Microsoft observed destructive malware in systems belonging to several Ukrainian government agencies and organizations that work closely with the Ukrainian government. The Microsoft Threat Intelligence Center (MSTIC) published a technical blog post detailing Microsoft’s ongoing investigation and how the security community can detect and defend against this malware. Microsoft shared this information over the weekend to help others in the cybersecurity community look out for and defend against these attacks. To read more visit Microsoft On the Issues.
First, the last few days have mostly been escalatory. The last week of meetings between the United States and Russia, as well as NATO and Russia, it's good that the sides are talking, but there was not significant progress. The Russians made very clear that if you want to have more talks, we need a very quick written response to the demands they made publicly. So, you wouldn't say that there has been anything that looks like a diplomatic breakthrough.
And on the other hand, the messages that have come from the Russians in the last few days have mostly been escalatory. There's been cyberattacks against a number of websites in Ukraine belonging to government organizations, direct malware attacks against the number of government agencies, almost certainly from Russia. You see the Russians sending a bunch of troops to Belarus for sudden and non previously announced military exercises right on Ukraine's border and also now moving personnel from Russia's embassy in Kyiv. These are all signs that the Russians want the rest of the world to see that they are planning significant military activities in Ukraine.
On the other hand, it's really a bad idea for the Russians to go in and the costs that they would incur, both because the Ukrainian population on the ground is hostile to Russia, and there was consideration when they occupied Donbas, about taking further territory in Ukraine and one of the reasons they didn't do it is because they understood that that was going to lead to significant ongoing fighting. It would be unpopular in Russia and there'd be body bags and nobody wants to see that.
Now Putin's in a stronger economic position today. He might think that Biden's a little weaker, might think he's a little bit less likely to respond strongly. There's a new German chancellor in place who wants to engage directly with the Russians. Merkel's not there anymore. So, I understand why there might be more willingness to escalate. But still, a decision to do a full-on invasion of Ukraine is the one thing that is certain to bring the Americans and the Europeans together.
The one thing that is certain to revitalize NATO, which is an organization that's been floundering around for a lack of a mission over the past years. They would have a mission. That mission would be very much to defend against Russia and both the economic sanctions as well as the NATO military response, terms of more exercises, troops in the Baltics, positioning of forces closer to Russia's borders. All of that, I think, is something that Putin really wouldn't want to see. Would be very reluctant.
So, I personally think that there is a lower likelihood of overall full-scale invasion, takeout Zelensky, the tanks roll into Ukrainian territory. But I also recognize that every sign the Russians are sending points to very significant escalation.
So, there are two really big questions that we need to ask. The first is, is there a deal to be cut? Is it possible that diplomacy could actually bear some fruit and we can deescalate this? And secondly, if not, how big does Putin go? So, on the first question, I think it's worth remembering that when Biden met face to face with Putin in Geneva, the one big meeting back in June, they spent about two hours together, that was mostly Biden's agenda and there was one thing that Biden really put as a top priority to the Russian president. He said, "I've got a red line. You guys are allowing these criminal syndicates inside Russia to engage in cyberattacks against American critical infrastructure. And that's not acceptable. And I'm going to give you a few months to address it. But if you don't address it, there's going to be hell to pay. There will be direct retaliation from the United States. This is a really big issue for me."
Now, Putin heard that and over the course of the last few months, the Russians have addressed it. There's been markedly fewer Russian attacks, cyberattacks. And I'm not talking state-sanctioned, I'm talking criminal organizations against US critical infrastructure. It's very clear that the Kremlin actually did send that message. And indeed, last Friday on the same day that the Russians decided to engage in cyberattacks against Ukraine, they also announced that they had arrested some 14 people that were involved with the organization called REvil, R-E-V-I-L, which is the organization that was behind the Colonial Pipeline attacks. And the Russians said that that organization had been disbanded. So at the very least, this is a direct message to the Americans that when you said you had a big problem with us, we responded. That's obviously some kind of an opening of, "We say we have a big problem on Ukraine. Are you going to respond?"
Now, that doesn't mean that there is an adequate response to be had. That doesn't mean that there is an easy negotiation to be had, that doesn't imply that we're suddenly going to have a breakthrough, but it certainly implies that the Russian president, who is the single decision maker in determining whether or not this becomes war, is interested in a potential climbdown.
And my argument would be yes. And now we see if the two so are going to move in that direction. So, that's the first point. I'm more optimistic than anyone out there, I think, I'm seeing in the media that there is a desire on the part of the Kremlin to actually fix this if it's fixable and it's about Ukraine.
With the Ukrainian president, that let's face, is not the favorite of the West. This is a guy that's been arguing strongly for NATO membership and a membership action plan that he would never get support from the United States and Europe. He's also someone that's planning trumped-up house arrest, it looks like, of the former president, a domestic opposition to Zelensky, the Ukrainian president. This is closer to the Russian rule book in terms of the way they dealt with Navalny and not what he should be doing or supporting at a time that his country risks being invaded. Neither here nor there. But all of that makes me a little more optimistic.
But what if it doesn't work? Then are the Russians going to do something? And I think the answer is yes and the question is how big they go. In other words, I don't think Putin's bluffing. I think if he's not given something significant by the West. If there isn't a deal to be had over Ukraine, then there will be escalation. I don't think they're just going to back down like Iran where, when we killed Soleimani and suddenly they said, "Okay, we're not doing anything. Sorry, that was a bluff."
I don't think Putin's bluffing. But I'm not sure that what he's planning on doing is this all-out invasion for reasons I've discussed. It's very expensive. It will be unpopular in Russia. It will bring together NATO. And long term, I think it's going to be a real challenge for Putin to actually be seen as having a success in Ukraine. But I think that there are lots of things that they can do that would be successful for Russia that are smaller, that would be problematic for the United States and its allies. They've talked consistently about military and technical responses if their concerns aren't addressed. Technical's fairly obvious, we're talking about much bigger cyberattacks against Ukraine, which could be economically devastating to the country, remember the NotPetya attacks years ago, which probably took 1% of GDP off of Ukraine and people died in hospitals when the hospital suddenly had lost their ability to have data and connectivity. Those cyberattacks were big problem.
And I think they would easily do that again. If they want to defend Russian citizens in the occupied Donbas, they could roll tanks in. They could formally take that territory. They could maybe even annex it. It's interesting to me, that Belarus, in addition to these new exercises, the Belarus president has organized a referendum to change their constitution for February. How do you like that? And the February constitution, that's obviously going to pass because Belarus isn't a democracy, two of the changes are that they are no longer formally neutral and they're no longer a non-nuclear state.
In other words, quite a coincidence. Huh? In other words, the Belarusians could easily invite the Russians to put troops on their territory, which is an advance location for Russia, vis a vis Ukraine and also Europe, Eastern Europe, and also could station nuclear weapons on their territory.
And then finally, we've seen the Deputy Foreign Minister of Ukraine talking about, "Well, how would you like it if there were troops in Cuba or Russian presence in Venezuela?" And I think the Americans wouldn't like it at all. And I think it's quite feasible that the Russians would engage in some form of military activity there and you'd see more Russian activity on America's borders.
So, I think there's a lot they can do and part of the problem there is that the Americans can respond unilaterally, but it's not at all clear to me the Europeans would be responding with the US in terms of tough sanctions, in terms of Nord Stream 2, and in terms of NATO prepositioning of forces in return. I think there's an open question as to how far the alliance would go and how much there'd be a divide, with the Europeans much more reliant and their economy is much more reliant, especially in the winter on Russia if the Russians escalate, but that escalation is not a full-on invasion of sovereign Ukraine.
So anyway, a lot to watch. A very significant set of activities, mostly being driven by the Russians at this point, and very dangerous indeed. And so quite a lot to start off our week. I hope everyone's well, and we'll talk real soon. Be good.
Right on the buzzer, Sri Lanka on Tuesday narrowly avoided its first-ever sovereign debt default. But the cash-strapped country is still on the hook for a lot more cash this year, which is shaping up to be a very painful one for low-income countries deep in the red due to COVID.
Sri Lanka is running out of money because its tourism-dependent economy was wrecked by the pandemic, and won’t bounce back until foreign visitors return in big numbers. Omicron is dashing hopes that’ll happen anytime soon.
The government is in a real fix. Two-thirds of its revenue is going to pay just the interest on its loans. Foreign exchange reserves were almost depleted before a $1.5 billion currency swap with China. Food prices are soaring. The value of the local currency has plummeted.
Sri Lanka recently even resorted to bartering to settle a $251 million loan from Iran with monthly shipments of tea.
Partly to blame is China, to which Sri Lanka owes an estimated $3.5 billion. Beijing is the country’s top creditor, accounting for 10 percent of the country’s debt. The Chinese are traditionally tough on restructuring — and always include onerous terms in the fine print in case they get stiffed.
The Sri Lankans found out about this the hard way. The country is often cited as a case study in the perils of China’s debt trap: in 2017 it was forced to give a Chinese state company a 99-year lease to operate a strategic port as collateral for defaulting on a $1.1 billion loan. Other countries like Djibouti, Laos, Zambia, and Kyrgyzstan — all of which owe China more than 20 percent of their GDP — are in a similar predicament, with little leverage and much sovereignty to lose.
But pro-China President Gotabaya Rajapaksa would rather ask Beijing for more money than the IMF for a bailout. The president and his brother, PM Mahinda Rajakapsa, say Chinese loans have been essential to rebuild Sri Lanka's infrastructure after 25 years of civil war. The duo swept back to power in 2019-2020 in no small part due to their promises to invest China's money in airports and roads to boost tourism.
This time, however, Sri Lanka avoided defaulting thanks to an eleventh-hour lifeline from India, China’s regional rival and eager to counter Beijing’s financial muscle in its own backyard. Still, borrowing from Peter to pay Paul is hardly a long-term solution to the country’s current debt crisis because most of that debt is in bonds held by international creditors who don’t play politics.
What’s more, Sri Lanka is not the only low-income country with big debt problems from COVID. The World Bank estimates that many of the world's poorest countries face an almost $11 billion surge in debt repayments in 2022 from the previous year.
Most of them were already highly indebted before the pandemic, and had to borrow even more (from China, international financial institutions, or capital markets) to weather COVID-induced economic crises. Even for those countries who signed up to a joint IMF/G20 plan to defer payments on their pre-pandemic loans, the extended grace period expires in December — when there will still be much uncertainty over their ability to repay all that accumulated debt.
While the vast majority of advanced industrial economies have almost reached pre-pandemic levels of growth today, the rest of the world is lagging behind. For low-income countries, sluggish economic growth means governments can't raise enough revenue from taxes to pay their debt. The longer their economies suffer, the harder it'll get for them to settle their bills — and the wider the gap with rich nations will grow.
Meanwhile, Sri Lanka is looking down the barrel of a gun if it doesn’t restructure its debt soon.
Printing money is out of the question because that would make already-high inflation skyrocket. Sri Lankan economists are asking the government to temporarily suspend payments, and use its scarce cash reserves to buy food, fuel, and medicine.
But the unintended consequences of a default could be far worse. It could trigger a bigger crisis by cutting off Sri Lanka from the international financial system. When foreign credit dries up, it’ll just be a matter of time before there’s a run on banks, and social unrest follows.
The pandemic has thrown many already-indebted countries further into the red. The problem is two-pronged for many Asian, African, and Latin American countries. They have taken on huge amounts of debt from the IMF to weather pandemic-related economic uncertainty, while also being caught up in a debt trap set by China, which funds large infrastructure projects in developing states but often with complex or misleading fine print. We take a look at which countries out of a group of 24 surveyed states owe China the most compared to their respective IMF debts.
Ukraine’s political woes. While Russia maintains tens of thousands of troops on the Ukrainian border, domestic politics in Kyiv are becoming increasingly contentious. This week, former President Petro Poroshenko — who was elected in 2014 after the Maidan Revolution ousted a longtime Putin ally and then defeated for re-election in 2019 — has now returned to Ukraine after a month abroad to face a host of criminal charges. Those charges include treason, an alleged crime related to his decision to sign government contracts to buy coal from mines held by Russian separatists in eastern Ukraine in 2014. Poronshenko, a businessman worth $1.6 billion, says the deal was necessary to keep Ukraine from economic collapse and that the charges are an attempt by current President Volodomyr Zelensky to distract from unfavorable perceptions of the country’s (currently lousy) economic outlook. He also calls it a manufactured crisis and a “gift” to the Kremlin, because it distracts from Russia’s ongoing aggression. Also, on Friday US Secretary of State Tony Blinken will meet Russian Foreign Minister Sergey Lavrov to continue talks on resolving the Ukraine standoff.
A plea deal for Netanyahu? Amid an ongoing criminal trial, Israel’s former PM Benjamin Netanyahu is reportedly negotiating a plea deal with the prosecution that could help him avoid jail time on a series of corruption and breach of trust charges. As part of the deal, the former PM would admit to some fraud charges, while others would be dismissed. Instead of prison, he’d face up to six months of community service. Several stumbling blocks remain. First, it’s unclear whether Netanyahu’s camp will acknowledge “moral turpitude,” a step that would bar the 72-year-old from running for public office for seven years. Even if both sides agree to the deal — which would include an admission of guilt from the former PM and current head of the opposition — the judge would have to issue a verdict and accept the deal, which some analysts and most Israelis say is too lenient. It’s a race against the clock: the current Attorney General wraps up his term in a few weeks. His successor might have a different view of this offer.Escalation in Yemen. The Saudi-led coalition has launched a barrage of attacks in Yemen just days after Iran-backed Houthi rebels launched a surprise drone attack on oil tankers in the port of Abu Dhabi. At least 14 people were reportedly killed on Tuesday when Riyadh launched retaliatory air raids against Houthi strongholds in Sana’a, Yemen’s capital. The Houthi port attack inside the UAE represents a significant escalation in the years-long civil war in Yemen, where Houthis have mostly targeted neighboring Saudi Arabia for its backing of government forces since 2015. An unannounced ceasefire between the Emiratis and Houthis had led to zero attacks inside the UAE from 2018 until this week. Though the Emiratis have scaled back their involvement in the conflict in Yemen in recent years, they continue to yield significant influence there.
Afghanistan has now become what the UN is labeling the planet’s worst humanitarian disaster. Indeed, last week the world body issued its largest-ever donor appeal for a single country to battle the worsening crisis there, caused by freezing temperatures, frozen assets, and the cold reception the Taliban have received from the international community since they took over last summer.
At immediate risk are 24 million people — more than half of the Afghan population — who need humanitarian assistance to survive. That’s an increase of 30 per cent from last year. Meanwhile, 700,000 people have been internally displaced by violence since 2021, mostly women and children. Afghans, already among the largest refugee populations in the world, are leaving in droves, but getting a cold reception in neighboring countries as well as in an uneasy Europe.
The regional stakes are getting higher. ISIS-K, an offshoot of the broader Islamic State movement that expanded to Central Asia and South Asia, remains a threat. Attacks by local Taliban in neighboring Pakistan are picking up. Iran, which houses remnants of the previous regime, is moving closer to the Taliban. Turkmenistan and Uzbekistan are exchanging threats with Kabul’s new rulers over military equipment or militant training camps, depending on who you ask.
But the economy needs more than rescuing. Atrophied by drought and COVID, it lies tattered by its dependency on foreign aid, which has mostly evaporated. The damage is worse than expected, for the country has suffered an immediate GDP contraction of an estimated 40 per cent since the Taliban takeover.
As the population approaches the mark of near-universal poverty, a liquidity crunch has paralyzed banking, health, and education. Public-sector employees haven’t been paid in months. Taliban soldiers, victorious in the battlefield, now protect ATM machines and food queues. The rich are selling their valuables. The poor are selling their organs. The destitute are selling their children.
Some claim that there’s a silver bullet available. If the U.S. releases the $7 billion of Afghan foreign reserves it still holds, and greenlights the Europeans to unfreeze the $2.5 billion held by them, then Afghanistan will be saved from starvation and death. But the problems ensnaring the country’s broken financial system are more complicated, and need more than just humanitarian aid.
US sanctions remain the single biggest question mark about how the world will deal with Afghanistan. For one thing, several Taliban leaders are still designated as terrorists, which means anyone who deals with them can be subject to criminal or civil penalties.
For another, the recent humanitarian exemptions granted by the US to get emergency aid to Afghanistan are not enough to address the larger problem: that Afghanistan remains cut off from the global financial system, which means that international bankers, investors, and even NGOs cannot get money into the country without violating US sanctions.
Also, the Taliban are still international pariahs. Though they have requested the unfreezing of Afghanistan’s assets, they haven't done much to gain international sympathy since they assumed power, and remain unrecognized diplomatically. They continue to deny women jobs and girls education, clamp down on journalists, and kill members of the former government.
Even if the sanctions are lifted and the funds are freed by some miracle of international consensus, the Taliban must ask themselves a tough question: do they actually have the capacity to emerge as rulers of Afghanistan and help their people?As the journalist and author Ahmed Rashid told our own Ian Bremmer: they can rule, but they can’t govern.
Hard Numbers: Chinese birth rates dip, Hong Kong culls hamsters, Barbados’ snap vote, Colombian leaders targeted
7.52: Birth rates in China dropped to a record low 7.52 per 1,000 people in 2021, down from 10.41 in 2019. This comes as the Chinese Communist Party is trying very hard to boost birth rates to revive a slowing economy.
2,000: Hong Kong’s agriculture department has asked pet store owners to hand in about 2,000 hamsters to be culled after a dozen of the rodents – which came from the Netherlands – tested positive for COVID-19. Most scientists say that in most cases, animals can’t infect humans.
145: At least 145 activists, including indigenous leaders and trade unionists, were killed in Colombia in 2021 amid ongoing fighting between warring militant groups. That’s down from 1,832 the year before, according to a new report by the country’s ombudsman. Most of the killings occurred in areas where drug trafficking is rife.
1: Barbados will hold its first election since becoming a Republic and ditching the Queen as head of state late last year. Mia Motley, the island's first female prime minister, is vying to win a second term.
China’s homegrown COVID vaccines were once crucial — but they're not as effective against omicron as mRNA jabs.
What's more, with with local cases near zero for the better part of the pandemic, most Chinese have no natural immunity. That could spell disaster for Beijing as omicron surges.
Yanzhong Huang, senior fellow for global health at the Council on Foreign Relations, warns that the highly transmissible new variant will make zero COVID harder and harder to sustain.
If China’s current strategy fails, it’s likely that Xi Jinping will have to pivot to one that favors living with the virus.
Watch Huang’s interview with Ian Bremmer on GZERO World: Omicron & the undoing of China's COVID strategy