The Exodus of Finance from the Third World -Prabhat Patnaik

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published Published on Apr 25, 2020   modified Modified on Apr 25, 2020

-Newsclick.in

This unwillingness of finance to stay in, or move to, the Third World, is impairing the ability of several countries to pay for their imports and to service their external debt.

There is an exodus of finance from the Third World at present, far exceeding in scale what had occurred in 2008 after the financial crisis. Even more important than the actual outflow is the desire on the part of finance to pull out of the Third World, including even the so-called “emerging markets”, and move to US dollars or dollar-denominated assets. This is resulting in a depreciation of a host of Third World currencies vis-à-vis the dollar, of which the Indian rupee is an obvious example.

This is paradoxical at first sight. After all, the US is the country at the epicentre of the coronavirus crisis now; why should finance want to flee to the US? But exactly the same thing had happened at the time of the 2008 financial crisis. Even though the US was at the centre of the crisis, and Third World countries were scarcely affected in any direct sense by the collapse of the US housing bubble, the dollar appreciated vis-à-vis a host of Third World currencies, as finance fled from these countries.

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Newsclick.in, 25 April, 2020, https://www.newsclick.in/Third-World-Financial-Crisis-Due-to-COVID


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