Rising U.S. Interest Rates Push Countries in Global South Toward Economic Collapse
Written by GRB on 16/02/2023
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: This is Democracy Now!, Democracynow.org. I’m Amy Goodman with Nermeen Shaikh. As debates continue in Washington over raising the debt ceiling and combating inflation, we take a global look at the growing international economic crisis as soaring inflation and devalued currencies leave nations across the globe confronting a catastrophic debt crisis. Lebanon is facing what the World Bank has described as “among the most severe crises globally since the mid-19th century.” Earlier today, Lebanese protesters attacked at least six banks, setting some on fire, as the Lebanese pound hit a new record low. Since 2019, the pound has lost 98% of its value. Protesters accused the Lebanese government and banks of failing to help the people.
PERSON: [translated] What are you Lebanese people waiting for to go down and take your rights from this mafia of thieves and criminals that is ruling? Where are the human rights? There is no electricity, no water, nothing at all in this country. Don’t they feel us while sitting in their palaces? They don’t feel the people. They see us as sheep. We won’t stay silent about our life’s worth.
AMY GOODMAN: In addition to Lebanon, numerous other countries are facing similar crises. In Iraq, protests recently broke out in Baghdad over the plummeting value of Iraq’s currency, the dinar. In Egypt, the value of the Egyptian pound has shrunk in half over the past year while prices have soared. In Sri Lanka, authorities have just raised the price of electricity by 66% in an effort to get a bailout from the International Monetary Fund. Last year Sri Lanka defaulted on its debt for the first time in its history. Pakistan is also facing its worst economic crisis, leading to gas shortages, power outages and rampant price increases. Meanwhile, in Argentina, inflation has hit nearly 100%.
To look more at this global growing economic crisis, we are joined by Jomo Kwame Sundaram. He is a Malaysian economist at the Khazanah Research Institute in Kuala Lumpur, Malaysia. He was an economics professor and then U.N. Assistant Secretary-General for Economic Development. In 2007, he received the Wassily Leontief Prize for advancing the frontiers of economic thought. Professor Jomo Kwame Sundaram, thank you so much for being with us. Can you comment on what is confronting—in the United States we focus on inflation here, but the global catastrophe of inflation and what it means?
JOMO KWAME SUNDARAM: Thank you very much for having me, Amy. The world situation is very, very serious. Not because we have a conspiracy to worsen the situation, but we have a confluence of events. Two developments in particular threaten the world economy in very, very deep ways. Firstly, of course, we know that the U.S. Fed has raised interest rates over the last year and this has had catastrophic consequences for many developing countries. We have seen capital leaving most developing countries, most countries in the Global South, and this has resulted in their currencies depreciating and the U.S. dollar appreciating. That often raises the cost of the imports which are often necessary for the subsistence.
The other related development of course has been that the cost of debt has gone up tremendously. And the cost of debt going up basically puts many economies into very serious difficulties because they are no longer able to service the debts, especially given their currencies are declining in value. Of course, some commodity prices have gone up, but many other commodity prices have not gone up, and this worsens the situation in very deep ways.
So, of course, we have as a consequence very deep threats of recession in many of these economies. Then, at the same time, we have the stepping up of warfare, warfare not only by military means, which of course are very important and divert precious resources away from needed purposes—dealing with climate change and so on and so forth—and instead, divert them for military purposes. Germany, for example, has tripled its military spending within the last year.
As a consequence of this, what we see now is that economic sanctions have basically become the norm. When economic sanctions were taken against countries like North Korea or Cuba and so on, these were relatively small economies which have very few ramifications for the rest of the world. But now we have a situation where these economic sanctions have resulted in the increase in prices of fuel, increases in prices of food and increase of prices of fertilizer. All this will have very, very serious implications for the availability of affordable food, particularly for poorer people in the world all over the place. And this combination of war, especially by increasingly economic means, is going to exacerbate the situation.
One should also add that another war has started on a completely different front, and that is the war against China. The war against China began arguably almost a decade ago with the pivot to Asia from Washington, but this has increasingly meant that many of the so-called supply chains, the global—the value chains and so on and so forth have been seriously disrupted. This adversely affects all other countries as well because what is supposedly produced in China is not produced in China alone. It is produced by many other countries which are part of the value chains in which China may be dominant. So we have a situation where strategic and military considerations are resulting in more and more economic warfare. The polite term in Washington, I believe, is economic statecraft. And this of course threatens the world in very profound ways.
NERMEEN SHAIKH: I was going to ask if you could elaborate on China in particular, which is now the largest government creditor to a number of countries in the Global South, but also the principal trading partner of many countries in the Global South and not just the Global South. If you could talk about the significance, the centrality of China in this crisis?
JOMO KWAME SUNDARAM: Much of the production in China and from China going to the rest of the world is actually dependent on inputs from other parts of the world, especially from the Global South. For example, we in Southeast Asia produce a great deal. China is the number one trading partner and for some countries, the number one investor as well. The same is increasingly true in many sub-Saharan African countries, and much of the growth in sub-Saharan Africa in the first decade of this century was largely due to the increase of demand from China and India and other so-called new markets. Even in Latin America, we find that the principal trading partner for many countries and sometimes even the principal investor happens to be China.
So the implications of sanctions against China are not directly affecting China as much as they are also affecting other countries in the Global South. So the fact that many of these countries are borrowing from China is, of course, a matter of serious concern for these countries. Most countries in the Global South do not want to take part on either side of the Cold War which is emerging. They would prefer to be nonaligned, and so there is a new role for what was once called non-alignment in the first Cold War. But this new nonalignment of course is very different because are basically talking about very similar economies which are run, dominated, by what might be termed capitalist enterprises, some perhaps more state capitalist, some less state capitalist, and so on and so forth. So this relationship with China is so central for many countries in the Global South that any blow intended against China often adversely affects many other countries, sometimes even much more than they affect China.
NERMEEN SHAIKH: Could you explain, Jomo, what the impact is of having many more creditors than in the past? Not just China, the IMF, et cetera, but others involved as well. What are the effects of that on attempts to restructure this debt?
JOMO KWAME SUNDARAM: When the U.S. Fed raised interest rates in the early 1980’s, this basically shocked the world economy and the world economy threatened to come to a grinding halt. President Reagan at that time forced reversal of the Fed’s policies and the U.S. economy picked up. But as we all know now, Latin America lost at least a decade, some would argue more than a decade, and much of sub-Saharan Africa lost arguably two decades, some even suggest a quarter of a century, as a consequence of the raising of interest rates, and also the kinds of policies which were imposed from the Washington-based so called Bretton Woods Institutions, such as the World Bank and the International Monetary Fund. The consequence of that was to bring many of these economies to a grinding halt. Much of this was justified as supposedly necessary to get these economies off to a fresh start. But that fresh start never really came. As we now know, with the benefit of hindsight, when economies began to pick up, they began to pick up precisely for other reasons, including the external demand from places like China and India which I referred to earlier.
AMY GOODMAN: Finally, the human effects of this around the world? We started this conversation by talking about Lebanese protesters burning the banks, the massive inflation in Egypt, and what is happening in Pakistan.
JOMO KWAME SUNDARAM: What has happened in Lebanon of course was preceded by what happened months ago in Sri Lanka and similar episodes which have happened elsewhere. But the ability to protest presumes a certain degree of means to do so. In many situations, people are suffering often in silence, trying to make ends meet. Usually, invariably, when governments are forced to cut spending, they cut health spending, they cut social spending, they cut education spending, they cut other kinds of social provisioning for example for girl children and so on and so forth. And very importantly, they cut spending, for example, trying to adapt to global warming, global heating if you will. And most countries in the Global South are of course in the tropical or subtropical zone where the impact of global heating is worse.
So we have a situation where you have a perfect storm. I’m not suggesting there is a deliberate conspiracy between the U.S. Fed and the Defense Department and NATO and European Union and so on and so forth, but the effect is tantamount to the effects of a seeming conspiracy. So many countries in the Global South are looking elsewhere, they are looking at alternatives. They are trying to survive in this situation. They see a looming crisis ahead of them and they don’t know to avoid it. It is like being on the Titanic. You see the iceberg but you don’t know what to do about it.
AMY GOODMAN: Professor Jomo Kwame Sundaram, we’re going to ask you to stay with us. Right after the show, we want to do part two of this conversation. Leading Malaysian economist speaking to us from Kuala Lumpur. When we come back, we go to East Palestine, Ohio. Stay with us.