Here’s a paradox for Obama supporters: The first American president with personal roots in the developing world (Kenyan father, Indonesian stepfather, childhood residence in Indonesia) is doing more harm to the developing world than any American in history. This is clear from a just-released World Bank report warning that the massive U.S. government borrowing requirement is crowding out developing nations in world capital markets.
DAR ES SALAAM, March 8 (Reuters) - Developing countries could face a financing gap of $270 billion to $700 billion this year as trade income dwindles and rich nations vie for capital to deal with a global slump, the World Bank said on Sunday . . . .“Sovereign debt issuance by high-income countries is set to increase dramatically, crowding out many developing country issuers,” the World Bank warned.
The World Bank estimates well over $1 trillion in emerging market corporate debt and $2—3 trillion in total emerging market debt will mature in 2009, the majority of which reflects claims of major global banks extended cross-border or through affiliates and branches in emerging markets.
Economists may disagree as to whether Obama’s nearly trillion-dollar-stimulus package and multi-trillion-dollar financial-system support programs will fix the economy. What the World Bank observes, though, is that the United States is not playing with monopoly money. If the United States borrows $2 trillion a year on capital markets, it must come from somewhere.
The Federal Reserve can monetize some part of that, to be sure, by purchasing U.S. debt directly. But a great deal of the $2 trillion will come from global capital markets, and the result will be devastating for countries that cannot borrow precisely because the United States Treasury always will be the first pig at the trough.
As Italian Vatican-watcher Sandro Magister noted, Sandro Gotti of Banco Santander proposed quite the opposite in a January 30 article in L’Osservatore Romano :
It is a simple but revolutionary idea, proposed to the rich countries that are now in financial disarray: to invest a gigantic sum of money, not at home, but on behalf of poor countries, so that these may become the leaders of an economic boom to their own advantage and that of all. Over the span of a few decades, it would be the growth of poor countries that would repay the debt contracted by the rich countries, producing more wealth and prosperity.
Obama’s economic program is vacuuming capital out of the developing world, with consequences that may become unimaginably severe.
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