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.
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”.
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.
Rich country governments claim the high moral ground on climate action. But many deny their far greater responsibility for both historic and contemporary greenhouse gas (GHG) emissions, once acknowledged by the Kyoto Protocol.
Worse, responsibility has not been matched by commensurate efforts, especially by the largest rich economies in the G7, which dominates the G20. Its continued control of international economic resources and policymaking blocks progress on climate justice.
After decades of rejecting international tax cooperation under multilateral auspices, rich countries have finally agreed. But, by insisting on their own terms, progressive corporate income tax remains distant.
Tax avoidance and evasion by transnational corporations (TNCs) are facilitated by ‘tax havens
’ – jurisdictions with very low ‘effective’ taxation rates. Intense competition among developing countries to attract foreign direct investment (FDI) makes things worse.
US-led sanctions are inadvertently undermining the dollar’s post-Second World War dominance. The growing number of countries threatened by US and allied actions is forcing victims and potential targets to respond pro-actively.
SWIFT strengthened dollar
The instant messaging system of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) informs users, both payers and payees, of payments made. Thus, it enables the smooth and rapid transfer of funds across borders.
Food crises, economic stagnation and price increases are worsening unevenly, almost everywhere, following the Ukraine war. Sanctions against Russia have especially hurt those relying on wheat and fertilizer imports.
Unilateral sanctions illegal
Unilateral sanctions – not approved by the UN Security Council – are illegal under international law. Besides contravening the UN Charter, unilateral sanctions inflict much human loss. Countless civilians – many far from target countries – are at risk, depriving them of much, even life itself.
US and allied economic sanctions against Russia for its illegal invasion of Ukraine have not achieved their declared objectives. Instead, they are worsening economic stagnation and inflation worldwide. Worse, they are exacerbating hunger, especially in Africa.
A class war is being waged in the name of fighting inflation. All too many central bankers are raising interest rates at the expense of working people’s families, supposedly to check price increases.