High prices and inflation trigger political instability

[Patricia & Jack, 7-5-24, The New York Times, “Political Unrest Worldwide Is Fueled by High Prices and Huge Debts,” https://www.nytimes.com/2024/07/05/business/global-economy-debt-inequality.html, 7-14-24, LHG]

National elections in more than 60 countries this year have focused attention on the political process, inviting citizens to express their discontent.

Economic problems always have political consequences. Yet economists and analysts say that a chain of events set off by the Covid-19 pandemic created an acute economic crisis in many parts of the planet, laying the groundwork for the civil unrest that is blooming now.

The pandemic halted commerce, erased incomes and created supply chain chaos that caused shortages of everything from semiconductors to sneakers. Later, as life returned to normal, factories and retailers were unable to match the pent-up demand, boosting prices.

Russia’s invasion of Ukraine added another jolt, sending oil, gas, fertilizer and food prices into the stratosphere.

Central banks tried to rein in inflation by increasing interest rates, which in turn squeezed businesses and families even more.

While inflation has eased, the damage has been done. Prices remain high and in some places, the cost of bread, eggs, cooking oil and home heating is two, three or even four times as high as it was a few years ago.

As usual, the poorest and most vulnerable countries were slammed the hardest. Governments already strangled by loans they couldn’t afford saw the cost of that debt balloon with the rise in interest rates. In Africa, half of the population lives in nations that spend more on interest payments than they do on health or education.

That has left many countries desperate for solutions. Indermit Gill, chief economist at the World Bank, said nations unable to borrow because of a debt crisis had essentially two ways to pay their bills: printing money or raising taxes. “One leads to inflation,” he said. “The other leads to unrest.”

After paying off a $2 billion bond in June, Kenya sought to raise taxes. Then things boiled over.

Thousands of protesters swarmed the Parliament in Nairobi. At least 39 people were killed and 300 injured in clashes with the police, according to rights groups. The next day, President William Ruto withdrew the proposed bill that included tax increases.

In Sri Lanka, stuck under $37 billion in debt, “the people are just broken,” said Jayati Ghosh, an economist at the University of Massachusetts Amherst, after a recent visit to the capital city, Colombo. Families are skipping meals, parents cannot afford school fees or medical coverage, and a million people have lost access to electricity over the past year because of unaffordable price and tax increases, she said. The police have used tear gas and water cannons to disperse protests.

In Pakistan, the rising costs of flour and electricity set off a wave of demonstrations that started in Kashmir and spread this week to nearly every major city. Traders closed their shops on Monday, blocking roads and burning electricity bills.

“We cannot bear the burden of these inflated electricity bills and the hike in taxes any longer,” said Ahmad Chauhan, a pharmaceuticals seller in Lahore. “Our businesses are suffering, and we have no choice but to protest.”

Pakistan is deep in debt to a string of international creditors, and it wants to increase tax revenues by 40 percent to try to win a bailout of up to $8 billion from the International Monetary Fund — its lender of last resort — to avoid defaulting.

No country has a bigger I.M.F. loan program than Argentina: $44 billion. Decades of economic mismanagement by a succession of Argentine leaders, including printing money to pay bills, has made inflation a constant struggle. Prices have nearly quadrupled this year compared with 2023. Argentines now use U.S. dollars instead of Argentine pesos for big purchases like houses, stashing stacks of $100 bills in jackets or bras.

The economic turmoil led voters in November to elect Javier Milei, a self-described “anarcho-capitalist” who promised to slash government spending, as president. He has cut thousands of jobs, chopped wages and frozen infrastructure projects, imposing austerity measures that exceed even those the I.M.F. has sought in its attempts to help the country fix its finances. In his first six months, poverty rates have soared.

Many Argentines are fighting back. Nationwide strikes have closed businesses and canceled flights, and protests have clogged plazas in Buenos Aires. Last month, at a demonstration outside Argentina’s Congress, some protesters threw rocks or lit cars on fire. The police responded with rubber bullets and tear gas. Several opposition lawmakers were injured in the clashes.

Martin Guzmán, a former economy minister of Argentina, said that when national leaders restructure crushing government debt, the agreements fall most heavily on the people whose pensions are reduced and whose taxes are increased. That is why he pushed for a law in 2022 that required Argentina’s elected Congress to approve any future deals with the I.M.F.

“There is a problem of representation and discontent,” Mr. Guzmán said. “That is a combination that leads to social unrest.”

Even the world’s wealthiest countries are bubbling with frustration. European farmers, worried about their prospects, are angry that the cost of new environmental regulations intended to ward off climate change is threatening their livelihoods.

Overall, Europeans have felt that their wages are not going as far as they used to. Inflation reached nearly 11 percent at one point in 2022, chipping away at incomes. Roughly a third of people in the European Union believe their standards of living will decline over the next five years, according to a recent survey.

Protests have erupted in Greece, Portugal, Belgium and Germany this year. Outside Berlin in March, farmers spread manure on a highway, causing several crashes. In France, they burned hay, dumped manure in Nice’s City Hall and hung the carcass of a wild boar outside a labor inspection office in Agen.

As the head of France’s farmers union told The New York Times: “It’s the end of the world versus the end of the month.”

The economic anxieties are adding to divisions between rural and urban dwellers, unskilled and college educated workers, religious traditionalists and secularists. In France, Italy, Germany and Sweden, far-right politicians have seized on this dissatisfaction to promote nationalist, anti-immigrant agendas.

And growth is slowing worldwide, making it harder to find solutions.

“Terrible things are happening even in countries where there aren’t protests,” said Ms. Ghosh, the University of Massachusetts Amherst economist, “but protests kind of make everybody wake up.”