What we’re watching: Russia seizes Donbass province, Sri Lanka runs out of fuel, Argentina’s economy worries
Russia takes Lugansk
On Monday, Russian President Vladimir Putin declared victory in Luhansk province, eastern Ukraine, a day after Ukrainian forces withdrew from their last stronghold of resistance. Luhansk is one of two provinces – along with Donetsk – that make up the Donbass region, where Moscow-backed separatists have been fighting the Ukrainian military since 2014. Capturing Luhansk will free up Kremlin military resources to attack Donetsk, including around the half is now under Russian control. Seizing all of Donbass would be a big victory for Putin; some analysts to predict he could then declare a unilateral ceasefire that would end what he calls Russia’s “special military operation” in Ukraine, in the hope that over time, support from Europe and of NATO to the country and sanctions against Russia will decrease. For his part, Ukrainian President Volodymyr Zelensky admitted defeat but sworn continue to fight to reconquer the territory. Although that seems unlikely in the short term, perhaps Zelensky buys time so he can get more weapons from his Western allies to mount a counteroffensive against the Russians. Now that the war seems increasingly headed for a deep freeze in the Donbass, both sides are signaling that they want to play the long game against each other.
Sri Lanka comes to a standstill
Earlier this year, we warned that Sri Lanka’s debt crisis could become very serious. By this we meant that the island nation would default, cutting it off from the foreign credit it needs to save its economy from collapse. Since then, the situation has deteriorated both economically and politically, and now Sri Lanka is running out of fuel to keep the lights on in all but essential services. Monday, the country had less than a day’s worth of fuel, and the next delivery won’t arrive for two weeks. The government is scrambling to secure emergency supplies from Malaysia and Russia by tapping into a line of credit backed by India, the only country still lending to Sri Lanka. Meanwhile, schools are closed, people are to hit outside gas stations, and embattled President Gotabaya Rajapaksa remains holed up in his palace because protesters have blocked the entrance for two months. Sri Lanka last week ended 10 days of talks with the IMF without agreeing on a bailout because Colombo will not embark on tough reforms the lender is demanding to return the money. Honestly, we don’t know what’s next for the bankrupt country, but it’s not looking good.
The Argentine minister throws in the towel
In a move that will likely further destabilize a debt-ridden and inflationary, as well as politically divided, Argentina, the country’s economy minister resigned Saturday. Martín Guzmán’s departure was forced by differences within the ruling Peronista coalition: a leftist faction led by powerful Vice President Cristina Fernández de Kirchner wants Argentina to emerge from the economic crisis, while the moderate Guzmán had pushed for cuts imposed by the $44 billion. debt restructuring agreement signed earlier this year with the IMF. Guzmán is the fourth cabinet member to step down in 2022, which does not bode well for unpopular President Alberto Fernández, who will be re-elected next year. More importantly, Guzmán’s resignation raises questions about the future of the IMF deal and whether the government can do anything to bring inflation under control, which is expected to hit 70% soon. His replacement is Silvina Batakis, the former economy minister of Argentina’s largest and wealthiest province, Buenos Aires, who is more aligned with the vice president. Batakis has his work cut out for him: the most immediate task will be to stem the run on the peso, which on Monday crushed nearly 15% against the US dollar.