The ostrich technique
Not wanting to see problems does not help to solve them, and yet we sometimes stick our heads in the ground like ostriches do when danger threatens them. This is not a good idea in a world where the 2008 financial crisis, the Covid pandemic and now the war in Ukraine are increasing inequality and poverty, so that the least favoured countries are developing a serious debt problem that is becoming extremely serious and may end up affecting us all.
When the G-20 (which brings together countries whose economies account for 85% of world GDP) met in 2020, it was more willing than effective to create a mechanism known as the Common Framework to facilitate the restructuring of the debt of some vulnerable countries. However, the procedure devised at the time has proved to be very slow, cumbersome and basically ineffective, requiring endless consultations and agreements with the World Bank, the International Monetary Fund and private creditors, and as a result has only been used by Chad, Ethiopia and Zambia. In fact, only the latter country seems to be in a position to successfully conclude these arduous negotiations. At least so far.
And as a result, the problem has only worsened over the past two years with the passage of time and the impact of the pandemic and the war in Europe on the global economy. The most recent G-20 meeting, last November in Bali, was dominated by political issues such as the invasion of Ukraine, Putin's absence and the meeting between Xi Jinping and Joe Biden. But as the debt problem of some countries is serious, worsening and leaving them unable to breathe, he had no choice but to express his concern, although without being able to put solutions on the table because he had to recognise that there is no unanimity on how to approach it, since at least one member country (China) has "other points of view". And because the current moment of uncertainty and inflation does not encourage gestures of generosity and solidarity with the most vulnerable. The same was true of the latest edition of the Climate Conference in Cairo, which ended up talking more about not moving backwards than moving forwards. As is often the case, what is urgent ends up pushing what is really important off the agenda.
It is estimated that the poorest countries owe the richest countries, banks and private creditors an estimated $200 billion and will not be able to pay it back because inflation, the war in Ukraine, rising interest rates and the strong dollar are creating a perfect storm that has not only pushed 100 million people into poverty already this year, but will push their debt levels higher and make it harder to borrow against it. The result is that the World Bank estimates that as many as a dozen countries may have to declare bankruptcy by 2023 as energy and food prices continue to rise and first world money flows continue to fall. A bad situation for all, for some because it will reduce their exports and may slow overall economic growth, and for others because the lack of liquidity will force belt-tightening and lead to hunger, social unrest, possible riots and increased emigration. Already this year Sri Lanka's insolvency situation has led it to a barter system and to paying for Iranian oil with tea leaves, because that was the only way available.
Curiously, one obstacle to solving the problem of some countries lies in the self-interested generosity with which China finances Silk Road projects (such as ports in Sri Lanka or Pakistan) under conditions described as "predatory" and "opaque", which means that the beneficiaries cannot pay them back and that it is very difficult to renegotiate them. In any case, and despite the seriousness of the situation for some specific countries, the World Bank does not believe that it will lead to a global default crisis like the one that occurred in the 1980s when some Latin American countries were unable to pay their foreign debt.
The great digital revolution in which we are immersed will further aggravate the situation between rich and poor because it will further separate the countries that join it from those that just watch it happen. Thus, it is estimated that Artificial Intelligence will add $15 trillion to global GDP by 2030, with half of that sum staying in China, a quarter in the US and the rest distributed unevenly across some countries in the rest of the world.
The situation is urgent, it is imperative to help the poorest countries that are already in dire straits so that they do not drown, because they are getting worse with each passing day and this is ultimately bad for everyone, both from an economic and ethical point of view, which is also important. Or should be.