Turmoil sweeps developing countries Reuters

Karin Strohek

LONDON (Reuters)-From Tunisia and South Africa to Colombia, social unrest is sweeping developing countries, which is a reminder of rising income inequality during the COVID-19 crisis.

Since the pandemic began early last year, although developed countries have deployed a large number of fiscal and monetary stimulus measures to shelter economies and citizens, poorer countries have lacked the same firepower.

The following chart details some of the causes and consequences of civil unrest in developing countries:

1/ Rising riots

According to the 2021 Global Peace Index, riots, general strikes and anti-government demonstrations around the world have increased by 244% in the past ten years.

The index is produced by the think tank Institute of Economics and Peace, ranking more than 160 countries and regions according to their degree of peace.

However, the nature of this turbulence has changed: tensions are increasingly stemming from the economic blow of the pandemic.

The author of the latest index report writes: “The increasing anxiety about the lockdown and rising economic uncertainty will lead to an increase in civil unrest in 2020.”

“The changing economic conditions in many countries have increased the likelihood of political instability and violent demonstrations,” the researchers noted, adding that they recorded more than violent incidents related to the pandemic between January 2020 and April 2021. From 5,000.

They do not expect to have a chance to breathe in the short term.

(Chart about the 2021 Global Peace Index-https://fingfx.thomsonreuters.com/gfx/mkt/zgvomwkmdvd/Global%20Peace%20Index%202021.PNG)

2/Pandemic factors

From the bubonic plague in the Middle Ages to the Spanish flu pandemic in 1918, the outbreak of the disease shaped politics, subverted social order, and often caused turmoil.

Epidemics reveal or exacerbate pre-existing fault lines; IMF researchers have found that countries with more frequent and severe epidemics also experience greater turbulence on average.

IMF economist Philip Barrett found that a pandemic can curb unrest in the early stages — as witnessed last year, with the exception of Lebanon and the United States.

Since then, risks have soared-including the increased risk of major political crises that could lead to the downfall of the government, which usually occur within two years of a severe pandemic.

Tunisia’s already weak economy has been further devastated by COVID-19, and it seems to be a classic example: After months of protests, President Keith Said fired the government on Sunday, marking the country’s 2011 The biggest political crisis since the 1970s revolution.

(Charts about pandemics and unrest-https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnrlalvq/Pandemics%20and%20unrest.PNG)

3/Trigger and driver

There are usually early warnings that risks are rising.

The increase in the cost of living caused by reforms such as the removal of food and fuel subsidies usually contributes. Miha Hribernik of Verisk (NASDAQ:) Maplecroft, a risk consulting firm, said that another factor that is often seen is the breakdown of mechanisms such as an independent judiciary, freedom of the press or freedom of assembly, all of which allow for peaceful dissent.

The existence of large marginalized groups-politics or religion-exacerbates this situation.

Examples abound: the dispute over the small increase in subway fares triggered protests in Chile in 2019, even though deep dissatisfaction with income inequality is already brewing.

In South Africa, the deadly protests began in July after the arrest of former President Jacob Zuma. But they may also be the culmination of tensions caused by unemployment caused by the blockade.

Hribnik said: “The spark that triggered the protest is usually the last straw that crushes the camel, and it is unpredictable.”

(Graphs about countries with poor resilience after a pandemic facing a perfect storm-https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrgkrqvm/Countries%20with%20poor%20post-pandemic%20recovery%20capacity%20face%20a% 20perfect%20storm%20of%20unrest%20over%20the%20next%202%20years.PNG)

4/Macro Impact

The economic impact depends on the driving factors and the circumstances of a particular country. Protests related to politics or elections tend to have a smaller impact-after the 2012 elections of Eric Penagnato in 2012, the vote of the President of Mexico or the President of Chile in 2013 decreased by 0.2 after six months Percentage points, calculated by IMF researchers.

But the fund said that if the unrest is driven by socio-economic issues, the contraction tends to be more intense, citing the Hong Kong protests in July 2019 or the “yellow vest” unrest in France in 2018.

The International Monetary Fund estimates that both have reduced GDP by 1 percentage point.

Metodij Hadzi-Vaskov of the IMF said: “The demonstrations triggered by socioeconomic and political factors-different from what we saw earlier this year in Tunisia and Thailand-have the greatest impact.”

Weak institutions and limited policy space amplify the blow, which means that if social dissatisfaction turns into turmoil, countries with weak fundamentals before the pandemic will suffer the most.

(Chart about the economic impact of social unrest-https://fingfx.thomsonreuters.com/gfx/mkt/jnvwegxqlvw/Economic%20impact%20of%20social%20unrest.PNG)

4/The influence of market and policy

The IMF calculated that the stock markets of authoritarian countries suffered even greater losses during the protests, falling 2% within three days of such incidents and 4% next month.

After the recent political crisis, Tunisia’s dollar bonds plummeted. In the days after the protests swept across the country, its busy shipping ports were disrupted far beyond national borders.

Some governments chose to use greater charity to appease the protesters, but then faced the problem of funding budget deficits. These may lead to higher borrowing costs-for example, Colombia reduced its credit rating to junk after tax reforms and protests failed.

For Yerlan Syzdykov, Amundi’s global head of emerging markets, sometimes it’s just whether a government can survive.

“If we don’t have social cohesion in a country, we must try to understand how the government plans to respond…or whether there is political power to intervene and implement changes.”

(Pictures about the stock market and protests-https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoyxzmpx/Stock%20markets%20and%20protests.PNG)