Soaring inflation and devalued currencies have created a catastrophic debt crisis for much of the world, including in countries like Lebanon, Iraq, Egypt, Sri Lanka and Pakistan. Malaysian economist Jomo Kwame Sundaram says the instability is largely driven by interest rate hikes by the U.S. Federal Reserve, which have the effect of increasing borrowing costs for poorer countries and devaluing their currencies compared to the U.S. dollar. The intensifying U.S. economic war on China is also hurting many countries of the Global South that are linked to Chinese industry, he says.
AMY GOODMAN: This is Democracy Now!, democracynow.org. I’m Amy Goodman, with Nermeen Shaikh.
As debates continue in Washington over raising the debt ceiling and combating inflation, we take a global look at the growing international economic crisis as soaring inflation and devalued currencies leave nations across the globe confronting a catastrophic debt crisis. Lebanon is facing what the World Bank has described as, quote, “among the most severe crises globally since the mid-19th century.” Earlier today, Lebanese protesters attacked at least six banks, setting some on fire, as the Lebanese pound hit a new record low. Since 2019, the pound has lost 98% of its value. Protesters accused the Lebanese government and banks of failing to help the people.
PROTESTER: [translated] What are you Lebanese people waiting for to go down and take your rights from this mafia of thieves and criminals that is ruling? Where are the human rights? There is no electricity, no water, nothing at all in this country. Don’t they feel us while sitting in their palaces? They don’t feel the people. They see us as sheep. We won’t stay silent about our life’s worth.
AMY GOODMAN: In addition to Lebanon, numerous other countries are facing similar crises. In Iraq, protests recently broke out in Baghdad over the plummeting value of Iraq’s currency, the dinar. In Egypt, the value of the Egyptian pound has shrunk in half over the past year while prices have soared. In Sri Lanka, authorities have just raised the price of electricity by 66% in an effort to get a bailout from the International Monetary Fund. Last year Sri Lanka defaulted on its debt for the first time in its history. Pakistan is also facing its worst economic crisis, leading to gas shortages, power outages, rampant price increases. Meanwhile, in Argentina, inflation has hit nearly 100%.
To look more at this global growing economic crisis, we’re joined by Jomo Kwame Sundaram. He is a Malaysian economist at the Khazanah Research Institute in Kuala Lumpur, Malaysia. He was an economics professor and then U.N. assistant secretary-general for economic development. In 2007, he received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.
Professor Jomo Kwame Sundaram, thank you so much for being with us. Can you just comment on what is confronting — in the United States, we focus on inflation here, but the global catastrophe of inflation and what it means?
JOMO KWAME SUNDARAM: Thank you very much for having me, Amy.
The world situation is very, very serious, not because we have a conspiracy to worsen the situation, but we have a confluence of events. Two developments in particular threaten the world economy in very, very deep ways. Firstly, of course, we know that the U.S. Fed has raised interest rates over the last year, and this has had catastrophic consequences for many developing countries. We have seen capital leaving most developing countries, most countries in the Global South, and this has resulted in their currencies depreciating and the U.S. dollar appreciating. That often raises the cost of the imports which are often necessary for the subsistence.
The other major development which has been — the other related development, of course, has been that the cost of debt has gone up tremendously. And the cost of debt going up basically puts many economies into very serious difficulties, because they are no longer able to service the debts, especially given their currencies are declining in value. Of course, some commodity prices have gone up, but many other commodity prices have not gone up, and this worsens the situation in very deep ways.
So, we have, of course — we have, as a consequence, very deep threats of recession in many of these economies. And then, at the same time, we have the stepping up of warfare, warfare not only by military means, which of course are very important and divert precious resources away from needed purposes — dealing with climate change and so on and so forth — and, instead, divert them for military purposes. Germany, for example, has tripled its military spending within the last year.
And as a consequence of this, what we see now is that economic sanctions have basically become the norm. When economic sanctions were taken against countries like North Korea or Cuba and so on, these were relatively small economies which had very few ramifications for the rest of the world. But now we have a situation where these economic sanctions have resulted in the increase in prices of fuel, increases in prices of food and increase of prices of fertilizer. All this will have very, very serious implications for the availability of affordable food, particularly for poorer people in the world all over the place. And this combination of war, especially by increasingly economic means, is going to exacerbate the situation.
One should also add that another war has started on a completely different front, and that is the war against China. The war against China began, arguably, about almost a decade ago with the pivot to Asia from Washington. But this has increasingly meant that many of the so-called supply chains, the global — the value chains and so on and so forth have been seriously disrupted. And this adversely affects all other countries, as well, because what is supposedly produced in China is not produced in China alone. It’s produced by many other countries which are part of the value chains in which China may be dominant. So we have a situation where strategic and military considerations are resulting in more and more economic warfare. The polite term in Washington, I believe, is economic statecraft. And this, of course, threatens the world in very profound ways.
NERMEEN SHAIKH: So —
JOMO KWAME SUNDARAM: If we look back at — sorry.
NERMEEN SHAIKH: I was just going to ask if you could elaborate on China in particular, which is now the largest government creditor to a number of countries in the Global South, but also the principal trading partner of many countries in the Global South, and not just the Global South. So, if you could talk about the significance, the centrality of China in this crisis?
JOMO KWAME SUNDARAM: Yes. Much of the production in China and from China going to the rest of the world is actually dependent on inputs from other parts of the world, especially from the Global South. So, for example, we in Southeast Asia produce a great deal. China is the number one trading partner and, for some countries, the number one investor, as well. The same is increasingly true in many sub-Saharan African countries, and much of the growth in sub-Saharan Africa in the first decade of this century was largely due to the increase of demand from China and India and other so-called new markets. And even in Latin America, we find that the principal trading partner for many countries, and sometimes even the principal investor, happens to be China. So the implications of sanctions against China are not directly affecting China as much as they are also affecting other countries in the Global South.
So, the fact that they are borrowing — that many of these countries are borrowing from China is, of course, a matter of serious concern for these countries. Most countries in the Global South do not want to take part on either side of the Cold War which is emerging. They would prefer to be nonaligned, and so there’s a new role for what was once called nonalignment in the first Cold War. But this new nonalignment, of course, is very different, because we are basically talking about very similar economies which are run, dominated, by what might be termed capitalist enterprises, some perhaps more state capitalist, some less state capitalist, and so on and so forth. So this relationship with China is so central for many countries in the Global South that any blow intended against China often adversely affects many other countries, sometimes even much more than they affect China.
NERMEEN SHAIKH: And could you explain, Jomo, what the impact is of having many more creditors than in the past — I mean, not just China, the IMF, etc., but others involved, as well? What are the effects of that on attempts to restructure this debt?
JOMO KWAME SUNDARAM: When the U.S. Fed raised interest rates in the early 1980s, this basically shocked the world economy, and the world economy threatened to come to a grinding halt. President Reagan at that time forced a reversal of the Fed’s policies, and the U.S. economy picked up. But as we all know now, Latin America lost at least a decade — some people would argue more than a decade — and much of sub-Saharan Africa lost, arguably, two decades — some even suggest a quarter of a century — as a consequence of the raising of interest rates, and also the kinds of policies which were imposed from the Washington-based so-called Bretton Woods Institutions, such as the World Bank and the International Monetary Fund. The consequence of that was to bring many of these economies to a grinding halt. Much of this was justified as supposedly necessary to get these economies off to a fresh start. But that fresh start never really came. As we now know, with the benefit of hindsight, when economies began to pick up, they began to pick up precisely for other reasons, including the external demand from places like China and India, which I referred to earlier.
AMY GOODMAN: And finally, the human effects of this around the world? We started this conversation by talking about Lebanese protesters burning the banks, the massive inflation in Egypt, and what’s happening in Pakistan.
JOMO KWAME SUNDARAM: Well, what’s happened in Lebanon, of course, was preceded by what happened months ago in Sri Lanka and similar episodes which have happened elsewhere. But the ability to protest presumes a certain degree of means to do so. In many situations, people are suffering often in silence, trying to make ends meet. Usually, invariably, when governments are forced to cut spending, they cut health spending, they cut social spending, they cut education spending, they cut other kinds of social provisioning, for example, for girl children and so on and so forth. And very importantly, they cut spending for, for example, trying to adapt to global warming, global heating, if you will. And most countries in the Global South are, of course, in the tropical or subtropical zone, where the impact of global heating is worse.
So we have a situation where you have a perfect storm. I’m not suggesting there’s a deliberate conspiracy between the U.S. Fed and the Defense Department and NATO and the European Union and so on and so forth, but the effect is tantamount to the effects of a seeming conspiracy. So, many countries in the Global South are looking elsewhere. They are looking at alternatives. They are trying to survive in this situation. They see a looming crisis ahead of them, and they don’t know how to avoid it. It’s like being on the Titanic. You see the iceberg, but you don’t know what to do about it.
AMY GOODMAN: Professor Jomo Kwame Sundaram, we’re going to ask you to stay with us, for right after the show we want to do Part 2 of this conversation, leading Malaysian economist, speaking to us from Kuala Lumpur.
When we come back, we go to East Palestine, Ohio. Stay with us.