Hello and welcome to our NINTH weekly dark-mode/test Polycrisis Dispatch! There are also a bunch of folk on our Discord server (thanks Henry!) and we just had our first Zoom book club session. Next up is Planetary Mine.

This week we wrote a lot about Kenya’s tax protests but it became quite long, and then the disastrous US presidential election debate happened. The longer Kenya will likely be published with Phenomenal World next week. We’ve also included here some notes ahead of our Carnegie Endowment panel early next week with David Wallace-Wells & Noah Gordon. We hope you enjoy this email, and if you want to give us feedback, hit Reply or email us (Kate and Tim) directly.

KENYA: DEBT, AUSTERITY, AND DISAPPOINTMENT

Kenya’s prime minister William Ruto has achieved something difficult for the leader of a poor country: an audience with G7 heads of state, a visit to the US to address Congress, and airtime in the elite international media for something other than war, corruption or other crises. His messages often aligned with Mia Mottley’s Bridgetown Agenda in advocating for financial justice, climate action and strategic agency. And they seemed to gain traction; the two countries are co-leads of an international tax taskforce, and the “Nairobi-Washington Vision” released as part of Ruto’s DC visit last month sets out an agenda that includes “International financial institutions step up with coordinated packages of support so high ambition countries don’t have to choose between servicing their debts and making necessary investments in their futures.”

Reality is not there yet. Last week, popular protests against new taxes, mostly on everyday items, gained momentum. Authorities responded violently and by Tuesday had killed 23 people and injured dozens.  

On Tuesday, President Ruto blamed the clashes on "criminals" who "hijacked" the protests. The next day: "I concede," he said, in an address withdrawing the finance bill.

https://x.com/LarryMadowo/status/1805963560859676734

“It is a total admission that the young people of Kenya were right,” CNN’s Larry Madowo said from Nairobi.  

Ruto imposed austerity reforms that hurt ordinary Kenyans, with plans to introduce new levies on everything from bread and cooking oil to sanitary items. Some of these were rolled back last week but many day-to-day items were still set to become more costly for Kenyans before Ruto’s reversal on Wednesday.    

A New York Times story almost gets to the cause of the unpopular tax proposals: Kenya’s struggles to repay its external debt:  

“Thousands of creditors have replaced the handful of big banks in places like New York and London that used to handle most countries’ foreign debt. One of the most consequential new players is China, which has been lending billions of dollars to governments in Africa and around the world.[…]

“But [the IMF and World Bank], in turn, want the government to take steps, like raising taxes and cutting spending, to stabilize the country’s finances. In a nod to the toll such belt tightening would require, the recent agreement with the I.M.F. noted that the country also needed to strengthen its social safety net.

The question that is not considered by the NYT or by the IMF’s staff-level agreement signed earlier this month is how it will strengthen the social safety net while servicing debts, cutting expenditure and broadening the tax base. Now that increasing revenues from taxes has been mostly removed from the table, the austerity cuts to government spending will be even harsher.  But Kenya will avoid defaulting on its debts and thus retain access to global bond markets, at least in theory.  

Avoiding debt restructuring has a high cost; in February, the government issued a 10.735% bond to help repay the $2bn bond that matured this month – which was issued a decade ago at the relatively low level of 6.875 percent. Morgan Stanley analysts pointed out that almost half of countries issuing debt at above 10% rates end up defaulting – but who’s to say that not defaulting, and paying such rates is actually worse for the people of Kenya?  

Brad Setser noted that markets actually expected a restructuring of Kenya’s debt – but instead of seeking any concessions from creditors, the government and IMF agreed to just go hard on austerity. “Choices have consequences.”

Instead the IMF’s latest Article IV report was supportive of the Ruto government’s  Medium Term Revenue Strategy for fiscal consolidation as a means to getting its debt-to-GDP ratio down to 55% by 2029.  

BOOKCLUB!  

We had our first one this week; for Brett Christophers’ “The Price is Wrong”. Email us for access to the zoom recording, and also see Jeremy Wallace’s review, or get onto our Discord to discuss.

In July, we’ll read and discuss “Planetary Mine: Territories of Extraction Under Late Capitalism” by Martin Arboleda.  

Verso has generously given us a discount codes for you to buy either an EPUB or a physical copy of the book.
Polycrisis-30: 30% off any of the listed books
Polycrisis-40: 40% off if you buy 2
Polycrisis-50: 50% off if you by 3 or more
If you can get them from your local library, all the better. If you are broke or can’t obtain the book quickly for other reasons, just send us an email.

CARNEGIE PANEL NEXT WEEK  

Details are here. Noah Gordon, our moderator and host and Carnegie Endowment for International Peace’s acting director of climate, shared this excellent diagram which we have to reproduce:

“Carbon Tunnel Vision” - an excellent depiction of how not to think about climate change, by Jan Konietzko

Kate will share her thoughts about the varying responses from those  facing peaking and declining oil demand amid growing climate impacts - including “stranded countries”, the recent Hajj disaster, Guyana and what US shale gas developments and BP’s backtracking mean. Arising from many factors chiefly EVs, and two-wheelers displacing oil from cars, trucks. Also China’s energy security strategy (SPR and electrification).    

The accepted wisdom used to be that “all those people in India, China, Africa are going to want [ICE] cars”. Not so much now.  

It used to be that the cure for high prices is high prices – and, vice versa — but we’ve only seen it against a background of inevitable demand growth. For the first  time ever, ever, ever, the IEA warning of a massive oversupply by end of this decade. For as long as we can remember. their refrain has been to warn of under-investment, under-supply.  

Responses from producers? There are several types, each quite distinct and driven by the needs & function of the producing entity.  

 

Tim will examine developments in the Carbon Hockey Stick of Doom and the Solar Hockey Stick of Hope like 11c/watt cost of solar modules.  

 

China's technological dominance, of squeezing costs with process efficiencies. Result not of brute subsidies but 2010s industrial policy that created extreme competition and genuine process innovations as  local bureaucrats subsidized city-based innovation & production clusters, China now holds a lot of process patents (van Reenen).

Positive Implications:

Dark side of the hockey stick of hope:  

 

Geo-economics of hockey stick of hope

Thankyou for reading! We intended to keep this email for only a couple of dozen recipients, to see if we could sustain it, and to give us time to develop the tone and format. So it’s a little faster and looser than our Phenomenal World newsletters. If you’d like to invite others to join, please forward this email or share this link.

Kate and Tim