OKON MIST

The Official Magazine of the Business and Economics Forum

OCTOBER’ 23
 CONTENTS
Around the Globe
Economics Behind Israel-Palestine
War
The Effect of the Middle Eastern
Economy's Transition from Oil to
Renewable Energy

Insights
Exploring the lush landscape of
green bonds
Special Purpose Vehicles
Hyperinflation
Inequality and Economics

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Economics Behind Israel-Palestine War
AND ITS IMPACT ON THE GLOBAL ECONOMY
While Israel and Palestine are at war, its
ripples can be felt miles away by nations
not directly involved in the war. The
catastrophic situation may result in a
negative impact on the wallets of Indian
citizens as well, despite India being
located 4500 Km away from the war
zone. This is because war-like situations
foster instability, followed by rising
volatility in the international market.
To delve deeper into the Economics
behind one of the greatest wars of the
modern world, it is essential to
understand how Palestine musters the
arms and ammunition to fight a war
against the most militarily advanced
country on earth, although Hamas has
been recognized as a terror outfit by
United States, United Nations, and
major international bodies. Palestine
could garner funds to the extent of
being able to trespass nearly 1,500 of its
terrorists across the Israeli border.
Hamas has two wings: a social and a
military wing. The military wing of
Hamas is recognized as a terror outfit
by other nations, while it's easier to
pass funds to Hamas through its social
wing, which claims to provide social
services to the people of Hamas, like
education and medical services. Iran
provides 70% of the funds to the social
wing of Hamas.
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Palestinian citizens seeking refuge
and job employment in other nations
also extend funds to the social wing of
Hamas. Countries like Turkey have
also joined the League of International
Bodies, providing funds to Hamas.
Moreover, Iran also provides military
aid to Hamas. International
supporters have openly claimed to be
funding Hamas through
cryptocurrency as well. From the year
2020 to 2023, cryptocurrency
accounts associated with Hamas have
raised around 41 Million Dollars in
terms of funding. However, it has
been claimed that the funds collected
for providing social welfare facilities
to citizens undergo mismanagement
and diversion, landing into terror
funding. Qatar has helped Hamas with
30 Million Dollars per month for the
past five years. The people of Hamas
have used these funds to establish
their weapon factories.
When major global economies get
directly or indirectly involved in a
war, its impact on the global economy
is evident. Thus, the impact of this
war on India’s economy can be felt in
the following ways:
a) Trade disruption
b) Inflation
c) Uncertainty
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Trade disruption:
The Israel – Palestine war will hamper
trade ties among nations. While the
Middle-Eastern nations back up for
Palestine, Western countries like the
USA are on the side of Israel. If the
Middle Eastern nations join hands and
become indirect participants in the war,
then this will also lead to a trade war.
These OPEC nations have nearly 30% of
the world’s oil reserves. If they hold
back their oil supply to counter-party
nations, the global economy will
experience an oil shock. Oil and trade
routes of other items, such as
agricultural produce, raw materials, and
machinery, will also be disrupted. Trade
partners will experience delays in trade,
alternative trade routes causing
increased transportation costs, rise in
the price of goods, and, thus,
inflationary situations.
Inflation:
Trade disruptions will lead to supply
crux followed by a rise in the price of
items in the domestic economy of the
impacted nation where consumption of
an essential commodity depends heavily
on imports. Oil price shocks, as
discussed above, will further heighten
the inflationary situation. Though in the
long run, economies may seek
alternative sources of fulfilling their
demand, in the short run, these shocks
together will cause high inflation in the
nation's economy.
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Uncertainty:
In a war-like situation with global
leaders directly or indirectly involved,
uncertainty in the market prevails.
Investors speculate greater risk is
concerned with the value of their
investments. Thus, they hold back
from investing their money in the
stock market. Foreign Direct
Investments and Foreign Institution
Investments undergo a correction.
This again casts a negative impact on
the economy.
During this war-like situation, the
global GDP growth rate has been
predicted to be as low as 2.9% by the
IMF. The global economic growth is at
levels lower than what it should
ideally have been. The increasing
tension between the nations will only
add to the miseries. Only if nations
act diplomatically and a solution to
resolve the tussle between Israel and
Palestine is sought would the global
economy be saved from the ills of a
trade war.
Rithika Singh
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 The Effect of the Middle
Eastern Economy
Transition from Oil to Renewable Energy
The Middle East is a region in southwest
Asia and North Africa. It is home to the
majority of the World’s largest oil
reserves, and oil exports play a vital role
in the economies of the majority of
Middle Eastern Countries. Oil and gas
account for over 70.56% of exports of
Saudi Arabia.
The growing shift from oil energy to
renewable energy is because of the
following reasons: Climate Change,
Energy Security, and Economic
Competitiveness. This shift from oil to
renewable energy sources will hurt the
economy of Middle Eastern countries
because it will reduce the resilience of
the export of oil products.
ECONOMIC IMPACT
In the area of economic impact, there
will be cases of both positive and
negative. The positive impact will be on
the countries importing the oil
products, and the negative impact will
be on the Middle Eastern countries
POSITIVE IMPACT ON THE ECONOMY
Renewable energy adds more jobs:
Globally, there is a rise in the number of
jobs within the energy industry, with
Asia responsible for about two-thirds of
these positions. The European Union,
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Brazil, and China emerge as the three
countries employing individuals in this
sector. Notably, around one-third of
all jobs in energy are specifically
related to the point, which is
experiencing rapid growth. To
accelerate the transition towards
energy production, it is crucial to
focus on markets. This necessitates
the implementation of policy
frameworks that prioritize worker
training and ensure that jobs offer
pay, high-quality standards, and
diversity.
Renewable energy can lower
consumer expenses
Renewable energy sources like wind
power are more cost-effective for
producing electricity than fossil fuels
like coal and natural gas. This is
because fuel prices are acceptable
with energy. As a result, consumers
may enjoy electricity costs thanks to
energy utilization. For example, based
on research conducted by the
International Renewable Energy
Agency, renewable energy could lead
to a 15% decrease in electricity prices
by 2030.
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NEGATIVE IMPACT ON THE ECONOMY However, although having differing
skill needs, this change also opens up
Reduced Revenue from oil and gas new work opportunities in developing
exports industries like technology, renewable
Based on the forecast for oil exporting energy, and others. The rate of
countries in the Middle East, Saudi change, governmental actions, and
Arabia's GDP growth is expected to the Middle East's capacity to adjust to
experience a decline this year, reaching the changing energy market will all
3.1%. For Gulf Arab economies, a impact employment in the region.
significant concern is the decline in
revenue from oil and gas exports. Conclusion
Government budgets are under strain, Positive effects of the Middle East's
which results in budget deficits and switch to renewable energy include
lowers their capacity to fund social and the development of jobs and cheaper
development activities. Gulf Arab power. However, it has drawbacks,
nations must diversify their economy to like decreased oil revenue and
lessen their reliance on exports of oil employment losses, which call for
and gas. This is difficult because the economic diversification. Middle
GCC's private sector depends mainly on Eastern countries should strategically
government-funded initiatives and diversify their economies to lessen
spending, which are ultimately reliance on oil and gas exports for
sustained by income from oil and gas. long-term viability as they struggle to
balance these consequences.
Losses of Jobs in the Middle Eastern
Economy
There have been employment losses in
the Middle East due to the economic
transition away from oil to other energy
sources. Global initiatives to lessen
reliance on fossil fuels, prevent climate
change, , and diversify energy sources
are the main forces behind this
transformation. Oil extraction, refining,
and related services are examples of
historic oil-dependent businesses that
are currently going through downsizing
and restructuring. As these sectors
contract and change to reflect the
shifting energy landscape, jobs are lost. Gokul K.

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 Exploring the Lush
Landscape of Green Bonds
Various articles like “Why is India
baking in February? Is it a sign of early
summer?” and “India should brace for
dry and hot spring-summer, El Nino”
made headlines in the summer of 2023.
As we face climate change, it is
important to acknowledge that extreme
weather events are becoming more
common.
The green bond market has grown in
recent years. Green bonds are the debt
securities issued by any sovereign
organizations, inter-governmental
groups or alliances, and corporations to
raise funds for projects that are
environmental and climate-related. In
Budget 2022, the Union Finance
Minister proposed to issue green bonds
as a part of the government’s total
market borrowing in 2022- 23. India will
likely borrow about Rs 20,000-22,000
crore through sovereign green bonds in
this financial year, higher than the Rs
16,000 crore in 2022-23. The largest
green bond issuer in India, Greenko
Group, funds hydro, solar, and wind
power projects in several Indian states
with its green bond proceeds.
The Securities Exchange Board of India
(SEBI) has defined where the funds
raised will be used for projects and/or
assets, which includes renewable and
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sustainable energy sources,
environmentally sustainable &
friendly transportation, sustainable
water and waste management,
adaptation to climate change, and
energy efficiency (green building).
Green bonds can potentially to attract
new investors who are conscious of
ESG issues. When compared to
conventional bonds, increased
demand for green bonds is anticipated
to result in increasingly beneficial
terms and a better value for the
issuer. Issuance of green bonds also
has a significant positive impact on
the reputation of the issuers, as it
reflects their commitment to the
environment. Issuance of green bonds
also has some downside; the issuance
and operating costs of green bonds
could be higher than those of
conventional bonds. The issuer bears
the additional cost of tracking,
monitoring, and reporting processes,
as well as an upfront investment to
design the bond's green criteria and
sustainability objectives. Additionally,
issuers may also have to encounter
penalties for a green default.
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There are various standards and
guidance sources for green bonds, such
as Green Bond Principles, Green Bond
Indices, and the Climate Bond
Standards. Investors have different
priorities for making investments in
green bonds, such as issuers' credit
rating, environmental objective, price of
the bond, third-party assurance, and
overall business activity of the firm.
In recent years, sustainability and
The green bond issuers must report on climate change have become
the environmental and social value significant global challenges. The
created from the projects regularly (at extent to which companies are
least once a year) during the life of harming or doing well for society and
green bonds. They should plan to the environment has received much
monitor and evaluate the process and attention from many quarters. India is
incorporate data collection techniques among one of the fastest developing
and key performance indicators (KPIs) economies. Therefore, its efforts
to track the environmental outcomes towards sustainability and climate
over time. Sometimes, issuers face change are going to have a major
accusations and reputational risk of impact on the world’s sustainable
‘greenwashing’ while issuing green development. The future of green
bonds. The greenwashing accusation on bonds will rest on good governance
the issuer may be due to various and political stability, developed
reasons such as unsustainable core capital markets, and investor demand.
business activities of the issuer,
proceeds are allocated for activities not
considered ‘green’ by investors, and
proceeds are not monitored and
managed properly. Issuers may avoid
this allegation by being transparent
with the investors through reports,
having an efficient measuring and
tracking process for the allocation of
proceeds and environmental outcomes,
and external assurance.

Abhishek Mandapaka

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 Special Purpose Vehicles (SPVs)
Special Purpose Vehicle (SPV) or Special
Purpose Entity (SPE) is a separate legal
entity created by an LLC or LLP to hide
the financial risks associated with the
organization. The creation of these
assets helps the organization reduce the
workload of acquiring several permits,
and it is easier to make than all the legal
formalities.
SPVs played a very important role in the
2008 financial crisis. It started in 2007
when banks started giving out house
loans to fulfill the American dream of
buying a house. What started as a good
task turned out to be very ugly. Seeing
the demand for loans, banks decided to
give out more and more loans to people
even with low credit scores. They
ignored the financial and employment
situation of the individuals. They
granted them loans at a minimum rate
of interest that multiplied several times
when people could not pay the interest.
Many defaulted on their payments,
which led to the ceasing or foreclosure
of numerous homes. Banks started
selling these risky loans in several
bundles, such as mortgage-backed
securities (MBS) and collateral debt
obligations (CDOs) to the investors,
transferring the risk of defaulting.
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Banks hid the more risky mortgages in
a less risky one and ensured to get
AAA ratings from the credit rating
agencies like S&P, Moody’s, etc. To
keep certain assets and liabilities off
the balance sheet, financial
institutions became more keen to
take on more leverage and risk. This
resulted in a lack of transparency, and
impossible to assess the true financial
health of these institutions. This
resulted in the collapse of not just big
investment banks such as Bear
Stearns, and Lehmann Brothers that
had to be bailed out and acquired for
pennies on the dollar but also the
entire stock market crashed.
Despite the major financial crisis,
SPVs remain quite relevant even after
so many years. These are still used to
create MBS and CDOs. These help the
companies to keep bankruptcy at bay.
It also helps in creating a pool of
investments and bundles into one for
easier management and distribution.
These are required at times for
certain tax or regulatory standards.
Unlike the 2008 system of rating
these vehicles, this can attract
investments and can be beneficial if
the ratings are true to nature.
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Nobody had predicted the 2008
financial crisis to be caused by SPVs
despite it being legitimate. Lack of
transparency still exists when it comes
to SPVs, which could put the investors
in the dilemma of buying or not buying
them. It is a complicated structure for a
common man to understand and make a
calculated decision of risks associated
with them.
Higher returns can lure investors if they
are not well acquainted with the nature
of the SPVs they are investing in. Lack
of quality SPVs can incur huge losses to
the investors that would result in a lack
of trust in these financial institutions.
Fraud and economic changes across the
globe can negatively impact the quality
and performance of these assets.
Therefore, it can still create a debacle in
the future if not operated in an ethical
manner.
An Asset Reconstruction Company buys
bad assets from the banks and other
financial institutions to clean up their
balance sheets. These help the banks in
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carrying out their normal functioning
rather than going after the
defaulters. The Securitization and
Reconstruction of Financial Assets
and Enforcement of Security Interest
(SARFAESI) Act, 2002 allows the
ARCs to acquire such assets. ARCs
have not deteriorated the SPVs as
they both have specific different
roles. SPVs still have significance in
the finance world and will continue to
impact the functioning of banks and
other financial institutions. To avoid
another major financial crisis, we need
to make sure that our mistakes are
not repeated. The businesses of these
institutions need to be carried out in
an ethical manner, otherwise, it can
end up crashing the stock market,
once again.
Preksha Anchalia
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 HYPERINFLATION

In the realm of economics, such as wages, taxes, or materials

hyperinflation is a term that strikes fear push prices and lead to
into the hearts of policymakers, hyperinflation.
economists, and citizens alike. It Unstable political environment:
represents an extreme and rapid Hyperinflation can be caused by
increase (monthly inflation rate of 50% political instability, as
or more) in the general price level of governments may be forced to
goods and services, leading to a loss of print money to pay for their
confidence in a nation's currency. debts or to finance wars.
Hyperinflation is a rare and very curious Low confidence: Low confidence
economic phenomenon. It's like a in the currency or government
runaway train speeding out of control. can lead to a rapid withdrawal of
Prices rise so rapidly that people can't money from the economy and
keep up. Their savings are wiped out, increased prices.
their businesses fail, and their lives are War: War can cause
upside down. when it occurs, its effects hyperinflation due to the cost of
can be catastrophic. In this article, we financing the war and the
will delve into the current trends and destruction of production. This
global effects of hyperinflation, can lead to high levels of debt
shedding light on the causes and and an increase in the money
consequences. supply.

Several factors can contribute to Hyperinflation is currently a

hyperinflation: problem in a number of countries
around the world due to a
Increase in money supply: An combination of economic and
increase in the money supply can political factors, including
cause a rapid increase in prices, Venezuela, Zimbabwe, and Sudan.
leading to hyperinflation. This can To provide a comprehensive
be caused by a central bank printing overview, let's enumerate countries
too much money or governments leading the list:
spending money they don't have.
Cost-push inflation: This is when
increases in the cost of production,

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Source: International Monetary Fund (IMF)
While hyperinflation is currently a
problem in several countries, its global
effects can be far-reaching. It can lead
to an increase in global inflation, as well
as a decrease in global economic
growth. This can have a ripple effect,
impacting other countries and leading
to a decrease in global GDP. Here are a
few of the most notable ways in which it
can affect the global economy:
Reduced trade
Hyperinflation can make it difficult for
countries to trade with each other. As
prices rise in one country, imports from
other countries become more
expensive. This can lead to a decline in
trade volumes and can hurt businesses
and consumers in both countries.
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Financial instability
Hyperinflation can lead to financial
instability in the global economy. As
investors lose confidence in the
currencies of countries with
hyperinflation, they may withdraw
their investments, which can lead to a
decline in the value of those
currencies and make it more difficult
for countries to borrow money.
Increased poverty
Hyperinflation can lead to increased
poverty around the world. As prices
rise, people's incomes lose value,
making it difficult for them to afford
basic necessities. This can lead to a
decline in living standards and can
increase the risk of social unrest.
In addition to these economic effects,
it can have some social and political
impacts. For example, hyperinflation
can lead to a decline in government
trust as people become frustrated
with the government's inability to
control inflation. Additionally,
hyperinflation can lead to an increase
in crime and violence as people
struggle to meet their basic needs.
Harsh Jajodia
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 Inequality and Economics

The economist John Maynard Keynes effective approach. Is it best to earn

once wanted to eliminate most money and contribute to charitable
economic inequalities. While this idea causes while providing opportunities
may sound appealing, the practicality of for others through education,
achieving such a goal becomes more training, and employment? Or should
complex upon closer examination. we restrict the free price and profit
system or abolish it altogether?
The notion of liberty and equality,
encapsulated in the French To address this issue, we must
Revolutionary slogan "liberty, equality, consider both practicality and
fraternity," can seem contradictory. morality. Are income disparities
Liberty allows individuals to make determined by the free price and
choices that lead to different outcomes. profit system arbitrary and
For example, if one person saves while inequitable? The answer lies in the
another does not, disparities in income fundamental economic principles of
may arise naturally. The question then supply and demand.
becomes: should we forbid such
discrepancies, and if so, how? Our incomes, whether large or small,
reflect our utility to society and how
History provides examples of societies easily others can find substitutes for
that attempted to enforce equality us. While some may argue that
through government intervention, such humans are not commodities, our
as the Soviet Union, which led to the labour, unlike ourselves, can be priced
rise of privileged enforcers and severe like any other commodity. This is not
human rights abuses. The pursuit of unjust; it is the reality of a market
equality has sometimes resulted in some economy.
of the darkest episodes in history, such
as the Khmer Rouge's massacre of Government policies aimed at
educated individuals in Cambodia and mitigating the commodification of
Stalin's extermination of the Kulaks. labour often backfire. Minimum wage
laws, for instance, can deter
Most people agree that helping those in employers from hiring and training
need is a moral imperative, but the young workers. Guaranteed
challenge lies in determining the most government income or free services

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like housing, food, and healthcare may
discourage people from seeking
employment, eventually straining the
system. Effective worker training can
only come from honest work, and even
the best education cannot replace real-
world experience.
Luck plays a vital role in life, impacting
factors like intelligence and wealth.
Economist Thomas Sowell emphasizes
that inequality is far more profound
when born with disabilities or into
abusive families. Equality of opportunity
means no societal discrimination, in line
with a free market where businesses
facing consequences for discrimination.
Pursuing complete economic equality
can be challenging, raising questions
about what aspects of life should be
equal. For example, should everyone
have the same level of medical care?
Medicine is complex and ever-evolving,
with diverse opinions on treatments and
approaches. Attemptso enforce equality
may stifle innovation and progress.
Economist Arthur Okun proposed a
compromise between complete
economic equality and economic
efficiency. However, manipulating
personal incomes, which function as
prices, will likely lead to unintended
consequences, such as wealth
destruction. Wealth is not something
that can be readily redistributed; it
must be created through hard work,
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investment, and oversight. Wealth
can be eroded rapidly through
taxation, particularly estate taxes,
which liquidate carefully chosen
investments, often made by
experienced and successful investors.
This trade-off is detrimental to the
economy because private investment
drives job creation. Further wealth
taxation could lead to market
collapses, with no alternative but
government ownership of assets, as
witnessed in communist regimes.
Milton Friedman and research by
David Dollar and Aart Kraay from the
World Bank suggest that countries
limiting the free market tend to
exacerbate wealth inequality.
Therefore, achieving total economic
equality through government
intervention is complex, and it may be
more effective to provide
opportunities and assistance while
maintaining a free price system.
Ghanendra Singh Ashia
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