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Speaker 1: What is my biggest worry With food prices, energy prices up,

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Speaker 1: with prospects for recovery much worse. Are we going to

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Speaker 1: see the phenomenon from people on the street unrest creating

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Speaker 1: more difficult environment for policymakers to do the right thing. Hello,

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Speaker 1: and welcome to Stephanomics, the podcast that brings the global

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Speaker 1: economy to you. And there's not much going right in

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Speaker 1: that economy today, with Russia's war in Ukraine sending food

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Speaker 1: and energy prices through the roof, China facing yet another

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Speaker 1: round of disruptive COVID lockdowns, and many policymakers around the

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Speaker 1: world relearning a seventies term stagflation. But as the Managing

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Speaker 1: Director of the International Monetary Fund Krystellina Gorgeva warned us

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Speaker 1: just then in a debate at the recent spring meetings

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Speaker 1: of the World Bank and i AMF, things could definitely worse,

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Speaker 1: especially for vulnerable developing countries still dealing with the legacy

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Speaker 1: of COVID nineteen. So this week we take a long,

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Speaker 1: hard look at the crisis that might be coming down

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Speaker 1: the track for those economies with a report from our

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Speaker 1: Washington based US economy reporter Eric Martin and a conversation

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Speaker 1: with the head of the Institute of International Finance, Tim Adams.

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Speaker 1: We also have a dispatch from Paris asking what comes

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Speaker 1: next for President Emmanuel Macro. He's one re election, but

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Speaker 1: not maybe a positive mandate to get anything done. You

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Speaker 1: want to stick around to hear that piece for the

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Speaker 1: accent alone, but let's hear first about that storm brewing

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Speaker 1: in emerging markets. And we go out every day looking

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Speaker 1: for semmelina, flour, sugar oil. These are the essential things

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Speaker 1: we live on and they're not there. This is unbelievable.

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Speaker 1: Find us a solution, you, politicians, officials, head of state,

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Speaker 1: Find a solution because the day of starvation is coming.

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Speaker 1: Monthly salaries for citizens are weak. They raised the price

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Speaker 1: of fuel, raise the cost of transportation, and raise tax affairs.

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Speaker 1: How are we going to afford this? Find us a

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Speaker 1: solution because this isn't a reasonable situation. That was Hudal Chabbi,

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Speaker 1: a teacher and mother of two children in Tunis, where

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Speaker 1: a cash strapped government has boost to the fuel prices

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Speaker 1: at least four times in just over a year, and

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Speaker 1: where shortages are so rampant that market vendors say it's

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Speaker 1: easier to find marijuana than to buy flower. A slew

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Speaker 1: of financial dangers is pushing emerging markets like Tunisia ever

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Speaker 1: closer to defaulting on their debt. Such a crisis could

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Speaker 1: cause currencies to tumble an inflation to soar. In the

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Speaker 1: parts of the world least able to afford it. The

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Speaker 1: situation may be the most grim and Sri Lanka, where

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Speaker 1: the rupee has lost of its value this year and

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Speaker 1: protesters are calling for the president to resign, But the Ethiopia, Pakistan, Ghana,

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Speaker 1: and Al Salvador are also in debt distress themselves, as

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Speaker 1: soaring food and energy prices grip consumers. We can see

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Speaker 1: this train wreck coming towards us. John Lipsky, a former

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Speaker 1: top official at the i m F, one of many

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Speaker 1: global policymakers who have been sounding the alarm. It's certainly

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Speaker 1: with the latest financial market developments going to push a

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Speaker 1: large number of low income countries into the need for

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Speaker 1: debt restructure. Like so much else, the debt crisis and

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Speaker 1: emerging markets has its origins in the pandemic. Governments across

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Speaker 1: the developing world stepped up their borrowing to cushion the

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Speaker 1: impact from COVID nineteen. Now the costs of servicing those

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Speaker 1: debts are on a steep incline, according to the im

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Speaker 1: METH and the record amount of that debt is held

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Speaker 1: on the balance sheets of local banks in the emerging economies.

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Speaker 1: Those costs are going to keep going up as the

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Speaker 1: Federal Reserve now raises interest rates to combat inflation in

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Speaker 1: the United States, and central banks across the emerging world

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Speaker 1: are forced to do the same. So the fear is

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Speaker 1: that this all leads to a vicious spiral for vulnerable economies,

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Speaker 1: where banks are forced to pull back on lending as

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Speaker 1: economy is slow and the value of the government bonds

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Speaker 1: sitting on their balance sheets keeps going down. A long

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Speaker 1: line of countries is in rescue talks with the I

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Speaker 1: m F. The World Banks chief economist Carmen Reinhardt earlier

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Speaker 1: this month, disruptions from China's new lackdowns from the impacts

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Speaker 1: yet to be fully felt of the Russia Ukraine war

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Speaker 1: on on food prices, on global supplied chains, and if

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Speaker 1: you know, bad came to worse, could there be another

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Speaker 1: episode of financial contagion? All these are risks on the downside.

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Speaker 1: All told, the World Bank estimates sixty of low income

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Speaker 1: countries are in debt distress already or at high risk

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Speaker 1: of it. So far, the trouble is brewing in the

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Speaker 1: sort of off the radar screen places investors don't pay

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Speaker 1: much attention to. It was just such a debt crisis

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Speaker 1: in Russia that led to the near collapse of a

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Speaker 1: large hedge fund long term capital management. Given everyone is

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Speaker 1: suffering from the situation, whether they're rich or poor, we

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Speaker 1: don't buy all we need, including the basics. Every thirty

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Speaker 1: days we buy chicken, which means that we're reading meat

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Speaker 1: once a month. That was Kais al Yazdi, a truck

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Speaker 1: driver in Tunis. He says some commodities are so scarce

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Speaker 1: that neighborhood merchants have the upper hand, forcing consume us

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Speaker 1: to buy extra items to secure a kilogram of flour

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Speaker 1: or oil. To be sure, many developing nations sell more

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Speaker 1: commodities than they buy, and they're benefiting from rising prices.

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Speaker 1: Some countries in Latin America, for example, are seeing soaring exports.

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Speaker 1: Brazil's currency, the Real, is the world's best performing major

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Speaker 1: currency this year, and Chile's exports in March were up

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Speaker 1: more than from a year earlier. Still, even nations profiting

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Speaker 1: from the surgeon. Commodity prices are suffering from their own

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Speaker 1: internal inflation. At the beginning of the year, we started

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Speaker 1: to feel a huge jump in prices, vegetables going up

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Speaker 1: to six five four ice. That's a big jump. That

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Speaker 1: was Mikaio Edgeley, a vegetable seller and Reo vision Iro,

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Speaker 1: talking about his struggles to make ends meet amid soaring inflation.

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Speaker 1: It could be because of Russia's war, because fertilizers come

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Speaker 1: from there. But the truth is, I don't know. That's

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Speaker 1: what people are saying. But also gasoline is really expensive

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Speaker 1: here eight he is a leader. It's absurd. In Brazil,

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Speaker 1: less than six months ahead of presidential elections, opinion polls

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Speaker 1: show that sevent of the public blames present Hire Bull

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Speaker 1: Snaro's government for a surgeon. Cost of living crisis in

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Speaker 1: Brazil are up eleven point three despite the Central Bank's

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Speaker 1: best efforts to combat it. The problem is that, as

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Speaker 1: in many parts of the world, prices feed off each other,

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Speaker 1: and higher fuel costs make food more expensive too. I

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Speaker 1: feel pressured, really pressured. All the prices are going up

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Speaker 1: and my salary goes down. It's hard to live this way,

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Speaker 1: you know. M So to talk about some of that

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Speaker 1: and actually just states of them economy. I'm delighted that

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Speaker 1: we have in London this week Tim Adams, chief executive

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Speaker 1: of the Institute for International Finance, which is the global

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Speaker 1: association for the financial industry. And we just heard Tim

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Speaker 1: about the challenges for developing countries. And I know that

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Speaker 1: you and I were both in Washington last week. There

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Speaker 1: was a lot of concern about the dangers coming down

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Speaker 1: the track for them. But I'm struck when I see

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Speaker 1: you doing your interviews today in in in London that

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Speaker 1: what many of the Bloomberg journalists are asking you about

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Speaker 1: is bumper bank results. When you see these positive results

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Speaker 1: for banks, but also some of the data we've had

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Speaker 1: showing quite a strong consumer. Do you think the risk

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Speaker 1: of a recession in the US is overdone? Look, I

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Speaker 1: think being able to pull off the kind of rising

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Speaker 1: rate environment that the Federal Reserve needs to put in

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Speaker 1: place to deal with the most prenacious inflationary pressures we've

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Speaker 1: seen in thirty years. To do that and and have

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Speaker 1: a soft landing is going to be very difficult. I

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Speaker 1: would put the probability so can the federalsor pull it off? Sure?

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Speaker 1: Will they? I don't know, I think the best thing

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Speaker 1: to do is prepare for a harder landing. And Larry

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Speaker 1: sums on the other day, and he definitely doesn't rate

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Speaker 1: their chances well and and and obviously Larry has been

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Speaker 1: ahead of the curb on inflation. He was calling for

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Speaker 1: it before anyone else. Turning now to to the rest

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Speaker 1: of the world, and we've heard in earlier in the

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Speaker 1: in the podcast about the impact on the ground of

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Speaker 1: soaring food and energy prices. We're also looking at supply

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Speaker 1: chains being crunched again. You know, we thought we were

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Speaker 1: kind of coming through the worst of the supply chain pressures,

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Speaker 1: but now with Ukraine and more lockdowns coming into China,

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Speaker 1: we're potentially having a report is called today I want

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Speaker 1: to punch for the global recovery. Is that have things

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Speaker 1: taken a worrying turn When you look at that global picture,

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Speaker 1: it certainly hasn't improved as quickly and as substantially as

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Speaker 1: we would have hoped. We would have thought by now

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Speaker 1: the supply chains righted, we would have hoped that China

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Speaker 1: would have normalized. But with the lockdowns and what appears

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Speaker 1: to be a continuation of the COVID crisis in China,

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Speaker 1: maybe more, even more complex and more difficult than than

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Speaker 1: the Chinese often led on. You have to question whether

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Speaker 1: that more optimistic scenario actually is going to come to fruition.

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Speaker 1: And throw on top of that the war in Ukraine.

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Speaker 1: What that means for food supplies, grains especially, but also

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Speaker 1: fertilizer and for a liveser's key for farmers in the

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Speaker 1: price for lives or is substantially higher than it was

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Speaker 1: a year ago. And one of the very useful things

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Speaker 1: that the Institute for International Finance does is map where

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Speaker 1: capital flows are going in and out of countries, often

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Speaker 1: as a result of things that your member banks are doing,

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Speaker 1: and also look at at how the different movements of debt,

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Speaker 1: whether countries are looking vulnerable because of how much debt

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Speaker 1: they have or how much they're having to pay for it.

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Speaker 1: People like John Nipsky, who we heard in that piece,

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Speaker 1: the former I MF official, He talks about a train

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Speaker 1: wreck coming towards us when he looks at the high

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Speaker 1: levels of debt and some of these quite vulnerable economies,

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Speaker 1: um the fact that the cost of that debt is

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Speaker 1: going up and inflation is going up, squeezing economic growth.

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Speaker 1: Do you see a train wreck coming well, I certainly

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Speaker 1: think there may be a number of small train wrecks.

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Speaker 1: Obviously the commodity producers are doing for the people who

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Speaker 1: are on the other end of the train. But if

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Speaker 1: you're in the commodity producing an exporting business, is a

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Speaker 1: pretty good time for you. You're earning lots of export revenue.

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Speaker 1: But we have seen a record level of emerging market

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Speaker 1: debt is including especially China, but not just China, and

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Speaker 1: the question is how can they service that debt now?

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Speaker 1: The on the good side, a lot of that is

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Speaker 1: long duration and its local currency. The downside is that

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Speaker 1: it's variable rate. So as rates go up and they

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Speaker 1: have to roll that debt even if it's at local currency, Uh,

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Speaker 1: then the cost of service that that's going to go up.

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Speaker 1: The stock of debt is at all time high. We

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Speaker 1: have thirty countries now with debt to GDP ratios of above.

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Speaker 1: So you know it's the It's the old adage from

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Speaker 1: the Hemming Way novel is how did you go bankrupt?

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Speaker 1: Slowly then suddenly? And so we do have to watch

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Speaker 1: a Commodity producers are in better shape than commodity importers,

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Speaker 1: but that could change substantially. Our economists have sort of

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Speaker 1: looked at which countries are most vulnerable to what's happening,

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Speaker 1: and obviously that we've actually particularly highlighted Turkey in Egypt

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Speaker 1: because they're big food importers, so they're paying a lot

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Speaker 1: more for their food and they used to trade a

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Speaker 1: lot with Russia and that trade has been hit. I

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Speaker 1: think Poland also figures on that list. But you have

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Speaker 1: a lot of what you think of as being rather successful,

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Speaker 1: buoyant economies in Asia who are very dependent on those

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Speaker 1: now very expensive food imports. Vietnam, Thailand, Philippines. Are there

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Speaker 1: particular countries that you're worried about, Well, you mentioned Turkey.

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Speaker 1: I was just an instant ball a few weeks ago,

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Speaker 1: and obviously great concerned because you're an energy and food

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Speaker 1: importer uh in. Sunflower oil for example, is a huge

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Speaker 1: staple of the Turkish economy and Ukraine is the principal producer.

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Speaker 1: So in terms of just importing the basics, Turkeys in

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Speaker 1: a bad situation and they're running inflation rates of close

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Speaker 1: to and your rate with a monetary in phiscal policy

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Speaker 1: which is only exacerbating that. So you have unorthodox policies

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Speaker 1: making things worse. UH The Egyptians. I saw them last

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Speaker 1: week during the Spring meetings. They're worried about food imports,

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Speaker 1: although they indicated that they had other opportunities and could

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Speaker 1: wrap up domestic production. But that's just not true of

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Speaker 1: so many places around the world. We've mentioned. We're both

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Speaker 1: in Washington. There was a kind of mixture virtual real

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Speaker 1: meeting of those central bank governors and treasured and finance officials,

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Speaker 1: and I know you would have talked to two lots

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Speaker 1: of them. The scale of this for some of the

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Speaker 1: countries looking at the inflation that we just haven't seen

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Speaker 1: for a long time, as you mentioned, as well as

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Speaker 1: the debt, as well as the fact that FED is

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Speaker 1: raising interest rates and the uncertainties around supply chains that

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Speaker 1: we're seeing. I mean, the sort of institutions that we

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Speaker 1: normally look to the World Bank and the IMF, I mean,

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Speaker 1: they're not a match for any of that, surely. I

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Speaker 1: think they're challenged. I think they're challenged by Ukraine, both

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Speaker 1: directly and indirectly because the spillover effects. I think they're

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Speaker 1: challenged because inflationary ushers suddenly those institutions but walk around

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Speaker 1: the trading floors of any of the major financial institutions.

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Speaker 1: Most of the people on the trading floors weren't born

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Speaker 1: during the previous inflationary episode, and so it's very new

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Speaker 1: for some people. And I think officials really thought that

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Speaker 1: this would be transitory, and it is not. It may

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Speaker 1: not be for a long time, and so it's very

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Speaker 1: different than what was expected twenty four months ago. Tim Adams,

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Speaker 1: thank you very much. Thank you, Stephan. Investors, commentators, policymakers,

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Speaker 1: pretty much everyone was relieved when Emmanuel Macron won the

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Speaker 1: second round of the French presidential election and his far

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Speaker 1: right nationalist opponent Marine le Pen did not. But that

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Speaker 1: victory came not from any burst of enthusiasm for Monsieur

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Speaker 1: kraw but around eight million French men and women voting

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Speaker 1: while holding their nos. It's not a great start to

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Speaker 1: Mr mcrawls second five years in office, and as a

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Speaker 1: risk that his political stock will fall further in June

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Speaker 1: if his party loses its electoral majority. So as Macron

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Speaker 1: won the election but lost his powers. Bloomberg's Caroline Gone

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Speaker 1: in Paris One Mo One More Time by Deaf Punk,

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Speaker 1: the soundtrack of Emmanuel mccoron's victory. On Sunday, the twenty

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Speaker 1: four April, he won a second chance to show the

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Speaker 1: friends he can reform their country and repair the deep

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Speaker 1: fractures in society. Maccon beats the far right leader Marine

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Speaker 1: Lepan with more than fifty eight percent of the votes

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Speaker 1: in the runoff, becoming the first incumbent to be re

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Speaker 1: elected in France since Jack Chirac twenty years ago. Simanuel

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Speaker 1: la Semeniel received relief or not. Mc and his allies

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Speaker 1: will scarcely have time to celebrate. His nationalist, anti European

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Speaker 1: opponent won twelve million votes, the most that the National

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Speaker 1: Rally has ever achieved in a French national election, and

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Speaker 1: as Emmanuel mccon admitted in his acceptance speech, nearly half

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Speaker 1: of the seventeen million who voted for him were simply

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Speaker 1: voting to keep Loupen out opposed to consider it. We

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Speaker 1: have to consider all the difficulties of everyday lives and

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Speaker 1: respond effectively to the anger that has been expressed. Critics

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Speaker 1: across France have attacked him for overlooking the working class.

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Speaker 1: More than two thirds of home voted for the Pen.

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Speaker 1: Speaking at mccon's victory rally, Environment Minister Barbara Pompeley said

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Speaker 1: it's time to think about how to unite the French

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Speaker 1: population sation it don't. We must rebuild with everyone, without

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Speaker 1: living anyone on the sidelines. To build a society what

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Speaker 1: people live better, breath better. Still, we'll have a strong

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Speaker 1: far right and higher abstention. We need to take it

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Speaker 1: into account for international partners. Mcmon's re election will sound reassuring.

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Speaker 1: Two months after the start of the war in Ukraine,

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Speaker 1: while Lupin wanted to leave the military command of NATO

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Speaker 1: and we established ties with Russia's Vladimir put In, mc

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Speaker 1: complans to continue to be a reliable partner for both

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Speaker 1: NATO and Europe, and France still presides over the EU

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Speaker 1: until the end of June. But the lack of enthusiasm

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Speaker 1: from mccon despite his victory, could come back to haunt

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Speaker 1: him in the June parliamentary elections. If his party La

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Speaker 1: Republic Commage loses its majority, it will need to go

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Speaker 1: into coalition with other parties to stay in power or

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Speaker 1: be forced to leave with a hostile government, which might

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Speaker 1: paralyze his second term in office. He has publicist chairman

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Speaker 1: Maurice Levy. We have avoided the worst and now we

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Speaker 1: have to work for the best. The best to happen.

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Speaker 1: We need to give Macon a large majority at the Assembly.

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Speaker 1: Nationality at the lower middle classes feeling frustrated, believe that

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Speaker 1: they are not taking care of that they have, they

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Speaker 1: are left behind, and that the major issues are not addressed.

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Speaker 1: On the night of her defeat, my independ was also

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Speaker 1: sending our sights on the June vote. In defeat, I

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Speaker 1: cannot help but feel a kind of hope for our

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Speaker 1: French and European leaders. This result is evidence that cannot

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Speaker 1: be ignored of how the French people greatly distrust them

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Speaker 1: and a broad aspiration for change. France has rebounded faster

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Speaker 1: than other European economy is after the pandemic, but the

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Speaker 1: Boncard France estimates the growth potential is lower now than

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Speaker 1: under mccron's predecessor France Land. Emaniel mccorn has one another

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Speaker 1: chance to make it right, but he'll be held accountable

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Speaker 1: if an unti establishment candidate gets to power next time around.

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Speaker 1: In seven that's it for this episode of Stephonomics. We'll

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Speaker 1: be back next week, but in the meantime, do please

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Speaker 1: rate the show if you like it, and check out

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Speaker 1: the Bloomberg News website for more economic news. US and

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Speaker 1: views on the global economy also follow at economics on Twitter.

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Speaker 1: This episode was produced by Magnus Hendrickson with support from

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Speaker 1: Summer Saddi. Special thanks to Tim Adams and Caroline Cornell,

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Speaker 1: Eric Martin, Gihen Murray in Tunis, and Andrew Rossatti in Rio.

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Speaker 1: Mike Sasso is executive producer of Stephonomics and the head

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Speaker 1: of Bloomberg podcast is Francesca Levi.