Death by coronavirus or by hunger...

Given the pain shutdowns will inflict on people, they can afford only a limited war to contain the pandemic Though many rich economies have ground to a halt under strict lockdowns to contain the coronavirus, many low- and middle-income countries have decided they can’t afford an allout fight. Brazil’s president has taken the most controversial stand against shutdowns, saying “we’re all going to die one day,” but he is not alone.

A recent study by UBS, the Swiss bank, found that emerging nations account for most of the “moderate” lockdowns and few of the “severe” lockdowns. Turks between the ages of 20 and 65 are still on the job even as confirmed cases soar. Pakistan has left open key export industries, including textiles. For nations that lack a social safety net, “full lockdowns will only lead to more hunger, starvations and death,” says Luhut Pandjaitan, a senior minister in Indonesia, which was slow to issue travel restrictions and stay-athome orders. So far, 90 per cent of the reported cases and deaths are in countries where the average temperature is under 63 degrees Fahrenheit, and most of those are rich, developed countries of the Northern Hemisphere.

The worst of the economic and financial fallout, however, is hitting the warmer nations of the emerging world, which is now expected to experience its first contraction in the postWorld War II era.

The full economic damage has to yet to be assessed, as growth forecasts for 2020 keep falling, but the financial carnage registers daily. While stocks in the United States have hit a bottom 35 per cent below their all-time highs, this drop is similar to one in a bear market during a recession, and barely half as bad as in 2008. Six major emerging markets — including Brazil, Turkey and Mexico — have seen falls of more than 70 per cent from their all-time highs, and many are trading below their 2008 lows. If there is any silver lining here, it is that the scale of these crashes suggests that markets have already “priced in” more bad news to come for the hardest-hit emerging economies.

This is only the eighth global recession in the past century, and it is confronting emerging countries with unique challenges. They don’t have the resources to match the enormous stimulus programmes that are preventing an even deeper recession in the developed world. Their crowded living conditions make it hard to slow the pandemic with social-distancing rules. And if emerging nations do impose lockdowns, their weak welfare systems can’t support unemployed workers for long.

The US has already committed to spend a sum equal to nearly 10 per cent of its annual economic output on stimulus measures to keep growth alive. Germany, Britain and France plan to spend 15 per cent or more. But rich nations have the capacity to borrow and spend freely, because in general global markets trust them to make good on their payments, no matter how large.

Major emerging nations don’t have the same luxury. They are announcing far more modest stimulus programmes amounting to between 1 per cent and 3 per cent of their economic output, and some are puffing up the numbers by counting money they had already planned to spend before this crisis began. They are trapped, because if they borrow more heavily to spend more, they risk losing the confidence of investors, triggering a collapse in the currency and in many cases a financial crisis.

This threat already looms. After a decade of weak economic growth, emerging nations entered the pandemic more vulnerable to shocks than they were on the eve of the global financial crisis. Before 2008, many of these governments had balanced budgets. Emerging economies were so healthy, in fact, that there was talk that the International Monetary Fund would have to close its bailout operations for lack of customers.

But the balanced budgets have deteriorated into large budget deficits. When the pandemic hit, many big emerging economies like those of South Africa, Nigeria and Argentina faced a large “twin deficit” in both the government budget and the current account — a measure of how much nations need to borrow abroad to finance their spending habits. Now spooked investors are fleeing to the relative safety of the US dollar, weakening the currencies of emerging economies — and further undermining their ability to pay their bills.

The result is an unprecedented rush for bailouts: The pandemic crisis has put the IMF back in business. In recent years, the IMF typically fielded 10 to 15 requests for assistance. Since the outbreak began, it has gotten requests from nearly 80 countries for emergency financial help, and the concern now is whether the fund’s $1 trillion dollar war chest is enough to cope with this crisis. Countries from Ecuador to Zambia are already asking creditors for some form of debt forgiveness.

Global trade has also played a role: As it slowed after 2008, many large emerging economies like those of India, Indonesia and Brazil were partly shielded by resilient demand from domestic consumers. With the pandemic, international trade has slowed even further — and it has shut down domestic commerce as well.

More than 15 million Americans have filed for unemployment benefits, but in poor countries some two billion people face joblessness without benefits. Unemployment insurance in developed countries typically covers six out of 10 workers who lose formal jobs, compared with just one out of 10 in developing countries — where most people do not hold formal jobs.

As a result, many officials in the emerging world say they can’t simply copy the measures adopted in wealthy countries. What comes next is largely up to the virus. While some commentators are already drawing comparisons to the Great Depression, consensus forecasts call for global growth to contract by 3 per cent this year and recover sharply next year — which would fall far short of the 6 per cent contraction between 1929 and 1932. Government stimulus programmes were first hatched in response to the Depression, too late to prevent it, but now the world is rolling out more than $10 trillion in stimulus — more than twice the amount spent between 2008 and 2009 to combat the global financial crisis.

Emerging economies are getting slammed by forces of nature beyond their control but have no better choice than to turn for relief to the same forces. Unlike rich nations, they can’t sustain a large population of idle workers, so many have accepted a grim reality. Given the unbearable pain shutdowns will inflict on their people, they can afford only a limited war to contain the pandemic.