The IMF and multilateral development banks can and must do more to alleviate today’s food, energy and debt crises
By José Ramos-Horta, Danilo Türk, Laura Chinchilla & Han Seung-soo
Released: Sun, July 31, 2022 at 10:10 p.m
At the recent gatherings of G7 leaders, NATO members and G20 foreign ministers, it was clear to all that the world is facing a spate of emergencies not seen in decades. International tensions have risen to alarming levels amid rising food and energy insecurity, depreciating currencies, looming debt crises, the ongoing COVID-19 pandemic, the worsening impact of climate change and armed conflict.
The G20, formerly a forum for solving financial and economic problems and led by Indonesia this year, is being pushed into dangerously sensitive territory. The Group’s Leaders Summit in mid-November will be crucial; but we cannot wait until then to address today’s intertwined crises. The G20 should launch a virtual (online) process to start working on a joint, coordinated response ahead of their November summit.
According to the World Food Program (WFP), more than 800 million people currently suffer from chronic hunger and up to 323 million are at risk of starvation. Energy prices have skyrocketed and COVID-19 continues to ravage the world’s under-vaccinated population (only 16.5% of people in low-income countries are fully vaccinated). Additionally, about 60% of low-income countries are in a debt crisis, and communities around the world are experiencing droughts, floods, wildfires, and other symptoms of climate change.
In April, UN Secretary-General António Guterres warned that today’s confluence of crises “could plunge up to 1.7 billion people – more than a fifth of humanity – into poverty, misery and hunger on a scale not seen in decades”. But while the situation is dangerous, we are not powerless to change it. Some multilateral initiatives have already been launched to address debt, energy and food insecurity. To be effective, however, such efforts must be coordinated and comprehensive. Our problems are too interconnected to tackle them piecemeal.
Fair prices and security of supply on the food and energy markets have immediate priority. At least $10 billion is needed to close WFP’s funding gap this year. So far, international institutions and many governments have responded to the food crisis with initiatives such as the Global Alliance for Food Security, launched this spring to coordinate humanitarian funding and investment in food systems resilience. And more than 80 countries have endorsed a US-led global food security roadmap to action, and there have been key regionally-focused summits such as the Mediterranean Ministerial Dialogue on the Food Security Crisis and the Uniting for Global Food Security Ministerial Conference.
But while it is well known that open trade is crucial to curbing food insecurity, more than 20 countries have imposed restrictions on food exports (through export licenses, taxes or outright bans). While World Trade Organization member states recently agreed to exempt WFP’s humanitarian purchases from export restrictions, that is not enough. We need to make full use of our knowledge of how the global food market works in the short and long term, and in terms of supply and reserves.
To this end, large countries holding grain stocks in reserve should release them to international markets to dampen further price increases; and governments should strengthen the Agricultural Market Information System (AMIS) to improve transparency and surveillance (including futures markets) and discourage speculation. We must ensure that more countries can become self-sufficient through agricultural import diversification and more resilient domestic production (where possible).
In the energy sector, political leaders have discussed creating an oil purchasing cartel to negotiate better prices; and there are many new initiatives to accelerate the use of renewable energy, improve energy efficiency and reduce dependence on fossil fuels. But in the run-up to the United Nations Climate Change Conference (COP27) in Egypt in November, we need to pick up the pace.
For their part, the International Monetary Fund and multilateral development banks can and must do more to alleviate today’s food, energy and debt crises. Only a quarter of the IMF’s trillion-dollar balance sheet is currently earmarked for providing financial assistance and debt-service relief to troubled countries. Likewise, the World Bank could lend more by negotiating a capital increase with its member states and using its triple-A rating to coerce private capital with loan guarantees.
To counter the looming debt crisis, we need a robust preventive multilateral restructuring and relief initiative for developing countries with unsustainable debt burdens. The proportion of low-income countries in debt distress or at high risk has doubled from 30% to 60% since 2015. To make matters worse, many middle-income countries’ credit ratings are downgraded, meaning they will face higher debt-servicing costs, especially now that the US Federal Reserve and other major central banks are tightening monetary policy.
New initiatives to alleviate debt problems must go much further than comparable recent efforts. The Debt Service Suspension Initiative (DSSI), launched at the start of the pandemic, has since expired after giving just $13 billion in temporary relief to 48 low-income countries. Furthermore, it included only official bilateral creditors, thereby excluding the private creditors who hold the largest share of developing countries’ debt.
Following the introduction of the DSSI, the Common Framework for Debt Treatments was established to address sovereign defaults and protracted liquidity problems in DSSI-eligible countries. It is designed to provide debt relief and restructuring consistent with a debtor’s essential spending needs and ability to pay; but a year and a half after its launch, only three countries have signed up (Chad, Ethiopia and Zambia) and none have successfully completed a debt restructuring.
With participation in the Common Framework currently limited to the 73 poorest countries, the eligibility criteria may need to be reviewed and broadened, and all creditors – including China and the private sector – need to be involved in the process. Greater debt transparency is essential for effective sovereign debt renegotiation. While securing Chinese participation can prove difficult, private sector involvement may be required by law, particularly in the UK and US where there is already precedent for this.
Finally, IMF surcharges (additional fees charged to heavily indebted borrowing countries) should be suspended immediately. The number of countries facing such costs has already risen from nine to 16 since the pandemic began, and the IMF predicts the total could rise to 38 by 2025.
We are facing an unprecedented confluence of crises that could seriously jeopardize our future. Once again, the world needs the G20 to engage and act decisively.
— Project Syndicate
José Ramos-Horta, Nobel Peace Prize winner, is President of Timor-Leste. Danilo Türk is President of Club de Madrid and former President of Slovenia (2007-12). Laura Chinchilla is former President of Costa Rica (2010-14) and Vice-President of the Club de Madrid. Han Seung-soo is a former Prime Minister of South Korea (2008-09) and Vice President of Club de Madrid.
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