76 Finance&economics TheEconomistNovember13th 2021
production of new cars and more demand
for secondhand vehicles. And prices are
rising globally, from Australia to Britain.
Nevertheless, optimism that supply
kinks would be ironed out by now has van
ished. Inflation is even hotter in America
than in other countries because of the
strength of the rebound there, with stimu
lus payments fuelling demand. Price pres
sures are getting broader. A gauge of core
inflation, stripping out volatile food and
energy prices, rose by 4.6% yearonyear in
October, more than twice its trend rate of
the previous quartercentury. Increasing
rents suggest that elevated inflation will
continue well into 2022. With wages also
rising at their fastest in years, concerns are
mounting about a feedback loop, in which
higher salaries beget higher inflation.
In truth there ought to be little chance
of a wageprice spiral in America. A sharp
narrowing in the fiscal deficit will con
strain growth in the coming quarters. And,
crucially, investors still expect the Fed to
take decisive tightening action if neces
sary, which is why longerterm bond yields
have not moved much. Last week the Fed
announced that it would start reducing its
monthly asset purchases, the first step to
unwinding its ultraloose policies imple
mented at the height of the pandemic. Sev
eral prominent banks have moved forward
their forecasts for rate increases. Goldman
Sachs, for example, had previously expect
ed the Fed to wait until 2023; now it expects
two increases next year, starting in July.
But the uncertainty around all these expec
tations is much greater than in normal
times. The Fed itself has consistently un
derestimated inflationary trends over the
past year, so its shift to tightening may end
up being uncomfortably abrupt.
Politically, this is treacherous territory
for President Joe Biden. His week had got
off to a great start with the passage of
America’s biggest infrastructureinvest
ment bill in decades, giving him some
thing to crow about. On November 10th,
shortly after the inflation data were pub
lished, he instead chose to adopt a defensiveposture.“InflationhurtsAmericans’
pocketbooks,andreversingthistrendisa
toppriorityforme,”hesaid.Hisadminis
trationistryingtoclearsomeoftheback
logsatports,whichwouldhelpretailers
stocktheirshelvesmorequickly,perhaps
easingsomeofthepressures.MrBidenal
sonotedthatthepriceofnaturalgas,a big
contributor to inflationin October, has
dippedinrecentdays.
Yetinflationis,ultimately,outofMrBi
den’shands.Thegovernmentcanonlydo
somuchtopaper overglobalshortages.
Knowledge that the Fed may feel com
pelledtoraiseratesbeforetoolongwillof
ferMrBidenlittleconsolation.Historical
ly,growthcyclestendtocometoanend
whenthecentralbanktightenspolicy,so
today’s price pressures may augur eco
nomic disappointment a little farther
downtheroad.MrBiden,a teetotaller,can
notevensoothehissorrowswitha mod
estlycheaperbottleoflager.nFuelling the fire
United States, consumer-price components
October 2021, % change on previous monthSource:BureauofLabourStatistics*Livingroom,kitchen,anddiningroomfurniture43210-1 56Beer at homeSofas*TransportationRentMedicineFoodUsed cars and trucksEnergyDebtfornatureswapsReef relief
I
f economies weremeasured by their
natural capital, as well as the physical
and human sort, Belize would be a richer
country than it is. What the tiny Caribbean
state lacks in cold, hard cash, it makes up
for in warm, tropical biodiversity. The Be
lize Barrier Reef, the second largest ex
panse of coral in the world, is packed with
turtles, manatees and other threatened
species. Holidaymakers flock to its coast to
dive, snorkel or simply gaze at its waters
from the comfort of a hammock. Or at leastthey did before the pandemic. Last year
tourism dried up, growth contracted
sharply and public debt jumped from just
under 100% of gdpin 2019 to over 125%.
That forced Belize, not for the first time,
into a debt restructuring—one in which it
is seeking to exchange one sort of riches
for another. As part of the deal, concluded
on November 5th, Belize bought back its
only international bond, a $553m liability
misnamed the “superbond”, at 55 cents on
the dollar. It funded that with $364m of
fresh money, arranged by The Nature Con
servancy (tnc), an ngo, which is insured
by the International Development Finance
Corp, an American agency. The transaction
is backed by the proceeds of a “blue bond”
arranged by Credit Suisse, a bank. The pay
back is due over 19 years with a coupon that
begins below that of the superbond but ris
es above it over time.
It is called a blue bond because Belize
has pledged to invest a large chunk of the
savings into looking after the ocean. That
includes funding a $23m endowment to
support future marineconservation pro
jects and promising to protect 30% of its
waters by 2026.
It might be argued that Belize should do
this anyway to support tourism, which ac
counts for 40% of economic activity. But at
a time when governments and investors
are looking at novel ways of funding envi
ronmental cleanups, Belize was able to
use its natural patrimony to gain leverage
over bondholders. Whether it will be
enough to stop it defaulting again in the
future is another matter.
Debtfornature swaps are nothing
new. Lenders have been offering highly in
debted countries concessions in return for
environmental commitments for decades.
But these transactions have historically in
volved debt owed to rich countries, not
commercial bondholders. As Lee Buchheit,
a lawyer who specialises in sovereigndebt
restructurings, points out, they were “negBelize trades one sort of riches
for anotherLawsuits off, wetsuits on