The coronavirus pandemic has produced a great unraveling. To counter its effects will demand great determination in 2021, 2022 and beyond.
Planning for this challenging global future needs to start right now — even though we do not yet know the full degree of the pain that the world’s citizens and their economies are set to endure in the immediate period ahead.
What the World Bank and IMF say
World Bank President David Malpass estimates that up to 150 million people are being plunged into extreme poverty this year, taking the global total to well above 800 million. By the end of 2021, the total could be far higher.
The IMF, in a bold declaration of wishful thinking, forecasts that the world’s economy will recover significantly in 2021 from its near-depression 2020 levels.
The Fund’s crystal ball tells it that the economic rebound will be due to the demise of the virus and the abundance of vaccines and effective treatments.
This optimism comes amid mounting evidence of a second virus surge set to force new lock-downs and further economic hardship in many countries.
Who is to say with confidence at this juncture that a third surge can be ruled out next year?
The great unraveling embraces a failure of multilateral strategic decision-making at the highest levels.
The Trump administration has led the charge as the great disrupter – attacking the World Health Organization, deriding the World Trade Organization, and failing to lead on multilateral financial responses.
Big contrast to the response in 2008
The onset of the global financial crisis in September 2008 saw the convening in less than two months of a Group of 20 summit meeting to determine collective international action.
This year, the Group of Seven has been in hiding. The finance ministers of the G20 have only met to take minimal measures to kick the can down the road. All they did was call for short-term deferrals in debt repayments by the world’s poorest countries.
Relaxed central bankers, distressed pensioners
Public spending deficits are reaching record highs in many countries. However, because interest rates are close to record lows, central bankers tend to be relaxed about this.
They also note that national debt service payments are quite low relative to overall government budget outlays. All might be well on this fiscal front if rates do remain so low.
However, tens of millions of pensioners who depend on yields from their fixed income investments are likely to face financial hardship.
Not a single government has yet addressed the financial distress of the elderly in high-income countries. This is a giant problem that may take a toll for years to come.
Meanwhile, in many middle- and low-income countries destitution, mounting refugee numbers, rising income inequality, deteriorating health conditions are among the consequences of COVID 19.
These are countries that are set to face international financial disaster.
The immediate multilateral response to this crisis has been swift: Giant lending programs launched by the International Monetary Fund, and rapid disbursing loans and grants from the World Bank. Debt is being piled upon debt across the universe.
A borrowing bonanza in the works
Take Zambia as an example. In 2012, with the encouragement of international financial institutions, the country went to the commercial bond markets for the first time.
Many other African and other emerging market countries went down the same road.
At the same time, many countries borrowed vast sums from China. Zambia is now facing debt default — many other nations will follow.
To be sure, with the pandemic destroying economies, emerging market countries desperately need more cash to service their existing outstanding debts.
China, for its part, is renegotiating some of its deals — but keeping all details secret. The 75 lowest income countries are being allowed by the G20 to defer debt servicing until June 2021. In contrast, the commercial creditors to these countries are not being generous.
Inevitably, IMF loans are being recycled by the recipient countries to pay off the Chinese and commercial creditors. Meanwhile, the citizens of the borrowing countries are receiving scant relief from the pandemic’s hardships.
Moreover, there is so much cash splashing about, that no doubt some governments run by kleptocrats are using the funds to add to the personal wealth of politicians.
Or, they are taking-in foreign aid designated for emergency healthcare needs and redirecting it to public sector projects that yield healthy kick-backs to top officials.
Moreover, the supply of medicines and medical equipment needed right now to counter the virus in many countries is the target of grand fraud and corruption.
The G20, the IMF and the World Bank at the global level, just like the EU and U.S. authorities at the regional and national levels, are pouring unprecedented amounts of money at the immediate COVID 19 challenge, hoping that somehow there will never be a day of reckoning.
These emergency responses are not only understandable, but laudable. There are no alternatives.
Planning the resistance
The time has come to put aside the crystal balls and the wishful thinking. Major national and international authorities have to forge systems of resistance against the after-shocks of the current strategies.
Because of the effects of Coronavirus, there will need to be a massive increase in foreign aid.
If this aid is not to be stolen, aid donors will have to work closely with civil society across the developing world and use in-country citizens to monitor the effective deployment of the aid.
What the IMF and G7 must do
The financial resources of the IMF will need to be hugely expanded. It has to develop systems to enable countries to stretch out their official debt servicing in return to being willing to be open to forceful IMF monitoring of exactly how the aid funds are used.
The G7, for its part, needs to hold a special meeting to find ways to convince China to become part of the international “Paris Club” of official creditors and agree to making transparent its loan arrangements with dozens of countries.
And work on the great resistance strategies for coming years, which must start now, needs to explicitly address the staggering prospects of income insecurity across the world, from the elderly in Western countries to the swelling ranks of the poor across the planet.
In many middle- and low-income countries destitution, mounting refugee numbers, rising income inequality and deteriorating health conditions are among the consequences of COVID 19.
Because of the effects of the coronavirus, there is a need for a massive increase in foreign aid.
The IMF will need to develop systems to enable aid-receiving countries to be open to forceful IMF monitoring of exactly how the aid funds are used.
If multilateral aid is not to be stolen, aid donors will have to use in-country citizens to monitor the effective deployment of the aid.
IMF loans are being used by the recipient countries to pay off the Chinese and commercial creditors.