Economic Policymakers Seek to Limit Coronavirus Damage

Here is today’s Foreign Policy brief: The U.S. Federal Reserve announces an emergency rate cut amid growing coronavirus fears, Trump speaks with a Taliban negotiator as a dispute threatens to derail U.S.-led Afghan peace efforts, and the European Union supports Greece as refugees gather along its border with Turkey.

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For the first time since the 2008 financial crisis, the U.S. Federal Reserve made an emergency interest rate cut of 50 basis points on Tuesday to mitigate the economic effects of the coronavirus. With rates now set at the 1 to 1.25 percent range, it was also the biggest single cut since 2008. “The virus and the measures that are being taken to contain it will severely weigh on economic activity, both here and abroad for some time,” Jerome Powell, the Fed chairman said.

But U.S. stocks fell after the news of the rate cut, which followed cuts by the central banks of Australia and Malaysia. As the coronavirus spreads around the world, investors increasingly fear a global recession. Outbreaks have already caused disruptions to supply chains, air travel, and tourism. Finance ministers and bankers from the G-7 countries released a statement on Tuesday pledging to take individual action, without providing details.

Will Europe follow suit? Christine Lagarde, the president of the European Central Bank, has indicated that it is increasingly willing to “take appropriate and targeted measures,” though those are limited, including monetary stimulus rather than cutting already-negative rates further. In Germany, top officials disagreed on Tuesday over a proposed stimulus package in response to the virus.

Pharmaceutical impacts. India, which supplies much of the world with generic drugs, restricted the export of medicines made from 26 active ingredients—including acetaminophen, used as a pain reliever and fever reducer. Indian pharmacists in turn rely on China for the ingredients. The move could affect supply of certain drugs in countries including the United States, which imports 31 percent of medicine ingredients from India.

Mapping the coronavirus outbreak: Follow our daily updates on the epidemic and how it is affecting countries around the world here.

Trump speaks with the Taliban. U.S. President Donald Trump held a phone call with Mullah Baradar Akhund, the chief Taliban negotiator, on Tuesday as a Taliban demand for prisoner releases threatens to derail U.S. peace efforts in Afghanistan. The conversation, believed to be the first between a U.S. leader and a top Taliban official, came days after the United States and the Taliban signed an agreement in Doha. But Afghan President Ashraf Ghani has refused to release up to 5,000 Taliban prisoners—an obstacle to talks between the Taliban and the government. Trump provided few details of his discussion with Baradar.

EU officials bolster Greece in border crisis. As refugees continue to arrive at Turkey’s borders with the European Union, EU leaders are backing Greece’s efforts to keep the migrants out. European Commission President Ursula von der Leyen voiced her support alongside Greek Prime Minister Kyriakos Mitsotakis on Tuesday. Meanwhile, Turkish President Recep Tayyip Erdogan’s strategy has put the EU in a bind: Diplomatic sources say that the EU is considering pledging even more aid to Turkey to host refugees, following the 2016 deal to stop arrivals in Europe, Reuters reports. EU interior ministers are holding an extraordinary meeting today to discuss the crisis.

Iran struggles to contain virus outbreak. Iran has now confirmed more than 2,300 cases of the coronavirus and at least 77 deaths. It is one of the largest outbreaks beyond China, and the high mortality rate suggests the number of cases may be higher. The virus has directly affected the government, with at least 23 members of parliament testing positive for the virus. Iran’s physical interconnectivity and its political and economic isolation pose unprecedented challenges—and U.S. secondary sanctions have hampered humanitarian trade and cut Iran off from vital medical supplies, threatening to turn a crisis into a catastrophe, Esfandyar Batmanghelidj and Abbas Kebriaeezadeh write for FP.

Protests in Chile. Nearly 300 protesters were arrested in Santiago, Chile, after demonstrators shut down some metro stations and bus lines and clashed with police. There were bursts of unrest in a few other cities. With the end of summer holidays, March is already a common month for protest in Chile. This year, it follows the demonstrations over inequality that raged until December and coincides with the 30th anniversary of the fall of Chile’s military dictatorship.

U.S.-China media wars. The Trump administration is capping the number of U.S. visas issued to five Chinese media organizations—known propaganda outlets. While the State Department wasn’t technically wrong to designate the media outlets as foreign missions, the moves could endanger U.S. journalists in China, Steven Butler argues in FP.

The Decline of Democracy?

Freedom House’s Freedom in the World 2020 report, released today, finds that democracy has declined globally for the 14th consecutive year. The setbacks include the world’s two largest democracies, India and the United States, where the Trump administration “has failed to exhibit consistent commitment to a foreign policy based on the principles of democracy and human rights.”

The United States’ Freedom in the World score has declined by eight points over 10 years to 86, putting it well below several of its usual democratic peers, as shown below.

The United States’ Falling Freedom Score

2009 vs. 2019: countries with scores within 3 points of the United States with populations of 1 million or more

Note: scores are on a scale of 0 to 100, where 0 is least free and 100 is most free Sources: freedom in the world 2020 by freedom house

The Vatican sought to reassure the faithful on Tuesday that Pope Francis is not suffering from the coronavirus amid the outbreak in Italy—the worst affected country in Europe. Due to an illness, the pope is skipping a weeklong retreat with senior officials for the first time in his papacy, raising concerns. “The cold the Holy Father was diagnosed as having is taking its course without symptoms related to other pathologies,” said Vatican spokesperson Matteo Bruni.

That’s it for today. 

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