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Will coronavirus pandemic finally push emerging economies into crisis? – Deutsche Welle

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As a result of the COVID-19 pandemic, emerging economies are suffering from an unprecedented slowdown in investment, trade and tourism. Economists fear that many countries will go off the rails.

It was even worse than after the collapse of Lehman Brothers in 2008. As the COVID-19 pandemic spread across the globe from Asia, foreign investors turned away from emerging and developing markets almost overnight. In the early phase of the pandemic alone, the International Monetary Fund (IMF) estimates that more than $100 billion (€88 billion) in foreign capital was withdrawn from these countries.

It is “a crisis like no other” with “an uncertain recovery,” the IMF described in its updated outlook for the global economy in June. Advanced economies might lose a year or two of economic growth, while developing and emerging countries face a lost decade.

Emphasizing the seriousness of the situation, IMF boss Kristalina Georgieva said never have so many countries asked the IMF for financial assistance at the same time since its founding in 1945. The crisis managers at the IMF fear that a prolonged coronavirus crisis will push the institution to its financial limits.

Read more: Philanthropists must fill the economic gaps

For its part the World Bank expects economies in emerging markets to decline by 2.5% in 2020. This doesn’t look that bad when industrialized countries are expected to go down by 8%. For emerging markets though it is the worst economic downturn since the 1960s.

In the meantime, the flight of capital has slowed down and initial data point to the fact that since June more investments have been flowing into emerging countries than are being withdrawn. But this does not apply to all economies affected by the coronavirus.

A global problem

In Europe, Russia was hit hard by the pandemic. But analysts at IHS Markit see, above all, difficult times ahead for countries such as Montenegro, Bosnia-Herzegovina, Armenia, Turkey and Croatia. In Montenegro, tourism accounts for over 20% of gross domestic product (GDP). In Turkey, it is more than 12%. Like many other emerging economies, Turkey is also heavily dependent on foreign investment.

Worldwide, countries like the Philippines where tourism accounts for 25% of GDP and Thailand where the sector’s contribution is around 22%, have been hit hard. Even the huge economies of China and India, which do not depend on tourism as much, have been severely affected by international travel restrictions.

The BRICS stars

Former stars among emerging economies such as Brazil and South Africa, which as members of the so-called BRICS countries have been in the financial spotlight for many years, were already suffering economically before the corona crisis. The fact that the COVID-19 pandemic is raging there is just exacerbating the situation.

So far, the pandemic has claimed fewer lives in the poorer countries of Southeast Asia, Latin America and Africa than in the heavily affected industrialized countries. However, Raghuram Rajan, a former IMF chief economist, says the economic damage will be considerably higher for poorer countries.

Economist Raghuram Rajan has worked for the IMF as chief economist and as an advisor to the Indian government

Economist Raghuram Rajan has worked for the IMF as chief economist and as an advisor to the Indian government

Rajan, who now teaches at the University of Chicago, is especially worried about the high level of debt companies in emerging economies have amassed. Many of these countries’ currencies have already lost significant value against the dollar and euro. That means companies that have their debt in euros or dollars must raise more and more money in their local currency to service their loans.

International trade in goods, foreign direct investment and tourism have been slumping for months. For many emerging economies severely affected by the pandemic, this can hardly be compensated for, wrote Rajan in an article in the Financial Times in early July.

They hardly have the means to stabilize their economy through billion-dollar stimulus packages for consumers and companies. In addition, in many emerging countries there is hardly anything close to a nationwide health care system that can respond to a major coronavirus outbreak.

“The longer this persists — and rising infections suggest that worse is still to come — the more that even viable, large domestic corporations will have to borrow to stay afloat. If lenders do not write down corporate loans, many of these over-indebted firms will then be unable to finance their recoveries when demand improves. Yet lenders may also lack the capital to absorb accumulating loan losses,” according to Rajan.

Slow before the pandemic

The coronavirus crisis is impacting many emerging markets in an already difficult phase. Long before the pandemic, the economists at the London-based think tank Capital Economics were certain “The golden age of the emerging markets is over.”

And sooner or later China will have to prepare for growth rates of around 2% a year. For the emerging economies, the period since the turn of the millennium was a period of unusually high growth which can no longer be achieved in the foreseeable future.

“We expect EM [emerging market] GDP growth to ease from an average of 5.5% in the 2000s and 2010s to around 3.5% in 2020-2040. Growth will still be faster than that in the developed world. But incomes will converge more slowly than previously,” the economists said.

Brazil: Deceptive normalcy Ipanema Beach in Rio de Janeiro during the COVID-19 pandemic

Deceptive normalcy Ipanema Beach in Rio de Janeiro during the COVID-19 pandemic

The situation in Latin America

Latin American countries such as Chile, Guatemala, Mexico, Paraguay, Peru and Panama have managed to place bonds on the international financial markets even after the pandemic broke out in the spring. “Some of the issues achieved relatively good interest rates,” ​​explained economist Jose Antonio Ocampo in an analysis for the Washington-based Brookings Institution think tank.

The economist, who is a development consultant to the United Nations and teaches at the Columbia University in New York, expects that hard-hit countries in Latin America will need to defer payments under the supervision of the World Bank or regional development banks in order to better deal with the consequences of the pandemic

But the situation is much more serious for heavily indebted countries such as Argentina and Ecuador. Even before the crisis they needed more than just deferring payment of their public debt.

According to Raghuram Rajan, international investors will have to waive part of their claims against poor and emerging countries. Simply out of self-interest “the world’s more industrialized countries need to avoid beggaring the rest. What happens elsewhere will not stay there,” he warned. The threat of mass unemployment in poorer countries will lead to mass emigration and ultimately, more protectionism in industrialized countries, triggering “endless flotillas and caravans of the desperate,” said Rajan. “Sharing growth is in everyone’s interest.”

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Pandemic has devastated India's economy and left its children vulnerable to exploitation as cheap labour – CBC.ca

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Ajay Tomar regularly scans the platforms of the New Delhi Railway Station, the busiest in India, running through a checklist in his head. 

The social worker is trained to spot signs of children being trafficked into forced labour. One telltale sign is seeing one or two kids are surrounded by a group of adults, the children isolated. He always glances at their hands to check if they are worn, a clue the child has been working illegally. 

Child labour is illegal in India for anyone under 14 except in special circumstances, such as working for a family business. But it’s a problem that has been exacerbated by the coronavirus pandemic, with indications pointing to a sharp increase in the number of children being exploited as cheap labourers. 

India’s last census, in 2011, showed the country had nearly 8.2 million child labourers between the ages of five and 14, mainly in the country’s poor rural states, such as Bihar and Uttar Pradesh. Children’s rights groups say that number improved significantly this past decade but fear the pandemic will reverse much of that progress.

A 10-year-old boy works inside a lime paste factory in a Mumbai slum in November 2010. Child advocates say that the child labour situation has improved in the past decade but worry that progress will be set back as the pandemic economy forces children back to work. (Danish Siddiqui/Reuters)

India’s swift and severe lockdown to stop the spread of COVID-19, imposed in March with mere hours’ notice, made a desperate situation worse and created “fertile ground” for traffickers, according to Sudarshan Suchi, CEO of Save the Children India. 

It abruptly shut all of the country’s schools and forced migrant labourers out of work, Suchi said, and once the measures started to ease, industry turned to the cheapest labour available to make up the shortfall: children.   

Children who have missed their online classes due to a lack of internet facilities sit on the ground maintain a safe distance as they listen to pre-recorded lessons over loudspeakers in Dandwal village in the western state of Maharashtra. (Prashant Waydande/Reuters)

Schools in many parts of the country remain shut

The country has the second-highest number of COVID-19 cases after the U.S., at 9.6 million, and third-highest number of deaths, at almost 140,000.

Reopening orders vary from state to state, but schools across the country are still closed or operating at a much-reduced capacity, and children in some of India’s poorer communities are not in class because they don’t have access to online learning.  

Children watch online lectures inside a digital mobile education library in Mumbai set up so that children without access to cellphones can follow classes virtually during the pandemic. Schools in many part of India are closed as COVID-19 cases show no sign of slowing down. (Francis Mascarenhas/Reuters)

On the heels of its deadliest month from COVID-19 cases, Delhi’s Deputy Chief Minister Manish Sisodia said schools would remain shut until a vaccine is available. 

In other states, such as Gujarat, classes were set to resume in late November before authorities, spooked by a rise in infections, decided to hold off. 

As a result, Suchi said, his crews have seen a “marked increase” in child labour in urban and rural areas, where children are often pushed into working at garment factories, car repair shops or garbage dumps, where they pick out plastics to earn a few cents.  

“The vulnerability is at its highest right now,” he said. 

Suchi also worries the damage has already been done, since once children from poorer communities leave class for work, it’s much harder for them to return.

WATCH | In pandemic, children have become source of cheap labour in some parts of India:

In India, with a COVID-19 case count second only to the U.S., it’s children who’ve become the cheapest and easiest sources of income for families ravaged by economic fallout. 2:32

Families complicit in child labour

Tomar, who works for the Delhi-based non-governmental organization Prayas, has been seeing more of that vulnerability, too, as families turn to children to help scrape together enough money to survive.

“We find kids here who have come to work … with their fathers and mothers,” Tomar said.

While he was speaking to CBC News, Tomar’s fellow social workers on the railway rescue team were interviewing a preteen boy who tried to run away from the two adults who had forced him into manual labour. One of them was his cousin; the other his brother.

Kids on the platform at the New Delhi Railway Station. Workers from the Prayas Juvenile Aid Centre Society patrol the station on the lookout for children who are being forced to work illegally by adults. (Stephanie Jenzer/CBC)

The boy eventually told the social workers that his relatives forced him to work 14 days in a row at a bicycle-chain repair factory near the New Delhi train station until he got so tired he tried to travel back to his home state of Bihar, hundreds of kilometres away, to see his mother. His captors tailed him to the station, where Tomar’s team noticed the group and intervened. 

Tomar said the fact the boy’s brother was involved in forcing him to work is all too common.

“We find out every day that families are almost all OK [with it],” said Tomar. “We can’t say anything to them. They are vulnerable, marginalized people.” 

Ajay Tomar, a social worker with Prayas, believes during the pandemic, some children he would have normally been able to rescue may be slipping through the cracks. (Stephanie Jenzer/CBC)

Economy contracted 24% during pandemic

Chaman Shagufta, who works as a counsellor with the same organization at a children’s shelter in one of Delhi’s poorest neighbourhoods, knows that all too well. 

She often has to tease the stories out of the children and track inconsistencies before handing their files over to India’s child welfare authorities, who determine if a child should be allowed to return to their family or be sent to a shelter.

Shagufta’s rapid-fire questions, punctuated by terms of endearment, are effective in getting two young boys picked up at the New Delhi Railway Station on their way to Maharashtra from the poverty-plagued state of Bihar to tell part of their story.

“Before the lockdown, we were in school,” said one boy.

Boys at one of the 38 children’s homes and shelters run by Prayas practise drawing and the alphabet. (Stephanie Jenzer/CBC)

He insisted he was 15, but Shagufta was unconvinced, suspecting the boy was closer to 12. 

“It’s very much a probability that they have come for work since schools are locked down and nobody is studying,” she said. 

Many parents know children are being sent off to work, she said, and reason that they may as well “earn something” during the shutdown period. 

It’s a sign of the dire straits families are in in an economy that has contracted 24 per cent between April and June of this year, according to government GDP figures. 

Children near a street corner in central Delhi where they beg for money from drivers stuck in traffic. (Stephanie Jenzer/CBC)

‘Nowhere children’

Children are most at risk under those circumstances, said Amod Kanth, the former Delhi police officer who founded the NGO Prayas. 

“I prefer to call them ‘nowhere children,’ he said. “They are not on the radar. They are not visible. They are not accounted for because they happen to be drifting, traveling, migrating.

“They suffer more compared to others in the pandemic.”

Amod Kanth, a former New Delhi police officer who founded Prayas, says children ‘are not on the radar’ during the pandemic and suffer more as a result. (Stephanie Jenzer/CBC)

In another children’s home operated by Prayas, Poonam waits patiently for a quick visit in the hallway outside the large room where her three eldest children are getting an art lesson from social workers. 

The 30-year old mother of four boys lives in one of Delhi’s poorest slums and told CBC News the eight months since the start of India’s lockdown order were the hardest she’s had to endure. 

“It was tough,” she said. “My children were starving.”

Her husband, an addict, had already left her and she was also caring for her own mother, who has health problems.    

Poonam is a 30-year-old mother of four who works selling vegetables. During the pandemic, she has only been able to earn less than $3 a day. She says she had no choice but to let her children beg for money in order to survive. (Stephanie Jenzer/CBC)

Desperation pushed her to send three of her sons, ages 5, 7 and 11, to beg on the streets outside a local temple and at busy intersections while she ran her vegetable stand, making about 150 rupees (less than $3 Cdn) a day, she said. 

Only, fewer people were out buying vegetables and the struggle to find enough money for the family to eat was crushing.

The boys were spotted begging a month ago and taken in by social workers, who alerted the authorities and started the child welfare committee process to determine whether the three can be sent home. 

They are living temporarily at the Prayas shelter, and Poonam desperately wants to keep it that way. 

“It’s too hard. They will die if they come back to me,” Poonam said, her voice breaking with emotion.

At a home for vulnerable children in northeast Delhi, boys learn handicraft skills. (Stephanie Jenzer/CBC)

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Kuwaitis go to polls as economy poses challenge for new emir – TheChronicleHerald.ca

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By Ahmed Hagagy

KUWAIT (Reuters) – Kuwaitis voted in legislative polls on Saturday with the Gulf state mired in its worst economic crisis in decades, which poses a challenge for the government’s often stormy relationship with a parliament blamed for blocking reforms.

More than 300 candidates, including 29 women, are vying for 50 seats in the Gulf’s oldest and most outspoken assembly with legislative powers. Critics say it has stalled investment and economic and fiscal reform in the cradle-to-grave welfare state.

Campaigning, which took place mostly on social media and local TV channels due to COVID-19 restrictions, has focused on the economy, corruption and demographics in a country where foreigners make up the bulk of the workforce.

“Kuwait needs development. The streets are broken and there is no development and no economy … and coronavirus has affected everything in every way,” said Ibrahim, a government employee, after voting in Kuwait city.

Turnout is expected to be lower than in past elections due to concerns about COVID-19 which, along with low crude prices, has battered state finances in the wealthy oil-producing nation.

A low turnout could strengthen the hand of tribal, Islamist and other candidates who can rally supporters to head to polling centres, analysts said.

“Kuwaiti opposition who boycotted (previous) polls are moving to run and vote, and this could strengthen their presence,” said Kuwaiti political analyst Mohamad al-Dosayri.

Frequent clashes between the cabinet and the assembly have led to successive government reshuffles and dissolutions of parliament. Kuwait’s emir, who has the final say, picks a prime minister who selects a cabinet.

The current government is due to resign after the elections.

Sheikh Nawaf al-Ahmad al-Sabah took the reins as emir in September following the death of his brother.

FACE MASKS AND SANITIZER

Kuwait’s economy, which is worth nearly $140 billion, is facing a deficit of $46 billion this year. A government priority is to overcome legislative gridlock on a bill that would allow Kuwait to tap international debt markets.

Sheikh Nawaf has called for unity to face challenges at home and in a region experiencing heightened tension between Kuwait’s larger neighbours Saudi Arabia and Iran.

Late ruler Sheikh Sabah al-Ahmad broke the hold of opposition groups on parliament in 2012 by using executive powers to amend the voting system, sparking large protests.

Under the old electoral system, voters were allowed to cast ballots for up to four candidates, which the opposition says allowed alliances that partly made up for the absence of political parties, which are officially barred.

The system introduced in 2012 allows votes for only a single candidate, which the opposition says makes alliances difficult.

At al-Waha School in Jahra City, a polling station for men, voters in Arab robes protected themselves with face masks and hand sanitizers before putting their votes into the ballot box.

About 20 female observers watched a male judge checking the identity of women voters at the Bahsira school for girls before they cast their ballots.

Kuwaiti opposition figures have proposed electoral reforms and a pardon for dissidents, many in self-exile.

“There have been some reforms in the judiciary and the Emiri Diwan,” or court, said a Kuwaiti politician who asked not to be named. “We heard echoes of more reforms after elections.”

(Reporting by Ahmed Hagagy in Kuwait; Additional reporting by Stephanie McGehee; Writing by Aziz El Yaakoubi; Editing by William Mallard and David Clarke)

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Confused by the economy during the COVID-19 pandemic? Don't worry, so are the economists – CBC.ca

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The numbers can be so big, they’re hard to get your head around. The swings are so volatile, you can lose your footing.

And yet, with millions of Canadians struggling through the COVID-19 crisis, many of us want to understand what is going on with the economy.

“My head is spinning, too,” said Benjamin Tal, deputy chief economist at CIBC. “So I don’t blame people, because we’ve never seen anything like this.”

Every week, a flood of new data comes out. This week, we were inundated with the federal government’s fiscal update, GDP figures and job numbers. All trying to shape the story of the economy. Sometimes the numbers contradict each other. Sometimes they give a sort of head-fake and contradict themselves.

The fiscal update that came out on Monday had built all its projections on an average of the forecasts from the big banks. The next morning, Statistics Canada released quarterly GDP numbers that missed the forecast by a staggering seven points. By the end of the week, jobs data came out showing Canadian employers added three times as many jobs as expected.

Like many businesses these days, Scout, a gift shop in Toronto that sells products made by local artisans, is having to adjust how it operates. (Submitted/Leah Eyles)

Every economist is trying to figure out what those numbers are telling us. And they’re not always getting it right.

“Economists have never been more wrong about where the data would come through,” said Frances Donald, chief economist and head of macro strategy at Manulife Investment Management in Toronto.

New methods

Most of the time, she said, economists rely on data such as job growth and retail sales numbers to make sense of the situation. The problem is those statistics tell us what was happening months ago.

“This is a daily crisis that requires daily data points,” she said.

To combat that, economists have turned to higher frequency data such as google mobility trends, restaurant reservation tallies and public transit numbers.

Shops in Toronto’s Roncesvalles neighbourhood hang posters in their storefronts encouraging people to buy local. (Evan Mitsui/CBC )

But Donald said the bigger issue is the unique, unprecedented nature of this crisis. 

“We don’t have a functional precedent for what is happening,” she said.

There may be other moments in the past that share some similarities, but nothing experts can use to model probable outcomes.

Change of perspective

Tal said he understands why more Canadians than usual seem to be following economic updates with bated breath. But he said the best option is to focus less on the details and think of the broader economic themes.

So, while the short term is bad, he said, the medium term looks better.

“We are buying time at this point,” he said, until the virus comes under control. 

Deputy Prime Minister and Minister of Finance Chrystia Freeland speaks to news media before unveiling her fall economic statement earlier this week. (Blair Gable/Reuters)

Yes, the world is headed into a long and dark winter, he said. Yes, COVID-19 cases are rising and government-imposed restrictions could spread. And, yes, households and businesses will need government support and record-low interest rates to provide them a bridge to the second half of next year, he said.

 

But if you zoom out and look at the longer-term forecasts, the second half of next year shows a lot of promise. Tal said the economic crisis is largely due to the fact that people aren’t spending as much as they normally would.

Some of that is because of government-mandated closures.

But some of it is also a question of confidence.

Even if the movie theatres were open, how many people would pay to sit in close contact with strangers for a two-hour film?

Looking ahead

That spending issue is a large source of the hope for 2021. Tal calculates that Canadian households and businesses are sitting on $170 billion in savings. And once the virus comes under control, he predicts that money will spill back into the economy.

“I see this unleashing of potential demand in the economy,” he said. “Most of it will be in the services sector. And that will benefit employment for people that are struggling. It’s just a question of time.”

So, in the interim, he recommends not getting too caught up in the minutiae of the daily economic data.

That’s advice financial markets seem to be following. As COVID-19 case counts soar and government-imposed restrictions spread, the major stock market indexes are all climbing. Donald said markets seem to be looking past the short- and medium-term unknowns and banking on a solid return next year.

WATCH | The National’s report on the fall economic update: 

The government unveiled a record deficit of $381 billion in its fiscal update, along with spending plans for more pandemic relief and a huge stimulus plan to jolt the economy post-pandemic. 2:18

She said the markets don’t seem to be too caught up in the daily barrage of economic information.

“The markets are thinking ahead to where we are going to be in 6, 12, 48 months,” she said. “Not where we are at this very moment.”

Besides, she said, one of the best indicators available is to just look around and see how people around you are acting. Are people nervous and scared? Are they staying home or are they out shopping? The data will catch up to our behaviour eventually. 

“You don’t need a PhD in economics to look around at your friends and family and get a sense of what their behaviour is,” she said. “We don’t need numbers and releases, we just need to look out our front doors.”

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