Challenge One: Confronting The World’s Unprecedented Humanitarian Crisis

12.08.2020 | Frank Vogl

Awards and honors are a pleasant reminder of a job well done. So it makes sense that when David Beasley, the dynamic Executive Director of the World Food Program, learned that the WFP had been awarded the 2020 Nobel Peace Prize he beamed with joy.

But his thoughts immediately turned to the COVID-19 pandemic. “Our estimates suggest that the number of people suffering from acute hunger could nearly double by the end of the year, to 265 million people.” He added that an additional 300 million people will become nutrient deficient this year. They lack sufficient vitamins and minerals in their diet to stay healthy.

World Bank President David Malpass adds that almost 700 million people lived in extreme poverty (less than $2 per day) even before the pandemic. He says that by the end of 2020, the total could rise by 150 million people.

The world faces an unprecedented humanitarian crisis. The impact of the pandemic on middle- and low-income countries is significantly greater than the enormously challenging situation in Western industrial nations.

It is too early to gauge with any accuracy the full scale of the global humanitarian crisis, but not too late to focus public attention on the essential actions that are needed to mitigate the crisis. However, the governments of the Western wealthy countries are so preoccupied with striving to deal with all the bitter consequences of the pandemic in their own countries that they have failed, so far, to address meaningfully the unfolding development crisis that may well set the poorest nations back by at least a decade, if not more.

The world faces an unprecedented humanitarian crisis.

Numerous bilateral official aid agencies and large humanitarian philanthropic foundations have launched emergency programs in a rather uncoordinated manner. A massive new G20-led multi-year foreign aid program, which is essential, has yet to be designed, let alone launched.

The heavy lifting to respond to the crisis in the world’s middle- and low-income countries has been left, in particular, to the World Bank and the International Monetary Fund. The Bank is striving to boost its lending and grant programs, seeking to push cash out the door at a record pace.

The IMF has faced an avalanche of demands for cash from its member countries as the world economy has sunk, as export earnings by most countries have thus declined and their reserves of hard currencies – such as US dollars and Euros – have fallen sharply. So far, the IMF has provided 81 countries with more than $200 billion of emergency fast-disbursing cash.

At the same time, following urgent requests from the heads of the World Bank and the IMF, the West’s richest governments have agreed to propose to the world’s poorest 75 countries that they can defer their debt servicing and international debt repayments until June 2021 (few of these countries have taken up the offer, fearful that if they did then their credit-ratings in the international bond markets will be damaged).

The dirty secret that the experts in international finance and development economics know is that these moves may bring minimal relief to the world’s poorest peoples. Despite the torrent of new IMF cash flooding into the coffers of their governments, the world’s most needy peoples are facing still greater challenges.

In all probability, some of the new cash going to some countries will just be stolen: corruption is rampant in quite a few of the world’s middle-income and poorest nations. About 100 of them achieve a concerning score of less than 50 points out of an optimum 100 points on the annual Transparency International Corruption Perception Index.

But an even greater concern right now is that much of the new IMF and other cash going into these countries is going right out again without doing much, if anything, to bolster their domestic economies, let alone expand health services and other critical social programs for the poor. Most of the governments receiving the new cash have little choice but to use it to pay interest on their existing foreign debts to hedge funds, private equity funds, pension funds and the millions of investors in sovereign bonds, as well as to the Chinese.

Despite the torrent of new IMF cash flooding into the coffers of their governments, the world’s most needy peoples are facing still greater challenges.

The Chinese are the largest creditors to a considerable number of countries with total loans outstanding to them in a range of an estimated $350 billion to $500 billion. In some cases, the Chinese may have negotiated some debt restructuring deals with some borrowing countries. The Chinese are non-transparent about their foreign financial deals.

As for the private investors in international bonds they have no effective mechanisms in place for joint action to enforce any form of debt moratorium. Some of the biggest commercial creditors could strive to lead the way, but none have so far.

About a decade ago, many poorer nations found they could access the world’s bond markets. The international investors were looking for higher yields than they could get on the ultra-low levels of interest offered on U.S. Treasury and other Western government bonds, so they encouraged countries such as Lebanon and Zambia to borrow.

Lebanon has now defaulted on its debts. Zambia is on the brink of defaulting.

The middle- and low-income countries (excluding China) have outstanding international debts amounting to around $6 trillion, with some 60% of the total held by ten large countries, including Argentina, Brazil and Russia. Not only are these three countries hit hard by COVID-19, but their economies are in shambles and indeed Argentina in May defaulted on its international debts for the ninth time – a record for any country.

The debt mountains that confront the emerging market and poorer countries are vast and new loans, such as those provided by the IMF, just add to the scale of the debt that eventually will need to be repaid. Not only will the next couple of years see a global sovereign debt crisis, but this overwhelming focus on debt servicing and debt repayments by so many countries means that the poor in these countries are not getting the assistance that they not only need now, but that they will need in years ahead.

Those wearing rose-colored spectacles will argue that the pandemic will disappear, vaccines will abound and the world economy will revive rapidly in 2021. Realistically, it is far from certain that any recovery – if it transpires – in the Western industrial countries will suffice to secure meaningful growth in the poorer nations. Certainly, vaccines are not going to reach the world’s poorest one billion people any time soon.

Adding to the misery, there is a rising volume of anecdotal accounts from many countries that the pandemic has provided enormous opportunities for fraud and corruption in the public procurement programs of many countries, from the over-charging for PPE, to marketing of counterfeit medical supplies, to even massive hyping of the costs of body bags.

The Partnership for Transparency Fund has launched small, emergency COVID-19 programs to support local civil society organizations in Argentina, India, the Gambia, Ghana and Uganda, to monitor the disbursement of medical supplies for those in greatest needed. Such programs need to be vastly scaled-up. Only with far greater support by official aid agencies – bilateral and multilateral – to use the knowledge and skills of local citizens can the governments of poorer nations be monitored and the supply of essential support to the poor be effective.

Citizen engagement is key to so many of the humanitarian efforts now needed. And, not just now, but for years to come. It may well take a decade to revive economic prospects for the very poor and fully overcome the damaging impact of the pandemic and economic crisis. Plans, involving major new aid programs, are needed that must run right through the 2020s.

Do not forget, the first of the United Nations Sustainable Development Goals is: “To end poverty everywhere” by 2030.

 

Frank Vogl is Chair of the Board of Directors for The Partnership for Transparency Fund.