Emerging countries: back to the future? – 09/19/2022 at 08:38


After two years of mitigating the impact of Covid-19 on their populations, developing countries find themselves with accumulated debt and no room for maneuver to respond to this new crisis. (credit: Adobe Stock)

Rising debt, food and energy crises, inflation, rising interest rates: are we reliving the debt crisis of the 1980s, that lost decade of developing countries?

Let us remember: after the oil shock of 1973, developing countries attracted petrodollars in abundance. In 1979, the monetary reduction in the United States sounded the end of the game. Interest rates are rising, developing countries can no longer repay their debt and are forced into a painful austerity cure under the caudine forks of the IMF.

Isn’t the context today similar? The effects of the invasion of Ukraine on oil, gas, wheat, corn and fertilizers lead to higher food and energy prices, exacerbated locally by climatic disasters (floods in Pakistan, drought in Sahel) and conflicts (Ethiopia, Afghanistan, Syria). The poverty rate has increased for the first time in 25 years. Hunger affects one in ten people in the world, with a difference of one to two between West Asia (11.3%) and Sub-Saharan Africa (24.1%). After two years of mitigating the impact of Covid-19 on their populations, developing countries find themselves with accumulated debt and no room for maneuver to respond to this new crisis. Capital takes refuge in the United States, Sri Lanka declares itself in default of payment… will other countries follow?

However, the past does not repeat itself identically. The growth of the countries will be weak in 2022 or even 2023 but positive, following a recovery in 2021 interrupted by the invasion of Ukraine. Last July, the IMF forecast growth in emerging and developing countries of 3.6% this year and 3.9% for 2023. Many developing countries, particularly in Africa, are now producers of fossil energy or of mining products, in a situation of compensation by gains in these sectors, what they lose in cereal import costs. A country like Turkey, although dependent on hydrocarbons and Ukrainian cereals, was able to benefit from the relocation of value chains from Asia. And the worst has been stopped: the food crisis affects wheat and maize, which are traded on world markets much more widely than rice, which is produced mainly in developing countries and, above all, exported by very few countries.

In addition, lessons were learned on the responses to be made. The “Washington Consensus” has had its day: it is no longer a question of stabilizing the macroeconomic situation by indiscriminately cutting spending, but of preserving the future, social protection, health, education. Many countries (South Africa, Argentina, Chile, Brazil) now have social safety nets and business support measures during the pandemic, which have worked well. It seems that, for now, investors are reasoning country by country, without getting carried away by mimicry and financial contagion as during the Asian crisis.

There are even some glimmers of hope. The G20 before the invasion of Ukraine activated a temporary moratorium on debt service and set up a debt restructuring scheme for poor countries, including new creditors such as India and China. Last July, the WTO emerged from its lethargy by signing the five-year exemption from intellectual property rights on anti-Covid vaccines, the regulation of fisheries subsidies and the ban on restricting deliveries intended for the Program. world food. The IMF even aims to change its mission by engaging in long-term loans with the creation of a trust fund for resilience and sustainability, endowed with 50 billion dollars, which would finance poor countries over 20 years. The future is uncertain but suppose that it reserves us some good surprises.

Akiko Suwa-Eisenmann, professor at PSE, member of the Circle of Economists

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