World Bank President David Malpass (center), Mengistu Alemayehu, South Asia director for … [+] International Finance Corporation (right) and World Bank’s country director Junaid Ahmad (left) attend a press conference, at the World Bank Office, 70 Lodi Estate, in late October 2019 in New Delhi, India.
Sanjeev Verma/Hindustan Times via Getty Images
Concerns about global debt emanating from the office of World Bank President David Malpass are drenched in pot-calling-the-kettle-black irony.
Here’s a person who made his reputation at Bear Stearns of all places—a shop whose recklessness helped topple Wall Street in 2008. Malpass later went on to work for a Donald Trump White House seemingly determined to morph America into Argentina.
So, it’s a bit rich that now that he’s running the World Bank, Malpass, 63, senses the circles in which he once ran are creating troubles that could make 2008 look quaint. That’s particularly true here in Asia, a region that isn’t just on its own debt-issuance tear but most on the hook for Trump’s epic borrowing binge.
Better late than never, I guess. But Malpass isn’t wrong to highlight the $55 trillion of debt emerging markets from Asia to Latin America have churned out since the crisis that blew up Bear Stearns—and later Lehman Brothers. Worse, those are only the IOUs that have been booked officially as of the end of 2018. The tally excludes the last 12 months and whatever off-balance-sheet borrowing vehicles governments have been cooking up.
It’s not just the magnitude of debt, but the haste with which it’s being amassed. In a new study, the World Bank looks at the four most notable borrowing-binge episodes involving 100 countries since 1970. They include Latin America in the 1980s, Asia in the 1990s and the subprime fiasco of the 2000s. Those three, of course, ended in tears and financial ruin.
This fourth episode, though, may have the others beat. Since 2010, the collective debt-to-gross-domestic-product ratios of developing nations skyrocketed from 54% to at least 168%. “The size, speed and breadth of the latest debt wave should concern us all,” Malpass warns.
Now that he’s apparently among the converted, Malpass says the debt explosion of the last decade “underscores why debt management and transparency need to be top priorities for policymakers—so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people.”
Fair enough as China’s slows toward the 5% growth range and governments from Malaysia to India grapple with excessive debt loads. But Malpass’s real quarrel may be with this former boss a few blocks away in the White House.
U.S. President Donald Trump introduces David Malpass, his nominee for the position of World Bank … [+] president, at a press conference in the Roosevelt Room of the White House in Washington, D.C., on February 6, 2019.
Zach Gibson/Bloomberg
Trump, along with leaders in Europe, Japan and Britain, is doing more than his fair share of borrowing. In the first half of 2019, global debt blew past a record $250 trillion—and growing, according to the Institute for International Finance. While this debt tsunami began prior to Trump’s presidency, his trade war supercharged things.
A world economy top-heavy with debt is the last thing you want as its two biggest powers jab each other with tariffs and other barriers. The same goes for one of those powers (the U.S.) being addicted to the other’s (China) savings. As Trump pushes Washington’s debt past the $23 trillion mark and annual deficits well above $1 trillion, his team assumes Beijing will continue to lend it money.
China and Japan, after all, are America’s top bankers, each holding more than $1 trillion of Treasury securities. All it would take to shake world markets is for President Xi Jinping’s government to curb dollar purchases. This makes for a unique risk dynamic between Asia’s smaller economies and the globe’s biggest.
In October, the International Monetary Fund issued a sobering warning: about $19 trillion—or nearly 40%—of corporate debt in major economies could default amid a global downturn. That’s more than China’s annual $14 trillion of output and rivals America’s $21 trillion. Such a reckoning would make 2008 look tame by comparison.
The other worry is a dearth of shock-absorbers. Borrowing since then leaves limited fiscal space to stabilize growth. And central banks from Washington to Frankfurt to Tokyo are at, or close to, zero. That means the quantitative-easing rescue that saved the day a decade ago isn’t available in 2020.
None of this means 2020 will see a history-making debt crash. But the interplay between Trump and Xi raises the odds.
There’s zero chance, for example, that Trump is done with his tariff arms race. As the ink dries from any “phase one deal” he signs with President Xi, Trump will be back for more clashes, and not just with China. Japan, too, is in harm’s way, if Trump’s abusive relationship with South Korea is any guide.
First Trump demanded that Seoul re-open a trade deal in effect since 2012. President Moon Jae-in did just that, agreeing to allow Detroit to send more automobiles to Asia’s No. 4 economy. Now Trump is shaking Moon’s administration down for more protection money—demanding a 400% increase in what Korea pays for U.S. troops stationed on the peninsula.
Shinzo Abe’s Japan will be next. With impeachment risks increasing and the November election approaching, Trump has few, if any, legislative levers to excite his base. He’s also miffed that markets ignored the bilateral deal struck with Prime Minister Abe. Hence Trump’s desire for a “phase two” process with Tokyo, one that includes the risk of 25% taxes on cars and auto parts. Japan, meantime, hosts twice as many U.S. troops are Korea.
Yet China’s debt buildup is its own clear and present danger. It’s $30 trillion pile of credit and general opacity mean that when China does hit a wall—as all industrializing nations do—it will appear to come out of nowhere. Just as Malpass and his Wall Street ilk found a decade ago.
The thing about unsustainable debt episodes is that at some point the reckoning comes, invariably and suddenly. We can debate whether it will arrive in 2020. Less in dispute is that $250 trillion of debt leaves economies huge and small on a knife’s edge at the worst possible moment.
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
