War in Ukraine: Need for a Negotiated Peace

Wars are prone to cause economic disasters across the nations. We did see this happen during the Vietnam war even to the mighty American economy. The ongoing war of Russia, the prime exporter of energy to Europe, with Ukraine, the known exporter of wheat and other important commodities to the rest of the world, is raising inflation globally.

Of course, even prior to Russia’s invasion of Ukraine, the world economy was already suffering from the impact of the Covid pandemic. It is just that this war has only further multiplied the disruption in the economy by resulting in higher commodity prices, disruption of trade, financial instability, and the suffering of millions of refugees, besides worsening international relations. 

This led to the IMF duly lowering the prospects for economic growth and raising the expectations of inflation for the second time in a row. The estimates of potential output are also placed below pre-pandemic expectations. According to IMF, inflation is expected to reach 5.7% in high-income economies and 8.7% in emerging and developing countries. This raise in inflation is said to be more a “demand-driven and persistent” phenomenon than a resulting feature of higher commodity prices. 

The central banks are today facing hard choices. The trade-off between inflation and growth has now become crucial to monetary policy. Major central banks have already started tightening their monetary policies. And India is no exception: in an off-cycle meeting to reassess the evolving inflation-growth dynamics and the impact of the developments after its usual quarterly meeting of April 6-8, RBI had raised the policy repo rate under the liquidity adjustment policy by 40 bps to 4.40% with immediate effect. 

Analysts are expecting RBI to be supportive of growth and hike repo rates gradually to ensure that going forward inflation remains within the target. There are, however, a set of economists arguing that the current inflation in India is not under the control of the monetary policy, for it cannot influence the price of agricultural goods or that of imported oil, and at best it may control inflation by curbing the growth of non-agricultural output. Hence for a lasting inflation control, they argue for a policy that places agricultural production on a steady footing. Amidst these challenges, the economic report of SBI places India’s real GDP growth at 7.5% for the financial year 2023. 

Again, all this is dependent on the hope that the war remains confined to Ukraine alone, that the tightening of monetary policy across nations is moderate, and that no new deadly variant of the coronavirus emerges. But if any of these hopes go awry, we might miss the road to that destiny which the world hoped to reach 25 years ago. 

Today, the twin shocks of pandemic and war are pushing the global macroeconomic indicators in disturbing directions, reminding us of what had happened during the 1970s. The ongoing war in Ukraine has already pushed food grain prices up by more than 25% in many African countries, for they depend on Russia and Ukraine for more than half of their wheat imports and is feared even to plunge the continent into famine.  This crowded environment with overlapping crises and disruptions—both economical and geopolitical­—indeed demands for a concerted effort from the West to work towards global peace. 

Though the situation is not ripe-enough to initiate negotiation with Russia because a “mutually hurting stalemate” is not yet reached, the West must nevertheless be ready with a negotiation plan for Ukraine to bargain for peace, should an opportune time arise. Such a plan should involve Russia, Ukraine, the US, the EU, and NATO rather than a simple bilateral negotiation. They must also remember not to repeat the mistakes they committed while drafting the 2014 Minsk agreement. 

Analysts expect that in all likelihood Putin may declare a ceasefire once he manages to seize more territory and then use the so frozen conflict to apply pressure on Ukraine from becoming a prospering democratic country moving towards EU membership. True, as on date the dispute over Ukrainian territory appears more like a hopeless game. But once negotiations start, zones of possible agreement are more likely to emerge. So, the West must widen the territory of negotiations by making more trade-offs possible so that an agreement could be arrived at. 

It is of course, for the Ukrainians to decide when to negotiate and what to negotiate for with the Russians and all that the NATO and its allies could do is facilitate negotiations to move forward to secure an acceptable peace. The US will have a major role to play in these negotiations by using leverage, for it alone can provide what Russia wants in terms of the security framework it is desiring to have, while simultaneously offering Ukraine the security guarantee it is rightly demanding. 

Importantly, the West must not derail the scope for negotiations with its bellicose rhetoric such as what has been witnessed in the recent past from a few of the British ministers. Instead, they, while continuing to put pressure on Putin through sanctions, fortifying Ukraine militarily, etc., must also offer him an acceptable way to retreat over. As CIA Director David Cohen opined, it is necessary not to get tempted to box Putin into a corner, for it may become catastrophic not only to Ukraine but also to the global economy. So, unless there prevail minimal levels of cooperation among the nations, we are unlikely to have a world that we all wish to live in.

 

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