Imagining recovery, while a pandemic rumbles on, is an ominous task. But governments around the world have been forced to contend with this challenge. Several African, Asian and Latin American economies were in precarious financial positions before the pandemic hit. Fluctuations in global commodity prices in recent years and mounting trade deficits had already forced several African countries to request the International Monetary Fund (IMF) for a range of support mechanisms including credit facilities. Debt was already reaching alarming levels. The pandemic made economic dependencies more salient, with Zambia plunging towards becoming Africa’s first pandemic-related private debt default.
The recent thrust of research championing possible convergence (often based on questionable and selective use of data) between ‘developed’ and ‘developing’ countries ignores the vast range of economic trajectories of former colonies. In slapdash cross-country economic studies, a strategic use of averages and unreliable categorisation is often used to draw generalisations about large-scale change. Sweeping claims made about a rising ‘developing’ world often fail to isolate China’s rise. There is rarely any acknowledgment that most countries’ economies remain undiversified and deeply dependent on foreign actors. The data used to make the case for convergence often relies on GDP and human development indicators, rarely mentioning let alone measuring the structural transformation of economies. Structural transformation remains one of the essential facets of economies that have ‘caught up’ historically. Whether countries can retain fiscal space after this crisis will inevitably depend on the nature of structural transformation and how that has shaped national growth and dependency within the global economy.
Surprise has been expressed that the responses of the so-called advanced countries (the US and the UK) have been so poor in comparison to some countries in the ‘developing’ world. A degree of condescension accompanies this surprise. Regions outside the West have had to contend with epidemics more regularly in comparison to some complacent Western countries. Populations, in Africa at least, tend to be younger, and there are a multitude of reasons why the effect may be felt stronger in one part of the world in comparison to another. Still, it is too early to judge performance, both because the pandemic is not yet over and because we do not have reliable data. Despite what seem to be positive responses in many former colonies in Asia and Africa, there remains a persistent structural weakness and dependence for most countries on North America and Europe (and the ‘risen’ China). But the challenge of dealing with a health crisis remains quite different from the threats of an economic crisis. And soon (if not already), both will have to be dealt with simultaneously.
Alice Amsden was conscious of the structural dependency of most countries on the West when she highlighted the Rise of the Rest (China, India, Brazil among others) in the early 2000s. Amsden was careful to distinguish a rising ‘rest’ (a set of industrialising economies) from the non-industrialised or de-industrialised ‘remainder’ (mostly comprising former colonies in Africa and Latin America). Thus, where many African countries (and other countries in the ‘remainder’) may have (for now) dealt with the health crisis of the pandemic, the economic effects are already more damaging. The ‘remainder’ – more than 103 countries – had requested the IMF for assistance in April, anticipating the recession that will inevitably follow.
The crisis reminds us that the IMF remains – for better or (mostly) for worse – the ‘lender of last resort’. Since the 2008 financial crisis, observers have been optimistic about a turn away from neoliberalism at the IMF. The IMF has been lauded for devoting attention to inequality and even industrial policy. Such optimism usually ignores that the IMF has allowed some dissension and debate historically without reducing its commitment to advocating neoliberalism. Some even argue that we are entering the era of a ‘Kindleberger trap’ when one order has run out of steam but a new order isn’t ready to replace it. Kindleberger argued that the global economic downturn in the 1930s was caused by the US replacing Britain as the largest global economic power but the US failed to assume Britain’s political leadership on the world stage. The result was the economic crises in the 1930s and the eventual war that followed. Whether China has replaced the US as the world’s supreme economic power is questionable and Chinese global political leadership has not yet matured. So there is reason to question the validity of this parallel and hopefully, we are far from a large-scale war (despite evidence of growing tensions between the US/China, India/China and in the South China Sea).
Regardless, there are few indications that China’s rise has prompted any re-think at the IMF in its continued commitment to neoliberalism and austerity. G20 countries have spent more than 10 trillion dollars on recovery and economic stimulus. In March 2020, as the US locked down, the Federal Reserve quickly launched swap facilities to extend liquidity in central banks in other OECD countries, Brazil and Mexico. This move was beneficial to many countries but also had the added benefit for the US government of re-asserting dollar hegemony. In comparison, African countries are unlikely to receive three percent of what they have requested to support their economic recoveries. For all of the IMF’s recent support of social spending to address the urgent needs of the health crisis in some Latin American and African countries, any future funding will likely be conditional on adopting austerity measures.
There has been some optimism about creating fiscal space for countries requesting support. IMF Managing Director Kristalina Georgieva recently asked G20 governments for their backing to boost global liquidity through a sizable allocation of special drawing rights (SDRs), as was employed during the financial crisis. SDRs are international monetary assets, based on a basket of currencies including the US dollar, British pound, Japanese euro and Chinese renminbi. Kevin Gallagher, Jose Ocampo and Ulrich Volz argue that while access to liquidity through SDRs are unlikely to be enough to stabilise the economies of many countries, they would provide essential short-term fiscal space. Chinese representatives, European countries, the Intergovernmental Group of 24 and other low- and middle-income countries were among those to support the issuance of SDRs. India and the United States were the two G20 members to block the vote.
India’s rejection of the vote reminds us of the salience of distinguishing between the Rest and the Remainder. As a major rising power, India’s progress has bolstered the optimism of those arguing for convergence. However, India’s vote has been equated with failing the developing world. India’s foreign policy has occupied an increasingly awkward position in recent years – of being a leading representative of developing countries and the Global South while also desperately arguing for a permanent seat at the United Nations Security Council. At the same time, India has increasingly pivoted to becoming an obedient ally of the United States, especially as border disputes with China have increased tensions between the governments of the largest populations in the world. Jayati Ghosh highlights India’s many motivations but all conflict with acting in solidarity with the Global South: counter China’s role, worry about the benefits SDRs may give Pakistan or support the US and perhaps gain priority access to the Fed’s exchange swaps. India – as a member of the G20 – was afforded some agency in negotiating its trajectory out of the crisis. However, the majority of countries will not be afforded the same agency.
As observers continue to glorify the impressive efforts of containing the health crisis in poorer countries in comparison to the shambolic efforts of the US and the UK governments, it is worthwhile to remember that limited structural transformation in most countries has contributed to continuing (though perhaps shifting) dependencies on industrialised countries. As the urgent need for fiscal space becomes increasingly salient, economic futures will remain partially dependent on decisions taken in the West (and the addition of a small number of the Rest).
Dr. Pritish Behuria is a Hallsworth Research Fellow in political economy at The University of Manchester’s Global Development Institute. His profile here. He tweets at @pritishbehuria. Photo by Christine Roy.