Stories written by Jomo Kwame Sundaram
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.
Calls for more government regulation and intervention are common during crises. But once the crises subside, pressures to reform quickly evaporate and the government is told to withdraw. New financial fads and opportunities are then touted, instead of long needed reforms.
Natural flows do not respect national boundaries. The atmosphere and oceans cross international borders with little difficulty, as greenhouse gases (GHGs) and other fluids, including pollutants, easily traverse frontiers.
Despite its dismal record, the Gates Foundation-sponsored Alliance for a Green Revolution in Africa (AGRA) announced a new five-year strategy in September after rebranding itself by dropping ‘Green Revolution’ from its name.
The ongoing plunder of Africa’s natural resources drained by capital flight is holding it back yet again. More African nations face protracted recessions amid mounting debt distress, rubbing salt into deep wounds from the past.
With much less foreign exchange, tax revenue, and policy space to face external shocks, many African governments believe they have little choice but to spend less, or borrow more in foreign currencies.
The latest annual climate conference has begun in the face of a worsening climate crisis and further retreats by rich nations following the energy crisis induced by NATO sanctions after the Russian invasion of Ukraine.
Copping out again
The 27th Conference of the Parties (COP 27) to the United Nations Framework Convention on Climate Change (UNFCCC) is now meeting in Sharm-el-Sheikh, Egypt, from 6 to 18 November 2022.
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.
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 (CFA) 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”.