Eating the Developing World: A Pandemic Response

The recent pandemic has once again highlighted the built in ineptitude and inadequacies of the current world financial system.  This time, it can be easily highlighted in the ballooning IMF loans and financial arrangements wresting a strangle-hold on the developing world.

The IMF is providing a different kind of leadership in the Pandemic. Unlike China who provided direct support in the form of PPE and medical personnel, the IMF is loading already struggling developing economies with MORE DEBT.  The Coastal east African nation of Djibouti is among those who received the latest round of IMF funding. The tiny nation on the Horn of Africa received, 43.3 million USD from the IMF on May 8, 2020.

The tiny nation on the Horn of Africa received, 43.3 million USD from the IMF on May 8, 2020.

It’s been said that a picture is worth a thousand words, but this graph is worth at least a million. The graph underscores the lack of autonomy in the financial sector in terms of central banks, Forex valuations and financial instruments and how it prevents smaller economies, from creating new money out of thin air as many Western nations were able to do through their central banks. The US loaned itself 3 trillion dollars to buttress its flagging economy and support a Covid-19 response. It borrowed heavily from the Federal Reserve, a fractal banking hub, that reserves the right to create as much money as it wants (even if that money is called debt). Many developing states seemed to be prevented from taking the same measures to shore up their economies during the deadliest pandemic in recent history. Also curiously obvious in this graph, is that aside from aScreenshot_2020-05-11 Emergency Financing by Region(1)

smattering of eastern European, southeast Asian and Latin countries, the lions share of the debt load is going to Sub-saharan Africa.  To add insult to injury, many West African economies pinned down under the French CFA Franc and are unable to command their reserves for their own benefit. It is more likely that in desperate times as these, French citizens will enjoy the fruits of those reserves  through borrowing from the Bank of France where African reserves are housed.  And it is highly likely that France will need to borrow, in the same way that other Western nations have had to borrow heavily from their Central Banks.

To add insult to injury, many West African economies pinned down under the French CFA Franc and are unable to command their reserves for their own benefit.

Under the current system, a disaster of this nature allows the IMF to once again eat the developing world. It was only through sustained trade with various partners, infrastructural support from China and an active and growing diaspora that developing economies had begun to take adequately enter the world stage. Pakistan received a 1.386 Billion USD loan from the IMF in mid April. As the fifth most populous nation in the world, Pakistan has seen its industries and populations pounded during  the pandemic as multinationals around the world cancel orders.  While China, Japan, Russia and India are now among the top 10 funders in the IMF, the fund is majority funded by Western states (U.S. France, Germany, UK, Italy, France, etc).  Aside from the high interest rates, many IMF loans make policy demands and require concessions from nation-states seeking relief; which means it is unclear what the final cost will be. . .

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