While the pandemic caused by the SARS-COV-2 has united the world in common concern it has also exposed fault lines between rich and poor countries and magnified the inequalities in the world system and structures of global power. The severity of the crisis is not only an urgent call for immediate steps to help mitigate the economic fallout in developing countries, but should also open a space to think of radical questions about the global economic model and the limits of ‘liberal democracy’ beyond and perhaps in opposition to predominate forms of international exchange measured in capital[1].
The two main concerns for most societies worldwide are first how to mitigate the health impact of the virus and limit the number of fatalities and pressure on the public health infrastructure, and second how to mitigate the economic catastrophe that has resulted from the measures to address the first concern. For most societies in developing countries, the latter is a far more pressing concern despite the widespread consensus that many of the precautionary measures are necessary.
The pandemic has exposed the absurdity of national priorities and the fragility of the international economy system. Military spending by the United States government amounts to over $600 billion annually[2] and the United States maintains hundreds of military bases in over 80 countries around the world[3], yet in late March 2020 the US federal government and several US states were fighting over control of the limited supply of masks and ventilators crucial to fighting the epidemic[4]. Rich countries such as the US cannot escape the economic or health crisis but can throw money to address at least some aspects of their problems as evidenced by the recent $2 trillion stimulus in the US and other large spending bills in Germany, the UK and elsewhere[5].
For most developing countries however, there is much less scope for spending despite the necessity of mitigating the worst ravages of the pandemic and economic crisis on issues of food security, debt financing, public welfare and human development. International cooperation can help expand investment in research, and interventions to counter negative socioeconomic spillover. An internationally available and free vaccination available can save millions of lives in the poor countries even if they have inefficient health systems. There is no necessity nor time to solve all developing (or rich) country problems to address the urgent needs. Beyond these concerns however are broader questions: what are the lessons learned from the pandemic? What kind of political economy will emerge in the coming months and years and how will the narrative about the economic, political and social response be shaped?
Global South and Arab Middle East Region
Initially the spread of the virus, aside from China and Iran was most devastating in the rich countries particularly Western Europe and North America. Non peer-reviewed studies hypothesized the diverging trajectories in virus spread to differences in adoption of vaccinations, such as the childhood vaccine Bacillus Calmette-Guerin (BCG) as an explanation why it has had a greater toll in rich countries over poor ones[6]. So far however there is not sufficient data to explain the differences in the incidence and death rates.
However it is clear the virus will test the public health infrastructures of developing countries, and decades of austerity and neoliberal policies mean many countries are ill equipped. In Ecuador, the second hardest hit country in Latin America, “an ill-timed austerity package pushed by Mr. Moreno, the president, to assuage international creditors led to the firing of up to 3,500 public health workers last year[7]”. The New York Times has argued that the death toll there is 15 times higher than official data and is among the worst in the world[8].
For most developing countries, the economic crisis resulting from the pandemic could not have come at a worst time as many countries entered the last months of 2019 already in a fragile state. The total debt of developing countries in 2019 reached 191% of their GDP, much of this debt increasingly held by its private sector corporations, over 1/3rd of which is foreign owned and denominated in foreign currencies[9]. While many developing countries had held buffer foreign exchange reserves in the lead-up to the 2008 crisis, this has not been the case since the 2012 drop in commodity prices worldwide, and a significant amount of the reserves they hold result from borrowing rather than export earnings. As a result, the steep decline in demand, supply chain disruption, and outflows from emerging countries to safer assets are likely to have devastating consequences. UNCTAD estimates that net flows from February 21 to March 24th amounted to $54 billion more than twice the amount in the immediate aftermath of the 2008 financial crisis[10]. Heavily indebted countries and countries reliant on commodity exports, and FDI flows are likely to have serious economic shocks.
The economic secondary fallouts from the panic and devastation caused by the virus are already severe and will get worse. If it disrupts international cereal and food markets, the pandemic may increase food insecurity. This can occur because of agricultural exporters adopting export quotas, if the virus affects the agricultural labor force, or other logistical disruptions in food markets[11]. Lost revenue and economic contraction implies less ability to fund food imports. UNCTAD finds that low-income countries dedicate almost “37% of their merchandise export revenue” to food imports, or five times as much as developed countries[12]. While some of this disruption, such as export trade barriers in agriculture occurred in the aftermath of the 2007/2008 Great Financial Crisis (GFC), the crisis today is far deeper. However aside from the steeper decline, this crisis has hit far more sectors than the GFC. Lockdowns, curfews, closures bans and other strict measures have destroyed the service industries such as tourism, transportation, and hospitality. A few services such as ICT powered services, including “teleworking, video streaming, gaming and e-commerce platforms” mostly found in developed countries are likely to experience windfalls[13].
The economic damage for the poor in developing countries need to be addressed. They estimate full or partial lockdown measures to affect 2.7 billion workers or 80% of the world’s 3.3 billion workforce[14]. While the virus is disproportionately causing fatalities among the elderly the impact on the labor force might have severe and lasting consequences for youth, informal workers, and the poor. In 2019, before the onset of the crisis, the International Labor Organization found that 20% of those under 25, or 267 million youth worldwide are classified as NEET (not in employment, education or training). Young workers are the first to be laid off, more likely to be in the informal economy, have little or no savings. They are also more likely to work in industries, such as wholesale, retail, food sector, that are most vulnerable to the fallout from the pandemic[15].
Informal workers, who are not in formal employment schemes are unlikely to benefit from unemployment insurance, have less access to public health, work in sectors with high risk of infection particularly in urban areas, and are also influenced by lockdown measures. Reaching them must happen through other means. Social protection programs that rely on cash grants are the most effective means of supporting households with informal labor, and pre-existing schemes can be activated even if they exist for other purposes (such as child support for poor families). Though the fiscal space for developing countries is limited as of April 18th, 133 countries have planned or adopted social protection and job programs and over 1/3rd of overall protection measures involve cash transfers[16].
Countries in the Middle East region have also suffered the health of economic impact. In fact the ILO finds an 8% decline in working hours in the Arab States, the largest decline among comparison regions including Asia, Africa, the Americas, and Europe and Central Asia. The average declines in lower-middle income and upper-middle income respectively are 6.7% and 7%. Coinciding with the pandemic was a battle for prices and control of the oil market and OPEC between Saudi Arabia and Russia. The significant increase of daily production by Saudi Arabia, increasing by over 2 million barrels daily coupled with the sudden stop of the global economy sent oil prices into a free fall dropping from nearly $70 a barrel in January to less than $20 in a reverse oil shock[17]. For oil-exporting countries, particularly large ones such as Iraq and Algeria this has implied sharp decreases in revenue with little or increased change in public expenditure[18]. While lower oil prices help oil-importing countries, in the Arab Middle East they hurt both, since many oil importers also rely on labor remittances, direct investment, grants, and tourism from oil-exporting countries[19].
Migrant and informal labor in the Arab region countries are likely to be vulnerable, as they are on the front lines economically and health wise. Most of the essential services that allow ‘social distancing’ to middle-and upper-class families are performed by poor, informal or migrant labor across the region. Without the deep inequalities that characterize global societies which implies that millions of people cannot afford not to work, even at the risk of their lives, most people could not stay at home.
For over a month there have been calls for coordinated international responses to provide relief and liquidity support for developing countries. There have been many calls for a rapid ramp up of Special Drawing Rights (SDRs) an international asset issued by the International Monetary Fund that was meant to serve as a global currency[20]. For example, writing in the Financial Times, the leaders of 18 countries spanning Germany, Ethiopia, France, South Africa, Portugal, Italy, DRC, and others have called for a series of actions by multinational institutions:
“instate an immediate moratorium on all bilateral and multilateral debt payments, both public and private, until the pandemic has passed. To support this process and provide additional liquidity for the procurement of basic commodities and essential medical supplies, the IMF must decide immediately on the allocation of special drawing rights. [The leaders] also ask that all of Africa’s development partners ring-fence their development aid budgets[21].”
The World Bank has announced that it expects deploying $160 billion over the next 15 months to support developing countries, including fast tracking $1.9 billion projects to get under way in 25 countries and redeploying funds from other projects to address the pandemic consequences[22]. International institutions such as the IMF and others play a role in three processes crucial for developing country relief: injection of liquidity, restructuring of debt, and tighter capital controls. As Professor Jayati Ghosh has argued, this is a chance for the IMF and other multinational institutions to ‘redeem themselves’ given their long-standing austerity policies and safeguarding of financial players at the expense of poor societies[23].
A significant group of Latin American politicians and intellectuals have called for cancellation of Latin American debt by the IMF, World Bank and the Development Bank of Latin America (CAF) and a two year suspension of debt interest payments to international private creditors.
In the Middle East region, the IMF has already approved several countries for emergency loans to deal with the crisis. On March 26, 2020 the IMF Executive Board approved a 48 month program granting 270% allocation of Jordan’s SDR quota amounting to USD 1.3 billion or SDR 926.37 million. They designed the program before COVID-19 but gives the Jordanian government leeway to support unbudgeted spending with the possibility of further adjustments if the circumstances deteriorate further[24]. On April 8th, Morocco drew on a previous agreement with the IMF of about $3billion for emergency spending[25]. Somalia, considered a Highly Indebted Poor Country received approval on March 25th for a three-year financing package amounting to US$395.5 million[26]. On April 10th, the IMF Executive Board approved a disbursement of SDR 542 million for Tunisia (or 100% of its quota) through its Rapid Financing Instrument (a way of obtaining funds from IMF to deal with shocks to the economy without a new program) given that the Tunisian economy is expected to contract by 4.3 percent in 2020, its deepest recession since independence[27].
Several factors will influence the outcome of such multinational interventions. First, will the increase in IMF and World Bank lending and grants be a way to reassert their (and the power of US and EU) diminishing role since the Asian crisis or will it be a moment for rethinking the role of those institutions? The United States is still using its hegemonic position within the IMF to politicize increased access, blocking Iranian request for an emergency loan[28]. Or will China which has already passed the worse health and economic impact of the pandemic, continue to rise as the major global donor for developing countries?
Might this also prompt a return to the G-77 non-aligned era of using the United Nations as a forum for global policy deliberation? The Latin American call for debt relief discussed above also proposed the United nations General Assembly as the venue to discuss the international legal framework for the debt relief strategy[29]. Despite all attempts to undermine United Nations institutions, the leadership role taken on by the World Health Organization both in coordinating the pandemic response as well as serving as a voice of reason illustrates the continued importance and resilience of at least some international institutions in global governance.
Looking forward: A chance for Justice and Global Solidarity?
On the IMF side, it does not look like these agreements signal a shift in attitude towards long term policy. The language in the agreements with Jordan, Tunisia, and Morocco signal that the IMF views these measures as exceptional and a return to business as usual is needed. Even in the short run, Tunisia is said to have “taken steps to limit fiscal pressures, including a mechanism for automatic fuel price adjustment, emergency savings in the civil service wage bill, and a rescheduling of lower-priority public investment,” and that “the authorities are committed to resuming fiscal consolidation once the crisis abates[30].” The case of Lebanon illustrates that more than just aid is needed. The pandemic has sped up the deep economic problems of the country putting much of its population on the brink of deep poverty. Lebanon’s crisis illustrates that the way out of the crisis is not simply in the receipt of aid, as urgent as these are in the short run, but in decisively breaking away from the failing economic models that dominate in much of the region[31]. These policies have made the Middle East the region with the highest inequality in the world, according to the work of Thomas Pikkety and his colleagues[32].
A return to the previous economic models or modes of operation at the country, regional or international level is not possible and not desirable. In the wealthy countries, the pandemic response has increased xenophobia, racism, and diminished solidarity between countries. In an act labeled as international ‘piracy’, the United States diverted 200,000 masks headed for Germany.[33] However there have also been significant cases of altruism and solidarity initiatives. Hundreds of thousands of citizens in many countries have volunteered to support health, tasting, and tracing initiatives[34]. The key to the more effective outcomes not in the authoritarian nature of the state as some have argued but citizen confidence in state institutions. In Germany, reports on the extent citizen cooperation with the national antibody study, designed to minimize the spread and increase process tracing shows this trend and how citizens frame their participation is illustrative: “I want to help. This is a collective crisis. The government is doing what it can. Everyone needs to do their bit.” As the report argues “broad confidence in government has given Germany a tremendous advantage[35].” However initiatives do not just emanate from government, crucial ones have also incorporated civil society and individual initiatives that got fast tracked. In Massachusetts, the Republican Governor started the first contact-tracing program, which hires people to individually contact and trace the social interactions of those who were infected. The idea came from Partners in Health, a public health NGO co-founded by the renowned physician and writer Paul Farmer[36]. The German initiative apparently came to the founder Dr. Michael Hoelscher ‘in the shower.’
The next day, he said he wrote a short pitch to the Bavarian government. Six hours later, he had the green light. It took another three weeks until the test kits had arrived, a new lab was opened and teams of medics started fanning out across the city.
Bowles (2020) has recently argued that there is a coming battle for the narrative over COVID-19 and that a critical response from the left should go beyond traditional arguments for increased government intervention. COVID-19 not only exposes the limits of private sector, neoliberal policies according to Bowles but also the limitations of government action. Thinking about public policy should take into account the role of the third actor: community or civil society[37]. A traditional approach cannot capture the complexities of COVID response effectiveness. In the pandemic, individual responses, such as whether to respect the lockdown, has significant impact on the rest of the society. The degree to which individuals will respect the lockdown is not only influenced by their economic status and material needs but also by their trust in public institutions, and the degree of social solidarity or social capital, and community-based initiatives. As Bowles states”
“First, there is no way that government–however well organized and professional–can address challenges like this pandemic without a civic-minded citizenry that trusts the public health advice of its government and is committed to the rule of law. Second, people facing extraordinary risks and costs have indeed acted with generosity and trust on a massive scale. And third, the fact that the individualistic and self-interested depiction of people in economics has been shown to be wildly inaccurate may also be a cause for alarm: people may care about others in negative as well as positive ways. The frightening upsurge of xenophobic attacks is a warning[38].”
This conceptualization may be useful for heuristic purposes and analytical advocacy. In reality however, political economy analysis (in the radical tradition including the work of Bowles) has long argued that such neat separations do not exist, and that markets, states, and civil society are not distinct actors but mutually constituted. Rather it is perhaps more useful to think of the politics and policies that social forces and movements around the world can put forward to push the debate towards a more progressive and humane global political economy.
Social solidarity, equity of institutional outcomes, voice and representation, a productive rather than parasitic or rentier economy, are all factors that played a crucial role into the effectiveness of the response to COVID. These are also positives for non-pandemic times. The transnational spread of the virus is also a chance for renewed push for global solidarity. The outcome, of who will win the narrative and public policy response in the pandemic’s aftermath is not pre-determined.
[1] Omar S. Dahi, the author would like to thank Pete Moore, Rabie Nasser, Nabil Marzouk and Amr Dukmak for comments on a previous draft
[2] SIPRI 2018
[3] https://www.thenation.com/article/archive/the-us-has-military-bases-in-172-countries-all-of-them-must-close/
[4] https://www.nytimes.com/reuters/2020/03/27/us/politics/27reuters-health-coronavirus-michigan.html
[5] https://www.ft.com/content/26af5520-6793-11ea-800d-da70cff6e4d3
[6] https://www.medrxiv.org/content/10.1101/2020.03.24.20042937v1; https://thewire.in/health/tracking-covid-19-in-india-the-bcg-hypothesis
[7] https://www.nytimes.com/2020/04/08/world/americas/ecuador-coronavirus.html
[8] https://www.nytimes.com/2020/04/23/world/americas/ecuador-deaths-coronavirus.html
[9] UNCTAD Trade and Development Report Update March 9, 2020 “The Coronavirus shock: a story of another global crisis foretold and what policymakers should be doing about it”
[10] UNCTAD Trade and Development Report Update March 30, 2020 “The Covid Shock to developing countries: towards a whatever it takes programme for two-thirds of the world’s population left behind.”
[11] https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2331
[13] https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2327
[14] https://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/documents/briefingnote/wcms_740877.pdf
[15] https://iloblog.org/2020/04/15/young-workers-will-be-hit-hard-by-covid-19s-economic-fallout/
[16] http://www.ugogentilini.net/
[17] https://www.theguardian.com/world/2020/mar/11/saudi-arabia-oil-price-war-production-increase-aramco
[18] https://thmanyah.com/4464/; https://www.cnbc.com/2020/03/17/opec-iea-warn-some-nations-could-lose-up-to-85percent-of-oil-and-gas-income.html
[19] https://www.worldbank.org/en/region/mena/brief/coping-with-a-dual-shock-coronavirus-covid-19-and-oil-prices
[20] https://ftalphaville.ft.com/2020/03/20/1584709367000/It-s-time-for-a-major-issuance-of-the-IMF-s-Special-Drawing-Rights/
[21] https://www.ft.com/content/8f76a4c6-7d7a-11ea-82f6-150830b3b99a
[22] https://www.worldbank.org/en/news/feature/2020/04/02/the-world-bank-group-moves-quickly-to-help-countries-respond-to-covid-19#
[23] https://www.project-syndicate.org/commentary/how-imf-can-lead-global-covid19-response-by-jayati-ghosh-2020-04
[24] https://www.imf.org/en/News/Articles/2020/03/25/pr20107-jordan-imf-executive-board-approves-us-1-3-bn-extended-arrangement-under-the-eff
[25] https://www.imf.org/en/News/Articles/2020/04/08/pr20138-morocco-draws-funds-available-under-precautionary-liquidity-line-covid19-pandemic
[26] https://www.imf.org/en/News/Articles/2020/03/25/pr20105-somalia-imf-executive-board-approves-3-year-ecf-and-eff-arrangements
[27] https://www.imf.org/en/News/Articles/2020/04/10/pr20144-tunisia-imf-executive-board-approves-a-us-745m-disbursement-address-covid19-pandemic
[28]https://www.ips-journal.eu/regions/middle-east/article/show/the-corona-crisis-could-trigger-a-change-in-irans-foreign-policy-4298/; https://www.reuters.com/article/us-imf-worldbank-sdrs/u-s-stalling-massive-imf-liquidity-boost-over-iran-china-sources-idUSKCN21X0L8
[29] https://www.celag.org/la-hora-de-la-condonacion-de-la-deuda-para-america-latina/
[30] https://www.imf.org/en/News/Articles/2020/04/10/pr20144-tunisia-imf-executive-board-approves-a-us-745m-disbursement-address-covid19-pandemic
[31] https://synaps.network/post/lebanon-finance-economy-ponzi-bankrupt
[32] https://wid.world/document/alvaredoassouadpiketty-middleeast-widworldwp201715/
[33] https://www.bbc.com/news/world-52161995
[34] Quoted in Bowles (2020): https://www.england.nhs.uk/participation/get-involved/volunteering/nhs-volunteer-responders/; See also Massachusetts labor intensive social tracing method: https://www.nytimes.com/2020/04/16/us/coronavirus-massachusetts-contact-tracing.html
[35] https://www.nytimes.com/2020/04/18/world/europe/with-broad-random-tests-for-antibodies-germany-seeks-path-out-of-lockdown.html
[36] https://www.nytimes.com/2020/04/16/us/coronavirus-massachusetts-contact-tracing.html
[37] https://voxeu.org/article/coming-battle-covid-19-narrative
[38] Ibid.