Chinese President Xi Jinping (R) waves to the press as he walks with U.S. President Donald Trump on the Mar-a-Lago estate in West Palm Beach, Florida on April 7, 2017.
Jim Watson | AFP | Getty Images
Both the United States and China must "step up to the top" and take the global lead at a time when the world's poorest countries are in trouble because of the pandemic, said a respected economist.
The outbreak of the corona virus, which has led to nationwide closures worldwide, has caused "extreme damage" Global economy, said Raghuram Rajan, a finance professor at the Booth School of Business at the University of Chicago.
"I think the most important difference is: who was able to stand?" he said at a conference organized by Singapore-based bank DBS in late July. Relying on data from a report by the International Monetary Fund (IMF) in June, he pointed out that the tax and credit measures taken by industrialized countries to combat the pandemic averaged 20% of gross domestic product.
Among emerging economies, that number dropped to 5%, and barely 1% for developing countries or the poorest countries in the world, said Rajan, former governor of the Indian Central Bank.
"They are all faced with the same virus, but they have had different ways of spending money on it … it is proving very expensive worldwide," he said.
"Risk" for emerging markets
There is a "big risk" that emerging markets will sink, Rajan warned. "We don't pay enough attention to it. There is not enough relief … How do they come out with limited budgets? In many of these countries, their debt to GDP will skyrocket, even because of all the damage they have done the loss of revenue, made of the loss of GDP. "
According to the IMF, 45 low-income developing countries have applied for emergency financing from the global lender, and government debt has exceeded 48% of GDP on average in 2020-2021, according to the report.
"Most of today's growth in the world comes from emerging economies. Looking at the past 10 years, about two-thirds of growth, global growth, came from emerging economies," said Tharman Shanmugaratnam, a senior minister in Singapore and Chairman of the country's central bank, who spoke at the same meeting as Rajan.
It has to come from the two largest countries in the world – China and the United States. Both have to be at the top, neither have … 40 poorest countries in the world clearly … need more resources to fight the virus.
Former governor of the Indian Central Bank
"When we think about the future of the global economy, it is essentially about whether the emerging world will continue to emerge or go under," said Tharman, who also chairs the Group of Thirty, a global economic council, and financial leader.
"Today there is a very real risk to a submerged world … that the profits we have made in two to three decades will dissolve and we will see consequences that are not only economic but also social, political and now that will be geopolitical, "he said.
Limited growth will have a global impact.
"Everything from forced migration to the export of political extremism will become a reality if we see limited growth and a large number of people become unemployed – either formally or informally unemployed. Consequences can be expected anywhere in the world," he continued .
The US and China play a role
The world needs global leadership to expand the resources needed for countries that need it most, said Rajan.
"It has to come from the two largest countries in the world – China and the United States. Both have to be at the top, neither of them have … 40 poorest countries in the world clearly have … more resources to fight the virus needs" , he said.
Tensions between China and the United States escalated this year due to a number of problems, from the origins of the Corona virus outbreak to its rivalry for the South China Sea to the adoption of a controversial national security law in Hong Kong.
Rajan added that he hoped the US presidential election in November would be the "turning point" for both countries to engage in dialogue.
"Global leadership really does play a huge role here," he said. "It has to come from both sides … and hopefully other countries, the smaller democracies in the world, can get them to form a kind of dialogue."
– Correction: This article has been updated to reflect that Singapore's senior minister, Tharman Shanmugaratnam, said that about two-thirds of global growth in the past decade has come from emerging markets.