A new United Nations report highlights divergent economic recovery between countries and places new urgency behind warnings that richer countries are not doing enough to help poorer countries fall further behind as the world recovers from COVID-19 disruptions.
“It’s really frustrating to see how the reactions to the pandemic have been quite diverse,” said Inu Manak, an expert on international political economy at the Cato Institute, a libertarian think tank in Washington, DC in the United States.
“During the financial crisis, there was a statement that all advanced countries were avoiding protectionism, but during the pandemic we saw a doubling of borders and an inward turn and a pursuit of independent rhetoric,” she told Al Jazeera. .
The damage caused by the COVID-19 crisis exceeded most of the world economy in the biggest recession of 2007-2009, but took over the developing world in particular, according to a new report (PDF) of the United Nations Conference on Trade and Development (UNCTAD) released on Wednesday.
The report found that developing countries (excluding China) would be up to $ 8 billion poorer by 2025 due to the coronavirus crisis.
The total cost of delayed vaccinations – in terms of lost revenue – is $ 2.3 trillion, and the developing world bears the bulk of the bill.
Even if there are no further shocks, a return to the revenue trend before the pandemic could last until 2030 — reflecting the weakest growth rate since the end of World War II.
The economic downturn of the pandemic has left many developing countries with fewer fiscal resources and greater debt burden. And for countries at the forefront of climate change, this cocktail has the potential to keep it out of growth and investment for years to come.
“The danger of a lost decade ahead remains a real danger,” Richard Kozul-Wright, director of UNCTAD for Globalization and Development Strategies, told Al Jazeera. “And so far, the discussion of reform of the multilateral system, in line with the financial crisis, has not happened, although the system is clearly failing.”
The group of 20 (G20) nations’ debt suspension initiative, which has poured about $ 13 billion into eligible developing countries, is “not nearly as necessary,” he added.
The much-needed funding for much poorer countries was updated last month when the International Monetary Fund (IMF) approved $ 650 billion in new special drawing rights SDRs, the IMF’s reserve currency that can be exchanged for hard currencies such as US dollars, and can help struggling nations get their hands on the necessary cash.
But the bulk of the new SDR allocation will go to richer nations because the SDRs are distributed according to the IMF quota of a country, which in turn is determined by a country’s position in the world economy.
‘We will still need debt relief and cancellation on a significant scale if developing countries can mobilize household resources to comply with the SDGs [Sustainable Development Goals]”Kozul-Wright told Al Jazeera.
The SDGs are 17 goals – with focal points that include education, health, nutrition and women’s rights – that the UN member states have undertaken to achieve by 2030. .
“To do so will require reforms to the existing multilateral financial architecture, and advanced economies will need to talk to developing countries about what this could entail,” Kozul-Wright said.
Inequality: Decades in the making?
Forty years of scaled-down government services, increasing inequality and impunity for financial and corporate elites have taken a huge toll on the world economy even before the coronavirus pandemic shut down the economy and halted global trade, the UNCTAD report states.
Growth after the constraint was largely concentrated in North America, which enjoyed close local trade ties, strong fiscal stimulus and monetary accommodation, according to the report.
“We have seen places where the pandemic has brought the economic collapse much more significantly, for example in the developing world than the developed world,” William Milberg, dean and professor of economics at The New School for Social Research, told Al Jazeera.
“And we see a recovery, in Europe, maybe in the US, in China, but we do not see the recovery in the developing world.”
This is the 40th anniversary of the UNCTAD annual report, first launched in 1981 – when the late US President Ronald Reagan was in office. Reagan was a proponent of neoliberal economic policies and free markets that promised to tame bubble inflation at home. But the localized agenda, said Kozul-Wright of UNCTAD, has global implications.
To curb inflation, US interest rates rose, raising the value of the dollar against other currencies. This has made it more difficult for poorer countries to repay their debt in dollars, which includes extreme austerity measures that would lead to a ‘lost decade’ of growth and development for countries caught in the maelstrom.
The cruel cycle of debt and austerity would resume during the global financial crisis.
‘The global financial crisis [of 2007-2009] exposed the dangers of this hyper-globalized system, and while reforms were promised at the G20 and elsewhere, the winners of this system resisted and instead demanded austerity to adapt the system in their favor, ”Kozul said. -Wright told Al Jazeera.
Praying: Bolder movements or ‘protectionism light’?
Although global growth is expected to reach 5.3 percent this year, the fastest in nearly half a century, the global picture after 2021 remains extremely uncertain, even in developed economies, according to UNCTAD.
But the tide may be turning.
Since the appointment nine months ago, US President Joe Biden has raised the historic levels of stimulus and extensive social protection programs, such as the child tax credit and food stamp benefits.
These developments are “financed by more progressive taxes” and break with “a long-term trend that has shifted revenue to the top and risk to the bottom of the revenue distribution,” UNCTAD said.
“We have come to the realization that a turning point in modern capitalism may be near on issues of inequality and the environment, and I think Biden’s policy position was quite risky,” said Milberg, who is also co-director of the Heilbroner Center. for Capitalism Studies at The New School.
“The Democrats on many economic issues have given up neoliberal positions and this administration acknowledges that this was not enough,” he added.
Internationally, Biden has called for a global minimum tax on businesses and a waiver of intellectual property rights associated with coronavirus vaccine in the World Trade Organization to increase vaccine fairness.
What remains to be resolved is trade relations between the US and the Chinese. If it can be resolved for growth in a joint way, then it is very hopeful, rather than a withdrawal and continued confidence in a more conflicting relationship, ‘Milberg told Al Jazeera.
But some economists say Biden is trading on its feet.
“We see trade policies of the Trump era and ‘protectionism light,'” said Manak of the Cato Institute. “We have not seen any proposed changes to the approach to China.”
One positive thing from the trade policy of the administration of former US President Donald Trump, was his proposed trade agreement with Kenya, which was intended to boost trade with Africa, Manak said, adding that this plan hit a wall has.
“Another way to help developing countries is to trade with them,” she said. “But we’re seeing a retreat.”