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Developing country solidarity needed to overcome pandemic

Jomo Kwame Sundaram and Anis Chowdhury

KUALA LUMPUR and SYDNEY: As rich countries have delayed contagion containment, including mass vaccination, in developing countries, much weaker fiscal efforts in the South have worsened the growing world pandemic apartheid.

Lessons from first wave

Despite limited fiscal resources and modest external support, government efforts also need to address unsustainability, inequality and other problems due to extant economic, social and environmental arrangements.

Early relief and recovery measures assumed that the pandemic would be short-lived and reversible. Hence, such measures were rarely sustained, let alone expanded in developing countries despite the growing need for them.

Appropriate social protection measures are needed for the longer term beyond those deemed temporarily necessary. The adverse effects of livelihood disruptions should be mitigated with income maintenance for employees and the self-employed whose livelihoods have been severely jeopardised.

Governments must try to maintain family incomes, enabling them to spend to survive, thus keeping the economy ticking and businesses afloat. With effective contagion containment, such programmes enable earlier resumption of economic activities, i.e., recovery.

Sustaining businesses, nurturing economies

A few, mainly developed countries have tried to minimise business destruction, worker layoffs and welfare losses. Developing country governments must also help revive and sustain economies and livelihoods to prevent pandemic recessions from becoming protracted depressions.

Few businesses and sectors can survive without adapting. Business survival options could include redeployment, infrastructure and facility repurposing, and staff retraining. Other options include additional credit to businesses, tax payment deferrals and even social protection.

Many businesses, especially those with less reserves, need help avoiding liquidation and paying employees. Governments may need to consider adapting American bankruptcy law to enable businesses to continue operating to work themselves out of temporary pandemic predicaments.

As early as April 2020, the pandemic had hit many businesses in over 130 countries, particularly small and medium-sized enterprises. Two of three were hard hit globally as well as in Africa, with a fifth expecting to close within a quarter!

Of course, more lending and tax breaks mainly benefit the better-off, rather than those in greatest need, most vulnerable or adversely affected.

Although policymakers typically insist on targeting and means-testing for the poor, they rarely demand the same for businesses. But some ‘easy’ targeting is desirable to identify needy, but salvageable businesses.

One size cannot fit all

Business disruption has broader implications, threatening national economies. If relations necessary for viable economic transactionssuch as trust among entrepreneurs, workers and customers – are disrupted, they will need to be rebuilt, typically requiring much time and expense.

Such ‘transactions costs’ incurred in building trust, seeking and keeping clients and customers, obtaining credit, recruiting workers and sustaining other longer-term relations are typically ignored. Hence, conventional economics is considered a poor guide to understanding the economy and designing policy.

Keynesian economists typically saw governments as the ‘employer-of-last-resort’ in response to economic downturns. But governments can also help by becoming ‘payers-of-last-resort’, enabling businesses to remain solvent, e.g., on condition of keeping, instead of firing involuntarily idle workers.

Conditions for access to policy support should be strict enough to deter abuse, but not participation. Strict verification and correction can wait, even until after the worse is over.

Disbursed state grants or subsidies, later found excessive, can be converted low interest loans. Governments can recover these later, rather than treat beneficiaries as fraudulent criminals.

Economies are certainly not homogeneous, monolithic or unchanging. And COVID-19 slowdowns are unlike previous recessions. As these are invariably uneven in impact, various sectors, industries and businesses are affected differently.

Hence, no single policy can possibly be suitable for all countries, at all times. Much has to be learnt quickly ‘by doing’, i.e., from experience, including those of others. Lessons may be both positive and negative, and rapid learning is crucial for improving policy design and implementation.

Who can we count on?

Without both effective contagion containment and mass vaccination, it will be impossible to control the pandemic. And with little external support, containment, relief and recovery measures in low- and middle-income countries (LMICs) will be all the more difficult.

Thus, the worst is yet to come in the global South, which must now brace itself for the dire consequences of delayed pandemic suppression and limited fiscal efforts. Meanwhile, the North seems unmoved by the International Monetary Fund’s warning of a dangerous new economic divergence globally.

The 870 million vaccines that the world’s seven richest large nations (G7) pledged to poor countries last month will immunise half that number, from late 2021. This is only eight percent of the 11 billion doses needed, noted former UK Prime Minister Gordon Brown.

But despite ungenerous rich Western countries, the Fund has called for US$50bn to accelerate vaccination worldwide. It expects this to end the pandemic, enhance global output by US$9 trillion, and yield a trillion in additional tax revenue.

LMICs need to urgently respond to fast spreading pandemic surges. They also need to do so effectively, feasibly and equitably, expecting little help from the North. Domestic borrowing – enabled by central banks, sound policy design and South-South cooperation – will be crucial to success in these circumstances.

Relief, recovery, reform

With delays, new, more dangerous COVID-19 variants will threaten developing countries, as more effective contagion containment and fiscal efforts are slowed by the North. These will exacerbate avoidable tragedies and old inequalities.

Developing countries have no choice but to get the economy going despite reduced fiscal and monetary space and more debt. Greater government spending to address the pandemic can be financed with more domestic borrowing from central banks.

Foreign exchange is mainly needed to service foreign debt and pay import bills. Forex requirements can also be reduced by swap arrangements and restricting non-essential imports. Greater South-South cooperation can also enhance resilience and rebuilding for the future.

Recovery should not simply mean a return to the status quo ante. The decade before the pandemic left much to be desired, and there is little reason to restore it. The unsustainable, financialised and unequal pre-pandemic economy should be transformed to achieve more equitable and sustainable development.

After all, the North now undermines the very globalisation it once imposed on the South. Hence, it is imperative to instead establish new, more equitable, pacifist and principled international relations, under multilateral auspices, promoting cooperation.

Related IPS commentaries

Paltry International Support for Spending Needs Sets South Further Back. 8 June 2021.

Pandemic Relief Policies Need More Resources, Better Design. 1 June 2021.

IMF, World Bank Must Support Developing Countries’ Recovery. 6 April 2021.

IMF, World Bank Must Urgently Help Finance Developing Countries. 30 March 2021.

Developing Countries Desperately Need COVID-19 Financing. 25 March 2021.

End Vaccine Apartheid Before Millions More Die. 23 March 2021.

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