ARI SHAPIRO, HOST:
As inflation has driven up the cost of everyday goods in the U.S., the Federal Reserve has punched back repeatedly by hiking interest rates. Those higher rates are now squeezing the economies of low- and middle-income countries, which are already struggling with the lingering economic effects of the pandemic and the ongoing war in Ukraine. NPR's Jason Beaubien has more.
JASON BEAUBIEN, BYLINE: Argentina has placed sweeping new restrictions on imports of everything from whiskey to software to consulting services as it continues to hemorrhage foreign currency. Inflation in the South American nation is running at over 70%, and in July, the value of the Argentine peso fell to a record low against the dollar on the black market. Francesc Balcells, who manages emerging market debt at the Dubai-based Frontier Investment Management Partners, says significant U.S. interest rate hikes like we're seeing right now have often spawned disaster for lower-income countries.
FRANCESC BALCELLS: If you look at the history of emerging markets from, you know, the Latin American debt crisis in the 1980s, the Mexican peso crisis in 1994 to the different Argentine defaults to the Brazilian crisis in the early 2000s - I mean, you name it - to the Asian crisis in the late '90s, all of those periods always, always coincide with periods of interest rate hikes in the U.S.
BEAUBIEN: As the Federal Reserve hikes interest rates, the dollar strengthens globally. It's harder and harder for countries like Argentina to come up with dollars to pay their foreign debts. Adding to the problem this time, the war in Ukraine has dramatically pushed up the cost of food and fuel imports. Also, during the COVID lockdown, many nations borrowed heavily to subsidize idled workers and keep their economies afloat.
BALCELLS: Not to overuse the term, but, you know, it's been pretty much a perfect storm for emerging markets.
BEAUBIEN: Balcells says many of the larger middle-income countries can weather that storm, but others like El Salvador, Pakistan and Ghana are simultaneously getting battered. In Nigeria, the largest economy in Africa, inflation has hit a 20-year high, driven almost entirely by skyrocketing food prices.
(SOUNDBITE OF ARCHIVED RECORDING)
LINDA THOMAS-GREENFIELD: Right now the world is experiencing the worst food security crisis any of us have ever seen.
BEAUBIEN: U.S. Ambassador to the United Nations Linda Thomas-Greenfield, speaking at the Chicago Council on Global Affairs, says much of the current food crisis is driven by the Russian invasion of Ukraine. Those two countries accounted for almost a quarter of global grain exports before the war. And she says the disruption to those grain supplies is doing more than just leaving people hungry.
(SOUNDBITE OF ARCHIVED RECORDING)
THOMAS-GREENFIELD: Food security is directly linked to economic growth. And it matters because food security leads us to political and social instability, and that endangers us all.
BEAUBIEN: The question is how much instability the current global economic downturn will produce. Vasuki Shastry with the global think tank Chatham House says the other thing making 2022 different from global economic crises of the past is the role of China as a major lender. A significant portion of the debt now owed by low- and middle-income countries is owed to Beijing.
VASUKI SHASTRY: In terms of foreign debt, China is the elephant in the room. All the Chinese authorities would like to suggest that they're actually pandas, you know, huggable pandas.
BEAUBIEN: China's ambitious global infrastructure program, known as the Belt and Road Initiative, has often come in the form of loans to lower-income countries. But now, Shastry says, there's a lack of transparency around how much is owed to China and whether Beijing is willing to offer any debt relief around this. Meanwhile, other nations and institutions like the International Monetary Fund, Shastry says, are trying to negotiate traditional bailouts for several of these nations.
SHASTRY: China is essentially signaling that there are two tracks in terms of global debt negotiations. One track is led by the U.S. and Europe, you know, the traditional powers club. And China wants to be part of a separate track, but it alone wants to determine how it wants to deal with countries facing debt distress.
BEAUBIEN: Another traditional place for emerging markets to turn for debt relief in times like these is the G-20. But given that Russia is a member of the G-20, it's been nearly impossible since the invasion of Ukraine to get the group's finance ministers to even gather in the same room. Jason Beaubien, NPR News.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.