The world is being pressed by financial interests to raise interest rates, ostensibly to check inflation. After the US Federal Reserve started raising interest rates, more central banks have been doing likewise.
Considering inflation’s contemporary causes, such ‘follow the leader’ central bank mimicry cannot check it except by slowing economies. Worse, this has meant taking on huge new risks, seriously damaging world economic prospects in the medium and long-term.
Once deemed a basic human needs success story, Sri Lanka (SL) is now in its worst economic crisis since independence in 1948. Nonetheless, SL’s ‘moment of truth’ now offers lessons for other developing countries.
As China increases
lending to other developing countries, ‘debt trap’ charges are growing quickly. As it greatly augments financing for development while other sources continue to decline, condemnation of China’s loans is being weaponized in the new Cold War.
The world is sailing into a perfect storm as key leaders seem intent on threatening more war, albeit while proclaiming the noblest of intentions. By doing so, they block international cooperation to create conditions for sustainable peace and shared prosperity for all.
The spectre of ‘stagflation’ threatens the world once again. This time, the risk is the direct consequence of political provocations and war, and not simply due to inexorable economic forces.
Stagflation is a composite word implying inflation with stagnation. Stagnation refers to weak, ‘near zero’ growth, inevitably worsening unemployment. Inflation refers to price increases – not high prices, as often implied.
“If your only tool is a hammer, every problem looks like a nail”. Still haunted by the clever preaching of monetarist guru Milton Friedman’s ghost, all too many monetary authorities address every inflationary threat or sign they see by raising interest rates.
Finger pointing in the blame game over Russia’s Ukraine incursion obscures the damage it is doing on many fronts. Meanwhile, billions struggle to cope with worsening living standards, exacerbated by the pandemic and more.
Losing sight in the fog of war
US Secretary of State Anthony Blinken insists
, “the Russian people will suffer the consequences of their leaders’ choices”. Western leaders and media seem to believe their unprecedented
” will have a “chilling effect
” on Russia.
All too many developing countries have been persuaded or required to prioritize inflation targeting
(IT) in their monetary policy. By doing so, they have tied their own hands instead of adopting bolder economic policies for growth, jobs and sustainable development.
All over the world, people expect policies by central bankers trained in economics to have a sound scientific base. But in fact, inflation targeting is an article of faith with neither theoretical nor empirical basis.
COVID-19 has exposed major long-term economic vulnerabilities. This malaise – including declining productivity growth – can be traced to the greater influence of finance in the real economy.
Calls, even screams, to fight inflation above all else are getting shriller. Thankfully, even The Economist
(5 Feb. 2022) reminds all, Fighting inflation could put the world in a slump
No inflation consensus
International Monetary Fund (IMF) Managing Director Kristalina Georgieva doubts
the world faces a runaway inflation threat. She urges policymakers to carefully calibrate fiscal and monetary policies, with more “specificity”, as not ‘one size fits all’.
Inflation hawks are winning the day. The latest ‘beggar thyself’ race to raise interest rates has begun. This ostensibly responds to the spectre of runaway inflation, supposedly retarding economic growth and progress, and thus threatening central bank ‘credibility’.
Funding for developing countries to address global warming is grossly inadequate. Very little finance is for adaptation to climate change,
the urgent need of countries most adversely affected. Also, adaptation needs to be forward-looking rather than only addressing accumulated problems.
Carbon offset markets allow the rich to emit as financial intermediaries profit. By fostering the fiction that others can be paid to cut greenhouse gases (GHGs) instead, it undermines efforts to do so.
The planet is already 1.1°C warmer than in pre-industrial times. July 2021 was the hottest month
ever recorded in 142 years. Despite the pandemic slowdown, 2020 was the hottest year
so far, ending the warmest decade
Betrayal in Glasgow
Summing up widespread views of the recently concluded Glasgow climate summit, former Irish President Mary Robinson
observed, “People will see this as a historically shameful dereliction of duty,… nowhere near enough to avoid climate disaster”.
Quickly enabling greater and more affordable production of and access to COVID-19 medical needs is urgently needed in the South. Such progress will also foster much needed goodwill for international cooperation, multilateralism and sustainable development.
Addressing global warming requires cutting carbon emissions by almost half by 2030! For the Intergovernmental Panel on Climate Change, emissions must fall by 45%
below 2010 levels by 2030 to limit warming to 1.5°C, instead of the 2.7°C now expected.
Current climate mitigation plans will result in a catastrophic 2.7°C world temperature rise
. US$1.6–3.8 trillion is needed
annually to avoid global warming exceeding 1.5°C.
“The outlook for LDCs is grim”. The latest United Nations (UN) assessment
of prospects for the least developed countries (LDCs) notes recent setbacks without finding any silver lining on the horizon.
Half a century ago, LDCs were first officially recognised by a UN General Assembly resolution
. It built on research, analysis and advocacy by the UN Conference on Trade and Development (UNCTAD).
The bogey of inflation has been revived. Dubious pre-pandemic economic progress, fiscal constraints and vaccine apartheid were bad enough. Now, ostensibly anti-inflationary measures also threaten recovery and sustainable development.
Vaccine costs have pushed many developing countries to the end of the COVID-19 vaccination queue, with most low-income ones not even lining up. Worse, less vaccinated poor nations cannot afford fiscal efforts to provide relief or stimulate recovery, let alone achieve Agenda 2030.