The Economist 04Apr2020

The EconomistApril 4th 2020 63

1

W

hen the global financial crisis

struck emerging economies in 2008,

two kinds of exodus ensued. Footloose

capital fled their financial markets and mi-

grant labour left their cities for the bosom

of their hometowns and villages. Since the

“coronacrisis” struck, the first exodus has

recurred on an unprecedented scale: for-

eigners took over $83bn out of emerging-

market shares and bonds in March, accord-

ing to the Institute of International Fi-

nance, a banking association, the largest

monthly outflow on record. But the exodus

of labour has been hampered by govern-

ments’ efforts to shut down transport and

lock down populations, in order to slow the

spread of covid-19.

At least 27 emerging economies have

imposed nationwide restrictions on move-

ment, according to a tally kept by Thomas

Hale and Samuel Webster of the Blavatnik

School of Government at Oxford Universi-

ty. Vietnam became the latest candidate for

the list, requiring its citizens to stay home

until April 16th. Pakistan’s prime minister,

Imran Khan, once warned that a lockdown

would bring hunger and ruin. But even

Pakistan “has swiftly moved from we can’t

afford lockdown, to we can’t afford not to

lock down,” notes Charlie Robertson of Re-

naissance Capital, an investment bank.

All countries have spared “essential”

goods and services from restrictions. But

what counts as essential? India’s list, de-

rived from a law passed in 1955, at first

failed to mention feminine-hygiene pro-

ducts, causing confusion. South Africa

scrambled to add toothpaste and baby pro-

ducts to a list of “basic goods” that had

omitted them. There have been errors of in-

clusion too. Days into its lockdown, South

Africa’s government discovered that some

pubs had been mistakenly awarded certifi-

cates to operate.

Even industries deemed essential can

suffer from broader restrictions. One phar-

maceutical plant in northern India says it

can produce, but not ship, its wares. A mak-

er of medicine capsules eventually won

approval to keep operating. But by then

some of its employees had left town and

others were scared to return to work.

Whereas previous crises have imposed

a financial constraint on economic activi-

ty, this disaster has imposed a “physical

constraint”, points out Alberto Ramos of

Goldman Sachs, a bank. He expects Latin

America to suffer its worst contraction

since the second world war, exceeding

even its debt crisis of the 1980s. Much de-

pends on how long the lockdowns last. In-

dia’s is due to be lifted on April 15th, but re-

strictions may linger in states with high

numbers of infections, points out Priyanka

Kishore of Oxford Economics. Several of

those states, including Maharashtra and

Karnataka, are among the biggest contribu-

tors to India’s economy. If 60% of the coun-

try remains locked down until the end of

April, she calculates, up to 10% of India’s

gdpin the second quarter could be lost.

The lockdowns in many emerging mar-

kets are as tough as in the rich world, or

more so, suggests an index created by Mr

Hale and Mr Webster measuring the “strin-

Emerging economies

Stringent but stingy

HONG KONG

The lockdowns in emerging markets match those in the rich world. The

government handouts do not

Worlds apart

Government response to covid-19

Selected countries, at April 1st 2020

Sources: Overseas Development

Institute; Oxford COVID-19

Government Response Tracker

*Responses including school

closures and restrictions on

movement. Maximum score

since outbreak began

15129630

Fiscal stimulus, % of GDP

Stringency index*100=strictest

100

90

80

70

60

India

Argentina

Italy

France

Malaysia

China

S. Korea

Germany Britain

Canada

US

Japan

↑ Stricter policies

Finance & economics

64 GDP doom and gloom

64 Squeezed incomes in America

65 Buttonwood: Norway’s oil fund

66 Allianz and market turmoil

67 Free exchange: China’s rate trap

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