The Third-World Debt Crisis Reveals the Rot at the Heart of the Global Economy
Developing countries are undergoing an unprecedented combination of currency crises, debt, famine, and political unrest — and the US decision to raise interest rates risks adding fuel to the fire. A stable system of global economic governance is needed.
A demonstrator throws back a tear gas canister fired by police to disperse students taking part in an anti-government protest demanding the resignation of Sri Lanka’s president Gotabaya Rajapaksa over the country’s crippling economic crisis, in Colombo, Sri Lanka, on May 29, 2022. (Ishara S. Kodikara / AFP via Getty Images)
When the global economy grows, the poorest countries benefit the most. In times of crisis, however, they suffer more than any others. Arguably, this has never been more the case than now. A decade of already lackluster growth in emerging markets (except for China and India) is concluding in the worst crisis the developing world has faced since the 1980s.
It is worth recounting that this crisis is not of their own making but has its origins in two discrete, noneconomic shocks: the pandemic and the war in Ukraine.
The pandemic wrecked a precarious system of supply chains and constricted the stream of goods at the same time as a shutdown of the economy in large parts of the world shifted consumer demand toward many of those same goods. This mismatch in demand and supply was widened by large economic stimulus programs, particularly in the United States, whose $2.2 trillion COVID relief effort successfully bolstered the incomes of millions of households through one-time cash transfers and increased benefits. As a result, shortages spread, and prices rose.
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