Financial Times Europe - 07.04.2020

4 ★ FINANCIAL TIMES Tuesday 7 April 2020

C O R O N AV I R U S

ST E V E J O H N S O N— LO N D O N

As the coronavirus crisis deepens in
emerging economies around the
world, collapsing currencies, commod-
ity prices, export earnings and tourism
revenues threaten to shred the finances
of many governments, leaving them
scramblingtoavoiddefault.
Argentinahasgoneintowhatanalysts
called a technical default, Zambia has
called in advisers to restructure its debt
and Ecuador has asked for more time to
make coupon payments on three dollar
bonds. Few analysts believe they will be
the last. Tunisia, Bahrain and Angola
are among other emerging and frontier
countries economists fear will struggle
to meet impending payments on their
cross-borderdebtincomingmonths.
The plunge in most emerging market
currenciesagainstthedollarhassharply
increased the cost of servicing hard-
currencydebts,creatingaseriousthreat
tofinanciallyweakerstates.
“The impact of global measures to
contain the coronavirus will result in a
steep fall in [emerging markets’] gross
domestic product this year and the col-
lapseinoutput,spikeincapitaloutflows
and plunge in commodity prices could
trigger balance sheet problems that
make the downturn much worse and
the recovery slower,” said William Jack-
son, chief emerging markets economist
atCapitalEconomics.
Reza Moghadam, chief economic
adviser at Morgan Stanley, said while
emerging markets “largely escaped the
2008 global crisis and recovered
quickly, they will not be so lucky this
time”andtheirabilitytoaccessinterna-
tional finance was likely to come under
“significantstress”.
Even before the pandemic, many
developing countries struggled to serv-
ice their debts despite the world’s his-
torically low interest rates. As global
investors embarked on an ever more
desperate search for yield in recent
years, eurobond markets opened up to
dozens of poorer countries that had
been unable to access public debt mar-
kets,resultinginaborrowingbinge.
Emerging economies’ debt servicing
costs as a proportion of GDP have risen
totheirhighestlevelsince2005,accord-
ing to Oxford Economics. In October,
the IMF warned 34 of 70 frontier econo-
mies were at “high risk” of falling into
debt distress or were already distressed,
upfromzeroasrecentlyas2014.
Zambia is most exposed, according to
Capital Economics; its gross external
financing requirement — the dollars it
needs to repay maturing external debt,
make coupon payments on short-term
debt and cover its current account defi-
cit over the next 12 months — is 172 per
centofitsforeignexchangereserves.
Tunisia, Bahrain and Argentina —
which is already in restructuring talks
with holders of $83bn of foreign debt —
are not far behind, with figures of 158,
153 and 133 per cent respectively. Afri-
canandMiddleEasterncountriesdomi-
nate the list of most exposed countries;
Angola, Ghana, Oman and South Africa
allhavefundingrequirementsofatleast
90percentofGDP.

Mr Jackson added: “It’s not altogether

that surprising given that many of these

countries have quite small domestic

financial sectors so it’s much harder to

raisedebtdomestically.”

Separate analysis by Moody’s sug-

gested Fiji and Bahrain could come

under pressure. Both have external

bonds worth about 21 per cent of their

foreign exchange reserves maturing in

thecomingyear.

Montenegro, Sri Lanka, Croatia and

Honduras are also at risk, Moody’s said.

“Typically they are frontier markets

that have traditionally relied on conces-

sional debt,” said Marie Diron, manag-

ing director for sovereign risk at

Moody’s.

Some countries have managed to

secure mitigating arrangements. Fiji is

negotiatingaloanfromtheAsianDevel-

opmentBank,SriLankasecured$500m

from the China Development Bank,

Montenegro has a guarantee from the

World Bank and Bahrain is widely

expected to be bailed out by Saudi Ara-

biaifitrunsintotrouble.

Despite such backstops, Morgan

Stanley warned that “few [EM] coun-

trieslookresilient”.

Many countries are expected to turn

to the World Bank or IMF. But some

may be reluctant to turn to the IMF.

Evenifgovernmentsdoseekhelpfroma

multilateral lender, private creditors

arestilllikelytobeonthehook.

“The IMF can only lend to countries

where it deems debt to be sustaina-

ble,” Mr Jackson said. “They are not

going to tear up that rule, so for many

countries an IMF role will have to come

alongside a condition that debt restruc-

turingisrequired.”

Emerging economies face

battle meeting debt burden

Countries scramble to avoid default as currencies and foreign revenues plunge

Gross external financing requirement

As  of foreign exchange reserves

Zambia

Tunisia

Bahrain

Argentina

Angola

Ghana

Turkey

Oman

Ukraine

South Africa

Kenya

Jordan

Chile

Colombia

Romania

Indonesia

Sources: World Bank; Refinitiv; Capital Economics

Steep costs:

closed shops in

a village in

Tunisia, one

of several

countries that

economists fear

will struggle to

meet payments

on their cross-

border debt

Fethi Belaid/AFP/Getty

‘The impact

of global

measures

... could

trigger

balance

sheet

problems

that make

the

downturn

much worse

and the

recovery

slower’

G I D E O N LO N G— B O G OTA

If there is one city in Latin America that
shows how devastating coronavirus
might be should it take hold in the
region’s shanty towns, ill-equipped hos-
pitals and overcrowded jails, it is the
EcuadoreanportofGuayaquil.
Gruesome images have emerged from
the city of people dumping the bodies of
their relatives in the streets because the
local authorities, overwhelmed by the
pandemic, have not been able to collect
them. Videos posted on social media
showcoffinsonsidewalksinthetropical
heatandvulturescirclingoverhead.
“We’ve been waiting for five days,”
one man, Fernando España, told a Reu-
ters camera crew as he stood on a street,
pointing from his house at what looked
like a corpse covered in a plastic sheet.
“We’re tired of calling 911 [the emer-
gency services]. They say wait a few
minutes, wait half an hour, wait two
hours.We’resickofwaiting!”
Latin America has not been hit by the
virus as hard as Europe or the US but

authorities fear it is only a matter of

time and that when it occurs, the region

willstruggletocope.

Officially, Ecuador, with a population

of 17m, has 3,465 confirmed cases, mak-

ing it one of the worst-hit countries in

Latin America per capita. Two-thirds of

them are in Guayaquil and its surround-

ing region of Guayas, which — with a

population of 4m — has more cases than

Mexico, home to 125m people. Accord-

ing to government figures, more people

have died in Guayas — 122 — than in

MexicoandArgentinacombined.

Doctors say that based on the number

of suspected cases they have seen, the

figures are probably much higher but

most people are not being tested. Jorge

Wated, a government spokesman in

Guayaquil, warned that “between 2,

and 3,500 people will die from Covid-

inthesemonthsinGuayasalone”.

The government of President Lenín

Moreno is trying to deal with the out-

break while struggling to keep the econ-

omy afloat. One of the poorest countries

in Latin America, Ecuador is in danger

of defaulting on its debt and reneging on

the terms of a $4.2bn package agreed

withtheIMFlastyear.

Ithasalreadyfailedtomake$200min

bond payments due last month, post-

poning them until the end of April. On

Friday Moody’s downgraded its sover-

eign debt rating by two notches, citing a

“very high probability of a restructur-

ing, distressed exchange or default

onEcuador’smarketdebt”.

The government is talking to bond-

holders, Chinese banks and multilateral

lenders about rescheduling its obliga-

tions. The Andean nation has been hit

hard by the fall in oil prices and, as the

only dollarised country in South Amer-

ica, is hamstrung in what it can do to

propuptheeconomy.

Last week, the World Bank lent Ecua-

dor $20m to deal with the virus but doc-

torssaytheyareoverwhelmed.

Marcelo Castillo, a doctor at a small

private clinic on the outskirts of

Guayaquil, said: “Every day I receive

patients who need intensive care treat-

ment and I can’t admit them because I

don’t have space. They’re probably

goingtodielookingforabed.”

Guayaquil’s mayor, Cynthia Viteri,

who stood against Mr Moreno in the last

presidential election, blames the

nationalgovernment.

“What’s happening to the public

healthcare system in this country?” she

asked in a video posted from her home,

where she is self-isolating, having tested

positive for Covid-19. “They’re not tak-

ing the dead out of the houses, they’re

leaving them on the pavements. Fami-

lies are wandering the city knocking on

doors hoping that a public hospital will

attendtothem.”

Local authorities have said they will

open a new cemetery and use freezer

units to store bodies. They have ordered

cardboardcoffins.

Worryingly, the virus has spread in

Guayaquil even though the government

appears to have taken the threat seri-

ously, certainly compared with Brazil

andMexico.

The Moreno government ordered a

nationwide quarantine and closed the

country’s borders soon after the first

casewasconfirmedonFebruary29.

Worryingly, too, for Europe and the

US, the virus has thrived despite

Guayaquil’s stifling heat. Some medics

have said that with the onset of warmer

weather in the northern hemisphere,

the spread of the virus might slow in

placeslikeBritain,GermanyandtheUS.

Guayaquilsuggeststhatisunlikely.

Latin America.Overwhelmed city

Vultures circle over bodies in streets of Ecuador port

Amasked statue

of the archangel

St Michael leads a

procession on

Palm Sunday near

Quito, the capital

BE N E D I C T M A N D E R— B U E N O S A I R E S

C O L BY S M I T H— N E W YO R K

Argentina unilaterally postponed until

next year the payment on $10bn of

dollar-denominated debt governed by

local law yesterday in what some ana-

lystshavecalledatechnicaldefault.

The move has raised new concerns

about Argentina’s approach to debt

restructuring as it negotiates the fate of

$83bn in debt issued under foreign law.

Private sector investors holding that

debt expect an offer to be made by the

centre-left government of President

AlbertoFernándezassoonasthisweek.

While some hope the decision to post-

pone payments on the local law debt

could provide Argentina with more

room to deal with its foreign law debt,

which is vulnerable to unpredictable

international lawsuits, others fear it

could signal a more broadly aggressive

stance that could result in a messy

default.

“Now everyone is questioning if the

two jurisdictions will be treated differ-

ently, or if this is the beginning of a

broad moratorium [on the debt],” said

Siobhan Morden, head of Latin Ameri-

can fixed income at Amherst Pierpont,

who fears that recent developments

haveboostedtheprospectsofadefault.

“If Argentina is unwilling to repay

because they are purposely not going to

reform the economy... then why

would bondholders agree to a deal

now?” she asked, adding that creditors

were “almost perversely” motivated to

hold out for as many interest payments

aspossible.

Other creditors are more optimistic

after they were informed recently that

Mr Fernández had given “strict instruc-

tions” to economy minister Martín Guz-

mán that Argentina must not default on

itsdebt,raisingtensionbetweenthetwo

officialssinceMrGuzmánisseenashav-

ing a more dogmatic approach, accord-

ingtotheÁmbitoFinancierolocalnews-

paper.

Yesterday, Argentina’s local dollar

bond set to mature in 2024 fell more

than 10 per cent to 24 cents on the dol-

lar. The country’s international dollar

bonds held firm, having tumbled

sharply in recent weeks amid a broad-

based sell-off across emerging markets

becauseofthecoronavirusoutbreak.

An official decree declaring the post-

ponement of payments on local dollar

bonds published yesterday highlighted

that the coronavirus crisis — which has

so far claimed 48 lives in Argentina —

had upset the government’s plans to

restructure its debt, which it had origi-

nallyplannedtodobyMarch31.

Last week, Mr Guzmán said that the

government would continue talks for at

leasttwomoreweeks.

$83bn debt

Argentina in technical default

after payment postponement

N E I L M U N S H I

W E S T A F R I C A C O R R E S P O N D E N T

African health officials have warned of

a chronic shortage of the critical care

equipment needed to fight coronavirus

as the outbreak gathers pace on the

continent. Sierra Leone has just one

ventilator for 7.5m people, the Central

African Republic has three machines

for 5m citizens, while Burkina Faso has

11forapopulationof19m.

“There is an enormous gap in the num-

bers of ventilators needed,” said Mat-

shidiso Moeti, head of the World Health

Organization Africa. “And this happens

in the context of a global shortage and

lockdowns that will make transporta-

tionoftheseventilatorsachallenge.”

As western countries scramble to

manufacture or buy tens of thousands

of ventilators, it is increasingly clear

many African countries will have to

makedowithjustahandful.

In Nigeria, home to the continent’s

largest population, Innoson, the coun-

try’s only indigenous carmaker, has

asked for a N4bn ($10.4m) government

loan to repurpose its factory to manu-

facture the devices. But in general,

experts say, there are few facilities on

the continent with the potential capac-

ity to produce the machines. Interna-

tional suppliers are focusing on supply-

inghospitalsathome.

“Unfortunately,countriesthatusedto

supplyuswith[equipment]tofightout-

breaks are also challenged,” said John

Nkengasong, head of the Africa Centers

forDiseaseControlandPrevention.

“I fully understand the need for

everybody to protect their citizens but

this is a global challenge that requires

globalsolidarity.”

The pandemic is in its early stages on

the continent. As of Sunday, Africa had

recorded just over 8,600 confirmed

cases and 385 deaths. But it is tracking

Europe’s trajectory and Africa CDC

projects that by the end of the month a

number of countries are likely to pass

10,000cases.

Other pieces of medical equipment

are also in short supply. Countries

including Burkina Faso, which has 318

confirmed cases, Cameroon (555), and

IvoryCoast(245),hadaskedAfricaCDC

for triage tents because they were run-

ningoutofhospitalbeds.

Both the WHO and Africa CDC are

working on an inventory of countries’

needs. Seventeen governments have

told the WHO they have no intensive

careunitcapacitytotreatthevirus.

Critical equipment

Africa health officials warn

of severe ventilator shortage

S U SA N N A H SAVAG E— LO N D O N

Aid workers are braced for a coronavi-

rus outbreak in the Rohingya refugee

camps of Bangladesh, where more

than 850,000 members of the Muslim

ethnic minority have sought refuge

fromMyanmarsince2017.

ThecampsinthetownofCox’sBazarare

overcrowded,under-resourcedandlack

healthcare and sanitation. They are a

“ticking time bomb”, warned Médecins

SansFrontières.

Just88casesofcoronavirushavebeen

detected in Bangladesh, but experts

believe the actual number to be far

higher.

Bangladeshi authorities have put the

country on lockdown and restricted ref-

ugees’movementsinsidethecamps.

“Authorities are going around the

camp and if they find people are not fol-

lowing curfew... they beat them,” said

Minara,aRohingyarefugee.

TheRohingyaareparticularlyvulner-

able to infections, with families

crammed into muddy shelters and sep-

arated from their neighbours by flimsy

sheets of tarpaulin. Medical care is lim-

itedanddiseaseoftengoesuntreated.

“They are not the strongest physically

or mentally — all of this really effects

immunity,” said Deepmala Mahla, Asia

regional director of Care international,

thehumanitarianagency.

Humanitarian organisations are

rushing to prepare for the pandemic.

“We’re working with the government to

scale up the number of isolation beds

and identifying sites for new medical

facilities,” said Louise Donovan for the

UNHCRbasedinCox’sBazar.

Social distancing in the overcrowded

campsislike“tellingpeopletogetunder

their tables when there’s an imminent

nuclearwar”,saidoneaidworker.

Even handwashing is far from simple.

“We can tell them that everyone needs

to maintain their hygiene but when

there’s not enough water points or even

soapthenthatcanbequitechallenging,”

said Husni Mubarak Zainal, medical co-

ordinatorforMSF.

The government shut down the inter-

net in the camps last September, citing

security concerns and a rise in violent

crime. Human rights organisations said

blocking the internet had made it diffi-

culttodisseminatehealthinformation.

“Bangladesh should really be lifting

all internet restrictions... it’s a major

healthrisk,”saidJohnQuinleyfromFor-

tifyRights,ahumanrightsgroup.

Shamima Bibi, who runs the

Rohingya Women’s Education Initia-

tive, said false information was spread-

ing through the camps. Some people

believe that “if you drink hot water with

garlic, salt, cucumber... you will not

getthisvirus”.

Ethnic minority

Rohingya braced for outbreak

in Bangladesh refugee camps

Medical workers

test residents

for the virus in

Khayelitsha,

Cape Town,

South Africa

Two-thirds of confirmed cases

nationally are in Guayaquil

and the surrounding region

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