Avoiding a K-shaped global recovery

Context: Highlighting key challenges for global recovery from the pandemic and the importance of a proactive response from the developed countries.

Challenges in recovery from COVID-19 pandemic

• Global character and the continuing crisis in many developing countries: Report by Institute for New Economic Thinking’s (INET) Commission on Global Economic Transformation cited that achieving a rapid global recovery requires all countries to be able to declare independence from the virus.
• Threat of mutation: Will put everyone at risk as long as the virus continues to flourish anywhere.
• Supply constraints due to poorly designed international intellectual-property regime:
  • IP reform, in general, is long overdue, vested interest corporate lobbies and myopic governments in developed countries holding back reforms.
• Rise of “Pandemic nationalism”:Exposed deficiencies in global trade, investment, and IP regimes.
• Inequality: Based on World Bank data, US spending has been some 8,000 times higher than that of least-developed countries.

Way forward

• IP regime reforms: Suspension or pooling of IP rights attached to products needed to fight Covid-19.
• Role of developed nations:
  • Boost expansionary effect: Rich countries need to transfer disproportionately larger allocations to countries in need of cash.
  • A comprehensive response by developed countries to the debt problems: Restructurings and induce active participation from private sector.
    • Relaxation from the principles of force majeure: Countries should not be forced to pay back what they cannot afford.
• Proactive role of International Monetary Fund’s (IMF):
  • Large issuance of special drawing rights (SDRs): could issue $650 billion in SDRs without seeking approval from member-state legislatures.
  • Proactive role of IMF in shaping macro-economic policies in developing countries: Recognising need for enhanced public spending in developing countries.
  • Address inconsistencies: An Oxfam International analysis finds that between March and September 2020, 76 of the 91 IMF loans negotiated with 81 countries required public-expenditure cuts that could undermine health-care systems and pension schemes, freeze wages for public-sector workers (including doctors, nurses, and teachers) etc.