Following a stand-off with commercial creditors and protracted but unresolved negotiations with the IMF, Zambia defaulted on its external sovereign debt on 13 November this year. While most commentary has focused exclusively on the government’s sovereign borrowing, our own research has detected massive outflows of private wealth over the past fifteen years, hidden away on an obscure part of the country’s financial account. The outflows are most likely related to the large mining companies that dominate the country’s international trade. With many other African countries also facing debt distress, the lessons of this huge siphoning of wealth from the Zambian economy need extra attention within discussions about debt justice in the current crisis. We explain here what we’ve found.
Zambia was already debt-stressed going into the COVID pandemic. The economy was hard hit following the sharp fall in international copper prices from 2013 to 2016, especially that copper made up about 72% of its exports in 2018 (including unrefined, cathodes and alloys). Following a severe currency crisis in 2015, the government entered into negotiations with the IMF but never agreed on a programme. There was some improvement in macroeconomic outlook in 2017 due to rising copper prices, which sent international investors throttling back into optimism. However, international investors again turned against the country in 2018 in the midst of the global emerging market bond sell off, which compounded the effects of severe droughts in 2018-19. As a result, the government was already teetering on the edge of default on the eve of the COVID-19 pandemic. The economic fall-out of the pandemic has since pushed the country over the edge (see an excellent analysis here).
By Mario Schmidt, Christiane Stephan, Kawikya Judith Musa and Eric M. Kioko
Panic! Rush! Empty sacks! Women running! Big cars passing by! Boom! All women stare at the same spot on the road: a car passing by. Within seconds, many of them rush towards it. One who was selling roasted maize, water and a few more goods leaves her place of work opposite the road and runs towards the vehicle as well. Panic and competition are in the air. Within a few minutes, the women come back, discouragement and lack of morale palpable in their bodies and faces. “What happened?”, one of those left seated asks. “The driver didn’t think we were this many, so he closed the car´s door and left!”
This scene gives insight into dynamic moments taking place along the roadsides of Nairobi’s affluent suburbs since the onset of the Covid-19 pandemic. It displays the intensified competition characterizing the job market for informal house helps looking for work and financial or material assistance. Suburbs like Kileleshwa or Kilimani present an unusual picture to those accustomed to see African cities through photographs of slums and shantytowns. Yet, here we have elegant residential areas mushroomed in leafy environments, roads with pedestrian walkways for cycling and jogging, cosmopolitan coffee joints, posh malls, and police patrols.
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.
The current pandemic might temporarily slow down environmentally destructive economic growth. However, claiming that we are dying for sustainability is dangerous. The global sustainability crisis is not just driven by uneconomic growth but also increasing global inequality and social stratification.
Still, humanity seems to have rediscovered its sacrosanct relationship with nature. The ramifications are wide-ranging. Some employers now recognise that work can be done from home. With so many virtual conferences now taking place, it appears that international travel is not so much needed. Maybe not so many people are needed either. Australian philosopher, Peter Singer, welcomes the death of so many old people who are no longer productive. Perhaps the reduction in unsustainable population growth could also be welcome. A world that is small and serene has come.
Is this a plausible pathway to start the journey described in The Limits to Growth, first published in 1972? The update of that work suggests that whatever the pathway, we must have limits to growth. That is evidently the argument made by political economists such as Ezra Mishan who coined the name ‘growthmania’ in The Costs of Economic Growth, published about a decade before The Limits to Growth.
Growthmania has become even more problematic in recent times.From this perspective, only a pandemic, a major rapture like COVID-19, can disrupt the path of unsustainable growth. Humanity appears to be dying for sustainability.
Any discussion of economic development – either implicitly or explicitly – contains the distinction between developed countries and developing (or under-developed) countries. While there are many theories on what promotes development and how best to achieve it, in all cases the goal is for a country to eventually become ‘developed’.
This begs the question – what is a developed country? There are at least three common definitions, which are presented below. These definitions overlap in many cases, but in others they are at odds. This piece argues that a broader definition is needed in light of recent failures of several ‘developed’ countries to cope with shocks ranging from the COVID-19 pandemic to natural disasters.
We are witnessing a public bailout of the private sector that dwarfs the bailout response to the 2007–2008 Great Recession. Compared to the $700 billion Troubled Asset Relief Program (TARP) implemented in 2008, today’s mobilization of public funds through the Coronavirus Aid, Relief, and Economic Security (CARES) Act amounts to a whopping $2.3 trillion, thus far.
As we know from media coverage of the CARES Act, today’s relief programs are intended to support payrolls, corporate operations, and small business overhead. What we don’t hear from the mainstream media is news on how these relief programs serve, once again, to privatize profits and socialize losses.
Unfortunately, few people are training their sights on that process — that is, on the actual mechanisms by which public funds are being used to underwrite not payrolls or job creation, but rather new sites of capital accumulation.
For several decades, countries of the periphery have been deeply in the grip of debt. The Covid-19-induced crisis has severely accelerated indebtedness and thus increased financial vulnerability. Recent policy measures by peripheral governments and central banks have brought momentary relief, but ultimately represent a manifestation of the interests of finance capital to get the most out of peripheral economies as long as it is still possible.
Because of the dependence of their currencies on international capital flows, political autonomy in peripheral economies is extremely limited due to the possible effects of political decisions on the movement of such flows. The enormous power of financial markets over monetary policy in the periphery is again becoming evident during the current crisis. The crisis in the global periphery is generally much more severe than in the central countries, not only because of often inadequate health systems that have been abandoned under three decades of neoliberal policy. As peripheral assets do not serve as a store of value, “investors” withdrew almost 100 billion dollars from “emerging markets” within three months, constituting a historically unprecedented capital flight. Factors such as the deflation of prices of primary resources, the fall in external demand for manufactured products, and the fall in cash flows due to decreasing remittances and tourism mean that financial pressure has increased even more. Consequently, peripheral currencies significantly depreciated with the beginning of the crisis, in some cases by as much as 20-30%, as in the cases of Brazil and Mexico.
By Jörg Wiegratz, Catherine Dolan, Wangui Kimari and Mario Schmidt
2020 may well be remembered as the year the global economyshut down. Airports have been closed, stock markets have crashed, and workers have been laid off en masse while politicians discuss if and how to reopen and restructure the economy. According to snapshot data, this economic turmoil has precipitated a global surge in anxiety, as people worry about their immediate and future financial situations. Their jobs, livelihoods and businesses, their incomes and finances, their assets and investments, their social relations and family ties, and their plans and dreams of economic progression, all seem on the brink of being fundamentally devalued. A now ubiquitous government response to COVID-19 – national lockdowns – has mandated the working class to stay home and worry about health first and livelihoods later. This dictate has pulverised the livelihoods of millions of people within a matter of days. Curfews, travel restrictions and other measures put into place to stop the spread of the virus are in the process of ravaging entire economic sectors (e.g. tourism and air travel, energy, export agriculture, personal services), undermining the prospect of growth for years to come. The hardest hit, however, are the poorest members of society: factory workers in India who left the cities and walked home to their villages in ‘an exodus not seen in decades’, Bangladeshi garment factory workers facing hunger and unexpected levels of poverty, as well as droves of US-Americans queuing for food stamps. All round is a picture of jobs lost, wages unpaid, contracts cancelled, futures foreclosed, and hunger and desperation for millions.Read More »