The uneven recovery from the pandemic is a bad sign for emerging economies

The writer is a professor of finance at the University of Chicago Booth School of Business

The industrialized countries have been able to use their huge fiscal and monetary power to protect their people from the effects of the pandemic.They are also aware of the urgent political need “Upgrade” disadvantaged areas and communitiesWith all spending and taxation initiatives proposed, inequality within industrialized countries may actually decline, although new variants are spreading.

For many emerging markets and developing countries that are currently severely hit by variants, the prospects are even more bleak. They have less room to enforce a blockade because a lot of work in these countries requires physical proximity. Their government has very limited financial resources to support unemployed families and closed businesses.Most of their population Won’t get vaccinated Even by the end of 2022. Inequality between countries will certainly increase.

In the short term, this means Two-step global recoverySince the central banks of industrialized countries are expected to normalize monetary policy sooner or later, their counterparts in developing countries Start to raise interest rates, Even if their economy is fighting the virus. Inequality in many of these countries is increasing. HNWIs employed by large companies work from home, but more and more lower middle classes are unemployed and below the poverty line. When the pandemic subsides, one can expect street protests and political radicalization.

Roll out vaccines faster, even the International Monetary Fund is commendable Expansion of Special Drawing Rights, Will not be enough to help these countries whose growth potential has been affected. Poor children have experienced indifferent teaching at their best, but they have fallen behind due to lack of digital access. Even those who return to school will get lost if they don’t work hard to help them catch up. Few schools can do this effectively, so the dropout rate will increase.

Surviving SMEs in developing countries Already in debt After several blockades. The debt backlog will reduce these companies’ access to new credit, hindering growth and creating jobs. One potential silver lining is the huge stimulus demand from industrialized countries. However, a large part of export growth will go to countries and companies that are less affected by the pandemic. The global supply chain will be reconfigured to eliminate disadvantaged companies and further harm small and medium-sized enterprises in the affected countries.

The industrialized world can help by resisting all forms of protectionism, including accidental protectionism. They should check their regulatory requirements for imports, which are difficult for small producers in other places to meet.For example, no one wants workers to work in unsafe conditions, but promotes stricter labor standards Bangladeshi garment manufacturer Today, if there is no corresponding assistance, it may lead to the closure of smaller institutions.

Similarly, the EU’s plan to impose a carbon border tax on imports will hurt the smallest exporters in the poorest countries, who often use the most carbon-intensive energy sources. One remedy is to provide small producers with enhanced carbon credits for emission reduction, which can be sold on the markets of industrialized countries.The other is actual contribution US$100 billion pledged annually by rich countries In 2009, climate adjustments were made to poor countries and the fund was tilted towards green investment by small and medium-sized enterprises.

Infrastructure investment, including digital connectivity, is particularly useful for SMEs in developing countries.Multilateral institutions Urged Get out of their comfort zone where they provide secure priority loans to infrastructure projects in emerging economies. Instead, they should provide venture capital that can attract private investment. Now is the best time for them to introduce this change.

During the pandemic, the rise of digital connections and remote services provides another opportunity to spread revenue-think about the technology that now allows Filipino doctors to diagnose Canadian patients. However, some existing barriers to cross-border transactions in services must be resolved. For example, can industrialized countries make it easier for doctors living in emerging economies to take license exams?

Adverse shocks will not end with the pandemic. Emerging economies will be particularly vulnerable to climate change and increasing geopolitical tensions. Even if the difficult scenes in other places will not affect us, so will the immigration wave. We need to rebuild better, not only in industrialized countries, but everywhere.

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