Washington Insider-- Thursday
Rich Nations Are Failing to Support Developing Country Borrowers
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.Senate Ag Committee Members Mostly Return As Rep. Peterson Defeated
Most in agriculture are lamenting the loss of House Ag Committee Chairman Collin Peterson, D-Minn., in Tuesday's election, bringing to a close his 30 years of representing the Minnesota district. That is a district that Peterson won in 1990 by defeating another long-serving incumbent — Rep. Arlen Stangeland, R-Minn.
On the Senate side, members running for re-election will return in 2021.
Senate Majority Leader Mitch McConnell, R-Ky., easily won re-election while Sen. Joni Ernst, R-Iowa, held off challenger Theresa Greenfield to win another term in the Senate. The race was hard-fought and saw Republicans link Greenfield to House Speaker Nancy Pelosi, D-Calif., while Democrats sought to paint Ernst as having “gone Washington.”
Sen. Cindy Hyde-Smith, R-Miss., was declared the winner over former USDA Secretary Mike Espy with 66% of the vote counted. She held a margin of 58.1% to Espy's 39.9%.
One of Georgia's Senate seats appears headed to a runoff as neither Republican Sen. Kelly Loeffler nor Democratic challenger candidate Raphael Warnock were able to capture 50% of the vote. Republican Doug Collins has already conceded in his challenge of Loeffler and that could point to more support for Loeffler in the expected January 5 runoff.
Sen. Tina Smith, D-Minn., was declared the winner in her bid to return to the chamber, with 48.9% of the vote to 43.5% for Republican challenger Jason Lewis.
Not returning, of course, is Senate Ag Committee Chairman Pat Roberts, R-Kansas, who opted not to seek re-election.
CFAP 1 Is Winding Down
As farmers are enrolling and receiving funds from the Coronavirus Food Assistance Program 2 (CFAP 2), USDA's Farm Service Agency (FSA) has told state and county offices they need to make sure that any applicants for CFAP 1 who have not provided the needed forms or documentation to FSA must do so by November 20.
FSA is closing out the CFAP 1 effort and “de-obligating” funds for the program on December 11.
FSA will be notifying the affected producers about the information they need to provide and remind them of November 20 deadline.
Despite pledges of debt relief and expanded programs, the World Bank and International Monetary Fund have delivered meager aid to the developing world.
The New York Times focuses on Pakistan which was “alarmingly short of doctors and medical facilities long before anyone had heard of COVID-19.” Then the pandemic overwhelmed hospitals, forcing some to turn away patients.
At the same time, in Washington, two deep-pocketed organizations, the World Bank and the International Monetary Fund, vowed to spare poor countries from desperation. Their economists warned that immense relief was required to prevent a humanitarian catastrophe and profound damage to global prosperity. Emerging markets make up 60 percent of the world economy, by one IMF measure. A blow to their fortunes inflicts pain around the planet.
But the World Bank and the IMF have failed to translate their concerns into meaningful support, says the Times. “A lost decade of growth in large parts of the world remains a plausible prospect absent urgent, concerted and sustained policy response,” concluded a recent report from the Group of 30, a gathering of international finance experts, including Lawrence Summers, a former economic adviser to President Barack Obama, and Treasury secretary in the Clinton administration.
The wealthiest nations have been cushioned by extraordinary surges of credit unleashed by central banks and government spending collectively estimated at more than $8 trillion. Developing countries have yet to receive help on such a scale.
The IMF and the World Bank—forged at the end of World War II with the mandate to support nations at times of financial distress—have marshaled a relatively anemic response, in part because of the predilections of their largest shareholder, the United States.
During a virtual gathering of the two organizations this month, U.S. Treasury Secretary Steven Mnuchin urged caution. “It is critical that the World Bank manage financial resources judiciously,” he said, “so as not to burden shareholders with premature calls for new financing.”
The World Bank is headed by David Malpass, a longtime government finance official who worked in the U.S. administration's Treasury Department and has displayed contempt for the World Bank and the IMF, the Times said.
Under his leadership, the World Bank has required that borrowers deregulate domestic industry to favor the private sector as a condition for loans.
The IMF is run by a managing director, Kristalina Georgieva, a Bulgarian economist who previously worked at the World Bank and who is answerable to the institution's shareholders. The U.S. administration has resisted calls to expand the IMF's reserves, arguing that most of the benefits would flow to wealthier countries.
But the IMF has lent out only $280 billion, the Times says. That includes $31 billion in emergency loans to 76 member states, with nearly $11 billion going to low-income countries.
The World Bank more than doubled its lending over the first seven months of 2020 compared with the same period a year earlier, but has been slow to distribute the money, with disbursements up by less than a third over that period, according to the Center for Global Development.
The limited outlays by the IMF and the World Bank appear to stem in part from excessive faith in a widely hailed initiative that aimed to relieve poor nations of their debt burdens to foreign creditors. In April 2020, at a virtual summit of the Group of 20, world leaders agreed to pause debt payments through the end of the year.
World leaders said the program would be a way to encourage poor countries to spend as needed, without worrying about their debts. But the plan exempted the largest group of creditors: the global financial services industry, including banks, asset managers and hedge funds.
“The private sector has done zilch,” said Adnan Mazarei, a former deputy director at the IMF, and now a senior fellow at the Peterson Institute for International Economics in Washington. “They have not participated at all.”
Concerns about developing countries' debts rested atop the reality that many were spending enormous shares of their revenues on loan payments even before the pandemic. For example. Since 2009, Pakistan's payments to foreign creditors have climbed to 35% of government revenues from 11.5%, the Times says. Ghana's payments swelled to more than 50% of government revenues from 5.3%.
This month, the G20 extended the program into the middle of next year. Ms. Georgieva has chided private creditors for remaining on the sidelines.
Private creditors have been reluctant to offer debt suspension because, in part, uncertainty over who will reap the benefits. Borrowing from China, for example, is both opaque and uncoordinated—and if western institutions forgo collecting on their debts, the money may simply be passed on to a Chinese lender rather than lifting health care spending.
“International financial institutions are going to leave countries in much worse shape than they were before the pandemic,” said Lidy Nacpil, coordinator of the Asian Peoples' Movement on Debt and Development, a Manila-based alliance of 50 organizations. “Their interest is not primarily about these countries getting back on their feet, but to get these countries back into the business of borrowing.”
So, we will see. The U.S. is now under increasing international pressure to support strengthened assistance and relief programs, buy those programs that rely on international institutions appear to have been low in priority. Whether and how that should change likely depends heavily on U.S. political trends and should be watched closely as this battle intensifies.
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