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Wednesday, 12 May 2021

The new normal and the coronavirus

Countries around the world should focus on seven priorities in their fight against the coronavirus as they get used to the new normal and the promises made by US President Joe Biden

Mahmoud Mohieldin , Wednesday 27 Jan 2021
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The new reality imposed by the Covid-19 pandemic has given rise to seven priorities that have become the focus of attention of world officials. Their ability to handle these priorities differs according to the resources, expertise and institutional capabilities available at hand.

The first priority that is depriving world leaders of sleep at night is dealing with the pandemic. White House Press Secretary Jen Psaki said this was the first subject on new US President Joe Biden’s schedule in the morning and the one with which he closes the day’s work.

Countries are racing against time, and competing against each other, in an unequal race to distribute a vaccine. Some countries have secured more than they need, while others are still struggling to acquire one.

With Biden promising the world a return to international cooperation and the support of multilateral systems, he might as well also support the demands of developing countries that submitted requests to the World Trade Organisation (WTO) in October 2020 to remove intellectual property rights that prevent access to medical products allocated for the prevention and treatment of the coronavirus. This is the same request that the previous US administration denied.

This is not the time for companies to reap exorbitant profits. Prolonging this life-threatening pandemic increases economic losses, exacerbates stagnation in major economic sectors and elevates unemployment rates.

The second priority should be to prevent the accumulation of debt from turning into a severe crisis. The present fourth wave of debt has come on the back of three earlier waves over the past four decades that ended with crises in Latin America, then in emerging markets, and then with a global financial crisis.

Providing international liquidity in the form of increasing the Special Drawing Rights (SDRs) available to members of the International Monetary Fund (IMF) will help prevent a debt crisis. SDRs should increase by no less than $500 billion, and should be raised four-fold to $2 trillion, to help developing countries, particularly those with the least income and the highest debts. The former US administration rejected this proposal in April 2020. Maybe Biden will support the international monetary system with this urgent measure.

The third priority is to continue funding urgent needs to combat the coronavirus and its repercussions. While the developed and rich countries have been able to provide this funding in the form of support packages that have exceeded 10 per cent of their national income in many cases, the developing countries have been unable to allocate even one per cent of their general budgets to support social-security systems and economic activities damaged due to the pandemic. 

While demands for increasing the international development aid to developing economies are expected, the facts on the ground point to an unprecedented decline in this aid due to the challenges facing donor countries’ budgets as well as the contraction of their economies last year by between four and five per cent.

Firmly stopping illicit financial flows from developing countries to developed ones, as described in a recent report by the United Nations Conference on Trade and Development (UNCTAD), is also a priority. The report indicated that Africa alone loses about $90 billion annually in such flows, a figure which exceeds the amount the continent receives from development aid and foreign direct investment combined.

Perhaps Biden, while heralding the US return to an active role in the global economy and its governance, could begin by supporting the implementation of procedures and recommendations put forward years ago to prevent illicit flows of money and to eliminate safe havens for money gathered from tax evasion and the accounting tricks used to get money out of developing countries.

The fourth priority is investing in a smart and sustainable economic recovery.

In a world suffering from recession, countries need huge investments and increased demand to achieve the higher growth rates associated with employment. The European Union, Korea, Japan, Canada and other countries have developed programmes for reform and restructuring that focus significantly on digital transformation and green growth.

One of Biden’s first executive decisions was the US return to the 2015 Paris Agreement on Climate Change, from which the previous administration withdrew. It should be noted that the pledges made under the Paris Agreement provide only the minimum protection for people and the environment from climate change. This is also assuming the possibility of committing to these pledges – a questionable matter raised in the book The New Map issued months ago by the international energy economist Daniel Yergin. Due to its significance, many book reviewers have urged Biden to read it.

In his book, Yergin concludes that the ambitious hopes for a more sustainable economy and development raised following the coronavirus outbreak have been interrupted by systemic, practical, technological and financial barriers that prevent the desired transformation towards environmental and climate compatibility unless major technological shifts are able to change the dependence on energy in its traditional forms of oil and gas. Despite significant reductions in the cost of alternative energy, the burden of restructuring is still enormous, preventing the fulfillment of the Paris Agreement pledges.

Smart investments, especially in digital transformation, are not conflict free, particularly in the innovations and applications of the 5G technology between the world’s largest economies. It would be an over-simplification and an act of excessive optimism to believe that the world, which has been heading towards two conflicting technological systems for some time, will tend to automatically reconcile itself to one now that the previous US administration has gone, bypassing considerations of security, competition and motives for hegemony and economic gains in the digital age. This adds a new dimension to the geopolitical tensions identified in Yergin’s New Map.

These four priorities shape public policies in the Arab countries, like in other developing countries. The differences lie, however, in the details of each country’s social and economic conditions. The Biden administration may play a role in cooperating on such conditions.

Nonetheless, there are three other priorities that the Arab states must independently act based on their awareness of political economy considerations. These three priorities are: redefining the scope of the state’s role in economic activity and achieving the maximum economic benefits; promoting Arab cooperation within the framework of the ongoing transformations in globalisation and the reshaping of international trade, particularly following the coronavirus outbreak; and localising development by raising local demand and developing vital services, infrastructure and technology in the villages and small towns in which much of the region’s population resides. These are basic social and economic goals without which sustainable development will not be achieved.

The first four of the priorities identified above depend on the ability of the US economy – the number one economy in the world so far – to support the inclinations of its leadership and its desire for international cooperation. It cannot be ignored, however, that Biden has taken office at a time when the US has less global economic weight than it once did, as indicated by the percentage of its contribution to world GDP. The US has also retreated to second place after China in purchasing power parity and to third place after China and the European Union in exports.

The new US administration is facing a rise in racism, political polarisation and doubts regarding the fairness of the recent presidential elections. Biden has also taken office amid tensions among leading members of the Republican Party, increasing disparities within the ruling Democratic Party, already an umbrella for different currents, and critical internal security threats in the US, such as the invasion of the Capitol building in Washington on 6 January, which will long be remembered in US history. Moreover, the US is facing a contraction in its economy, a sharp hike in unemployment and severe disparities in the distribution of wealth and income.

All these factors will render the first 100 days of the 46th US president very challenging. He rose to the helm in a year already brimming with exceptional events, with these now seeming to have become a new normal.


An Arabic version of this article appeared on Wednesday in Asharq Al-Awsat.

 

*A version of this article appears in print in the 28 January , 2021 edition of Al-Ahram Weekly

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