A wave of crises

“May you live in interesting times” is said to be an old Chinese curse. The 2008 financial crisis, the pandemic, the floods, droughts, forest fires etc from climate change already fully qualify as “interesting.” Now the brutal invasion of Ukraine and sanctions on Russia are bringing about wheat, fertilizer, and vegetable oil shortages worldwide. Record energy prices add to tides of rising inflation, and both sovereign and household debt. Global trade and economic growth are hit, but the damage and suffering are unequally shared. The US and Canada have grain and energy surpluses. Both edge up interest rates, but only to restrain over-heating economies. China’s growth is held back by its tight lockdowns, including Shanghai, in its intensifying struggle to try to attain zero-Covid sufferers. By far the worst hit is lower income, developing countries. Some, like Somalia, Sudan, and Yemen combine drought, food inflation, and Covid-19 on top of malnutrition and conflict. Most have poor education and health systems. Their young populations have rising aspirations, but few jobs. All poor populations are particularly hit by record food prices since food is a large part of their expenditure. The UN Food and Agriculture Organization says food prices are still rising at the fastest rate for 14 years. In March, global vegetable oil prices went up by 56% compared to a year ago, and cereals by 17.1%. Rich Western countries combated the 2008 financial crisis by massive fiscal stimulus and injections of cheap money. Many developing countries were already in debt but were now staying financially afloat by international donors, including IMF emergency disbursements and special drawing rights. This meant weak economies were taking on still more external debt, but at temptingly low or negligible rates of interest. Yet now, cheap money is disappearing. Rising interest rates drain weak reserves and make raising fresh loans even more difficult. Even Lebanon, once a thriving financial centre, has declared bankruptcy. Argentina, a country of great natural wealth and a wheat exporter, hovers yet again on the brink of default.