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Showing posts with label Davos. Show all posts
Showing posts with label Davos. Show all posts

Wednesday, 27 July 2022

There is a global debt crisis coming – and it won’t stop at Sri Lanka

Foreign capital flees poorer countries at the first sign of instability. The pandemic and Ukraine war ensure there is plenty of that around writes Jayati Ghosh in The Guardian





This January, even before Sanjana Mudalige’s salary as a sales worker in a shopping mall in Colombo, Sri Lanka, was slashed in half, she had pawned her gold jewellery to try to make ends meet. Ultimately, she quit her job, because the travel costs alone exceeded the pay. Since then, she has shifted from using gas for cooking to chopping firewood, and eats just a quarter of what she did before. Her story, reported in the Washington Post, is one of many in Sri Lanka, where people are watching their children go hungry and their elderly relations suffer for lack of medicines.

The human costs of the crisis only really captured international attention when the massive popular upsurge earlier this month, known as Aragalaya (Sinhalese for “struggle”), led to the peaceful overthrow of President Gotabaya Rajapaksa. His family had ruled Sri Lanka with an iron fist, albeit with electoral legitimacy, for more than 15 years, and is now being blamed by both national and international media for the desperate economic mess the country is in.

But blaming the Rajapaksas alone is too simple. Certainly, the aggressive majoritarianism that they unleashed, along with the alleged corruption and major economic policy disasters of recent years (such as drastic tax cuts and bans on fertiliser imports), were crucial elements of the economic debacle. But this is only part of the story. The deeper and underlying causes of the crisis in Sri Lanka are barely mentioned by most mainstream commentators, perhaps because they reveal uncomfortable truths about the way the global economy works.

This is not a crisis created by a few recent external and internal factors, it has been decades in the making. Ever since its “open economic policy” was adopted in the late 1970s, Sri Lanka has been Asia’s poster boy for neoliberal reform, much like Chile in Latin America. The strategy was the now-familiar one of making exports the basis for economic growth, supported by foreign capital inflows. This led to a significant increase in foreign currency debt, something the IMF and the Davos crowd actively encouraged. 

In the period after the 2008 global financial crisis, as low interest rates in advanced economies led to the availability of cheap credit, the Sri Lankan government relied on international sovereign bonds to finance its own spending. Between 2012 and 2020, the debt to GDP ratio doubled to around 80%, with a growing share of this in bonds. The payments due on these debts kept rising in relation to what Sri Lanka could earn from exports and the money sent back home by Sri Lankans working abroad. The disruptions caused by the pandemic and the war in Ukraine made matters much worse, by causing export earnings to fall and sharply increasing the price of essential imports including food and fuel. Foreign exchange reserves plummeted – but the government had to keep paying interest even when it could not import essential fuel.

Looked at in this light, it is clear that Sri Lanka is not alone; if anything, it’s just a harbinger of a coming storm of debt distress in what economists call the “emerging markets”. The past period of incredibly low interest rates in the advanced economies meant that more funds flowed to “emerging” and “frontier” markets from the richer world. While this found cheerleaders in the international financial institutions (IFIs), it was always a problematic process. This is because, unlike in places such as the EU and US, capital leaves low- and middle-income countries (LMICs) at the first sign of any problem.

And these countries were much more battered economically by the pandemic. Advanced economies were able to provide massive countercyclical measures – think of the UK’s furlough programme – because financial markets effectively allowed and even encouraged them to do so. By contrast, LMICs were prevented from increasing fiscal spending by much – because of those same financial markets, which threatened the possibility of credit downgrades and capital flight as government deficits grew larger. Plus they faced significant declines in export and tourism revenues and tighter balance of payments constraints. As a result, their economic recovery has been much more muted and economic conditions remain mostly dire.

The half-hearted attempts at debt relief, such as the moratorium on debt servicing in the first part of the pandemic, only postponed the problem. There has been no meaningful debt restructuring at all. The IMF bewails the situation and does almost nothing, and both it and World Bank add to the problem through their own rigid insistence on repayments and the appalling system of surcharges imposed by the IMF. The G7 and “international community” have been missing in action, which is deeply irresponsible given the scale of the problem and their role in creating it.

The sad truth is that “investor sentiment” moves against poorer economies regardless of the real economic conditions in specific countries. 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, but a much wider range of LMICs that will face real difficulties in servicing their debts. Lebanon, Suriname and Zambia are already in formal default; Belarus is on the brink; and Egypt, Ghana and Tunisia are in severe debt distress.

Many countries with lower per-capita income and significant absolute poverty are facing stagflation. Billions of people are increasingly unable to afford a basic nutritious diet, and cannot meet basic health expenses. Material insecurity and social tensions are inevitable.

The situation can still be resolved, but it requires urgent action, especially on the part of the IFIs and G7. Speedy and systematic debt resolution actions to bring in private creditors and other creditors, such as China, are needed, as is IFIs doing their own bit to provide debt relief and ending punitive measures such as surcharges. In addition, policies to limit speculation in commodity markets and profiteering by big food and fuel companies must be put in place. Finally, the recycling of special drawing rights (SDRs) – essentially “IMF coupons” – by countries that will not use them to countries that desperately need them is vital, as is another release of SDRs equating to about $650bn to provide immediate relief.

Without these minimal measures, the post-Covid, post-Ukraine global economy is likely to be engulfed in a dystopia of debt defaults, increasing poverty and sociopolitical instability.

Thursday, 24 January 2019

Panic is on the agenda at Davos – but it’s too little too late


Thursday, 10 November 2016

It was the rise of the Davos class that sealed America’s fate

Naomi Klein in The Guardian

They will blame James Comey and the FBI. They will blame voter suppression and racism. They will blame Bernie or bust and misogyny. They will blame third parties and independent candidates. They will blame the corporate media for giving him the platform, social media for being a bullhorn, and WikiLeaks for airing the laundry.

But this leaves out the force most responsible for creating the nightmare in which we now find ourselves wide awake: neoliberalism. That worldview – fully embodied by Hillary Clinton and her machine – is no match for Trump-style extremism. The decision to run one against the other is what sealed our fate. If we learn nothing else, can we please learn from that mistake?

Here is what we need to understand: a hell of a lot of people are in pain. Under neoliberal policies of deregulation, privatisation, austerity and corporate trade, their living standards have declined precipitously. They have lost jobs. They have lost pensions. They have lost much of the safety net that used to make these losses less frightening. They see a future for their kids even worse than their precarious present.

At the same time, they have witnessed the rise of the Davos class, a hyper-connected network of banking and tech billionaires, elected leaders who are awfully cosy with those interests, and Hollywood celebrities who make the whole thing seem unbearably glamorous. Success is a party to which they were not invited, and they know in their hearts that this rising wealth and power is somehow directly connected to their growing debts and powerlessness.

For the people who saw security and status as their birthright – and that means white men most of all – these losses are unbearable.

Donald Trump speaks directly to that pain. The Brexit campaign spoke to that pain. So do all of the rising far-right parties in Europe. They answer it with nostalgic nationalism and anger at remote economic bureaucracies – whether Washington, the North American free trade agreement the World Trade Organisation or the EU. And of course, they answer it by bashing immigrants and people of colour, vilifying Muslims, and degrading women. Elite neoliberalism has nothing to offer that pain, because neoliberalism unleashed the Davos class. People such as Hillary and Bill Clinton are the toast of the Davos party. In truth, they threw the party.

Trump’s message was: “All is hell.” Clinton answered: “All is well.” But it’s not well – far from it.

Neo-fascist responses to rampant insecurity and inequality are not going to go away. But what we know from the 1930s is that what it takes to do battle with fascism is a real left. A good chunk of Trump’s support could be peeled away if there were a genuine redistributive agenda on the table. An agenda to take on the billionaire class with more than rhetoric, and use the money for a green new deal. Such a plan could create a tidal wave of well-paying unionised jobs, bring badly needed resources and opportunities to communities of colour, and insist that polluters should pay for workers to be retrained and fully included in this future.

It could fashion policies that fight institutionalised racism, economic inequality and climate change at the same time. It could take on bad trade deals and police violence, and honour indigenous people as the original protectors of the land, water and air.

People have a right to be angry, and a powerful, intersectional left agenda can direct that anger where it belongs, while fighting for holistic solutions that will bring a frayed society together.

Such a coalition is possible. In Canada, we have begun to cobble it together under the banner of a people’s agenda called The Leap Manifesto, endorsed by more than 220 organisations from Greenpeace Canada to Black Lives Matter Toronto, and some of our largest trade unions.

Bernie Sanders’ amazing campaign went a long way towards building this sort of coalition, and demonstrated that the appetite for democratic socialism is out there. But early on, there was a failure in the campaign to connect with older black and Latino voters who are the demographic most abused by our current economic model. That failure prevented the campaign from reaching its full potential. Those mistakes can be corrected and a bold, transformative coalition is there to be built on.

That is the task ahead. The Democratic party needs to be either decisively wrested from pro-corporate neoliberals, or it needs to be abandoned. From Elizabeth Warren to Nina Turner, to the Occupy alumni who took the Bernie campaign supernova, there is a stronger field of coalition-inspiring progressive leaders out there than at any point in my lifetime. We are “leaderful”, as many in the Movement for Black Lives say.

So let’s get out of shock as fast as we can and build the kind of radical movement that has a genuine answer to the hate and fear represented by the Trumps of this world. Let’s set aside whatever is keeping us apart and start right now.

Tuesday, 19 January 2016

We’ve been conned by the rich predators of Davos

Aditya Chakrabortty in The Guardian



Davos: ‘This week, some of the richest people on Earth will gather high up a snowy mountain in the world’s biggest tax haven.’ Photograph: Ruben Sprich/Reuters


As metaphors go, this one takes some beating. This week, some of the richest people on Earth will gather high up a snowy mountain in the world’s biggest tax haven. Most will have paid big money to attend the three-day meeting in Davos: the most exclusive memberships cost somewhere in the region of £100,000 each. From there, they will relay thoughts on global risks and opportunities to the ski-jacketed press corps. They will talk about gender inequality and technological innovation. The message will go out: however turbulent the global economy, it is being capably stewarded.

These are our economic elites as they want the rest of us stuck on the flatlands below to see them: big-thinking, well-intentioned, hard-working – and thoroughly meritocratic. This is also how they justify the mammoth rewards they enjoy: we sweat for it; we’re worth it. The follow-up is usually only implied, but it is the one that underpins the entire system: put in enough hours and this could be you. 

Set against that promise the finding from Oxfam that 62 billionaires have more wealth than half the world’s population – 3.5 billion people – share between them.

Ponder those numbers for a moment because they make up possibly the most grotesque ratio in the world economy today. Go through the 62 richest people and plenty of names jump out to show that any notions of meritocracy are a big fat lie. None of those 3.5 billion men, women, boys or girls will be born into a fortune such as that enjoyed by the Waltons of Walmart fame, in which just six people own $149bn. Nor will they ever get to be a Saudi royal such as Prince Alwaleed bin Talal, worth $26bn.

I could pull out plenty of other names giving the lie to the complacent notion that this is the era of the self-made plutocrat. The top of the money tree is still festooned with inheritances. Just look at the widow of chocolatier Michele Ferrero, Maria Franca Fissolo, who at 98 is the fifth wealthiest woman on the planet; the offspring of the Lidl and Aldi dynasties and the three Mars siblings who are worth $80bn. One doesn’t need to be a Bolshevik to see that many of the world’s super-rich are recipients of dumb luck, born into the right family at the right time.

But that grotesque index tells us that something else has gone badly wrong. At the start of this decade, 388 billionaires owned as much as half the world. By 2011, that number had plunged to 117. Last year, it had fallen to 80. In other words, in the five years since the world recession, the very richest have grown inexorably wealthier. And that’s not because the global economy is booming, as every worker on a pay freeze and every family seeing their benefits cut knows. It’s because we are living in a period of trickle-up economics, in which the middle- and working-classes have handed over money to those right at the very top.

The 80s were the decade of trickle-down economics, with Thatcher and Reagan cutting taxes for the richest and promising that everyone else – from Easington to Port Talbot, Pittsburgh to Milwaukee – would soon feel the benefits. By contrast the past half-decade has been about trickle-up economics, in which the world’s most powerful central bankers have launched policies that have been explicitly about boosting the fortunes of the richest. The disbursement of thousands of billions in quantitative easing both in the US and the UK from 2009 onwards was meant to raise asset prices – and assets are by definition in the hands of the wealthy.

No wonder the Bank of England admitted that 40% of the gains from its £375bn QE programme went to the top 5% of British households. No wonder Stanley Druckenmiller, the billionaire hedge fund manager, labelled QE: “The biggest redistribution of wealth from the middle-class and the poor to the rich ever.”

The figures prove him right. According to the Berkeley economist Emmanuel Saez, between 2009 and 2012 the top 1% of American households took 91 cents out of each extra dollar that the country earned. The other 99% of Americans had to share the remaining 9 cents between them.

This didn’t happen in a fit of absent-mindedness. Rather, decades of burgeoning inequality – of the Davos set scooping more and more of the gains from growth – have enabled the super-rich to pretend that their narrow sectional interests are what’s good for the world economy. Policies as manifestly unfair as QE would never have happened in a fairer economy – the UK and US would have relied instead on public investment and government programmes.

Massive inequality has allowed the 1% to buy political influence as never before in postwar history. Indeed, the super-rich now practically write their own tax laws – such as the way senior executives of Britain’s biggest businesses were invited by George Osborne to advise on overhauling corporation taxes. They get to ensure that tax havens are treated with due leniency, all the better to hide their trillions in them. They buy their own politicians, as with the shadow-bankers who funded the Conservative election campaign or the billionaire Koch brothers using their fortune to tip the US presidential contest. Indeed, the more ambitious decide to become politicians. Think not just of Donald Trump but former bond trader turned media mogul turned mayor of New York Michael Bloomberg.

The great mistake made by the mainstream left and right, even by NGOs such as Oxfam, is in imagining that the super-rich, now enjoying such massive riches, are somehow playing by the same rules as the rest of us. That they are “wealth creators” providing jobs and investment for the rest of us, or that they might give up their tax havens. If that ever were the case, it isn’t now. A tiny minority has gained from massive tax cuts and legislative leniency about where they shove their money. They have siphoned off gains in salaries and profits wherever possible and enjoyed hundreds of billions flowing into their asset markets. Meanwhile, the rest of us who provide the feedstock for their revenues see our welfare states hollowed out, our wages frozen and our employers failing to invest. But none of that matters very much in Davos.

Sunday, 27 January 2013

Marx takes on Keynes, Friedman and Schumacher


The ultimate Davos debate: 

If you could construct the best panel at a World Economic Forum debate, this would be it. But what would they say about present problems? Read on …
As the cold winds of the recession blow around Europe a man walks outside the main entrance of the Davos congress centre, on the eve of the opening of the 43rd Annual Meeting of the World Economic Forum, WEF, in Switzerland.
What if Karl Marx and Keynes, Friedman and Schumacher were at the 43rd World Economic Forum in Davos, Switzerland? Photograph: Laurent Gillieron/AP
Imagine that you could construct the ultimate Davos panel. From the annals of history you can choose any quartet that could put the world to rights in an hour-long talk, the format beloved of the World Economic Forum.
Klaus Schwab, the man who has been organising the forum since 1971, ensured there were plenty of stellar names strutting their stuff in the high Alps last week. Davos attendees could watch Nouriel "Dr Doom" Roubini cross swords with Adam Posen, recently a member of the Bank of England's monetary policy committee about the merits of quantitative easing. They could listen to Mark Carney, soon to take over from Sir Mervyn King at Threadneedle Street, warn that the global economy is far from out of the woods. George Soros held forth on drugs; Facebook's Sheryl Sandberg spoke passionately about sexual stereotyping; David Cameron called for the G8 to act against tax avoidance and corruption.
But how about this for a panel? Karl Marx, John Maynard Keynes, Milton Friedman and Fritz Schumacher, all no longer with us, kept in line by the IMF's Christine Lagarde, thankfully still alive and kicking, and one of the standout performers last week.
Lagarde kicks off our fantasy discussion with a few words of introduction. She says business leaders have left Davos in a slightly better frame of mind not because of the millions of words spouted in Davos, but because of three little words spoken by the president of the European Central Bank, Mario Draghi, in London in July. Those words were "whatever it takes", a commitment by the ECB to buy up the bonds of troubled eurozone countries in unlimited quantities. That has removed one of the big tail risks to the global economy – a chaotic break-up of the eurozone. But, she adds, any recovery in 2013 will be fragile and timid, and there is a risk of a relapse. "Turning first to you Karl, how do you see things".
Marx: "The capitalist class gathered in Davos has spent the last few days wringing their hands about unemployment and the lack of demand for their goods. What they seem incapable of recognising is that these are inevitable in a globalised economy. There is a tendency towards over-investment, over-production and a falling rate of profit, which, as ever, employers have sought to counter by cutting wages and creating a reserve army of labour. That's why there are more than 200 million people unemployed around the world and there has been a trend towards greater inequality. It is possible that 2013 will be better than 2012 but it will be a brief respite."
Lagarde: "That's a gloomy analysis, Karl. Wages are growing quite fast in some parts of the world, such as China, but I'd agree that inequality is a threat. The IMF's own research shows that inequality is correlated to economic instability."
Marx: "It is true that the emerging market economies are growing rapidly now but in time they too will be affected by the same forces."
Lagarde: "Maynard, do you think things are as bleak as Karl says?
Keynes: "No I don't Christine. I think the problem is serious but soluble. When we last faced a crisis of this magnitude we responded by aggressive loosening of monetary policy – driving down both short-term and long-term interest rates – and by the use of public works to boost aggregate demand. In the US, my friend Franklin Roosevelt supported legislation that allowed workers to organise. After the second world war, the international community created the IMF in order to smooth out balance of payments imbalances, prevent beggar-my-neighbour currency wars and control movements of capital. All these lessons have been forgotten. The balance between fiscal and monetary policy is wrong; currency wars are brewing; the financial sector remains largely unreformed, and aggregate demand is weak because workers are not getting a fair share of their productivity gains. Economics is stuck in the past; it is as if physics had not moved on since Kepler."
Lagarde: "I gather from what you are saying, Maynard, that you do not approve of the way George Osborne is running the UK economy."
Keynes: "The man has taken leave of his senses. Britain has a growth problem, not a deficit problem."
Lagarde: "I daresay Milton that you disagree with everything Maynard has said? You would make the case, presumably, for nature's cure?"
Milton Friedman: "Some of my friends in the Austrian school of economics would certainly favour doing nothing in the hope of a cleansing of the system, but I wouldn't. Unlike Maynard, I wouldn't support measures that would increase the bargaining power of trade unions and I've never been keen on public works as a response to a slump.
"But I would certainly support what Ben Bernanke has been doing with monetary policy in the US and would support even more drastic action if it proved necessary."
Lagarde: "Such as?"
Friedman: "Well, I think monetary policy should be set in order to hit a target for nominal output – the increase in the size of the economy unadjusted for inflation. If that growth is too high, central banks should tighten policy. If it is too low, the trend since the crisis broke, they should loosen it. In extreme circumstances, I'd favour policies that blur the distinction between monetary and fiscal policy. That's what I mean when I talk about helicopter drops of money into the economy."
Lagarde: "Fritz, you have been sitting there patiently listening to Karl, Maynard and Milton. How do you assess the state of the world?
Fritz Schumacher: "I am greatly disturbed by the way the debate is being framed. There is an obsession with growth at all costs regardless of the environmental costs. Climate change was rarely mentioned in Davos: this after a year of extreme weather events. It is frightening that so little attention has been paid to global warming, and almost criminally neglectful of governments not to use ultra-low interest rates to invest in green technologies.
"As has been the case in the past, recessions have pushed green issues down the political agenda. In good times policymakers say they are in favour of sustainable development, but the pledges are forgotten as soon as unemployment starts to rise. Then it is back to business as usual: more roads, expanding airports, tax cuts to encourage consumption. When scientists are warning that global temperatures are on course to rise several degrees above pre-industrial levels on unchanged policies, this is the economics of the madhouse."
Lagarde: "Maynard, what's your response to that?"
Keynes: "I agree with him. If I were advising Roosevelt today I would be calling for a Green New Deal. I find it hard to envisage a world without growth, something that is politically unacceptable in the developing world in any case. But Fritz is right, we need smarter, cleaner growth. As you yourself said last week, Christine, if we carry on as we are the next generation will be 'roasted, toasted, fried and grilled'."
Schumacher: "I couldn't have put it better myself."