US, China Must ‘Step Up’ To Lead World During Coronavirus Crisis

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Chinese President Xi Jinping (R) greets the press as he walks with U.S. President Donald Trump at the Mar-a-Lago estate in West Palm Beach, Florida, April 7, 2017.Jim Watson | AFP | Getty Images

The United States and China must “take the lead” and provide global leadership at a time when the world’s poorest countries are struggling with the pandemic, said a distinguished economist.The coronavirus outbreak, which has led to nationwide lockdowns around the world, has done “extreme damage” to the global economy, said Raghuram Rajan, professor of finance 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 DBS bank at the end of July. Citing data from a report by the International Monetary Fund (IMF) in June, he pointed out that on average, fiscal and credit measures taken by developed industrialized countries to deal with the pandemic accounted for 20% of gross domestic product. .

Among emerging economies, that number has fallen to 5%, and for developing economies, or the poorest countries in the world, it is barely one percent, said Rajan, former governor of India’s central bank. .

“They are all facing the same virus, but they have had different abilities to spend money on it… it is proving very costly around the world,” he said.

“Risk” for emerging markets

There is a “huge risk” of sinking emerging markets, warned Rajan. “We don’t pay enough attention to it. There is not enough relief… How do they get by, well, with limited budgetary resources? In many of these countries, their debt to GDP will skyrocket, even because all the damage has been done from the loss of income, from the loss of GDP. ”

According to the IMF, 45 low-income developing countries have requested emergency financing from the global lender, and public debt has exceeded 48% of GDP on average during the period 2020-2021, according to the report.

Tharman Shanmugaratnam, a senior minister in Singapore and chairman of the country’s central bank, pointed out that most of the current growth – about two-thirds of global growth – comes from the emerging world. He was speaking at the same session as Rajan.

It must come from the two largest countries in the world – China and the United States. Both need to get to work, both don’t… Clearly 40 of the world’s poorest countries… need more resources to fight the virus.

Raghuram Rajan

Former Governor of the Indian Central Bank

“When we think about the future of the global economy, it’s fundamentally about whether the emerging world will continue to emerge or if it will overwhelm,” said Tharman, who also chairs the Group of Thirty, a world economic council and financial executives.

“There is today a very real risk of a submerged world… that the gains we have made in two to three decades will come undone, and we will see consequences that are not just economic, but consequences that are social, which are political and now which are going to be geopolitical, ”he said.

Limited growth will have global ramifications.

“Everything from forced migration, as well as the export of political extremism, will become a reality if we see limited growth and large numbers of people becoming unemployed – whether formally or informally. The consequences will be suffered everywhere in the world, ”he continued. .

The United States and China have a role to play

The world needs global leadership in order to extend the necessary resources to the countries that need them most, Rajan said.

“It has to come from the two biggest countries in the world – China and the United States. Both have to get to work, the two don’t… Clearly 40 of the world’s poorest countries… need more resources to fight the virus, ”he said.

Tensions between China and the United States have escalated further this year over a variety of issues, from the origins of the coronavirus outbreak to their rivalry in the South China Sea and the passing of a controversial law on national security in Hong Kong.

Rajan added that he hoped that the US presidential elections in November would be the “turning point” when the two countries reach a dialogue.

“There really is a huge role for global leadership here,” he said. “It has to come from both sides… and I hope that other countries, the smaller democracies of the world can push them to come together in some kind of dialogue. “

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