The virus has devastated global economies. Some will suffer more than others
The pandemic struck at a time when Latin America’s economies were already facing some of the deepest slumps in recent memory. The coronavirus shock will bring its economies to a tipping point
The pandemic has delivered a one-two punch of health crisis and economic disaster almost everywhere it has spread. But the blow will be especially hard for Latin American countries because of their external economic dependence, dilapidated public sectors, and severe social inequalities
Since the 2008-9 financial crash, when liquidity pumped into US and European banks flowed over into Latin America, creating unsustainable levels of debt, the region has been highly vulnerable to external shocks. The first crisis began in 2012, when overproduction inevitably brought global commodity prices crashing down
Now, as demand for commodities melts away, panicked investors are rushing to transfer hot money to the safe harbor of US Treasury bonds. With exchange rates in free fall and corporate-bond bubbles bursting, the pandemic will rattle the region’s economies, especially the biggest ones (Mexico, Brazil, Argentina) to their foundations
Take the case of Brazil
The collapse of the commodity super cycle hit Brazil hard. Much of Brazil’s economic success had more to do with the commodities boom than genuine structural reforms. With China’s appetite for commodities cooling, the wind was taken out of the sails of the Brazilian economy. And the advent of fracking has made Brazil’s discoveries of large offshore oil reserves less relevant
The official who some years ago boasted that God is Brazilian is swallowing his words!
Public health care is the key to any country’s capacity to deal with the pandemic
But the virus has exposed the underlying problems of health care systems in many developing nations that have suffered decades of IMF-imposed “structural adjustment” free-market reforms, forcing countries to service debts by slashing their public sectors and abandoning industrialization in favor of a commodity-export strategy
The number of health workers, ICU beds, and ventilators available is extremely low, with the exception of Cuba
As trade enters an unprecedented decline, corporations go into bankruptcy, currencies are devalued, households default on debts, and unemployment soars, Latin American economies are bracing for a deep and prolonged depression
Who is liable?
The 1900 Boxer Rebellion in China attempted to expel all foreigners, prompting forces from the Eight-Nation Alliance (the U.K., the U.S., France, Germany, Russia, Japan, Italy and Austria-Hungary) to enter Beijing and liberate the besieged foreigners. Indian troops were also involved
The Qing dynasty was forced to sign the humiliating Boxer Protocol in 1901, which imposed backbreaking compensation obligations
As China’s global image takes a severe beating, and the Communist Party stubbornly refuses to course correct, I recall how in 2007 China’s public image was badly dented in the wake of widespread reports of unsafe food, toxic toothpaste, dangerous toys and poisonous drugs
Then came China’s coming-out party with the impressive 2008 Beijing Olympics and the angst was hidden behind the admiration. But it did not go away, despite the global focus on the 2013 ill-fated trillion-dollar Bilk and Rob Initiative
The anger has now resurfaced in an even more vehement form, now that there is credible evidence that the virus is a Chinese made bioweapon
Flailing about desperately, China is following its template of economic blandishments, abuse and subterfuge
Don’t link political issues with economic ones, it tells India. But it does just that when Australia asks for an international enquiry into the origins of the Chinese virus – China imposes economic costs on Australia
So, in a strange symbiotic way, the global anger and the consequent Chinese vituperation overfeed on each other
In April 2020, former US Secretary of State Mike Pompeo said: China’s Communist Party will pray the price for not sharing information they had about the coronavirus pandemic and thus causing a “huge challenge” for economies
An oft-cited 2004 report circulated by the National Academy of Sciences estimates the SARS outbreak dented the global economy by an inflation-adjusted $56 billion
In March 2020, the UN’s trade and development agency said that apart from the tragic human consequences of the COVID-19 coronavirus epidemic, the economic uncertainty would likely cost the global economy $1 trillion in 2020
In March 2020, Bloomberg Economics predicted that the economic fallout could include recessions in the U.S., euro-area and Japan, the slowest growth on record in China, and a total of $2.7 trillion in lost output—equivalent to the GDP of the U.K
In February 2021, the U.S. Chamber of Commerce said in a report highlighting the cost of a full decoupling of the world’s largest economies that American gross domestic product would see a one-time loss of as much as $500 billion should U.S. companies reduce foreign direct investment in China
The actual damage to the global economy now being talked about is several trillion dollars
Two Harvard Professors have termed the pandemic among the greatest calamities in modern US history, the greatest threat to prosperity and wellbeing that the US has encountered since the Great Depression of 1928
The damage is four times that done by the 2008 Great Recession, and more than the amount spent on all the wars – in Iraq, Afghanistan, and Syria over 19 years since 9/11
The long-term effects of the Chinese virus, even on people who suffered a mild infection, could be far worse than was originally anticipated, according to researchers and doctors in northern Italy, and confirmed by American and Indian doctors
Since the virus attacks every human organ, psychosis, cardiovascular trauma, insomnia, renal and hepatic disease, spinal and biliary infections, strokes, chronic tiredness, and mobility issues are being identified in former coronavirus patients in Lombardy, the worst-affected region in Italy
A recent US study confirms that 4/5 Chinese virus patients developed encephalopathy ranging from short-term memory loss and difficulty with multitasking to confusion, stupor, and coma
They estimate that the cost of Covid-19 pandemic to America will be at least $16 trillion, provided the pandemic ends by end-2021, which is optimistic
Their calculation is based on the Congressional Budget Office’s estimates of economic output lost to the pandemic over the next decade, premature deaths, long-term disability costs, and finally mental health impacts like depression and anxiety which have risen have risen from 11% of the population in 2019 to about 40% since the pandemic struck
India is second only to US in infections. The cost to India would be enormous
Based on a regression analysis using dependent and independent variables of economic output lost, human lives destroyed, material damage costs, diversion of resources, medical costs, and recovery costs, I estimate the cost to India to be USD 3 trillion from 2020-2025
India’s economy contracted over 8% in fiscal 2020, and is likely to grow slowly in 2021
Many countries went into months of lockdown in 2020-2021 in a bid to stem the spread of Covid-19, which reduced cross-border travel and accelerated job losses
Governments increased spending to cushion the economic damage, but are now left with a huge debt pile to reckon with in the coming years
Meanwhile, central banks around the world slashed interest rates and purchased more assets to inject more money into the financial system
The pandemic has sent the global economy into one of its worst recessions ever, and it isn’t yet clear when a full recovery will be in place
Recent progress on coronavirus vaccines has brightened the economic outlook, but a slow rollout of vaccines across developing economies could hamper the return of activity to pre-pandemic levels
Even among advanced economies, renewed lockdowns in Europe in a bid to stave off a resurgence in infections could push back economic recovery
The International Monetary Fund forecast that the global economy would shrink 4.4% in 2020, before bouncing back, but warned that the return to pre-pandemic levels will be “long, uneven, and uncertain”
Globally, government measures to cushion the pandemic’s economic blow totaled $12 trillion, the IMF said in October 2020
But that was before the second wave hit
A major consequence of the pandemic-induced economic slump is an increase in job losses globally
The Organization for Economic Co-operation and Development said that in some countries, the early effects of Covid-19 on labor markets were “ten times larger than that observed in the first months of the 2008 global financial crisis”
Will China pay when reputed experts estimate China’s debt to be over USD 40 trillion, three times its GDP?
Much of law is based on precedent
If the Chinese virus is World War III, what happened to the provocateurs during the first two global conflicts?
Making the defeated side pay a war indemnity has a long history
War reparations are intended to cover damage or injury inflicted during a war and refer to money or goods changing hands, but not to the annexation of land
Rome imposed large indemnities on Carthage after the First and Second Punic Wars of the 3rd century BCE
In the 1815 Treaty of Paris that ended the Napoleonic wars, France was ordered to pay 700 million francs in indemnities. In proportion to its GDP, it is the most expensive war reparation ever paid by a country
After the first World War, Germany had to pay 132 billion gold marks (US$33 billion) to cover civilian damage
The final payment was made in 2010
After World War II, Germany was to pay the Allies US$23 billion mainly in machinery and manufacturing plants, while its wartime ally Italy agreed to pay USD 400 MN
Finland, Hungary, Romania, Bulgaria, Japan agreed to extensive reparations (in the case of Japan some countries, notably India, refused war reparations)
Following the Sino-Japanese War of 1895, the Treaty of Shimonoseki obliged China to pay 200 million silver taels (¥3.61 billion) to Japan
After the Gulf War, Iraq’s financial liability for damage caused in its invasion of Kuwait was assessed at US$350 billion
The precedent exists. So does the will
We call the present situation “war” against the virus
Even if Xi PingPong changes course and decides to come clean, it is too late. China must pay
Realizing that it is too expensive to be the sole Rambo of the world, America is repairing its relations with traditional allies and friends in Europe and Asia, and even worse from Beijing’s perspective, is pushing an international coalition to take on China and close off space for China, by rejoining the WHO and the Paris climate accord.
“We’re going to be back in the game” promises Joe Biden
A frightened PingPong has ordered his wolf warriors to be less aggressive and strive to create a lovable, respectable, and credible image of China
In April 2021, he introduced a biosafety law to prevent sale of lab animals in markets (was this being done earlier?)
China’s economy, a hybrid capitalist-control system with the Party providing the umbrella and entrepreneurs doing the work, is tanking as political ideology clashes with economic philosophy
The contradiction was hiding in plain sight
At the centenary of the founding of the Chinese Communist Party on 01 July 2021, PingPong appeared in a Mao suit, signaling that the rigid system of a command economy was back
China is running out of options as it tries to forestall social upheaval by “adjusting excessive incomes” in one of the most unequal major economies
The rising wealth gap, skyrocketing real estate prices, growing debt and increased competition for the best schools and jobs are prompting younger people to lose hope in Xi’s Chinese dream and to embrace “lying flat” – effectively opting out of the rat race and adopting a minimalist lifestyle
An unpopular Xi and his cohorts sink deeper into the hole they have dug
Author:
Deepak Vohra
Ambassador Dr. Deepak Vohra, Made in India,
Special Advisor to Prime Minister, Lesotho, South Sudan and Guinea-Bissau,
Special Advisor to Ladakh Autonomous Hill Development Councils, Leh and Kargil, Gauri Sadan, 5 Hailey Road, New Delhi 110001.
I am not Indian because I live in India, I am Indian because India lives in me!
They said: Hide from the storm; I replied: I am the storm
