [with anyone].”
However, no large international deals had yet been finalised, he said, with mining activity still domestic and relatively small-scale. The mining ministry says 17 of 80 coal mines are operational, mostly in the north.
Mining is often brutal. In Nahrain, the miners — around half of whom appear to be teenagers or younger — work in precarious conditions for meagre pay.
Many have followed generations of their family into the mines, such as 35-year-old Najibullah, who started alongside his father and grandfather as a teenager. He has been joined by his 12-year-old son Noorullah.
Child labour long predates the Taliban but the number of children working the mines has reportedly increased as the economic crisis forces them out of school, analysts say.
“In Afghanistan, without this work there would be nothing,” said Atiqullah, a 14-year-old who said he started working in the mine when he was eight. “We have to come here, but who is happy working hundreds of metres down a tunnel?”
Mohammad, a 55-year-old farmer who started mining in Nahrain after flooding damaged his land, said higher prices meant miners’ earnings had effectively doubled since the Taliban took over.
“The labourers don’t care about politics,” he said. “They only care about having work and earning money.”
Esmatullah Burhan, the mining ministry’s spokesman, said more foreign investment and technology would improve working conditions and help curtail child labour.
The Islamists have pledged to stop exploiting one of Afghanistan’s most notorious resources and largest exports — opium poppies. The regime announced a ban in April, but experts say it is too early to tell if this will be enforceable. Cultivation more than doubled after the US invaded in 2001 after the 9/11 terror attacks, according to UN figures, despite the billions of dollars spent on eradication efforts.
With international banks largely unwilling to intervene because of sanctions, the coal trade is mostly financed through informal money traders, who charge high fees. But it remains economically attractive, particularly as alternatives disappear.
Mohammad Azim started trading coal after losing his job following the Taliban’s takeover, buying it at the mines in Nahrain and selling it on to Kabul. Export demand was extremely high, he said, adding: “If it keeps on going like this, I’m not sure Afghans will have coal left to buy in the winter.”
Original Article: ft.com
Japan Intervenes to Shore up Yen As ‘reverse Currency Wars’ Deepen
Japan intervened to strengthen the yen for the first time in 24 years as a trio of European central banks raised interest rates, underlining the disruptive impact of inflation on currencies and monetary policy.
Inflation’s rise to multi-decade highs in much of the world has led to sharp increases in borrowing costs, with foreign exchange markets whipsawing. This in turn has set off what economists call a “reverse currency war” in which central banks seek to shore up their exchange rates against the dollar, through intervention or interest rate rises.
The latest moves, which included rate rises in the UK, Switzerland and Norway, came a day after the US Federal Reserve drove the dollar higher by announcing its third consecutive 0.75 percentage point rate rise on Wednesday.
However, Turkey’s central bank moved in the opposite direction, continuing its unorthodox policy by slashing its one-week repo rate from 13 per cent to 12 per cent despite inflation rising above 80 per cent last month. The lira fell to a record low against the dollar.
As investors bet the Fed and other leading central banks will raise rates higher than previously expected to bring inflation under control, US bond yields have risen, boosting the dollar and putting downward pressure on other major currencies including the yen, the pound and euro.
“The Fed is really setting the pace of interest rate rises and transmitting pressure to other central banks via the foreign exchange markets,” said Krishna Guha, head of policy and central bank strategy at US investment bank Evercore.
The yen has lost about a fifth of its value against the dollar this year, lifting the price of imports and contributing to an eight-year high in the growth of Japan’s core consumer prices, which exclude volatile food prices, to 2.8 per cent in the year to August.
Masato Kanda, Japan’s leading currency official, said on Thursday that Tokyo had “taken decisive action” to address what it warned was a “rapid and one-sided” move in the foreign exchange market. It was the first time Japan had sold dollars since 1998, according to official data.
The move caused the yen to surge to ¥142.39 to the dollar in the space of a few minutes. In the currency’s most volatile day since 2016, it had previously hit a low of ¥145.89 after the Bank of Japan signalled it would not change its forward guidance about interest rates and stuck to its ultra-accommodative policy.
Citigroup economist Kiichi Murashima said that, even if the BoJ were to fine-tune its policy, it would not fundamentally change the broader picture of a widening gap in financial conditions between Japan and the rest of the world. “It’s very questionable how far the government can actually avert the yen’s fall against the dollar,” he said.
There have been similar concerns in South Korea about this year’s 15 per cent fall in the value of the won against the dollar, prompting speculation about a potential currency swap arrangement with the Fed, which Seoul denied on Wednesday.
Japan is now the only country in the world to retain negative rates after the Swiss National Bank lifted its own policy rate by 0.75 percentage points on Thursday, taking it into positive territory and ending Europe’s decade-long experiment with sub-zero rates.
The Bank of England on Thursday resisted pressure to match the pace set by other major central banks, raising its benchmark rate by 0.5 percentage points to 2.25 per cent and pressing ahead with selling assets accumulated under earlier quantitative easing schemes.
But it also left the way open to take more aggressive action in November, when it will update its economic forecasts and assess the impact of tax cuts set to be unveiled on Friday by UK prime minister’s Liz Truss’ new administration.
Norway’s central bank also pushed up rates by 0.5 percentage points, indicating smaller increases would follow until early next year. Pictet Wealth Management estimated central banks around the world had this week raised policy rates by a cumulative 6 percentage points.
Emerging and developing economies are particularly vulnerable in what the World Bank’s chief economist has described as the most significant tightening of global monetary and fiscal policy for five decades.
In an interview with the Financial Times, Indermit Gill warned that many lower-income countries could go into debt distress.
“If you look at the situation of these countries before the global financial crisis and now, they are much weaker,” he said. “If you go in weak, you usually come out weaker.”
The interest rate rises set off heavy selling in government bond markets. US 10-year Treasury yields, a key benchmark for global borrowing costs, soared 0.18 percentage points to 3.69 per cent, the highest since 2011. Britain’s 10-year bond yield rose by a similar margin to 3.5 per cent.
The volatility in the bond market also rippled into equities, with the European Stoxx 600 falling 1.8 per cent. Wall Street’s S&P 500 fell 0.8 per cent by lunch time, leaving it on track for its third-straight fall as traders bet on further big rate increases from the Fed.
Original Post: ft.com
Bank of England Lifts Interest Rates by 0.5 Percentage Points
The Bank of England raised interest rates by 0.5 percentage points on Thursday, holding out the prospect of a further big increase in November, as central banks across the world seek to bring inflation under control.
The rise, to 2.25 per cent, the UK’s highest level since 2008, came as central banks around the world tightened policy in the wake of a third successive 0.75 percentage point rate increase by the US Federal Reserve.
Switzerland and South Africa raised interest rates by 0.75 percentage points, while Norway increased by 0.5 percentage points and Japan intervened to strengthen the yen for the first time in 24 years.
The BoE’s move was smaller than markets had expected and sterling later cut its gains on the day against the US dollar, at around $1.13; it is still trading near its weakest level since 1985 against the US currency.
Central banks around the world are rapidly increasing interest rates as they seek to fight the worst bout of inflation for decades, with the Fed leading the charge. But the majority of the BoE’s Monetary Policy Committee resisted pressure to match the pace set by the Fed, reflecting worries about the state of the British economy.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that decision provided “reassurance that it is focused on the outlook for consumer price inflation and evidence of emerging slack in the economy, rather than with arbitrarily keeping up with the Joneses”.
The BoE said it now expected UK gross domestic product to fall 0.1 per cent in the third quarter of the year, compared with August’s forecast of 0.4 per cent growth. This would mark a second consecutive quarter of decline, cementing fears that the economy is falling into recession.
It also suggested it would wait until November, when it updates its forecasts, to take a firmer view of the new UK government’s fiscal policy, which will be unveiled in a mini-budget on Friday.
Even as the central bank seeks to rein in inflation, Kwasi Kwarteng, the new chancellor, is set to try and jump-start the economy with debt-financed tax cuts and an emergency plan to hold down energy bills.
The MPC said that, “should the outlook suggest more persistent inflationary pressures, including from stronger demand, the committee would respond forcefully, as necessary”.
Economists said this left the BoE’s path open to offset the tax cuts’ impact with a large rate increase at the November meeting. “In short, the Bank has indicated it will raise rates further to offset some of the boost to demand from the government’s fiscal plans,” said Paul Dales, chief UK economist at Capital Economics.
The MPC said the government’s energy price guarantee would lower inflation in the short term, with CPI now likely to peak at just under 11 per cent in October, earlier than expected — in contrast with previous private-sector forecasts of levels of around 15 per cent next year.
But it said inflation would hover around 10 per cent for several months, not necessarily low enough to dampen expectations of big price rises.
“Many of our members think that the peak [in inflation] will come next year and so may price accordingly, running the risk that inflationary expectations become self-fulfilling,” said Kitty Ussher, chief economist at the Institute of Directors.
In its deliberations on Thursday, the committee split three ways, with the majority — including BoE governor Andrew Bailey and chief economist Huw Pill — voting for the 0.5 percentage point move.
Three members — Jonathan Haskel, Catherine Mann and deputy governor Dave Ramsden — favoured a bigger, 0.75 percentage point increase, arguing that acting faster now could help the BoE avoid “a more extended and costly tightening cycle later”.
Swati Dhingra, a newcomer to the committee, favoured a more modest 0.25 percentage point move on the grounds that economic activity was already weakening.
The BoE also confirmed it would press ahead with plans outlined in August to reduce the stock of assets it had amassed under previous quantitative easing programmes. It is aiming for gilt sales of £80bn over the next 12 months, which would bring total assets on its balance sheet down to £758bn.
Original Source: ft.com
US and EU Step up Pressure on Turkey Over Russia Sanctions
The US and EU are stepping up pressure on Turkey to crack down on Russian sanctions evasion amid concerns that the country’s banking sector is a potential backdoor for illicit finance.
The US is focusing on Turkish banks that have integrated into Mir, Russia’s domestic payments system, two western officials involved in the plans told the FT, as Brussels prepares a delegation to express its concerns to Turkish officials directly.
The pressure on Turkey comes as western capitals pivot towards tighter implementation of existing sanctions rather than the imposition of new measures. The shift acknowledges that economic sanctions imposed after Vladimir Putin’s invasion of Ukraine in February failed to damage Russia’s economy as much as they had hoped. But they maintain closing off loopholes in the current measures will slowly squeeze the Kremlin’s financial lifelines.
“You’re going to see us kind of focus on financial sector evasion,” said the first western official. “We’ll send a message very clearly that, for example, third-country financial institutions should not be interconnecting with the Mir payment network because, you know, that carries some sanctions-evasion risks.”
“We need to close loopholes,” said a second official involved in this month’s talks between the EU and US on sanctions enforcement, citing Turkey as the major target.
In guidance issued on Thursday, the US Treasury department warned that non-US financial institutions risk “supporting Russia’s efforts to evade US sanctions through the expanded use of the Mir National Payment System outside the territory of the Russian Federation”.
It added that the US’s Office of Foreign Assets Control was prepared to use its “targeting authorities” — such as imposing blocking sanctions — in response to supporters of Russia’s sanctions evasion, including in relation to Mir.
Turkey’s president Recep Tayyip Erdoğan, whose country has been a Nato member since 1952, has pursued what he calls a “balanced” approach to the Ukraine conflict. His refusal to sign up to sanctions against Russia and a recent pledge to deepen economic co-operation with Moscow have alarmed his western allies. Erdoğan, who will meet Putin on Friday, said last month that there is “serious progress” on expanding Mir in Turkey.
Five of Turkey’s largest banks, VakıfBank, Ziraat Bank, İş Bank, DenizBank and Halkbank, are members of the Mir payment system, which was developed by Russia’s central bank as a domestic alternative to Visa and Mastercard.
Two of those — UAE-owned private lender DenizBank and state-controlled Halkbank, notorious for its alleged role in a scheme to evade US sanctions on Iran that dates back to 2010 — signed up to Mir after Putin launched his full-scale invasion in February.
İşbank said that its policy required “strict compliance with all applicable US sanctions”, adding: “We closely monitor sanctions and take the necessary measures to carry out Mir card transactions in compliance with this policy.”
DenizBank said: “We don’t execute transactions with sanctioned banks. We fully comply with international sanctions on Russia.” Halkbank, VakıfBank and Ziraat Bank did not respond to requests for comment.
Turkey’s foreign ministry said that while Ankara had a longstanding policy of only implementing UN-backed sanctions, “we have also been equally firm in our policy of not allowing Türkiye to become a channel to evade sanctions”.
As part of efforts to strengthen enforcement, Mairead McGuinness, the EU’s financial services commissioner, is aiming to visit Turkey next month, according to people familiar with the plans. A senior EU official said: “Commissioner McGuinness has recently visited a number of countries to discuss issues related to financial services, and the implementation of sanctions in particular, given Russia’s aggression against Ukraine.”
Wally Adeyemo, deputy US treasury secretary, wrote to Turkish businesses last month warning them of “Russia’s attempts to use your country to evade sanctions” and the risks of “conducting transactions with sanctioned Russian-based entities”.
Rolled out in waves of measures in the initial weeks after Russia’s invasion, western sanctions have sought to cut off Russia’s biggest banks, energy and defence companies and hundreds of senior officials and richest businessmen from the global market.
As part of the broader crackdown on sanctions evasion, western efforts will target individuals handling payments on behalf of Russians as well as businesses that have helped set up parallel payment networks for Moscow, according to one of the officials.
The EU and US will also target entities assisting Moscow with processing Russian export revenues or facilitating imports of industrial or defence products banned under western sanctions, the three officials said.
Other measures under discussion include targeting more individuals involved in Russia’s software, ecommerce and cyber security industries, two officials said.
In addition to Turkey, the crackdown on potential back doors for sanctions evasion is targeting countries in the Caucasus, central Asia and the Gulf, officials said. “Russia will try every door. And every country needs to be mindful that we will track that and talk to them,” said James O’Brien, sanctions co-ordinator at the US state department.
Original Source: ft.com
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