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Punitive Sanctions Destabilize Societies 

Aklog Birara ( The Author)

Aklog Birara (Dr)

Part three of five 

I often ask myself the question of whether the Post-World War II international order is suited for a rapidly changing 21st century Africa? Africa is home to 1.3 billion people. Africa hosts a youth population. Its GDP is over three trillion dollars. It is home to rare minerals that the global economy needs. Tens of millions in mineral rich Democratic Republic of the Congo (DRC) have been suffering for decades with the Western world lending deaf ears and blind eyes to human tragedy.  It is about time to ask why this is the case. 

Africa deserves representation in the UN Security Council. The global governance architecture dominated and dictated by the West—the UN system and governance, fair trade, the COVID-19 Pandemic, illicit outflow of funds, migration, punitive sanctions and asset freezes, climate change and the like must respond to the needs, hopes and aspirations of more than one billion three hundred million Africans. 

My thesis is that punitive sanctions do more harm than good. Seizure of financial assets harm the poor and not elites. For example, the $7 billion taken from Afghanistan denies poor Afghan children who need nutrition. It also emboldens terrorists and undermines the rule of law.  

The independent journalist and Contributing Editor to the Black Agenda Report Ann Garrison wrote an outstanding analysis under the topical title “Sanctions: a sanctimonious word for economic warfare and outright theft,” March 9, 2022. 

“The U.S. claims the right to sanction, to steal from other nations, with one-third of humanity suffering from these crimes. Sanctions are war by other means and cause great suffering around the world. The word “sanctions” emerged in the Middle Ages, meaning ecclesiastical decrees. Today it is a sanctimonious word for economic warfare, including even outright theft. Despite all the terror about what could happen in Ukraine next, Afghans are still facing freezing cold, and starvation and the US has seized—not just frozen but seized—their $7 billion in assets on deposit at the Federal Reserve. And Ethiopia and Eritrea face brutal sanctions in House Resolution 6600.”

The good people of the United States have very little understanding of the debilitating impacts of American sanctions on humanity. Mothers, children, the elderly, low- and middle-income people who work hard each day to earn and buy a loaf of bread suffer most from sanctions. 

Garrison reports “The US has imposed sanctions on a third of the world’s population, most famously now on Russia, but more on developing nations than not. In mid-February a bill to impose new sanctions on Ethiopia and Eritrea, House Resolution 6600, moved out of the House Foreign Relations Committee onto the House floor. Then President Biden shocked the world by announcing that the US will keep the seven billion dollars on deposit with the Federal Reserve that it had seized from Afghanistan, distributing half of it to 09/11 victims who had sued the Taliban for damages and another half to humanitarian relief agencies in Afghanistan. An estimated two billion to three billion dollars more of Afghanistan’s cash reserves are now frozen in central banks in Germany, Switzerland, the UK, and the United Arab Emirates, and the US may have set a precedent that those nations’ governments will follow.”

Is this not a transfer from the have-nots of poor nations to the haves of the rich West? 

A flawed international financial system

How fair and just is a punitive sanction that harms the poor? What is the material difference between invading and occupying a country (Afghanistan, Iraq, or Vietnam) to achieve your goal and or sanctioning it and seizing its precious assets? The end game is the same. The USA left Afghanistan in tatters. Its institutions and economy are dysfunctional. Famine and starvation are real. 

The term “humanitarian catastrophe” has now become such a cliché that it understates the magnitude of the problem caused by punitive measures as well as by wars on tens of millions of people from Afghanistan, Eritrea, Ethiopia, Iraq, Syria, Yemen etc. to Ukraine. 

Who suffers in Afghanistan? Who suffers in Eritrea, Ethiopia, or Syria? It is certainly not the political elites who steal and run away. It is always the voiceless and powerless ordinary and innocent civilians who pay an immense price. Equally, wars diminish life and livelihoods. 

“After the seizure, on February 14, the Washington Post published an editorial by Tufts University professor Daniel W. Drezner, “The United States is stealing Afghanistan’s money, in which he wrote, “The United States has essentially forced everyone to witness the firepower of its fully operational machinery of coercive financial statecraft,” argues Garrison. 

Do ordinary Americans and the rest of the world know that seizure of assets by the government of the United States forecloses global economic recovery? The US “freezes” the financial assets of other countries like Afghanistan ($7 billion) and “spends it at will.” Is this not theft? 

The history of US sanctions and seizures of other countries’ financial assets is frightening. The US can do this without challenge. This is because it has a powerful military establishment. It controls the international financial and monetary system, including the Bretton Woods Institutions (the World Bank and the IMF)) in which it has veto power. The UN Security Council is the same. How many times has the USA brought Ethiopia’s domestic conflict to the Council? 

Garrison is right when she writes “They seized Libyan assets and have not given them back. The Bank of London seized all of Venezuela’s gold there, valued at $1.95 billion, and the US seized all their oil properties here in the US, all in the name of sanctions. The US captured four Iranian oil tanker s on their way from Iran to Venezuela, both sanctioned nations, then sold the $40 million worth of oil they were carrying and said the money would go to US victims of terrorism. But seizing Afghanistan’s $7 billion may still be the most brazen of these outright robberies yet.”

African youth know that Western monopoly capitalists exploit their natural resources and dominate their markets. They know the costs of structural adjustment lending by multilaterals and the debt burden this entails. They know that humanitarian and development aid is a software tool deployed by the powerful to entrap, appease and tame Africans and the rest of the global South. Powerful and wealthy nations and their corporations do these with ease because domestic thieves of state align with them. It is a form of organized plunder. 

There is little understanding of why multilateral institutions flourished and who they serve. Multilateral lending agencies, international institutions including specialized UN agencies are institutional mechanisms that support monopoly capital. The West exercises this monopoly and achieves its end game. The USA dominates and dictates Western policy. This is the reason they rarely protest when the US imposes punitive financial measures on poor countries. The rules of the game for managing financial and monetary policy, trade, migration and remittances, Foreign Direct Investment (FDI) have been set by the USA/UK led West, the Superpowers that shaped the post-World War II global order in which we live. The Boards of the World Bank and the IMF and other major multilaterals are dominated and guided by the West.  

This is the reason China, Russia, Iran, and other nations have been arguing for an alternative global governance model that is more balanced and fairer for less developed nations. 

Professor of Economics Jean-Claude Masawana of Ritsuniekan, Japan is on the mark when he tells Garrison “For a long time the US and UK have set the rules of how international trade and finance work. They granted themselves great privilege and the results are what we are seeing. Now the US has banned Russia from international banking transactions for invading Ukraine and blocked it from the SWIFT (Society for Worldwide Interbank Financial Transactions) system, which allows banks to rapidly relay information about financial transactions to one another. Without this, banks in one country have been only minimally able to do business with the rest of the world, but now, in response, the Russian and Chinese governments are escalating the development of their own financial information networks, Russia’s SPFS (System for Transfer of Financial Messages) and China’s CIPS (Cross-Border Interbank Payment System). And Iran particularly, but also Russia and China, have engaged in some forms of barter.”

The “arrogance of power” persists 

I remember a book by the late US Senator Fulbright who wrote the “Arrogance of Power” in 1967. The Chairman of the US Senate Foreign Relations Committee at the time, he became his country’s foreign policy public critic. In fact, he condemned it because it was a self-serving and arrogant policy. The war in Vietnam had angered and mobilized millions across the globe including America’s youth. 

As a junior in college in the USA, I was especially intrigued by Senator Fulbright’s formal accusation of America’s national character of arrogance, the proclivity to police the world and its utter disregard for the welfare of the rest of the world. He urged his government to put its own house in order—racial and gender equality, fair wages, income inequality, the concentration of wealth in a few hands. The war and destruction in Vietnam showed the ugly face of imperial America. The question today is: has that psychological make up changed? 

Senator Fulbright and hundreds of thousands of American youths opposed the war in Vietnam that had devastated the lives of millions of innocent civilians. It was the misuse and abuse of power that still resonates to this day. Who would blame China or Iran or any other country for seeking an alternative financial and monetary governance best suited for a changing global economy? 

Professor Maswana opines that “The US’s own misuse of power is at the same time making the US government nervous about the possibility that China may move ahead in a few decades and use similar tactics against US interests.” It is inevitable this will occur sometime in the next thirty to forty years. China is not yet at a level of financial and economic development to change global governance; but the indicators are there. Africa must join the march for justice and equity too. 

I agree with Jean-Claude Maswana’s response to Ann Garrison that “China has a trade surplus, which means they hold excess US dollars. They cannot hold those excess dollars, aka international reserves, unused. It makes most sense for them to invest it to earn interest, the same way we do with fixed term savings accounts. US securities are the only option available for China since their reserves are huge and interest rates provided by the US are highest. By earning extra money from US securities, China, which is still a developing country, can invest this extra income instead of borrowing the same amount from the IMF or World Bank, as most nations of the Global South do. China cannot turn its back on such a great opportunity.”

It is debatable this mutually beneficial relationship between trade surplus endowed China and capital destination USA will last. It depends on whether the Russia and Ukraine war eases and ends amicably. Regardless of the outcome, De-dollarization is an unstoppable trend that will happen even if the current war ends in peace. The current system harms Africans. They need better options. 

This takes me to HR 6600 that is pending in the US Congress. The bill proposes to impose more sanctions on Eritrea and Ethiopia, two countries that host millions of income poor people. The question here is whether this bill will let the US seize Ethiopian and Eritrean assets. It will. “The US imposed new sanctions on Ethiopia and Eritrea at the beginning of this year, and now there is a bill on the US House floor that would impose even more. So, given that the US just stole $7 billion from Afghanistan, I am wondering whether Eritrea or Ethiopia have assets in the US that are vulnerable to similarly shocking asset seizure. I inquired and determined that Eritrea has no assets here aside from its community centers and I am hoping that Ethiopia is no more vulnerable. I have inquired but without answer yet, and I am not sure it is a question they would want to answer,” asks Garrison. Professor Maswana responds affirmatively. 

“All countries have some international reserves that the US can freeze. Ethiopia and Eritrea trade with other countries and international trade is conducted in US dollars via the same international financial system currently used by the US to execute its sanctions on Afghanistan’s current government. Therefore, nothing would prevent the US from freezing assets of Eritrea or any country out of international trade for that matter, should they feel the need.” Eritrea and Ethiopia “have the International Monetary Fund’s SDRs (Special Drawing Rights), which can also be frozen. In Afghanistan’s case, there are about $370 million SDRs (Special Drawing Rights) not made available to the Taliban government.” 

The US dominates the international trade regime 

Financial sanctions serve as instruments in exercising the will of those with power. Countries trade goods and services with one another. The medium or mechanism of transaction between and among countries is principally the US dollar. If they wish to trade, countries must possess a reserve held by a bank or banks in another country. The US can leverage and often does leverage its powerful position concerning trade transactions by any country it targets. “Since they (the reserves) are in US dollars, the United States has the right to prevent any bank or country from using its currency outside that country. Any bank that disobeys will lose their right to transact in US dollars. In the case of Afghanistan, international financial institutions are refusing to wire money to Afghanistan, even in dollars, as payment for goods and services or whatever reason, because they fear that the US Treasury could sanction them for doing so,” says Masawana. 

If the bill passes into law, it will affect Ethiopia’s foreign trade. It will hurt ordinary Ethiopians including farmers. 

What is the implication of US sanctions on Ethiopia? 

“If Ethiopia wanted to pay a million birr to a Japanese corporation for products of an equivalent value in yen, would the US then ban the transacting bank from further exchanges in dollars?” The answer is yes. In the words of Professor Masawana who teaches in Japan “The Japanese bank would never engage in such a transaction. Period. It is difficult even for a large Japanese or EU bank to bypass the long arm of US enforcement, but Japan has been particularly subservient to the US since it was defeated in World War II. It is less likely than other nations to take that chance, even as Russia’s SFPS and Chinas CIPS become more usable.”

This analysis and conclusion inform the reader why the West led by the United States is determined to crush Russia. The motive behind goes beyond saving Ukraine. Differences notwithstanding, passage of HR 6600 will worsen Ethiopia’s fragile economy. 

Would the Afghanistan case of “freezing and then stealing or spending” the unfrozen assets for something else apply in the case of Eritrea and Ethiopia? I do not really know. But there may be claimants with American citizenship who may demand compensation in the same way that 9/11 claimants are doing in the US. The US will find moral, ethical, or political reasons to defend its policy. 

The broader African picture is worth keeping in mind. Anglophone and Francophone African countries keep billions of dollars of assets in Central Banks in the West—Bank of England, Banque de France, the US Federal Reserve. Safety and security drive this arrangement. African countries do this at their own risk. These assets may fall victim to seizure and to freeze in the event the depositor country misbehaves. This is the reason experts say that possession is 9/10ths of the law. You cannot revert to an international court of law because the US and its Western allies dominate and govern international courts. To whom do you revert? 

In summary, Superpowers such as the US get away with their misdeeds because there is no greater power over them to decide or to settle punitive sanctions. 

The tragedy is that it is the poorest of the poor, low- and middle-income citizens who suffer the most by punitive sanctions such as the passage of HR 6600.

Part four will discuss the implications of the war on migration and remittances.

References and citations 

  1. CNBC “The West is trying to destroy Russia’s economy. And analysts think it could succeed PUBLISHED THU, MAR 3 20221; THU, MAR 3 20222:27 PM EST, Elliot Smith @ELLIOTSMITHCNBC
  3. Sunset for U.N. Sanctions? How the world came to depend on U.N. punitive measures and why the enforcement system is under threat—the first in an FP series.
  4. United Nations, Punishment of ‘innocent civilians’ through government sanctions must end, say UN experts

Part I of the article is available HERE
Part II – HERE

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