Hunger or disease? Emerging nations face an awful choice as it’s nearly impossible to socially distance and get food
Emerging nations do not have the luxury the United States does of spending vast sums on stimulus measures to keep growth alive.
Though many rich economies have ground to a halt under strict lockdowns to contain the coronavirus, many low- and middle-income countries have decided they can’t afford an all-out fight. Brazil’s president has taken the most controversial stand against shutdowns, saying “we’re all going to die one day,” but he is not alone.
A recent study by UBS, the Swiss bank, found that emerging nations account for most of the “moderate” lockdowns and few of the “severe” lockdowns. India is a rare exception. On a 1 to 10 mobility restrictiveness score, India is in fact the only country in the world ranked by UBS at 10.
Meanwhile, in Turkey, people between the ages of 20 and 65 are still on the job even as confirmed cases soar. Pakistan has left open key export industries, including textiles. For nations that lack a social safety net, “full lockdowns will only lead to more hunger, starvations and death,” says Luhut Pandjaitan, a senior minister in Indonesia, which was slow to issue travel restrictions and stay-at-home orders.
So far, 90% of reported cases and deaths are in countries where the average temperature is under 17°C, and most of those are rich, developed countries of the Northern Hemisphere. The worst of the economic and financial fallout, however, is hitting the warmer nations of the emerging world, which is now expected to experience its first contraction in the post-World War II era.
The full economic damage has yet to be assessed, as growth forecasts for 2020 keep falling, but the financial carnage registers daily. While stocks in the United States have hit a bottom 35% below their all-time highs, this drop is similar to one in a typical bear market during a recession, and barely half as bad as in 2008. Six major emerging markets – including Brazil, Turkey and Mexico – have seen falls of more than 70% from their all-time highs, and many are trading below their 2008 lows. If there is any silver lining here, it is that the scale of these crashes suggests that markets have already “priced in” more bad news to come for the hardest-hit emerging economies.
This is only the eighth global recession in the past century, and it is confronting emerging countries with unique challenges. They don’t have the resources to match the enormous stimulus programmes that are preventing an even deeper recession in the developed world. Their crowded living conditions make it hard to slow the pandemic with social distancing rules. And if emerging nations do impose lockdowns, their weak welfare systems can’t support unemployed workers for long.
Emerging nations do not have the luxury the United States does of spending vast sums on stimulus measures to keep growth alive. They are announcing far more modest stimulus programmes amounting to 1-3% of their economic output, and some are puffing up the numbers by counting money they had already planned to spend before this crisis began. They are trapped, because if they borrow more heavily to spend more, they risk losing the confidence of investors, triggering a collapse in the currency and in many cases a financial crisis.
After a decade of weak economic growth, emerging nations entered the pandemic more vulnerable to shocks than they were on the eve of the global financial crisis. Before 2008, many of these governments had balanced budgets. Emerging economies were so healthy that there was talk that the International Monetary Fund would have to close its bailout operations for lack of customers.
But the balanced budgets have deteriorated into large budget deficits. Now spooked investors are fleeing to the relative safety of the US dollar, weakening the currencies of emerging economies – and further undermining their ability to pay their bills.
The result is an unprecedented rush for bailouts: In recent years, the IMF typically fielded 10 to 15 requests for assistance. Since the outbreak began, it has gotten requests from nearly 80 countries for emergency financial help, and the concern now is whether the fund’s $1 trillion dollar war chest is enough to cope with this crisis.
Global trade has also played a role: As it slowed after 2008, many large emerging economies like those of India, Indonesia and Brazil were partly shielded by resilient demand from domestic consumers. The pandemic has slowed international trade even further, and it has shut down domestic commerce as well.
In poor countries some two billion people face joblessness without benefits. Unemployment insurance in developed countries typically covers six out of 10 workers who lose formal jobs, compared with just one out of 10 in developing countries – where most people do not hold formal jobs.
As a result, many officials in the emerging world say they can’t simply copy the measures adopted in wealthy countries. Many emerging world leaders are counting on warm weather and youth to slow the contagion at their borders. Only about 10% of the population is older than 60 in the emerging world, compared with 25% in the developed world, so this advantage is real.
The tragedy is that emerging nations have little choice but to hope that natural forces will defend them. They can’t sustain a large population of idle workers, so many have accepted a grim reality. Given the unbearable pain shutdowns will inflict on their people, they can afford only a limited war to contain the pandemic.
The writer is an author and global investor. © 2020 The New York Times (distributed by The New York Times Syndicate)
DISCLAIMER : Views expressed above are the author’s own.