In World’s Most Vulnerable Countries, the Pandemic Rivals the 2008 Crisis
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March 24, 2020
As capital flees emerging markets, those countries are absorbing the most potent economic shocks of the coronavirus outbreak.
In New Delhi, a fruit vendor whose sales have dropped by half now dilutes the milk she serves to her five children. In central Turkey, a company that runs hot air balloon rides for tourists has banished its 49 employees to indefinite leave while cutting their wages by half.
In Manila, a bartender for an international cruise line finds himself marooned at home, wondering if his savings will last until his ship returns to sea. In Johannesburg, a mother who makes her living braiding hair goes home empty-handed.
And in Buenos Aires, a cabdriver prowls deserted streets for fares, fearful that he will contract the coronavirus, yet more afraid of losing his taxi to repossession.
“I don’t know what I’m going to do,” he said. “This situation is larger than me.”
As the coronavirus pandemic brings the global economy to an astonishing halt, the world’s most vulnerable countries are suffering intensifying harm. Businesses faced with the disappearance of sales are laying off workers. Households short of income are skimping on food. International investment is fleeing so-called emerging markets at a pace not seen since the global financial crisis of 2008, diminishing the value of currencies and forcing people to pay more for imported goods like food and fuel.
“This will be as bad, or potentially even worse, than the global financial crisis for emerging markets,” said Per Hammarlund, chief emerging markets strategist at SEB Group, a global investment bank based in Stockholm. “It is grim.”
It is also a threat to global fortunes. Emerging markets account for 60 percent of the world economy on the basis of purchasing power, according to the . A slowdown in developing countries is a slowdown for the planet.
From South Asia to Africa to Latin America, the pandemic is confronting developing countries with a public health emergency combined with an economic crisis, each exacerbating the other. The same forces are playing out in wealthy nations, too. But in poor countries — where billions of people live in proximity to calamity even in the best of times — the dangers are amplified.
It is unfolding just as many governments are burdened by debt that limits their ability to help those in need. Since 2007, total public and private debt in emerging markets has multiplied from about 70 percent of annual economic output to 165 percent, according to Oxford Economics.
The pandemic has triggered a sharp reversal of international investment away from emerging markets and toward the safety of U.S. government bonds.
As recently as last year, a group of two dozen emerging markets including China, India, South Africa and Brazil saw net inflows of $79 billion in investment, according to the Institute of International Finance. Over the last two months, a net $70 billion in investment has exited those countries.
That shift has reignited fears that some countries could be sliding toward insolvency and default — especially Argentina, Turkey and South Africa.
“The speed is quite staggering,” said Sergi Lanau, the institute’s deputy chief economist. “Whoever was vulnerable to begin with definitely faces a really challenging situation.”
Most economists assume that a is already underway — a synchronized downturn that is punishing countries indiscriminately, turning traditional economic strengths into alarming vulnerabilities.
In tourist meccas like Thailand, Indonesia, Turkey and South Africa, the effective imposition of a worldwide quarantine is threatening mass unemployment in the hotel, restaurant and tour industries.
The disruption of industry worldwide has drastically cut demand for commodities, walloping copper producers like Chile, Peru, the Democratic Republic of Congo and Zambia, along with zinc producers like Brazil and India. Oil exporters are especially susceptible to the downturn as prices remain cheap, pressuring Colombia, Algeria, Mozambique, Iraq, Nigeria and Mexico.
Mexico was already in a recession, and many of its jobs are centered on producing goods for the United States, now in a veritable lockdown.
In wealthy nations, quarantines have been mandated, while governments and central banks have unleashed trillions of dollars in spending and credit to limit the economic damage. But in poor countries, where families cram into teeming slums, quarantining may be impossible. People who support themselves by collecting scrap metal harvested from garbage dumps risk hunger if they stay home.
“Some of these countries are going to conduct real-life, unpleasant experiments in the let-it-rip kind of approach, because I just don’t see how they can control it,” said Gabriel Sterne, head of emerging market macroeconomic research at Oxford Economics. “In a Soweto township, how do you self-isolate? The social consequences of death among the weak and the elderly are going to be just monstrous.”
India, a country of 1.3 billion people, appears profoundly exposed, even as the official number of coronavirus cases appears limited. On Tuesday, the Indian prime minister, Narendra Modi, declared a aimed at preventing the spread of the virus.
On a recent afternoon, on a street leading to New Delhi’s main railway station, people running sidewalk businesses were confronted by a perilous shift: The streets were empty.
Mahender, 60, who shines shoes, slept by the roadside, his head propped on the cloth bag that holds the tools of his trade. Before the coronavirus, he earned about 400 rupees (about $5) per day. Now, he makes 100 rupees.
Shagun, a 45-year-old mother of five, sat on the sidewalk slicing bananas, watermelon and papayas into portions she sells to auto rickshaw drivers. With her sales down by half, she has been serving her family only rice and the cheapest lentils, while adding water to the milk she gives her children.
“My husband is jobless,” she said. “I have no savings. God forbid we are asked to move out of the footpath, we will be surviving on only one meal per day.”
Even before the outbreak, India was gripped by an economic slowdown. Mr. Modi’s government has , while drawing accusations that it to mask the extent of.
Faced with laments about a disappointing economy, Mr. Modi has stoked . mobs in bloody conflicts with minority Muslims. None of this will be eased by a public health catastrophe twinned with mass unemployment.
“You would have to have some blind faith to argue that India isn’t in a massive slowdown,” said Swati Dhingra, an economist at the London School of Economics. “Now, you bring in another major force, and one that will asymmetrically hit poorer people. This could turn into something really quite bad.”
Argentina was in peril before the pandemic. Its currency, the peso, lost more than two-thirds of its value in 2018 and 2019, as inflation exceeded 50 percent. Its economy contracted by 2 percent last year, the continuation of a . Government debt approached 90 percent of annual economic output, a flashing signal of distress.
A new government, headed by President Alberto Fernández, was confronting a potentially impossible arithmetic problem: How could it reverse unpopular cuts to programs like cash grants for poor households without spooking international investors, hastening the exodus of money? How could the government unleash spending and pay back the $57 billion that it had borrowed from the International Monetary Fund?
Last week, the I.M.F.’s managing director, Kristalina Georgieva, signaled flexibility. In a , she cited the pandemic in declaring a need for “substantial debt relief from Argentina’s private creditors.”
But the danger was deepening. The currency was down another 6 percent against the dollar this year. Poverty appeared certain to worsen, demanding government resources.
“It is difficult to think that Argentina will be able to obtain financing from anywhere,” said Maria Castiglioni Cotter, director of C&T Asesores Económicos, a consultancy in Buenos Aires. Yet “the government now has to increase public spending,” she added, or “risk a total collapse.”
For Alejandro Aníbal Alonso, a 53-year-old taxi driver and father of two, the dangers are mounting.
Two years ago, he took out a loan to buy a taxi. The terms changed with inflation. As Argentina descended into crisis, his monthly payments soared from 7,800 pesos a month to 25,000 pesos.
Staying current on that debt was already a desperate challenge. The pandemic has made it impossible. He missed his February payment. He does not have the money for March.
Last week, Mr. Alonso’s creditor sent him a menacing email. “Payments do not stop due to the coronavirus,” it said.
He swallowed his fears of the virus and accepted a job to go to the airport and pick up a visitor arriving from the Netherlands. “I can’t say no to a trip now,” he said.
In Turkey, companies are saturated in debt, much of it in foreign currencies. The debts are the result of President Recep Tayyip Erdogan’s pursuit of growth at any cost. He has and , while protecting those who borrow to finance monuments to his prowess, like a .
In recent years, investors have evacuated their money, sending the Turkish lira plunging while threatening companies with bankruptcy. The pandemic threatens to reignite that crisis. Turkey’s currency has dropped 10 percent since January. Tourism — about one-tenth of the Turkish economy — has been decimated.
In Cappadocia, a landscape of stupendous conical rock formations, Deniz Turgut, 37, part-owner of Butterfly Balloons, has found herself staring at continuing expenses and vanishing revenue.
Last year, the company carried about 20,000 tourists on hot air balloons. In February, the company had only 43 customers, fewer than its 49 employees. Ms. Turgut reluctantly furloughed her workers.
“We don’t know when this will end,” she said.
In Istanbul, Gürsel Yenilmez, 42, shut his cafe in the city’s trendy Beyoglu district last week. His business cannot pay its bank loans, its rent or its utility bills. He has canceled purchases of olives and olive oil from producers in rural Turkey.
“We can’t buy anything from them or pay them right now,” he said. Before the pandemic, South Africa was in dire straits — its economy in recession, the unemployment rate above 29 percent. Since the pandemic emerged, South Africa’s currency has plunged more than 20 percent, forcing prices for goods higher.
Siphilisiwe Nyathi, who makes her living braiding hair, has been forced to pay extra to rent a chair at a hair salon in Johannesburg. Hair extensions imported from China cost more, too.
On a good Saturday, she typically earns 2,000 rand (about $112). Last Saturday, she made nothing. She paid the fare for the cramped minibus from her home in a mixed-income township to the city, nearly an hour away. She stood on the sidewalk fidgeting and was not approached by a single customer.
“We’re stuck,” she said. “We don’t know what to do.”
The same complaint echoed through Nairobi’s Eastleigh business district, a commercial hub full of clothing and electronics wholesalers. Most import wares from China and sell to retailers who distribute them across East Africa.
Faisal Ali Mohamed, who sells dresses, said he was reluctant to place a new order with his supplier in the Chinese city of Guangzhou, citing fears that “they will be held up or burned by the Kenyan government,” given the perception that China is the source of the pandemic.
Kenya is heavily reliant on Chinese imports. That trade has diminished by more than one-third in recent months.
“We are just sitting around in the shop all day worried about when our customers will come,” Mr. Mohamed said. “And if they come and buy the stuff, where we will get new goods?”
In Manila, Reynaldo Tating, 57, is enduring an unwanted home leave.
Like millions of Filipinos who work abroad in industries from health care to hospitality, he typically spends eight months a year sailing the world on cruise ships, mixing cocktails for international tourists.
Now, he worries that his employer, a major cruise operator, could go bankrupt.
“I don’t know if we can return to our jobs,” he said. “Or whether we still have jobs.”
Jason Gutierrez contributed reporting.
Peter S. Goodman is a London-based European economics correspondent. He was previously a national economic correspondent in New York. He has also worked at The Washington Post as a China correspondent, and was global editor in chief of the International Business Times.
Suhasini Raj has worked for over a decade as an investigative journalist with Indian and international news outlets. Based in the New Delhi bureau, she joined The Times in 2014.
Abdi Latif Dahir is the East Africa correspondent for The New York Times. He joined The Times in 2019 after covering East Africa for Quartz for three years.