C. P. Chandrasekhar’s Blog

As the number of developing countries likely to default on external debt service commitments increases, the effort to resolve debt crises in countries that have defaulted many months back remains unsuccessful. The experience of Zambia, the first African country to default following the onset of the COVID-19 pandemic, is telling. The reason is the presence of private creditors, especially bondholders, who are unwilling to accept the haircuts (recommended by the International Monetary Fund) needed for a potentially sustainable solution. This has implications for other African countries like Ghana that have also defaulted recently, but in whose case private creditors dominate,…

Tight monetary policies in rich countries obviously affect people in the countries where they are applied, but they also cause ripple effects across the world. We were already in a very unequal world before the most recent global price increases. Most developing countries were not able neutralize the damage inflicted by the pandemic, largely because they had much weaker fiscal stimuli. Of nearly $14 trillion in additional fiscal spending by the end of 2021, more than 80 percent was from just ten advanced economies, and more than half was from the U.S. This fiscal inequality worsened after the start of…

As COP27, the climate summit at Sharm el-Sheikh in Egypt, ended after a being prolonged, assessments of what it achieved were mixed. But tthe overwhelming sense was that the summit had yielded little, since on most counts it had not gone beyond the pledges agreed to at COP26 held in Glasgow last year and incorporated in the Glasgow Climate Pact. However, one ‘failure’ has received most attention, which is the absence in the final declaration of a proposal mooted by India and many less developed countries, calling for a phase down of all fossil fuels and not just coal. Since…

The IMF’s most recent World Economic Outlook, released in time for the annual meetings of the IMF and the World Bank in Washington, presents a confusing picture of what shapes the present global conjuncture. This at a time when most economies are either contracting or recording lower than expected growth, even while global inflation in 2022 is forecast at 8.8 and is running at levels that are their highest in decades. The confusion stems partly from the conservative lens through which the IMF views the world. It is also an outcome of material circumstances, characterised by the simultaneous operation of…

The long-standing debate on whether India’s public sector banks should be privatized has resurfaced in recent days. Two articles, besides numerous statements from advocates of ‘reform’, triggered this round of debate—one wittingly and the other, perhaps unwittingly. The contribution that argued for immediate action in the form of privatization, and was presented at the India Policy Forum, was authored by two established and well-known economists (Poonam Gupta and Arvind Panagariya) who have been closely engaged with Indian policy making in senior positions. It makes a case for privatisation of all public banks, except for the State Bank of India, which…

Debt-strapped Sri Lanka has reached a staff-level agreement with the IMF, that promises access to $29 billion over a 4-year period under the institution’s Extended Finance Facility. Given Sri Lanka’s $51 billion external debt, that sum is extremely small. It also comes with a host of conditions varying from increases in fuel and electricity tariffs to increased taxation to reduce government deficits—policies that a government with limited legitimacy would find difficult to impose on an economically devastated population. Yet, the Sri Lankan government is hoping that the agreement would be passed by the IMF board, because it is a step…

India’s enforcement directorate, still preoccupied with unearthing corruption and money laundering among opposition politicians, has decided to turn its attention to those involved in the crypto business in the country as well. Raids on the offices of crypto-exchanges (which manage trades in and movements of these virtual coins) and a freeze on the assets of companies controlling them, have stalled crypto activity in the country. The Economic Times recently reported that the Enforcement Directorate (ED) is probing at least ten cryptocurrency exchanges for allegedly laundering more than Rs. 1,000 crore of money criminally acquired. Coming in the wake of a…

Financial markets in the so-called ‘emerging economies’ are in turmoil. At the end of May 2022, the Financial Times reported that the return delivered by emerging market (EM) sovereign bonds was around minus 15 per cent for 2022, the worst since 1994. The principal factor driving this trend was the exit of foreign fund managers and investors from emerging markets assets. According to the Institute of International Finance, between March and June 2022, $30.1 billion had flowed out of equity markets. With flows into debt instruments during that period amounting to a lower-than normal $7.5 billion, aggregate portfolio capital flows…

India is experiencing a job market crisis. Applicants for preferred jobs outnumber vacancies by numbers that make the process a lottery. The qualifications of these applicants far exceed the skills or knowledge required by many jobs. Attempts to influence or rig the appointments process to monetize scarcity are common. And the response to perceived malpractice or suspect policy shifts can be violent, as recently seen in appointments to the railways and the military. The argument that the crisis afflicts most market economies, including many developed ones, mitigates for some the disquiet the crisis should evoke. But what is missed in…

All is not quiet on India’s external economic front. The rupee seems to be on a trajectory of accelerating decline, with its value relative to the dollar (as per the Reserve Bank of India’s reference rate) falling from Rs. 76.4 at the beginning of April to Rs. 79.1 at the beginning of July. Driving that trend are a range of developments. To start with, India’s near-perennial trade deficit has widened in recent months as export growth remained sluggish and imports registered a sharp increase. In June, with exports estimated at $38 billion and imports at $63.6 billion, the trade deficit…