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Opinion: Populist politics can have negative impact on debt crisis

Expect more debt crises to arise as high food and fuel prices combine with increasing interest rates reveal underlying problems in numerous countries.
fuelling up
Prices for food, fuel and other indispensable commodities are still high enough to tip numerous nations into financial trouble, economic hardship, hunger, woes and political strife.

WESTERN PRODUCER — Crop and other commodity markets are way off their highs, but don’t expect the commodity bull market to go away soon or for its impacts to fade.

Prices for food, fuel and other indispensable commodities are still high enough to tip numerous nations into financial trouble, economic hardship, hunger, woes and political strife.

A lot of attention has been paid to the crisis in Sri Lanka, where a bumbling president has fled the country, food prices have risen 80 percent in a year, inflation is running at 50 percent and the country can’t afford to import much food, fuel or medicine.

But that’s just a tiny spotlight illuminating the most garish example today of a developing nation collapsing into crisis under the weight of high fuel and food prices, along with an agricultural implosion wrought by imposed organic farming, impoverishing millions of farmers.

Reuters news agency recently pointed out in an analysis piece that a dozen more developing nations are “on the cusp of a debt crisis.”

Many of these have major agricultural markets implications and whatever happens to them affects the prices farmers will receive for their grains. They include Argentina (a major crops exporter,) Egypt (a major grain importer,) Tunisia (where the food-price-provoked Arab Spring revolts began,) as well as Pakistan and Nigeria (both important markets for specific Canadian crops.)

Each situation is unique and high food and fuel prices aren’t easy to prove as the smoking gun for each of these economic crimes, but when you add enormous stress onto millions of people who already struggle to pay for food and fuel, things can go off the rails quickly.

Expect more debt crises to arise as high food and fuel prices combine with increasing interest rates to blow away the mists that have concealed underlying problems in numerous countries. When interest rates were near zero and food and fuel were abundant, problems could be avoided. Now there are problems for families trying to pay for food, industries to pay for fuel and governments to cover their debts. Today’s lower food and fuel prices aren’t lower enough to reverse that pressure.

Unfortunately, these problems are likely to be exacerbated by the populist politics that arises in these pressure-cooker situations. Countries that face food shortages either from production problems or the inability to pay for imports often ban or restrict exports. That can seem to make sense for each individual country, but when it becomes a general phenomenon all sorts of food flows and supply chains get interrupted, and those are already one of the prime causes of today’s problems.

That’s something many food aid organizations, such as the Canadian Foodgrains Bank, have been warning about since the beginning of the pandemic, and it’s no less a worry today than in 2020.

We’re not immune to populist foolishness here at home, although ours tends to be less directly connected to food and agriculture. Both left-wing and right-wing populists have been making menacing sounds about taking actions against their perceived inflation-causing enemies, with their solutions threatening our own economic system.

Conservative leadership favourite Pierre Poilievre has attacked the Bank of Canada and its governor, Tiff Macklem, for missing the oncoming inflationary storm we’re now being buffeted by. He’s threatened to fire Macklem, which would be an act of gross irresponsibility because it would undermine a crucial independent economic and financial cornerstone of our society, so we can only hope this is just trolling-for-votes silliness that disappears once he gets the Tory leadership. Anything that undermines confidence in the BoC’s ability to operate free from politics undermines our economic future.

On the left, some rail against the “windfall” profits being made by some companies in the present situation, such as oil companies, and against any company that has the market power to pass along at least some of its increasing costs to consumers. These “profiteers,” we are told, need to be hit with punitive taxes, regulations and other punishments for not suffering along with the rest of us.

The problem with that is that many of these companies, including the oil companies, suffered much during the years of lower commodity prices, and the reason production of crucial commodities has not shot up to meet higher prices is that we did a really good job of convincing them and other investors that fossil fuel and other commodity production was a loser’s game. Many of them seemed to agree with that analysis, so we’ve had years of underinvestment and no easy way to ramp-up production. (Any farmer can relate to that reality.)

Instead of beating up the companies that are invested in producing the commodities we need, we should be happy to let them make a good return today in order for them to feel confident enough to invest more for tomorrow, and for others to enter the business. Telling them they have no future and that we’ll punish them if they are successful doesn’t encourage them to do more than milk their existing investments.

Sri Lanka’s been a good example to us of ludicrous politics leading to economic and financial failure. Less dramatic economic and political crises are likely to appear across the developing world.

Let’s hope we can avoid that here at home because the world needs us to be a commodity powerhouse, especially today.

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