The World in reset mode
We are familiar with the irritating updating of software systems that perturbs our otherwise well-functioning, we believe, computers or smart phones. It normally starts with a prompt that alerts us about the need to update, otherwise we may face security problems or malfunctioning resulting from incompatibilities with other apps and operating systems. In such situations we are usually faced with three options: replace the device entirely with an enhanced version, in order to avoid having to go through the said update; resist the change and accept that we shall start experiencing problems and disturbances; or, do the updating fast enough to have as little disruption of our preferred apps and protect our archives and choices.
The dilemmas associated with the above metaphor are present in our daily lives more often then we care to think, even less admit. After all methods of governance may prompt us to do similar choices, such as how we vote or whether we engage in a form of activism or another. Societies develop their intrinsic dynamics, preferring stability and predictability. Social contracts are the golden standard for attaining such noble and peaceful goals.
We must admit, nevertheless, that we are living in an era of major disruption. We are reminded of it frequently. By the changing weather patterns resulting from climate change, by populist politicians disdain for established rules or automation and robotization creating new forms of work.
Covid-19 is a fresh reminder about our common vulnerability in face of such disruptions. But also, a confirmation of the enormous collective progress we have made since the Spanish influenza killed an estimated 50 million people a century ago. Viruses travel now faster across the globe because of our immense capacity to trade and connect; knowledge about how to act and react is available instantaneously; demonstration of our mutual dependency defy more than before selfish behavior and are capable of sanctioning forcefully the mediocre. For reasons like the above Covid-19 imposes a reset.
The current crisis, provoking one of the most drastic economic contractions of the modern times, took about three weeks to get to the dramatic falls in economic throughput attained by the Great Depression in three years.
Most developing countries depend on foreign income in a combination of exports of goods, tourism, investments and remittances: all are expected to collapse. Government revenues are linked to the formal sector of the economy. Tax revenue will equally fall while informal transactions will be purged by the social distancing imposed by Covid-19. In short, the flatter you want the contagion curve to be, the more you need to block your country. The larger fiscal space needed to mitigate the deeper recession that will result will be unreachable.
At the same time, access to international financial markets will become prohibitive for developing countries as lenders and investors rush to the safety of assets issued by central economies. The ones that can afford to print money and give it away in historical stimulus packages based on the policy of “whatever it takes”.
In other words, just when developing countries need to manage the pandemic, most have seen their fiscal space evaporate. Just when they need access to more external finance the doors close. We can for instance witness the paradox of rating agencies pushing the emerging and frontier markets further into junk status at this time while they look the other way regarding OECD countries with similar indications of contraction and fiscal indiscipline.
To give countries the financial capacity to flatten the curve, a level of financial support is needed that will not be feasible with existing approaches and current balance sheets from international organizations. After all Covid-19 reminds us that health everywhere is protection anywhere.