“This article was initially published in Punto Rojo Magazine and is reposted here with permission from the author.”
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The combined catastrophe of mass-infection and economic collapse is going to be more destructive and the effects longer-lasting in societies historically under-developed by imperialism.
In the most recent phase of capitalism, this has accelerated through the financialization of the global capitalist economy. This refers to a process in which an international investor class, the global 1%, has accumulated unprecedented quantities of wealth, and who ceaselessly move their money around the world in the chase for “yield”—a return on investment. The richest states have created international agencies, laws, treaties, and other agreements and organizations to build the architecture of a system that works on behalf of this class, creating boundless and borderless pathways for them to increase their wealth.
Since the last economic crisis and bailout, finance capital has recovered and spread its wings once more. Alongside the continuation of longer-standing forms of international exploitation—such as invasion, war, the maintenance of colonies, and imposition of unequal trade arrangements—international lending and debt-building regimes have maintained and increased the magnitude of inequality within and between nations. Austerity, the practice of forcing transfer of publicly-invested wealth for the purpose of usurious “debt-servicing”, has dismantled social safety net infrastructure in countries around the world at the onset of a new and unprecedented crisis.
As we enter the first phase of global economic recession—and likely depression over the next year—the poorer, colonized, formerly-colonized, semi-colonized, and other nations (which I will refer to as low- and middle-income countries, LMI, for simplicity) will be the most adversely impacted.
Bailouts for the rich nations, bailing out of the poor ones
The initial flurry of national bailouts by the richest ‘G20’ nations has so far amounted to an estimated $8 trillion dollars, an unprecedented transfer of public debt to prop up the faltering global financial system. The act of bailing out their own economies has taken priority, while they have been slow to respond to the crisis across the rest of the global economy.
In fact, their first response was to bail out. In response to the first indications of oncoming global crisis in late January, international investors quickly dumped $95 billion dollars’ worth of stocks and bonds and other investments in LMI nations—the largest capital outflow ever recorded. Skittish investors are not going to return anytime soon. Capital flight triggered an immediate crisis of liquidity (available cash to deal with the crisis) and depletion of foreign reserves, followed by the economic jolt reflecting the particular vulnerabilities of poorer countries.
Aside from effects of economic shut-down, these include a substantial drop-off in exports, especially commodity export or supply-chain production, tourism, capital flight, and plunging value of their national currencies. Falling currency values have resulted from investors at home and abroad nervously converting their existing currency holdings into dollars. This causes national currencies to plummet. For instance, the Indian rupee and Mexican peso fell to their lowest levels against the dollar in history in a matter of weeks, while South Korea’s won fell to its lowest level in 11-years.
Lower-valued currencies mean people who receive their wages, hold their savings, and purchase goods in their national denominations have less-buying power. This general trend could trigger devaluations as feature of future debt-restructuring, economically displacing more sectors of the population. This could also increase the cost of imports to LMI countries, such as food, pushing prices higher when income is static or dropping.
Taken together, the circumstances facing LMI countries is bleak. According to one economic analysis
The impact of global measures to contain the coronavirus will result in a steep fall in [emerging markets’] gross domestic product this year and the collapse in output, spike in capital outflows and plunge in commodity prices could trigger balance sheet problems that make the downturn much worse and the recovery slower.
Enter the IMF
Kristalina Georgieva, managing director of the IMF, has stated that LMI countries may need as much as $2.5 trillion in support, with that being a “low-end” estimate.
The scale of the crisis leaves many LMI countries vulnerable. Since they typically have fewer reserves, smaller central banks, and less international leverage; many are already turning to IMF to avoid meltdown. The IMF promised to provide emergency loan fund of up to $100 billion for emerging and poor nations markets (at zero interest rates), and a plan to ultimately raise $1 trillion dollars from G20 nations to fund the loans.
The finance ministers of the G20, and more specifically the richest creditor nations of the “Paris Club,” are those that will determine the content of the loan packages.
Over 90 countries have already applied for the emergency loans, with 60 percent coming from the poorest nations and 40 percent from middle income, or “emerging” markets. As the IMF Director stated, the priority will be preventing these nations from falling “into an inability to serve their debt.”
While there may be short-term relief and re-payment moratorium, there will likely be a continuation and expansion of the current model: increased national debt and austerity requirements. In fact, one facet of the longer-term recovery of the rich nations will require that LMI countries are maintained as debtor nations that continue to carry and pay on exorbitant debts under regimes of austerity. This way of operating is parallel to the character of the US bailouts: banks are directly funded and relieved, while people are forced to maintain their mortgage, student, and personal debt payments—even as they experience unemployment and other insecurities.
The World Bank also pledged $35 billion in support, but balked when it became clear that this money would be quickly absorbed to pay off existing debt to the richest creditor nations. Poor countries already receiving bilateral development assistance, for instance, are due to make repayments of about $40 billion to public and private creditors this year.
The only other sector of rich investors responding quickly to domino effect hitting LMI nations, are those seeking to capitalize and profit from the crisis.
In one case involving the World Bank, emergency funds have been created and tied to financial instruments called “pandemic bonds”. Payout of these bonds are based on opaque market calculations, associated with how a pandemic develops—not peoples’ needs.
In 2017, the World Bank developed a tranche of specially-designed “pandemic bonds”, a $320-million-dollar program theoretically designed to help low-income nations facing an epidemic. If there is no epidemic, investors collect interest and then return of their initial payment once the bond matures. The bonds only release to the country in the event of a spiraling epidemic. For instance, the bonds require 84 days to have passed since the designation of an outbreak and a minimum of 2,500 deaths within in the country—with 20% confirmed—for countries to be eligible for a payout. Even then, it takes another two weeks to confirm eligibility. By that time, the infection is ravaging the population.
These secondary risk markets, in which vulture capitalists and investors bet on calculations of social, structural, and economic failure, while people are thrown into existential crisis, amount to real-life Hunger Games.
Crush of debt
The reality for many LMI countries is crushing debt—with many already burdened with huge amounts or already in recession before the current crisis began.
The massive accumulation of wealth by the richest 1% within the richest nations since 2009 led to an investment scramble across the globe. Over the same period, development aid, lower interest “concessional” loans, and grants from the richest to the poorest nations have been declining. LMI countries have increasingly come to rely on taking on more debt in all forms.
In recent years, international investors flush with cash have chased more return on investment in desperate pursuit of shrinking opportunities as existing markets became saturated. This led to new lending patterns into uncharted and unregulated terrain, creating a raft of instruments and practices so opaque they are referred to as “dark pools.”
Within this context, investors pivoted towards lending to poor countries that had historically been unable to access public debt markets. As a result of the exponential growth in credit markets, international debt has sky-rocketed overall since the end of the last economic crisis, and many poor nations have already been, or are now on the precipice.
As one report observed:
After weeks in which prosperous countries from Italy to the US have battled both the pandemic and its economic fallout, the fight against corona-virus is moving to a new front. Across Africa, Latin America and much of Asia, governments with far less firepower than their western counterparts are figuring out how to keep the pandemic at bay and their economies afloat.
It is not clear they can do both. With Europe and the US, the virus arrived first, forcing a public health response, and then — as the enormity of the crisis struck home — a massive fiscal and monetary injection. In much of the developing world, the sequence has happened in reverse, with the economic devastation of coronavirus arriving before the epidemic itself.
In 2019, total global debt topped $255 trillion dollars, 40 percent ($87 trillion dollars) higher than on the eve of the 2008 financial crisis. In the decade to March 2019, the LMI countries’ share of total global debt increased to 31% –nearly doubling. This includes debt in all categories, but especially national and corporate debt. Governments in poorer countries have borrowed more money (including for debt-servicing), as well as corporations based in poorer countries.
Prior to the pandemic, these countries had already become saddled with rising debt, which included loan principal and interest primarily owed to multi-national banks and investment companies based in rich nations.
Prior to the pandemic, these countries had already become saddled with rising debt, which included loan principal and interest primarily owed to multi-national banks and investment companies based in rich nations. For instance,
the combined debts of 30 large emerging economies rose to 216.4 per cent of their GDP in March , from 212.4 per cent a year earlier, according to the [Institute of International Finance]. In dollar terms, they rose to $69.1tn.
On the eve of the pandemic, this amount had exceeded $71 trillion.
Every category of debt, including household debt, has dramatically increased since the 2008 financial crisis. A global study of seventy-five countries conducted in 2019 showed that low and middle-income countries accounted for largest percentage of buildup in household debt since the last crisis, with debt most concentrated in lower-income households.
Bleeding the poorest nations
In reality, the poorest nations in the world have never recovered from the last economic crisis in 2008. For some conditions are worse. For example, the total external debt in the 46 countries of Sub-Sahara Africa increased, with over half of those nations seeing their debts double or more without significant corresponding economic growth. The contrast going into global recession is stark: as the rich nations slide into global depression, these countries have already been in crisis, and will face disproportionate negative impact.
In 2019, debt servicing costs as a proportion of GDP rose to their highest level since 2005. In the months before the pandemic, for instance, the International Monetary Fund published its 2019 “Global Financial Stability Report”, identifying that “the number of low-income developing countries assessed at high risk of debt distress or in debt distress…has doubled [between 2013 and 2019] to 43 percent.”
At the same time, debt servicing capacity has also deteriorated. While debt has increased substantially as a share of GDP—for example, from 20 percent of GDP in 2013 to 55 percent in 2018 for the 50 lowest-income nations—access to credit has begun to decline since 2017. In 2018 net debt inflows into these countries fell by 28%, as creditors began to lose confidence in these markets. The burden of debt-servicing for LMI countries is also exacerbated by inequality within lending markets. These nations typically pay 4 to 5 times the amount of interest on loans than rich countries do on debts from international lenders (typically 5-6% versus 1-1.5%).
Furthermore, the plunge in LMI currencies values against the dollar sharply increases the cost of debt-servicing, creating a serious threat to financial stability in the poorest countries.
For instance, what are called “Eurobond Markets” opened up to dozens of poorer countries, including in over a dozen Sub-Saharan nations, the poorest region in the world. This was fueled by “investor appetite for [Sub-Saharan African] bonds, [that] has been fueled by record-low interest rates in advanced economies and commodity price recovery in the aftermath of the global financial crisis.” The lustful desire to make money hand-over-fist drives investment without consideration for sustainability.
By 2019, Eurobond issuances reached $35 billion. These bonds have up to 3 times higher interest rates (than traditionally low-interest “concessionary loans”), and have already been paying-out an estimated $1.5 billion per year, and will “mature” between 2021 and 2025 requiring these nations to pay average of about $4 billion annually over that period. This will ultimately add an additional an estimated $15 billion dollars across the term of the Eurobonds. These inflated rates of repayment will hit just as the crisis upends the economies of these countries. Furthermore, the US dollar denomination of these bonds further increase their cost as the national currencies plummet in relation to the dollar.
In the search for quick cash, yield-hungry international investors have poured an estimated total of over $2 trillion dollars into dollar-denominated government bonds in LMI markets over the last decade.
Corporate debt has also expanded, surging over 70% since 2007 to a total of $74 trillion internationally. This debt has risen even faster in LMI economies than in the rich countries, climbing almost 50 per cent. This represents the growing corporate penetration of these economies, especially the growth and prominence of foreign multinationals. In LMI countries, increasing corporate sector debt alongside national debt has driven total indebtedness to unprecedented levels since the last global financial crisis.
Imperialism and austerity intensify misery—and fuel the next uprisings
Austerity policies tied to debt servicing and restructuring have already been devastating working class, poor, and indigenous people in many LMI countries. In 2011, austerity-induced food shortages and rising prices (amid constricted export markets) contributed to the revolutionary uprisings of the Arab Spring. Austerity-driven protests and unrest then spread to the United States and Europe. Once again, prices are rising and international food stocks will diminish, leading to shortages in food import-dependent nations such as those in the Middle East, Asia, and Africa.
Over the last year, there has been a second wave of international revolt against neoliberal capitalism and austerity in LMI countries on all continents, including Lebanon, Ecuador, Chile, Iraq, Puerto Rico, Hong Kong, and many more. These revolts have been put on hold due to the pandemic and attendant economic collapse, but the conditions that produced them will continue—and intensify.
Over the last year, there has been a wave of international revolt against neoliberal capitalism and austerity.
Add on top of this that pandemic is spreading more rapidly in the LMI countries. On the continent of Africa, there are now emerging clusters of infections in every one of its 54 countries. Austerity and systematic under-development over decades means that governments on the continent spend an average per capita of $12, compared to the rich countries which spend up to $10,000 per capita. To illustrate the scale of the coming health crisis, “Sierra Leone has just one ventilator for 7.5m people, the Central African Republic has three machines for 5m citizens, while Burkina Faso has 11 for a population of 19m.”
Some Latin American economies were already in recession, and overall comprised the slowest-growing in the global economy before the pandemic. For instance, fourteen Latin American and Caribbean countries are part of the 80 nations appealing for emergency relief from the IMF.
Now combined with the oil price crash, the end of the commodities export boom, and other features specific to Latin American economies, the situation is getting worse quick. The price of crude oil has collapsed from $70 a barrel in January to below $30 in just a few weeks, hitting oil-exporting nations particularly hard. Overall, the under-developed and unequal structures of these economies in recession make them more vulnerable to deeper and prolonged health crisis as the pandemic spreads.
While there is unevenness between nations, the health care systems Latin American countries overall are not prepared to cope. As one analysis explained:
…Latin America’s safety net has shortcomings, which covid-19 will expose. Fragmentation, red tape and corruption will enfeeble its response in some areas…In several countries, bare-bones publicly financed health care operates alongside plush private provision for the rich. The course of the pandemic may sharpen grievances about inequality that drew millions of protesters onto the streets of many Latin American countries late last year.
Ecuador, for instance, has been the hardest hit region in Latin America.
In the fall of 2019, the working class and indigenous people rose up against the government’s plan to impose austerity measures in compliance with a $4.2 billion dollar IMF loan package. The people forced the government to flee the capital of Quito as a result of a nationwide uprising. After a week of unrest, the government was compelled to retreat on some measures. Now with the pandemic bearing down and oil prices collapsing, the government recently re-pledged to carry out the austerity requirements dictated by the IMF—even as the infections spread.
In early March, the government of Lenín Moreno declared a new round of budget cuts for social services, and layoffs and salary cuts for public employees. Ecuador is already one of the poorest countries in the region, spending about $500 per-capita on health care, one of the lowest in the hemisphere. Its national social service infrastructure and capacity has been further reduced in the last few years as a result of austerity measures.
As a result, its national health care system was quickly overwhelmed in the first weeks of the pandemic. The rate of death from COVID-19 spiked so quickly that paramedic and medical services were quickly overwhelmed, and people have been forced to leave bodies and coffins of deceased love one in the city streets.
As the crisis spreads, other austerity-ridden countries are also showing stresses. In the first weeks of the pandemic, Lebanon and Argentina defaulted on their IMF loans. The Lebanese government of Hassan Diab, who only came to power in January 2020 after the previous government was toppled by popular uprising, announced he would not make a $1.2 billion payment on a Eurobond that comes due this year. Argentina is already into its third consecutive year of recession, (with inflation running at about 50 per cent), and is also heading into default. Since 2001, Argentina has had nearly 30 loan packages from the IMF and has defaulted on eight times, making this the ninth.
In 2018 the government of Mauricio Macri arranged an IMF loan worth $57 billion that included yet another raft of austerity. There had been significant protest movements over the last two years in resistance to the Macri government’s plans. The mass uprising and general strikes in nearby Chile in 2019 and against austerity measures imposed by the Piñera government, pushed Argentinian politics to the left, leading to the spectacular defeat of right-wing Macri, and to the election of center-left Peronist Alberto Fernández—after he promised to “renegotiate” repayment of the debt.
In Iraq, a nation devastated a decade of sanctions followed by another two decades of invasion, occupation, and the imposition of US-backed regimes, the country is one the verge of yet another disaster as the pandemic spreads. Over the last year, mass protests had forced the resignation of the president Barham Saleh, and was pushing for even more radical and comprehensive demands after US-aligned regimes sacked the nation’s wealth. As one observer reported:
In Iraq, 16 years after the U.S. invasion, a succession of corrupt U.S.-backed governments has boosted oil production to about 4.6 million barrels per day, the second highest production in OPEC. But in line with U.S. neoliberal orthodoxy, the profits have been pocketed by Iraq’s new U.S.-installed ruling class, not redistributed to provide universal healthcare, education, housing and other public services…
Before the sanctions, US invasion, and subsequent dismantling of public services through bombing, defunding, corruption, and privatization; Iraq one had a world-class healthcare system. Over the last several years, it has deteriorated dramatically.
For example, in 2019…the government allocated just 2.5% of the state’s $106.5 billion budget to its health ministry, a fraction of spending elsewhere in the Middle East. By comparison, security forces received 18% and the oil ministry 13.5%. Over the past decade, data from the World Health Organization shows, Iraq’s central government has consistently spent far less per capita on healthcare than its much poorer neighbors – $161 per citizen each year on average, compared to Jordan’s $304 and Lebanon’s $649.
As the pandemic spreads, the country is already nearly bankrupt. The crisis has already been compounded by the collapse of oil prices which provide more than 90% of government revenue. The government has stopped paying salaries, and the ruling militias that replaced the Iraqi military are in the early stages of fragmentation, producing an even more volatile situation.
The IMF currently has austerity loans already in place with 35 LMI countries, with more defaults likely to occur as the crisis plays out. Nevertheless, the capitalist system as-it-is cannot function any differently; and the IMF and World Bank will continue to be used as instruments for rich nations to keep the noose of debt in place. In other words, using the crisis to further, discipline, restructure, and extract more wealth coming out of the current crisis. As one financial analyst close to the process summarized, “the IMF can only lend to countries where it deems debt to be sustainable…they are not going to tear up that rule, so for many countries an IMF role will have to come alongside a condition that debt restructuring is required.”
As the global financial system as it exists can only go in one direction, towards extraction and accumulation based on the current arrangements of imperialism, so too will it produce class struggle on an international scale. As one financial newspaper gloomily predicted, the pandemic will eventually be followed by a return to protests, strikes, and social revolution:
Social unrest had already been increasing around the world before [COVID-19] began its journey. According to one count, there have been about 100 large anti-government protests since 2017, from the gilets jaunes riots in a rich country like France to demonstrations against strongmen in poor countries such as Sudan and Bolivia. About 20 of these uprisings toppled leaders, while several were suppressed by brutal crackdowns and many others went back to simmering until the next outbreak.
The immediate effect of Covid-19 is to dampen most forms of unrest, as both democratic and authoritarian governments force their populations into lockdowns, which keep people from taking to the streets or gathering in groups. But behind the doors of quarantined households, in the lengthening lines of soup kitchens, in prisons and slums and refugee camps — wherever people were hungry, sick and worried even before the outbreak — tragedy and trauma are building up. One way or another, these pressures will erupt.
Another study advising those in power also predicts that nearly half of the countries in the world may see “civil unrest” over the course of the next year. If so, it won’t be the result of Covid-19 alone. Rather, it will result from how this pandemic exposed a greater and even more fatal sickness in search of a cure—the global capitalist system and its managers and beneficiaries that put accumulation of wealth for the richest over the health and well-being of the rest.