Avoiding a K-shaped global recovery

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Avoiding a K-shaped global recovery

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• Rich versus the Developed: While the USA may be planning to celebrate independence from the pandemic by July 4, 2021, when all adults will have been vaccinated, that's just not so for the various emerging markets. Global reports indicate that ensuring rapid global recovery will need all countries to declare a similar independence from the virus.
• Mutations: Because the virus will keep mutating, no one globally will be safe unless everyone is properly vaccinated, and medicines are available everywhere quickly. The global IPR regime restricting the supplies is an artificial construct of man, which can be easily handled.
• IP regime: All countries must immediately suspend or pool the IP rights attached to products needed to fight Covid-19. Corporate lobbies aren't letting it happen, despite pleas from developing world. The so-called 'vaccine nationalism' has exposed these fractures adequately!
• The issue of funding: While the US (and some rich countries) have given up on austerity, and have started spending heavily, developing ones are struggling to even continue to run existing programmes (let alone spend afresh). The US, a giant economy, is spending upto 25% of its GDP's worth to support economic activity.
• The numbers: At nearly $17,000 per capita, the US is spending 8000 times higher than least-developed countries (LDCs). But the rich world now needs to do three things -

1. Push for large issuance of SDRs (Special Drawing Rights) which is the IMF's global reserve asset
2. Push the IMF for easier loans for countries facing BoP problems, and 
3. Give a sustained response to the debt problems being faced by many countries.

• FIRST HELP: Today, the IMF can easily issue upto $650 billion in SDRs without any approval from legislatures of member-states. The expansionary effect of this will be boosted further, if rich countries transfer their larger allocations to those needing cash.
• SECOND HELP: The IMF has happily accepted the huge spending plans of rich nations. It is also supporting higher public spending in developing countries, even if they are facing tough external conditions (poor forex, imbalance in BoP etc.). But in 2020 also, IMF while giving 91 loans to 81 countries, asked them to cut public expenditure. That is bad during a pandemic. Austerity is an equally bad idea for rich or a growing country. So, the IMF must not ask for such results.
• THIRD HELP: Rich world must go easy on debt repayments from poorer world. Money spent servicing debt is not spent fighting the virus, and restarting economies. Now in 2021, it's clear that a small suspension of debt repayment won't help: what's needed is a comprehensive restructuring.

1. To do that, creditor nations must restructure what they can, and motivate the private sector to do so, too
2. This is the time for force majeure; if not now, when!
3. Forcing the poor countries to pay back today will bring untold miseries

• Summary: If all these are done, the developing world will be immensely benefited. Developed world wouldn't be paying much either. No one is safe until everyone is safe.

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