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IMF warns emerging markets face rising volatility risks from non-bank capital shifts

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The International Monetary Fund (IMF) has warned that emerging markets have become significantly more vulnerable to global shocks, such as the conflict in the Middle East, due to a heightened reliance on volatile capital sources including hedge funds.

According to an analysis by the Fund reported by the Financial Times, this shift is intensifying pressure on emerging economies. Equity and bond purchases directed toward emerging markets have increased eightfold since the 2008 global financial crisis. Total capital inflows are projected to approach $4 trillion in 2025, with the vast majority consisting of debt obligations.

IMF data show that emerging market debt held by foreign investors has risen to an average of 15% of gross domestic product (GDP), up from 9% in 2006. Four-fifths of this capital is now supplied by non-bank sources, a share that has doubled over the past two decades.

“These flows are typically more volatile than bank flows and have become increasingly sensitive to global risk conditions,” the IMF report stated, as cited by the FT. “These risks have come to the fore in the context of the war in the Middle East.”

The Fund’s warning coincides with a period in which several emerging economies are struggling with the economic fallout of the Middle Eastern conflict. Since the onset of the war, the Egyptian pound has lost approximately 15% of its value against the dollar, as foreign investors withdrew nearly $8 billion in local market debt obligations.

The IMF emphasized that a sudden contraction in foreign capital could exacerbate external financial pressures, drive up borrowing costs, and trigger sharp currency devaluations. The institution noted that such conditions could lead to financial distress, negatively impacting economic growth.

The analysis indicates that hedge funds rank among the most unstable sources of capital. Following interest rate hikes in the US in 2022, a 7% jump in the VIX volatility index resulted in a 1.3% decline in the share of emerging market securities within hedge fund portfolios.

According to IMF estimates, direct lending to companies by non-bank investors has increased fivefold over the past decade, reaching levels between $50 billion and $100 billion.

In late March, Federal Reserve Chair Jerome Powell, speaking at Harvard University, stated that while current US public debt levels are manageable, federal borrowing projections are a cause for concern.

Separately, Olivier Blanchard, the former IMF chief economist and head of research, stated on March 13 that oil prices could reach $200 per barrel due to the impact of conflicts in the Middle East.

Diplomacy

CSTO strips Armenia of voting rights over two-year budget debt

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Members of the Collective Security Treaty Organization (CSTO) have stripped Armenia of its voting rights and its ability to appoint representatives to official positions due to a two-year debt to the organization’s budget.

Kremlin Spokesman Dmitry Peskov said, “This decision was taken based on the organization’s charter due to Armenia’s failure to fulfil its obligations for several years.”

Prior to the CSTO leaders’ summit in Moscow, Peskov had stated that member states would “react” to the Caucasus country’s non-participation in the organization’s activities.

Ahead of the Moscow summit, Armenian Prime Minister Nikol Pashinyan said his country’s “interest has run out” regarding the CSTO. Through his press spokesperson, he announced that he would travel to Türkiye on 11 November to attend the United Nations Climate Change Conference (COP31) instead of going to Russia.

The CSTO leaders’ meeting was held with the participation of Russian President Vladimir Putin alongside the leaders of Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan.

The leaders jointly took the decision to revoke Armenia’s voting rights.

At the conclusion of the meeting, the participants also signed a joint declaration.

The declaration stated: “We confirm our unconditional commitment to the goals set out in the CSTO treaty and charter towards creating favourable and stable conditions for the comprehensive development of member states.”

Pashinyan had frozen Yerevan’s de facto participation in the CSTO in February 2024, citing the organization’s failure to aid the Armenian side during the armed clashes in Nagorno-Karabakh in September 2023.

Having referred to the CSTO as a “soap-bubble alliance” since that time, Pashinyan accused the organization’s members of “planning war” together with Baku. He stated that Armenia would not return to active work within the alliance at least “over the next five years”, adding that he would welcome it if the country were expelled from membership.

Relations between Armenia and Russia grew tense once again in the spring of 2026, after Yerevan moved closer to the European Union (EU) and the Kremlin responded with a trade war.

In May, Pashinyan refused to travel to Moscow to attend the Victory Day parade and declared that he did not support Russia on the Ukraine issue.

In response, Putin called on Yerevan to determine its foreign policy course through a referendum, advising Armenian authorities not to forget the fate of Ukraine.

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US urges Russia to draft proposals for new European security pact

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The US administration has reportedly called on Russia to submit proposals for a prospective security treaty with Europe that would include measures to ease tensions between European nations and Moscow.

According to a report by news site Axios citing sources familiar with the matter, the US side conveyed the request during trilateral negotiations held in Abu Dhabi.

During the talks, US Special Envoy Steve Witkoff and Donald Trump’s son-in-law Jared Kushner suggested that the Russian delegation prepare a fresh proposal outlining its security concerns and demands.

The US delegation reportedly asked that this proposal clarify what kind of “symmetrical steps” Moscow is prepared to take to de-escalate tensions and “provide non-aggression guarantees to Europe”.

Another source familiar with the White House’s approach said the Trump administration aims to run the processes for a new European security architecture and a peace agreement between Russia and Ukraine simultaneously.

Under this plan, the actual implementation of the security understandings would take effect only after the signing of an accord ending the conflict in Ukraine.

Assessing the approach to the process, the source said: “[Ukrainian President Volodymyr] Zelenskyy will not agree to any compromise without knowing what will happen next regarding security guarantees. Putin also wants to see the exact same picture clearly. This is precisely why the security portfolio is so decisive.”

The same official noted that the US will not reach a security agreement with Russia without the support of Europe and Ukraine, adding that Washington will not grant Moscow veto power over European security decisions.

Vladimir Medinsky, aide to the Russian president and head of the delegation in the Ukraine negotiations, previously stated that the fundamental objective was building a comprehensive new security system in Europe.

Medinsky noted that the structure in question must take on the character of “a fair, new, modern Yalta and Potsdam that carries the spirit of Helsinki 1975 and responds to contemporary realities”.

The Russian official argued that if such a system were established, peace lasting for decades, or even centuries, could be secured in Europe.

Russian Foreign Minister Sergey Lavrov also announced that Moscow possesses its own position paper on how a new security architecture in Eurasia should take shape.

Lavrov stated that Russia hopes the Washington administration will “maintain its determination to pursue dialogue aimed at achieving an honest balance of interests where nobody’s security is impaired”.

Russian authorities have repeatedly stated that the country has no intention of attacking Europe.

Pointing out that they have no reason to fight NATO countries, Russian President Vladimir Putin previously said: “We have no interest whatsoever, neither geopolitical nor economic, political nor military.”

In a statement in October, Putin said Russia has no plans to attack anyone “in 2029, in 2030, or in the year 2050”.

On the other hand, Putin claimed that “all NATO countries are fighting Russia” and stated that the Russian military is currently the most combat-ready armed force in the world.

Following the contacts in Abu Dhabi, Kushner announced that he and Witkoff would travel to Moscow.

Explaining that they plan to meet Putin during the visit to discuss European participation in negotiations aimed at resolving the conflict, Kushner argued that the parties could make “far greater progress” if the Russian leader consents to such involvement.

Yury Ushakov, aide to the Russian president, stated that the US special envoys will arrive in Moscow on 12 November, with the planned meeting with the Russian president scheduled for the first half of the day.

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Vance leads indirect push for US-Iran ceasefire and nuclear talks

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US Vice-President JD Vance has been personally involved over the past two weeks in indirect talks with Iran aimed at securing a fresh ceasefire and restarting nuclear negotiations.

According to Axios, Vance’s intense engagement indicates that he has taken it upon himself to extract the US from the conflict, which he views as responsible for the Republican Party’s shocking losses in this week’s elections.

This elevates the latest round of indirect talks to the highest echelons of the administration.

US officials and regional sources state that Trump is currently willing to let diplomatic efforts run their course to see whether any agreement is achievable.

Asked by reporters on Friday what his message was to Iran, Trump said, “We are talking to them.”

According to sources with direct knowledge of the matter, Vance speaks almost daily with Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani, Pakistan’s Chief of Army Staff Field Marshal Asim Munir, and other mediators regarding the negotiations with Iran.

White House envoy Steve Witkoff and Jared Kushner, President Trump’s adviser and son-in-law, are also involved in the process.

Sources say Vance and the Qatari and Pakistani mediators have been discussing the possibility of holding a working-level technical meeting between the US and Iran in the coming days, though this has not yet materialized.

Before the war began in late February, Vance was among the most sceptical voices in Trump’s inner circle on the issue, advocating instead for a diplomatic solution.

In April, he led the US negotiating delegation at the Iran summit held in Islamabad and was personally involved in the talks that yielded a memorandum of understanding (MOU) signed between the US and Iran in June.

Vance subsequently headed the US delegation during a series of direct talks with Iran in Switzerland.

Two weeks ago, Vance sent a letter to Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, proposing that direct negotiations resume.

Rezaei is one of the closest advisers to Iran’s Supreme Leader, Mojtaba Khamenei.

Iranian officials noted that Vance’s letter generated positive momentum toward restarting talks.

On Wednesday, Vance said the war was the primary reason for the Republicans’ repudiation at the polls.

Sources involved in mediation efforts report that while progress is being made, the process is moving very slowly.

On Friday evening, the prime minister of Qatar said, “Over the past few weeks, we worked with our colleagues in the US administration who have a sincere intention to contain the situation and de-escalate. Thanks to them and the voices of reason in Tehran, we prevented the situation from spinning out of control.”

The prime minister added that discussions with the Trump administration continued following the midterm elections, though they were not as active as in previous days “because there are other matters.”

Nevertheless, he noted that the US intention to find a diplomatic resolution “remains ongoing” and emphasized that an agreement is possible.

On Friday morning, Trump and the Emir of Qatar discussed Qatari efforts to bridge differences between the US and Iran as part of an accord.

According to a statement from his office, Sheikh Tamim emphasized the necessity of “pursuing dialogue and diplomatic channels to resolve differences, prevent the region from facing further escalation, and ensure freedom of maritime navigation as well as the security of energy supplies.”

Separately, Trump confirmed on Friday that the US military conducted a strike on an anti-aircraft missile launcher on Qeshm Island in the Strait of Hormuz after it fired a missile at a US fighter jet.

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