In some ways, this is a far deeper crisis for emerging markets than 2008. The scale of capital flight is sobering—$83 billion in March, according to the Institute for International Finance. This comes at a time when, the IIF says, emerging markets’ overall debt to GDP ratio is at “a fresh high of 220% of GDP, up from 147% in 2007.” As my colleague Marcus Ashworth warns, we’re teetering on the edge of the worst EM crisis in history.
This is when the developing countries that Beijing has spent years wooing will learn whether China can act like a true global leader. Sending a planeload or two of masks won’t be enough.
Will China bail out stressed, debt-ridden countries across the developing world? Will it buy their bonds and forgive their debt? Will it ask its coddled state-owned companies to take haircuts, and will it protect the global supply chains for medicines, protective gear and pharmaceuticals? Will it provide loan guarantees in the billions, allowing emerging-world companies to shift to manufacturing ventilators, masks and sanitizers? If not, then the developing world will have its answer.
Western banks and multilateral institutions have yet to respond at scale to the growing crisis in emerging nations. But there’s still a chance those institutions will meet the moment as they should.