Tuesday, 1 September 2020

Can Western Nations Help the Global Economy?



Massive economic damage has already been caused to 1.5 billion people – half the global labour force – will become unemployed, with 500 million thrust back into poverty while 250 million could face famine. That’s a reversal of two decades of gains. The collapse of the global economy will seriously damage chances of recovery, hurting exports, disrupting supply chains and threaten the global financial system.

Developing countries are facing an awesome blow to their economies on three fronts:

1) Domestic economies and Lockdowns.

The majority – who work in the informal economy without regular jobs, employment rights or social benefits – have immediately lost their livelihoods. There are no government safety nets to pay their wages or prevent destitution. The result has been a rapid fall in economic output and a massive dislocation as millions who are forced to return to rural areas.

2) Collapse of world trade.

Without enough income from exports, many developing countries are facing a balance-of-payments crisis. Not enough foreign currency to buy the essential imports needed to keep their economies running.

In many cases this also causes a sharp fall in the value of their currency, making imports even more expensive. Most of the good jobs in developing countries are in the export industries, and from garment workers in Bangladesh, to copper miners in Zambia, they are being laid off in large numbers.

3) The world financial system.

Emerging market countries owe US$17 trillion to western investors, and many are already on the verge of default. Capital is fleeing developing countries at a faster rate than in the 2008 global financial crisis. The emerging sovereign debt crisis could paralyse foreign investment for decades and cause serious damage to global bond markets.

This economic crisis is not confined to one country or one region but is happening globally. Developing countries need immediate help in the form of a global plan that would target at least four main areas:

·       External funding to help pay for the massive economic stimulus packages needed to revive their economies. This in turn will reduce mass unemployment, poverty and starvation.

·       Help stabilise their currencies. The IMF already has requests for such support from 100 developing countries but needs to modify the strict conditions.

·       A temporary halt to the collection of foreign-held private debt to ensure an equitable sharing of the burden. Poorer countries, whose debts are mainly to western governments, need an immediate moratorium on such debt repayments.

·       Immediate assistance to strengthen health systems (especially public health).

According to Misha Ketchell (of The Conversation), the cost of all these measures could be US$2.5 trillion. There seems to be little recognition currently in the west of the disastrous consequences for their own economies in the event of a global economic collapse.

Global institutions that could organise the response but need increased resources – the World Bank, the International Monetary Fund and the World Health Organisation – are being crippled by western governments. This is especially the case with the US. Cutting off funding entirely or blocking others from raising additional funds is not helping anyone. Meanwhile, barriers to world trade have been rising as countries scramble over access to medical supplies and limit the export of food.

The unravelling of the world economy will dramatically increase inequality. A more equitable model of globalisation is needed, where the gains of trade are more evenly spread and where poor countries have a greater voice in running the world economy. The failure to do so will accelerate the decline in trust in governments both in developing and developed countries and encourage revival of xenophobia and extreme nationalism. That has devastating effects.


Reference:

Steve Schifferes, Developing countries are facing economic disaster: four ways western nations can support them to shore up the global economy https://theconversation.com/

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