The author is Head of Global Equity at Bank of America. He writes as a private person
The toxic trifecta of rising food and energy prices, coupled with the threat of drought, is having serious implications for a number of developing countries. Several countries commonly referred to as emerging markets might perhaps be better described as “submerging markets”.
Sri Lanka, where frustrated citizens stormed the presidential palace in July, may be just the beginning of a wave of instability in the developing world. In 2015, the G7 pledged (again in 2022) to lift over 500 million people out of hunger and malnutrition by 2030. At this point, however, we seem to be going in the opposite direction. The World Food Program predicts that over 320 million people are at risk of acute hunger.
Many emerging economies took advantage of the era of low global interest rates to finance spending by borrowing on international capital markets. But the US Federal Reserve’s rate hikes, combined with weaker emerging market currencies, are now resulting in heavy debt service strains that are eating away at governments’ discretionary spending on health and education.
The effects of the emerging market collapse were felt in developed countries across North America and Europe in the form of increased migration flows. Among other things, as several Central American countries grapple with dramatic slowdowns in growth and food price inflation, we may again see waves of refugees massing along the US southern border. We could also see more boatloads of desperate people from Africa and the Middle East arriving on European shores in search of a better life.
Food insecurity and economic downturns will mean many countries will experience civil war-like conflicts as local groups compete for scarce resources. And these economic and security challenges will lead to migration flows that adversely affect both potential migrants and the countries that host them.
There are several steps that can be taken to address the challenges emerging markets face.
In the short term, the IMF and government donors should announce a three-year debt service moratorium for the most vulnerable countries. This will help create much-needed fiscal space and should be coupled with the stipulation that the proceeds saved instead of paying down debt are invested in agriculture, health and education.
In addition, the IMF, together with the G7 and the EU, should increase lending to emerging economies to help finance fertilizer, food and energy imports. Countries like Saudi Arabia and the United Arab Emirates, which benefit from higher energy prices, should be strongly encouraged to join China and Japan in contributing to this global effort.
Aid should also be channeled to groups like the World Food Program and the International Rescue Committee, which together operate in over 120 developing countries and have integrated processes to get food and other supplies to those most in need. The G7 and larger trading blocs in Europe, North America and Asia should also promote targeted duty-free imports from those countries, with support from the World Trade Organization.
The G7 summit in July announced an additional $4.5 billion to fight hunger – but bailouts for Greece over the past decade have totaled over $300 billion. While the stabilization of Greece has helped stabilize Europe, the gap between these numbers is huge.
We do not want a planet where millions are starving, countries default on their debts, the hungry are forced to flee their homes to find a living elsewhere, and civil wars rage – in short, a world where countries are dying. We can and must do better.