As the year 2022 drew to an end, the United Nations Conference on Trade and Development (UNCTAD) warned, “Developing countries face ‘impossible trade-off’ on debt
”, that spiralling debt in low and middle-income countries (LMICs) has compromised their chances of sustainable development.
Inflation worries topped Ipsos’s What Worries the World survey
in 2022 overtaking COVID concerns. The return of inflation caught major central banks, e.g., the US Federal Reserve (Fed), Bank of England, European Central Bank “off guard
”. The persistence of inflation also surprised
the International Monetary Fund (IMF). The return of inflation and its persistence exposed the poverty of the economics profession, unable to agree on its causes and required policy responses. It also exposed the profession’s anti-working class biases.
2022 has been a year of great uncertainty when it seemed the world perilously reached the brink of self-destruction – be it human-induced climate change or military conflict. Welcoming 2022, we had enough reasons to be optimistic; but it was another ‘year of living dangerously’ – Tahun vivere pericoloso
in the words of Soekarno, or an annus horribilis
in the words of the late Queen Elizabeth.
Developing countries have long been told to avoid borrowing from central banks (CBs) to finance government spending. Many have even legislated against CB financing of fiscal expenditure.
Central bank fiscal financing
Such laws are supposedly needed to curb inflation – below 5%, if not 2% – to accelerate growth. These arrangements have also constrained a potential CB developmental role and government ability to respond better to crises.
Widespread adverse reactions to the UK government’s recent ‘mini-budget’ forced new Prime Minister Liz Truss to resign. The episode highlighted problems of macroeconomic policy coordination and the interests involved.
Preoccupied with enhancing their own ‘credibility’ and reputations, central banks (CBs) are again driving the world economy into recession, financial turmoil and debt crises.
The dogmatic obsession with and focus on fighting inflation in rich countries are pushing the world economy into recession
, with many dire consequences, especially for poorer countries. This phobia is due to myths shared by most central bankers.
Central banks (CBs) around the world – led by the US Fed, European Central Bank and Bank of England – are raising interest rates, ostensibly to check inflation. The ensuing race to the bottom is hastening world economic recession.
Inflation phobia among central banks (CBs) is dragging economies into recession and debt crises. Their dogmatic beliefs prevent them from doing right. Instead, they take their cues from Washington: the US Fed, Treasury and Bretton Woods institutions (BWIs).
Policymakers have become obsessed with achieving low inflation. Many central banks adopt inflation targeting (IT) monetary policy (MP) frameworks in various ways. Some have mandates to keep inflation at 2% over the medium term. Many believe this ensures sustained long-term prosperity.
After a quarter century of economic stagnation, African economic recovery early in the 21st century was under great pressure even before the pandemic, due to new trade arrangements, falling commodity prices and severe environmental stress.
As rich countries raise interest rates in double-edged efforts to address inflation, developing countries are struggling to cope with slowdowns, inflation, higher interest rates and other costs, plus growing debt distress.
Most sub-Saharan African French colonies got formal independence in the 1960s. But their economies have progressed little, leaving most people in poverty, and generally worse off than in other post-colonial African economies.
Pre-Second World War colonial monetary arrangements were consolidated into the Colonies Françaises d’Afrique
) franc zone set up on 26 December 1945. Decolonization became inevitable after France’s defeat at Dien Bien Phu in 1954 and withdrawal from Algeria less than a decade later.
After four years of Trump’s ‘America first’ isolationism, US President Joe Biden announced “America is back
”. His White House has since tried to find allies against China and Russia.
But it has not found many, especially in the Global South. His summit with Southeast Asian
leaders was well attended, but promised little. Worse, his Summit of the Americas
revealed fading US influence in its long-time backyard.
Half a century after the 1970s’ stagflation, economies are slowing, even contracting, as prices rise again. Thus, the World Bank warns
, “Surging energy and food prices heighten the risk of a prolonged period of global stagflation reminiscent of the 1970s.”
In March, Reuters reported
, “With surging oil prices, concerns about the hawkishness of the Federal Reserve and fears of Russian aggression in Eastern Europe, the mood on Wall Street feels like a return to the 1970s”.
The world economy is on the brink of outright recession, according to the International Monetary Fund
(IMF). The Ukraine war and sanctions have scuttled recovery from the COVID-19 pandemic.
Colonial-style currency board arrangements
have enabled continuing imperialist exploitation
decades after the end of formal colonial rule. Such neo-colonial monetary systems persist despite modest reforms.
Like so many others, Africans have long been misled. Alleged progress under imperialism has long been used to legitimize exploitation. Meanwhile, Western colonial powers have been replaced by neo-colonial governments and international institutions serving their interests.
Joining or ratifying dubious trade deals is supposed to offer miraculous solutions to recent lacklustre economic progress. Such naïve advocacy is misleading at best, and downright irresponsible, even reckless, at worst.
TPP ‘pivot to Asia’
US President Barack Obama’s ‘pivot to Asia’ after his 2012 re-election sought to check China’s sustained economic growth and technological progress. Its economic centrepiece was the Trans-Pacific Partnership (TPP).
Long a means for powerful nations to influence developing countries, development finance has gained renewed significance in the new Cold War. Unlike during the US-Soviet Cold War, the rivalry now is between mixed market capitalist systems.
Long seen as means to seek advantage on the pretext of providing mutual benefit, free trade agreements (FTAs) may increasingly be used as economic weapons in the emerging new Cold War.
Pivot to Asia, containing China
In November 2009, President Obama observed
, “in an inter-connected world, power does not need to be a zero-sum game… the United States does not seek to contain China”.