The Internationalist Archive
David Adler: I thought we could start off with an orientation to the global economy. How would you describe its present conjuncture? There seems to be so much happening at once — geopolitical tensions, supply-chain problems, the return of inflation — that it can be hard to make sense of the shape and trajectory of the current global economy. Who is winning and who is losing? Why are some places suffering, while others seem to be boasting high levels of growth and low levels of unemployment?
Jayati Ghosh: This is a strange—and especially challenging—time for the global economy, and for the majority of people in it. There are multiple crises, many of which are becoming more intense and severe because the policy responses to them have been so inadequate and in some cases, even counterproductive. What is worse is that these crises—of sovereign debt and capital flight; of livelihood; of cost-of-living and food access; of ecology and climate change—reflect and are exacerbating existing inequalities between and within countries. Over the past few years, the global majority is struggling to regain standards of living achieved before the pandemic, and access to food, health, good quality employment and so on are generally worse than before. Yet the richest people on the planet (who live mostly in the rich countries, but not only there, also in some middle-income countries) have never had it so good. The wealth of the top 10 per cent and top 1 per cent has soared through this period of multiple crises; some large global corporations have made the highest profits ever.
Inflation in the past few years has been driven to some extent by supply shortages caused by the COVID-19 pandemic and the Ukraine war—but even more by profiteering and financial speculation in commodity markets that drove up prices of food and fuel in particular. In the advanced economies, this was presented as an existential threat, even though its impact on living standards was not that severe, relative to the severe impact on people in low and middle-income countries. And the policy response made it worse: monetary tightening and sharp increases in interest rates in advanced economies impacted small businesses and working people in advanced economies and caused major collateral damage in the rest of the world. Capital flowed back to the rich world, leaving many “emerging” and “frontier” markets in the lurch. (I am of course excluding China from this group.) These countries were already reeling because, during the pandemic, they had been unable to provide the massive fiscal stimulus packages that were widely prevalent in advanced economies, and despite this faced worsening fiscal balances because of contracting or slowing economies. Many of them grappled with high debt burdens (more than 70 countries continued to spend more on debt servicing than on health through the pandemic) and falling foreign exchange earnings. The price rises that followed the Ukraine war were even more severe for lower-income countries because of currency depreciations. Some of the poorest countries have also been the worst affected by climate change and have already faced several climate change-driven disasters. In this perfect storm, international institutions have been missing in action: unwieldy and slow to provide any meaningful relief or financial safety net.
All this is further complicated by shifting alignments and geopolitical stances that are impacting both trade and financial flows. There are both challenges and opportunities in these shifts, but the immediate impact for most economies has been largely negative. African countries and debt-stressed economies in other regions, in particular, have been very badly affected. Within all these economies, inequalities of wealth and income have worsened, and working people (whether paid or unpaid) face much greater material insecurity. This in turn has been associated with increased levels of societal violence of different types.
DA: You recently attended the Spring Meetings of the IMF and World Bank in Washington DC, where policymakers gather to discuss issues of debt and development financing. What was the tenor of those meetings? What was the message from the managers of those multilateral institutions, and what was the response from the Global South countries on the receiving end of that message?
JG: The Spring Meetings were mainly remarkable for the evident lack of any real sense of urgency or willingness to act decisively, among the “leaders of the world”. There was a fair amount of handwringing about the debt crisis, the climate and environment challenges, the difficulties of meeting the SDGs, etc. But the absence of concrete action—or even the willingness to engage with possible strategies—was quite telling. It was mostly business as usual with a few small (even token) measures. A lot of this was because there had clearly been no preparation to take even some of the most obvious measures, such as a fresh issuance of SDRs or clear commitments by rich countries to recycle them, or even to use the paltry funds received by the Resilience and Sustainability Trust. There’s a lot of posturing, but very little real action. So the spoken message, which was full of the usual trite expressions of concern, was quite different from the implicit message: that rich countries do not really care what happens to the rest of the world and are not going to make global institutions respond in ways that are required to meet the common challenges of humanity.
DA: We often read about the dangerous “debt crisis” accelerating in the Global South. But we hear less about why these countries have so much debt distress. The financial press often implies that it’s about bad governance, fiscal irresponsibility, or even corruption. But what are the longer historical trajectories of institutional frameworks that can help us understand why so many poor countries are trapped in debt?
JG: A process of financial deregulation since the early 1990s was widespread among many low and middle-income countries, after similar moves in the 1980s in advanced economies. As a result, there was much greater openness of the capital accounts of such countries. Neoliberal economic reforms were oriented to rely on export-led growth, to be supported by foreign capital inflows. This led to a significant increase in external debt over time in many “emerging markets” and even “frontier markets”, a process in which the IMF and the Davos crowd were active cheerleaders. The macroeconomic policy response in advanced economies after the Global Financial Crisis of 2008 involved massively increased liquidity and incredibly low-interest rates in the advanced economies. In a world awash with liquidity the search for higher financial returns meant that more funds flowed to “emerging” and “frontier” markets through credit and bond issues. This was actively encouraged by international financial institutions, but it was always a problematic process that was likely to end in tears.
Monetary hierarchies in the global economy mean that capital leaves low and middle-income countries (LMIC) much more quickly at the first sign of any problem. And these countries were much more battered economically by the Covid-19 pandemic. Advanced economies were able to provide massive countercyclical measures, especially significantly increased fiscal spending because financial markets effectively allowed and even encouraged them to do so. By contrast, LMICs faced significant declines in export and tourism revenues, tighter balance of payments constraints, and greater difficulties in accessing much more volatile external capital. They were prevented from increasing fiscal spending by much because of those same financial markets, because of debt overhang and potential capital flight. As a result, their economic recovery has been much more muted and economic conditions remain mostly dire. Then the Ukraine war and related profiteering by big corporations, made matters much worse especially for food- and fuel-importing countries, by generating inflation. The sad truth is that once “investor sentiment” moves against lower-income countries, it tends to respond regardless of the real economic conditions in specific countries, as we have seen over and over again in different episodes of crisis since the 1990s. Private credit rating agencies amplify the problem. This means that “contagion” is all too likely, and it will affect not just economies that are already experiencing difficulties (some of which have already been identified by the IMF and private agencies and therefore already facing capital flight and more stringent borrowing conditions) but a much wider range of LMICs.
The half-hearted attempts at debt relief like the moratorium on debt servicing in the first part of the pandemic, have only postponed the problem. It has pushed the can down the road and allowed the can to get bigger as it rolled. There has been no meaningful debt restructuring at all, even though it is essential. As I mentioned, the heads of IMF and the World Bank continue to bewail the situation but nothing much happens. In fact, both IMF and World Bank add to the problem through their own rigid insistence on repayments and the appalling system of surcharges imposed by the IMF.
DA: We have heard a lot about a new “consensus,” a new set of rules that will supposedly govern the global economy in the 21st century. Recently in the US, National Security Advisor Jake Sullivan even gave a speech outlining a vision for the international economy that appears to depart fundamentally from the old “free market" rules that the US exported around the world. Is there really a new “consensus”, or does that word hide a lot of disagreement about the direction of the global economy? What are the new ideas that are becoming dominant in the debates about global economic governance? And what are the ideas that have been marginalized in those debates — but which we should fight to bring to their centre stage?
JG: The “new consensus” is really about policymakers in the developed world finally coming around to accept that the neoliberal straitjacket that has created economic stagnation and inequality is not the best way to do economic policy. Of course, this should have been evident a long time ago: even the most successful “capitalist” industrializing economies, in East Asia, did not follow the neoliberal playbook at all but had very strong state intervention, including active trade and industrial policies. The IFIs and the WTO more or less ruled out a lot of that possibility for other countries from the mid-1990s onwards. But this new consensus that accepts the need for an activist state and proactive industrial policy is still largely confined to the rich world, and largely as a counter to the threat to their hegemony that they see being posed by China. They (and the IFIs that they control) still insist on market liberalization and fiscal austerity for lower-income countries, unfortunately. Most of all, when we fight for any of these ideas, we have to fight for an end to the obscene double standards evident in all this, whereby lower-income countries are denied the policy space to do what successful countries have done in the past or even what advanced countries continue to do whenever they deem fit.
DA: You have a remarkable depth and breadth of experience in the fight for debt justice. What are the main challenges to that fight? This newsletter will reach people who are very committed to building a better world, and very concerned about some of the issues you have highlighted in this interview. What is your advice to them? What lessons have we learned from past efforts to build a more just international economy, and how can we best apply them in the present moment of heightened geopolitical tension and economic uncertainty?
JG: Time is not on our side, either in the ongoing sovereign debt crisis or in facing the climate challenge. Yet global institutions continue to display remarkable inertia and rigidity. Rules that were created nearly eight decades ago are treated as immutable (except when the interests of powerful lobbies are involved) and policies that have been comprehensively refuted by experience and should be completely discredited, continue to be imposed on debtor countries. The structure of debt negotiations also leaves debtor countries with few options. I have been arguing that we need much more cooperation between debtors: sharing of information, knowledge and experience at the very minimum, and ideally moving towards a common stand in negotiations. Individual debtor countries are mostly too small to have much impact on the global financial system and therefore they are routinely ignored and made to wait endlessly and jump through hoops for tiny dribbles of finance or debt relief. A group of debtors—a “coalition of the willing”, if you will—would likely have more chance of being heard and have more bargaining power. Then we might get some of the speed, urgency and flexibility that we see whenever “systemically important institutions” (like Silicon Valley Bank or Credit Suisse) are in trouble. This means that we have to use all the instruments at our disposal, at all levels—national, regional, and multilateral. And build alliances, even unlikely ones. Our strength will have to be in numbers.
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