The futility of unconditional debt support

ALTHOUGH the pandemic has caused upheavals and hardship around the world, it has fallen particularly hard on low and middle-income countries (LMICs). Vaccine availability has been far more limited in LMICs than in rich countries, and the refrigeration facilities needed to store the most effective vaccines are severely limited. In many LMICs, healthcare workers are scarce, the facilities for treating Covid-19 patients are inadequate, and public health systems are poorly organised, funded, and administered.

Nor are the difficulties limited to health. In many LMICs, poor economic-policy choices have led to inflation, fiscal deficits, balance-of-payments difficulties, and heavy debt-servicing obligations. While some financing has been forthcoming from individual high-income countries, international financial institutions, and NGOs (non-governmental organisations), it has not been enough.

Moreover, many LMICs would be in severe economic difficulty even without the pandemic. Argentina has been negotiating with the International Monetary Fund (IMF) for months to obtain relief from pressing debt-service obligations and shortages of vital imports. In Turkey, President Recep Tayyip Erdogan has defied the consensus of almost all economists (not to mention common sense) by insisting that high interest rates cause inflation. As a result, interest rates are more than 16 percentage points below the recently reported inflation rate of 30 per cent, foreign-currency debt is high and rising, and the proportion of Turks in poverty is increasing sharply.