Heavily Indebted Rich Country
We all know the classification Heavily Indebted Poor Country. The International Monetary Fund does this. They provide ways and means to these poor countries and prescribe conditions for drawing this support. Some of these conditions have worked well and enabled select HIPC countries to come out of their woods. In some cases these conditions went against the deep-rooted political ethos of the recipient countries resulting in either they could not draw upon the support or after they drew the support they could not succeed because the ground realities were different.
If one were to look for research topics in high-end macroeconomics, s/he can get many from the annals of the IMF or the HIPC themselves. S/he can come out many interesting findings. And this exercise would be rich and rewarding.
We have now yet another group or classification emerging before us - HIRC - Heavily Indebted Rich Country. This can be done on the models of IMF’s ‘HIPC’ classification. As of now only one country can get qualified to come under this classification. USA with its huge foreign and domestic debt - let it be either individual local credit card borrowings or other borrowing like housing loans by poorly rated borrowers (which is manifesting itself in the form of sub prime crisis every where) – will come under this classification.
The international issues USA has taken up like its war against terror, war in Iraq, etc are causing grave and great concern and costing much more than it originally planned for. It is finding it difficult to fund them as it fears a prolonged action.
The era of US baby bloomers is nearing the end of useful economic work life and this is going to place much bigger economic burden on US in the form of social security servicing costs. Normally this should come out of the taxes and other collections from the ‘replacing’ or ‘stepping in’ generation of young, willing and working population.
As US is a land of immigrants, there is every likelihood that these young, working and contributing populace may desert and move over to their country of origin in vexing times. It is a recorded fact, when compared to US, their parent countries are performing and progressing well now. US in the past immensely benefited from brain drain from other countries. Now this looming threat of reverse brain drain may further complicate its economic plight.
The way the ‘other’ world is taking away the jobs is yet another issue US is grappling with. The factors of production are unfavorable in US now and many corporates find it economically sensible to move the facilities elsewhere or resort to outsourcing and off shoring. This is causing anxiety and anger in the minds of the local populace as it is hurting them hard.
According to the last ICC/Ifo World Economic Survey released recently Economists the world over said global economic growth has slowed further since the beginning of the year and they expected growth to continue slackening over the coming six months.
The ICC/Ifo economic climate index dropped to 81.4 for the second quarter from 90.4 in the first quarter, reaching a six-year low. The quarterly poll taken in April surveyed 1,002 economic experts in 92 countries. This is the third time in a row the world climate index has fallen since August of last year. The strongest drop in the economic climate indicator was registered in the US, which recorded its lowest level since 1991. Economists broadly expect the dollar to continue to lose value against many other currencies over the next six months.
“The cyclical contraction is strongly aggravated by the US sub-prime credit crisis, which has spilled over — especially into Europe, and some Asian countries,” said Hans-Werner Sinn, President of the Ifo Institute for Economic Research at the University of Munich.
US Dollar has so far received the favourable status as the international currency and many countries have invested their reserves and surplus in the US economy and they continue to do so even now.
We all hope that situations will change for the better in future so that US is not forced to turn the Chinese way and borrow a lesson or two from the latter’s history in reneging financial commitments – the way the present communist rulers of China reneged Chinese Railway Bonds and other national and international commitments when they wrested power from their earlier rulers.
However, if it were to happen, this would reverse US’ present misfortunes. Simultaneously this would plunge the whole world economy overnight into deep crisis. What would come of it could be any body’s guess.
Well. Whether US may renege their commitments or not is not the focus of this post. Definitely the focus is on IMF – whether they would invent and introduce the classification HIRC and start prescribing conditions for US and support it to get over its problems and to avoid imminent cascading effects the world over.
That would be a trillion dollar issue for IMF to tackle with – literally.
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