IMF, World Bank must urgently help finance developing countries

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR: COVID-19 has set back the uneven progress of recent decades, directly causing more than two million deaths. The slowdown, due to the pandemic and policy responses, has pushed hundreds of millions more into poverty, hunger and worse, also deepening many inequalities.

Development setbacks

The outlook for developing countries is grim, with output losses of 5.7% in 2020. Compared to pre-pandemic trends, the expected 8.1% loss by end-2021 will be much worse than advanced countries dropping 4.7%.

COVID-19 has further set back progress towards the Sustainable Development Goals (SDGs). As progress was largely ‘not on track’ even before the pandemic, developing countries will need much support to mitigate the new setbacks, let alone get back on track.

The extremely poor, defined by the World Bank as those with incomes under US$1.90/day, increased by 119–124 million in 2020, and are expected to rise by another 143-163 million in 2021.

Fiscal response constrained

Global fiscal efforts of close to US$14tn, plus low interest rates, liquidity injections and asset purchases by central banks, have helped. Nonetheless, the world economy will lose over US$22 trillion during 2020–2025 due to the pandemic.

Government responses have been much influenced by access to finance. Developed countries have accounted for four-fifths of total pandemic fiscal responses costing US$14tn. Rich countries have deployed the equivalent of a fifth of national income for fiscal efforts.

Meanwhile, emerging market economies spent only 5%, and low-income countries (LICs) a paltry 1.3% by mid-2020. In 2020, increased spending, despite reduced revenue, raised fiscal deficits of emerging market and middle-income countries (MICs) to 10.3%, and of LICs to 5.7%.

Government revenue has fallen due to lower output, commodity prices and longstanding Bank advice to cut taxes. Worse, they already face heavy debt burdens and onerous borrowing costs. Meanwhile, private finance dropped US$700bn in 2020.

Developing countries lost portfolio outflows of US$103bn in the first five months. Foreign direct investment (FDI) flows to emerging and developing countries also fell 30–45% in 2020. Meanwhile, bilateral donors cut aid commitments by 36% between 2019 and 2020.

Meanwhile, the liquidity support, debt relief and finance available are woefully inadequate. These constrain LICs’ fiscal efforts, with many even cutting spending, worsening medium-term recovery prospects!

Debt burdens

In 2019, the International Monetary Fund (IMF) assessed half the LICs as being at high risk of, or already in debt distress – more than double the 2013 share. Debt in LICs rose to 65% of GDP in 2019 from 47% in 2010.

Thus, LICs began the pandemic with more debt relative to government revenue, larger deficits and higher borrowing costs than high-income countries. And now, greater fiscal deficits of US$2–3tn projected for 2021 imply more debt.

Debt composition has become riskier with more commercial borrowing, particularly with foreign currency bond issues far outpacing other financing sources, especially official development assistance (ODA) and multilateral lending.

More than half of LIC government debt is non-concessional, worsening its implications. External debt maturity periods have also decreased. Also, interest payments cost more than 12% of government revenue in 2018, compared to under 7% in 2010.

Riskier financial flows

Developing economies have increasingly had to borrow on commercial terms in transnational financial markets as international public finance flows and access to concessional resources have declined.

Low interest rates, due to unconventional monetary policies in developed countries, encouraged borrowing by developing countries, especially by upper MICs. But despite generally low interest rates internationally, LIC external debt rates have been rising.

Overall ODA flows – net of repayments of principal – from OECD countries fell in 2017 and 2018. Such flows have long fallen short of the financing needs of Agenda 2030 for the SDGs. Instead of giving 0.7% of their national income as ODA to developing countries, as long promised, actual ODA disbursed has yet to even reach half this level.

Although total financial resource flows (ODA, FDI, remittances) to least developed countries (LDCs) increased slightly, ODA remained well short of their needs, falling from 9.4% of LDCs’ GNI in 2003 to 4.3% in 2018. Meanwhile, FDI to LDCs dropped from 4.1% of their GNI in 2003 to 2.3% in 2018.

There has also been a shift away from ‘traditional’ creditors, including multilateral financial institutions and rich country Paris Club members. Some donor governments increasingly use aid to promote private business interests. ‘Blended finance’ was supposed to turn billions of aid dollars into trillions in development finance.

But the private finance actually mobilised has been modest, about US$20bn a year – well below the urgent spending needs of LICs and MICs, and less than a quarter of ODA in 2017. Such changes have further reduced recipient government policy discretion.

Inadequate support

The 2020 IMF cancellation of US$213.5m in debt service payments due from 25 eligible LICs was welcome. But the G20 debt service suspension initiative (DSSI) was grossly inadequate, merely kicking the can down the road. It did not cancel any debt, with interest continuing to accrue during the all-too-brief suspension period.

The G20 initiative hardly addressed urgent needs, while private creditors refused to cooperate. Only meant for LICs, it did not address problems facing MICs. Many MICs also face huge debt, with upper MICs alone having US$2.0–2.3tn in 2020–2021.

World Bank President David Malpass has expressed concerns that any change to normal debt servicing would negatively impact the Bank’s standing in financial markets, where it issues bonds to finance loans to MICs.

The Bank Group has made available US$160bn for the period April 2020 to June 2021, but moved too slowly with its Pandemic Emergency Financing Facility (PEF). By the time it paid out US$196m, the amount was deemed too small and contagion had spread.

Special Drawing Rights

Issuing US$650bn worth of new special drawing rights (SDRs) will augment the IMF’s US$1tn lending capacity, already inadequate before the pandemic. But US$650bn in SDRs is only half the new SDR1tn (US$1.37tn) The Financial Times considers necessary given the scale of the problem.

To help, rich countries could transfer unused SDRs to IMF special funds for LICs, such as the Poverty Reduction and Growth Trust (PRGT) and the Catastrophe Containment and Relief Trust (CCRT), or for development finance.

Similar arrangements can be made for the Bank. A World Bank version of the IMF’s CCRT could ensure uninterrupted debt servicing while providing relief to countries in need. Investors in Bank bonds would appreciate the distinction.

Hence, issuing SDRs and making other institutional reforms at the Spring meetings in April could enable much more Fund and Bank financial intermediation. These can greatly help finance urgently needed pandemic relief, recovery and reforms in developing countries.

Related IPS commentaries

“Developing Countries Struggling To Cope With COVID-19”. 23 Feb. 2021. https://www.ipsnews.net/2021/02/developing-countries-struggling-cope-covid-19/

“Multilateral Bank Intermediation Must Help Developing Countries’ Recovery”. 7 Aug. 2020. https://www.ipsnews.net/2020/08/multilateral-bank-intermediation-must-help-developing-countries-recovery/

“Fight Pandemic, Not Windmills of the Mind”. 28 July 2020. https://www.ipsnews.net/2020/07/fight-pandemic-not-windmills-mind/

“Covid-19 Compounds Developing Country Debt Burdens”. 23 July 2020. https://www.ipsnews.net/2020/07/covid-19-compounds-developing-country-debt-burdens/

End vaccine apartheid before millions more die

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY & KUALA LUMPUR: At least 85 poor countries will not have significant access to coronavirus vaccines before 2023. Unfortunately, a year’s delay will cause an estimated 2.5 million avoidable deaths in low and lower-middle income countries. As the World Health Organization (WHO) Director-General has put it, the world is at the brink of a catastrophic moral failure.

Vaccine apartheid

The EU, US, UK, Switzerland, Canada and their allies continue to block the developing country proposal to temporarily suspend the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement to enable greatly increased, affordable supplies of COVID-19 vaccines, drugs, tests and equipment.

Meanwhile, 6.4 billion of the 12.5 billion vaccine doses the main producers plan to produce in 2021 have already been pre-ordered, mostly by these countries, with 13% of the global population.

Thirty two European and other rich countries also have options to order more, while Australia and Canada have already secured supplies enough for five times their populations. Poor countries, often charged higher prices, simply cannot compete.

Big Pharma has also refused to join the voluntary knowledge sharing and patent pooling COVID-19 Technology Access Pool (C-TAP) initiative under WHO auspices. Thomas Cueni, International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) Director General, snubbed the launch, claiming he was “too busy”.

Pfizer’s CEO dismissed C-TAP as “nonsense” and “dangerous”, while the AstraZeneca CEO insisted, “IP is a fundamental part of our industry”. Such attitudes help explain some problems of alternative vaccine distribution arrangements such as COVAX. According to its own board, there is a high chance that COVAX could fail.

Suppressing vaccine access

Despite knowing that many developing countries have much idle capacity, Cueni falsely claims the waiver “would do nothing to expand access to vaccines or to boost global manufacturing capacity”, and would jeopardise innovation and vaccine research.

Big Pharma claims manufacturing vaccines via compulsory licensing or a TRIPS waiver “would undermine innovation and raise the risk of unsafe viruses”. US Big Pharma representatives wrote to President Biden earlier this month claiming likewise.

Both Salk and Sabin made their polio vaccine discoveries patent-free, while many contemporary vaccine researchers are against Big Pharma’s greedy conduct only rewarding IP holders regardless of the varied, but crucial contributions of others.

Big Pharma’s price gouging

Vaccine companies require contract prices be kept secret. In return for discounts, the EU agreed to keep prices confidential. Nonetheless, some negotiated prices were inadvertently revealed, with a UNICEF chart listing prices from various sources.

Reputedly the cheapest vaccine available, Oxford-Astra Zeneca’s is sold to EU members for around US$2 each. Although trials were done in South Africa, it still pays more than twice as much, while Uganda, even poorer, pays over four times as much!

US negotiated bulk prices, for Moderna and Pfizer-BioNTech vaccines, are much higher, at US$15.25–19.50 per dose in several contracts, yielding 60–80% profit margins! Moderna will charge the rest of the world US$25–37 per dose.

Hypocrisy

Quite understandably, most developed countries opposing temporary TRIPS suspension have provisions in their own IP laws to suspend patent protection in the national interest and for public health emergencies.

Canada, Germany, France and others have recently strengthened their patent laws to issue compulsory licences for COVID-19 vaccines and drugs. European Council President Charles Michel announced that the EU could adopt “urgent measures” by invoking emergency provisions in its treaties.

Similarly, in the US, 28 US Code sec. 1498 (a) allows the government to make or use any invention without the patentee’s permission. To handle emergencies, the 1977 UK Patents Act (section 55) allows the government to sell a patented product, including specific drugs, medicines or medical devices, without the patentee’s consent.

When avian flu threatened early this century, the US was the only country in the world to issue compulsory licences to US manufacturers to produce Tamiflu to protect its entire population of over 300 million. The drugs were not used as the virus was not brought over either Pacific or Atlantic Oceans.

Biden must act

By helping developing countries expand vaccine manufacturing capacity and access existing capacity, US President Biden can earn much world appreciation overnight. US law and precedence enables such a unilateral initiative.

The Bayh-Dole Act allows the US government to require the owner or exclusive licensee of a patent, created with federal funding, to grant a third party a licence to an invention. Moderna received about US$2.5 billion from Operation Warp Speed, which dispensed over US$10 billion.

Moderna was founded in 2010 by university researchers with support from a venture capitalist. It has focused on mRNA technology, building on earlier work by University of Pennsylvania scientists with National Institutes for Health (NIH) funding.

The vaccine developer also used technology for previous coronavirus vaccines developed by the NIH. The NIH also provided extensive logistical support, overseeing clinical trials for tens of thousands. Moderna has already announced it will not enforce its patents during the pandemic.

Thus, POTUS has the needed leverage. The Bayh-Dole Act applies to Moderna’s vaccine, enabling the Biden administration to act independently and decisively against vaccine apartheid.

Sharing knowledge crucial

Developing countries not only need to have the right to produce vaccines, but also the requisite technical knowledge and information. Hence, the Biden administration should also support C-TAP, as recommended by Dr Anthony Fauci.

When the Medicines Patent Pool (MPP) was in similar trouble, the Obama administration came forward to put US-owned patents into the pool while encouraging drug companies to help improve developing countries’ access to medicines.

President Biden knows that early US support was critical for the MPP’s eventual success. It dramatically increased production and lowered prices of medicines for HIV, tuberculosis, hepatitis C and other infectious diseases in developing countries.

Magellan, Inquisition and Globalisation

by Felice Noelle Rodriguez and Jomo Kwame Sundaram

copyright for images retained by Ahmad Fuad Osman

KUALA LUMPUR: Globalisation’s beginnings are symbolised by Ferdinand Magellan’s near circumnavigation of the world half a millennium ago. But its history is not simply of connection and trade, but also of intolerance, exploitation, slavery, violence, aggression and genocide.

Sculpture of Enrique de Malacca <ahmadfuadosman.com>

Magalhães, conquistador

The Philippines today struggles with this history. Some Filipinos highlight the warm native reception extended to Magellan’s fleet and the first Catholic mass, reminiscent of American Thanksgiving mythology. For others, native resistance to conquistador aggression, captured by Danilo Madrid Gerona’s biography of Magellan, is more memorable.

In 1494CE, Pope Alexander VI, now of Borgias TV series infamy, united the Iberian Catholic kings behind the Inquisition. His Tordesillas treaty, after Christopher Columbus’ 1492 ‘discovery’ of the New World under Spanish royal auspices, gave the Portuguese rights to Brazil and all lands east of it, with Spain getting the rest of the Americas.

Vasco da Gama reached India in 1498 with the help of an Arab trader. In February 1502, he returned to demand that the ruler of Calicut (Kozhikode) expel all Muslims. When rejected, da Gama bombarded the port city and severely maimed those he captured.

Under Portugal’s second Viceroy to the East, Afonso d’Albuquerque, Fernão de Magalhãesdistinguished himself in several Portuguese naval sieges, attacks and sackings of ports in southern India and beyond.

Portugal had its eyes on Malacca well before arriving there. For the Portuguese chronicler Tome Pires, Malacca then was the greatest port in the world. Magalhães arrived with the first Portuguese expedition to Malacca in 1509, returning in 1511 with a thousand men under Albuquerque’s commandto capture it.

Magalhães was later injured in the 1513 Portuguese invasion of the Maghrib (Morocco). This aggression had begun almost a century earlier under the legendary Prince Henrique, Henry the Navigator. Later, after failing to get what he believed to be his due, Magalhães moved in 1517 to Sevilla, the base of the Spanish Inquisition and navy.

Magallanes, near circumnavigator

As Ferdinand Magallanes, he persuaded Spanish King Carlos V to sponsor his proposed circumnavigation to get to the Moluccas spice islands in Southeast Asia by sailing west, as allowed by the Tordesillas treaty. The monarch provided him with five ships, crew and provisions for the expedition.

On 16th March 1521, Magallanes’ depleted fleet of three ships arrived in the eastern Visayas in the central Philippines. The ships had sailed through the straits at the southern tip of the Americas which now bears his name. Sailing on to Cebu, he demanded native acceptance of his God and King, plus tribute.

He twice attacked the small neighbouring island of Mactan, where the Cebu airport now is, razing two villages who did not comply. Anticipating the third attack before dawn on 27th April, Lapulapu – a local leader, with the name of a grouper fish species – prepared to resist.

Over-confident and arrogant, Magallanes shunned offers of reinforcements. Lapulapu’s mobilised village defence force greatly outnumbered and prevailed against his. Thus, the 500thanniversary recalls a rare victory for native resistance against the conquistador.

Of the five ships in his original fleet, only the smallest, Victoria eventually returned to Spain in 1522 under Spaniard Juan Sebastian Elcano. Nevertheless, despite the loss of most of his ships and many crew, the King still made a huge profit.

Slave, the first circumnavigator?

But there is another, largely untold story. After the Portuguese conquest of Malacca in 1511, Magalhães left with a captured teenage slave, whose original name no one knows. Perhaps to honour Henry the Navigator, Magellan renamed him ‘anRyk’, probably a Catalan version of the name.

A favourite slave of Magellan, anRyk served as his interpreter and was to be freed upon his death. However, the ship’s captain refused to honour the will. Unsurprisingly, anRyk deserted. Thus, he may well have become the first to circumnavigate Earth, as some claim he returned to live out his life near Malacca, avoiding the Portuguese there.

In 1957, a history teacher in Singapore named Harun Aminurrashid published a novel to inspire children in the newly independent Malaya. The hero was a character loosely based on what was known about anRyk, whom he lionised as Panglima (Commander) Awang.

Thus, we have the heroic figure of Panglima Awang. Almost Spartacus-like, the captured defeated slave becomes the hero. Recent portraits as well as a sculpture of Enrique da Malacca by the Malaysian multimedia artist Ahmad Fuad Osman strengthen this image.

A Man of All Nations

Today, anRyk is claimed by several contemporary Southeast Asian nation states. Some Malaysian historians have reified the fictive Panglima Awang. Thus, Malaysian memorialisation has involved not only making history from fiction, but also creating new myths from history.

Indonesian claims rely on self-appointed Magellan chronicler Antonio Pigafetta’s suggestion that anRyk was from Sumatera; others claim he was from the Moluccas, Maluku today. Some Filipinos insist he stayed there, becoming Filipino before there was even a Philippines. More than anyone else, anRyk symbolises island Southeast Asia, the Nusantara.

In Iberia, in Europe, in the West, there is a subtle debate over personalities and dates. For the Portuguese, the circumnavigation began under Magellan’s leadership in 1519. For their neighbours, the Spaniard Elcano led the Victoria back in 1522. His diverse crew allows pan-European claims, ignoring most slaves, presumably of colour, who were not deemed worthy of mention in the official ship manifests.

Imperialism today is, in many ways, a far cry from what it was five centuries ago. Yet, there are many continuities and parallels, including racisms, cultural, including religious intolerance, exploitations and oppressions of various types despite changing forms, relations and even vocabularies.

The voyages of exploration and conquest were driven by greed. Nonetheless, God, king and country have been readily invoked to legitimise avarice and atrocities. Invoking 21st century intellectual property norms, globalisation today involves vaccine imperialism, apartheid and genocide.

Dr Felice Noelle Rodriguez is a Filipina historian. She is now a Scholar-in-Residence in Kuala Lumpur and Visiting Fellow at the Ateneo de Zamboanga University.

Portrait of the slave circumnavigator <enriquedemalacca.com>