Opinion | Coronavirus recovery: time for emerging markets to reject the rigged finance game

The rich do not fear inflation, but when food and energy prices rise amid massive monetary creation, the poor will suffer the most

If the world’s bankers refuse to think for their clients, emerging markets need to think for themselves

Reading Time:4 minutes

Child scavengers look for recyclable material at a landfill on the outskirts of Gauhati, India, on February 4. Photo: AP

Published: 5:45am, 27 Mar 2021Updated: 6:01am, 27 Mar 2021

“April is the cruellest month,” TS Eliot wrote in his 1920s poem, The Waste Land. Next month’s spring meetings of the International Monetary Fund and World Bank will be held virtually, locked down by the pandemic that is still raging worldwide.

The world is in a cruel situation. The uneven arrival of vaccines means a few rich countries get them first while the health and economic conditions of the many are dire. The latest OECD Economic Outlook suggests this year’s recovery will be divergent, meaning certain countries will do better while others struggle. That is polite language for devastation.

When the pandemic hit, developed countries spent roughly three times as much on stimulus packages as during the 2008 financial crisis. Poorer emerging market economies could not afford to print money to the same extent, but they witnessed considerable capital outflows.

According to the Institute of International Finance, emerging markets attracted US$313 billion in portfolio flows in 2020, 13 per cent less than the previous year. Furthermore, foreign direct investment fell 42 per cent from US$1.5 trillion in 2019 to an estimated US$859 billion in 2020, according to the Unctad Investment Trends Monitor.

With less export income as commodity prices tumbled, many developing countries face debt distress. In the past decade, the external debt of developing countries rose from US$4.5 trillion in 2009 to US$10 trillion, or 29 per cent of GDP, in 2019. Developing countries face repayments on their public external debt amounting to an estimated US$700 billion to US$1.1 trillion.

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