Can the IMF Be the World’s Safety Net?

Welcome to today’s Morning Brief, where we’re following the International Monetary Fund’s global deals, Washington’s blocked computer chip sales to China, and fires scorching the Amazon rainforest.

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Reader note: Morning Brief will take a break on Monday and return on Tuesday, Sept. 6.

From Sri Lanka to Zambia, much of the world appears to be trapped in a perpetual economic nightmare, forcing many governments to seek help from an agency of last resort: the International Monetary Fund (IMF).

As Sri Lanka’s economic misery grows, its government and the IMF struck an initial deal on a $2.9 billion bailout on Thursday—and it’s not the only country to turn to the fund for support. Debt-laden Zambia also sealed a $1.3 billion bailout agreement this week, just days after the IMF issued a $1.1 billion package for Pakistan.

“Sri Lanka has been facing an acute crisis,” IMF officials said in a statement. “The economy is expected to contract by 8.7 percent in 2022 and inflation recently exceeded 60 percent. The impact has been disproportionately borne by the poor and vulnerable.”

Even before Russia invaded Ukraine, global economies had already been reeling from the impacts of the COVID-19 pandemic and resulting lockdowns. But the war in Ukraine further drove up the prices of crucial commodities, such as energy and grains, throttling countries already being pushed to the financial brink.

In countries like Pakistan, which has been buckling under high debt, devastating climate events have only compounded this pain. As a result of extreme flooding, one-third of the country now lies under water, officials say, fueling a humanitarian disaster that has shot up food prices and could take an economic toll of more than $4 billion.

Other countries could soon face a similarly worrying economic future, the IMF warned in July. “The outlook has darkened significantly since April,” wrote IMF Research Director Pierre-Olivier Gourinchas in a blog post. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”

But as many nations turn to the IMF, critics say the agency often isn’t always the silver bullet governments may hope for. In January, 18 U.S. lawmakers urged the IMF to abolish the additional fees it tacks onto loans. They argued the payments “discourag[e] public health investment” in already-strained countries and could hinder economic recovery during the pandemic.

The agency has also drawn criticism over the effectiveness of its conditional loans, as FP’s Anusha Rathi explained. Economists say the agency has largely failed to meet the needs of struggling countries, Rathi wrote, while pushing them “to make painful choices such as cutting welfare benefits or fuel and food subsidies to shore up the public books—moves that accountants like but that hungry people in the streets tend to resent.”

“In theory, the IMF can act as a paramedic for distressed economies,” Rathi wrote. “In reality, that ambulance ride isn’t cost-free.”

Blocked chip sales. The Biden administration has told two U.S. chipmaking companies, Nvidia and Advanced Micro Devices, to freeze sales of certain kinds of computer chips to China, a move that reflects intensifying tensions between Washington and Beijing—especially over technology. Afterward, the companies’ shares dropped by 6.6 percent and 3.7 percent, respectively.

Scorched Amazon. After a spike in illegal deforestation, 33,116 fires scorched Brazil’s Amazon rainforest in August, the highest number of monthly wildfires in almost five years. In August, Brazilian President Jair Bolsonaro played down their severity and accused critics of trying to sabotage Brazilian agribusiness.

Shot down. Taiwanese forces have shot down an unidentified drone that was hovering above its outlying islands, officials said on Thursday. This week, Taiwan warned it would “exercise the right to self-defense and counterattack” against Beijing’s military encroachment.

Gibraltar oil spill. After crashing into a tanker this week, a bulk carrier anchored near Gibraltar has leaked low levels of oil into the Mediterranean Sea, officials said on Thursday. Divers have since repaired the rupture that caused the spill, and authorities are working to contain the leaked fuel.

“The priority is to corral and collect the free-floating oil that has escaped the boom as well as to remove the oil that has remained contained inside the boom,” the Gibraltar Port Authority said.

• Gorbachev’s Disputed Legacy by Vladislav M. Zubok

• Pakistan’s Ghosts Loom Over Imran Khan by Arif Rafiq

• The Undignified Fall of Russia’s Once-Dignified Diplomatic Corps by Robbie Gramer and Amy Mackinnon

After a two-year-long hiatus due to the COVID-19 pandemic, 15,000 people descended on a Spanish town on Wednesday to lob overripe tomatoes at one another in Spain’s La Tomatina food fight festival. To fully enjoy the festivities, some people wore goggles while others splashed around in what became a saucy tomato concoction.

“We were really eager to resume our beloved party, to once again be able to throw tomatoes at each other and release all the adrenaline we built up these last two years,” Maria Valles, the town’s tourism official, told Agence France-Presse.