Coronavirus plunges emerging countries back into poverty. They run into bankruptcy

By gainer | gainer | 19 Apr 2020

Emerging countries, including some Eastern European countries, will experience the effects of coronavirus longer than developed ones. Growing debt could catch many of them to the edge of bankruptcy, writes German economic daily Handelsblatt.

First, the developing countries in Asia suffered a coronavirus shock, where the disease was transmitted from China. But now the virus has hit the economies of developing countries around the world. In Romania, for example, the covid-19 pandemic suddenly broke the boom of recent years. There are a million people out of work in the country, and another 950,000 are waiting to return. In March alone, the economic performance of this largest country in the south-east of Europe, with 19 million inhabitants, decreased by 30 percent.

In Turkey - a country that was just beginning to recover from the economic downturn - since the beginning of the year, every third supplier of automotive parts has been shut down, Alper Kanca, president of their Taysad association told the paper. Turkish businesses are closely linked to European supply chains. 75% of all exports go to Europe. "Even if the plants are closed there, we can't produce it either," Kanca says. Tourism is similar: most guests come to Turkey from European countries.

Be it Romania, Turkey, Russia, Indonesia, Egypt, South Africa, Brazil or Mexico - everyone is at risk of falling back into poverty due to a pandemic. The virus is attacking them on more fronts than in industrialized countries. The economy is not only hampered by restrictions on free movement, but countries and their firms as suppliers also pay for the lack of demand from developed countries. And, as in previous crises, foreign investors are now reacting with concern and massively withdrawing capital.

And the consequences are drastic. Local currencies are sinking against the world's major currency, the dollar. Thus, state budgets can hardly repay foreign debts, and firms have difficulty managing foreign currency loans. The economy therefore collapses more strongly, longer and even more so if, as in Russia, it is dependent on exports of raw materials.

In the coronavirus crisis, there is another drama: the health care of the virus is even worse than in Italy, Spain or France, the hard hit countries of Western Europe. The situation is again illustrated by the example of Romania. "The healthcare system is burdened by poor management, leaving healthcare professionals abroad and the worst funding compared to the rest of the European Union," Bucharest analyst Radu Magdin told the paper.

The situation in Romanian hospitals is still under control. "But if infections increase rapidly, the system will quickly reach capacity limits," says Martin Sieg, head of the Konrad Adenauer Foundation in Bucharest. The number of health care workers who have gone abroad for work is around 20,000. There are no carers in Romanian homes for the elderly.

The government, led by conservative Prime Minister Ludovic Orban, has therefore banned Germany and Austria from importing social workers and medical personnel from Romania. It has declared a state of emergency where health workers are not allowed to testify.

Healthcare is also on the border with Ukraine. More and more doctors and nurses have to take care of their colleagues in hospitals as patients: 784 members of the medical staff have already become ill with covid-19, with only one hundred added on Wednesday. This represents a high proportion of the country's 4161 cases of infection. Ukraine and other less-developed countries cannot compete with wealthy Gulf states and developed nations when buying health masks at exorbitant sums in China, Handelsblatt recalls.

According to the International Monetary Fund (IMF), the economy of Eastern Europe should fall by 5.2 percent this year as well as the Latin American economy. "We expect that many countries will be forced to receive international aid in the coming months," said economist Elina Ribakova of the lobbyist Institute of International Finance.

However, Romania, Serbia, Northern Macedonia, Belarus and Ukraine, according to Michael Harms of the Ostausschuss der Deutschen Wirtschaft (OA), which focuses on Eastern Europe, could benefit from the relocation of European concern factories from Asia to Europe. But this is true for Ukraine only if it manages to avoid state bankruptcy with the help of the IMF, Harms stressed.


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