OPINION: Post-COVID recessions bring risk of turbulent spring

OPINION: Post-COVID recessions bring risk of turbulent spring
By Clare Nuttall in Glasgow May 11, 2020

The Great Recession 10 years ago, accompanied by severe youth unemployment and falling living standards, was the trigger for the Arab Spring, where demonstrations toppled long-established authoritarian governments in the Middle East and North Africa. This time around we are entering an even deeper recession and the governments that failed to rise to the crisis — through denial, dismissing the dangers or simply incompetence, resulting in unnecessary deaths and economic hardship — should fear their day of reckoning.

So far, the coronavirus (COVID-19) has spread regardless of government type. It made the cross from mammal to human in authoritarian China, spread massively in long-established West European democracies and is now gaining momentum in populist Brazil and the US. The next wave of countries to succumb could be in Africa or elsewhere in the developing world.

Responses have varied widely from a total lockdown and blanket ban on going outside except for essentials (Italy, Spain, Serbia, Albania), to dismissing it as “just a little flu” (Brazil’s President Jair Bolsonaro) or touting unproven and potentially fatal quack remedies (US President Donald Trump). One thing that has emerged, though, is that those countries that introduced strict and early lockdowns, notably the small countries across Central and Southeast Europe that are now reporting daily new cases in single figures, have been among the most successful in curbing the spread of the virus.

Even these countries, many of them small open economies and some heavily reliant on tourism, will not escape the damage inflicted on economies around the world, an inevitable consequence of shutting whole sectors down for weeks on end, on top of disruptions to international supply chains that started with the onset of the pandemic in China.

Over the past few weeks there has been a series of new sets of forecasts from international financial institutions (IFIs) and think-tanks, typically each worse than the last as global coronavirus cases continue their inexorable rise. Most project GDP contractions virtually around the world for this year, followed by a rebound to some extent next year, making up at least some of the lost ground. Unemployment is also anticipated to spike this year, before falling somewhat — though usually remaining higher than the 2019 figure — in 2021. However, the depth of the recession, already forecast to be the worst in over a century, remains to be seen and its shape — whether a V followed by a speedy rebound, a U, an L or even a W — is still the subject of debate.

What is clear is that the economic impact from the pandemic will fall heavily on those less able to bear it. At the country level, economists from the Vienna Institute for International Economic Studies (wiiw) said in mid-March (and reiterated in May) that the economic crisis resulting from the coronavirus pandemic will be deeper and longer in the less developed economies of the CIS, Ukraine, Turkey and the Western Balkans than in the EU member states of Central and Southeast Europe that are better equipped to deal with it. The latter group of states have better funded health systems, more resources to subsidise their economies during lockdowns and will find international capital markets more receptive to their fundraising efforts.

Another issue is unemployment. The tourism and services sectors in particular are big employers and among the worst hit by the crisis. On top of that, the poorer countries are big exporters of labour to Western Europe, and the bigger economies within the region such as Russia and Poland. As these economies shut down some of the first jobs to go were those held by migrant workers, who flocked home to sit out the lockdown.

To illustrate the scale of this migration back home, the World Bank forecasts a 27.5% slump equivalent to $18bn in remittances to Eastern Europe and Central Asia this year, twice as bad as at the nadir of the Great Recession.

This leaves an army of unemployed youths, many of whom had their horizons opened by their work abroad, but whose options for the future have now been abruptly cut off.

High unemployment and lack of economic opportunities on top of the lack of political freedoms all contributed to the Arab Spring rebellions in the wake of the Great Recession. From their start in Tunisia in December 2010 they were closely watched in the authoritarian post-Soviet republics that had many parallels with the Arab Spring states. There followed a series of small protests organised in Azerbaijan via social networking sites in spring 2011, while Kazakhstan also saw a months-long strike in the remote oil town of Zhanaozen that ended in deadly violence when security forces shot 16 rioters dead that December.

In general, the governments from across Eurasia are very aware of the potential for revolt, and watch developments in nearby states carefully. Zhanozen aside, the Kazakhstani authorities in particular have been adroit in giving just enough freedom to express dissent to defuse potentially incendiary situations and avoid a crisis from escalating. By contrast, revolutions erupted in Georgia (2003), Kyrgyzstan (2005 and 2010) and Armenia (2018).  

The other political phenomenon from the Great Recession was that it fuelled the already nascent rise of populism both in the new democracies of Central and Eastern Europe and in established Western democracies.

That has given rise to debate as to whether the current crisis will spell an end to populism by exposing its inadequacies — populist leaders such as Trump, Bolsonaro, President Reccep Tayyip Erdogan in Turkey and Prime Minister Boris Johnson in the UK have handled the pandemic poorly — or if the ensuing economic hardship could give new impetus to the populist cause.

During an online debate organised by the European Bank for Reconstruction and Development (EBRD) in April, economists were divided over whether the crisis would encourage populism or if, as EBRD chef economist Beata Javorcik argued, it would “expose the incompetence of populists”.

“We see many populist governments fail in fighting this crisis, by not delivering timely and competent responses,” said her predecessor in the post, Sergei Guriev, now professor of economics at Sciences Po, who expressed the hope this would lead to a shift away from populism — “or maybe not. The populists are very good at spinning their message,” he acknowledged.

Within the broader CEE/Eurasia region, clear differences are emerging between the countries whose political leaders responded quickly and decisively by imposing strict lockdowns as early as mid-March, and those that responded with denial.

Until a few days ago, the government of Tajikistan insisted there were no cases at all in the impoverished Central Asian country, despite the return of tens of thousands of migrant workers from virus hotspot Moscow (few of whom were quarantined on arrival) and a suspiciously large number of cases of pneumonia and other respiratory diseases. 

As late as March 26, Tajik President Emomali Rahmon’s Facebook page shared photos of the leader on stage for Nowruz celebrations surrounded by crowds of people.

When it comes to why the Tajik authorities denied the existence of any positive cases for so long, the reasons are likely to be a combination of an effort to prevent panic buying leading to shortages of food or medical equipment, and the difficulties in funding the economy through a lockdown in the former Soviet Union’s poorest nation. Most of the population have no savings at all.

Dushanbe then made an abrupt switch to what looked like virus control: closing schools, suspending food exports and banning mass events, while continuing to deny there were any cases. But the long period of denial is likely to have allowed the spread of the virus within the country, even though many Tajiks were already taking their own precautions such as wearing masks in public and eating garlic to guard against infection.

Secretive fellow Central Asian nation Turkmenistan remains one of the few countries worldwide to still claim it is coronavirus-free. Reports from within the country by media such as RFE/RL say even doctors are banned from uttering the word “coronavirus” and those that mention the pandemic publicly face arrest. 

Should a major epidemic break out in Turkmenistan the president and those under him would be very much to blame — for the secrecy and lack of information, and for organising events such as National Horse Day and a mass cycling rally, both of which had the potential to become super-spreader events.

Belarus’ authoritarian President Alexander Lukashenko is another denier, not of the pandemic itself but of its seriousness. Back in March, Lukashenko told Belarusians to take to the fields and drive tractors to fend off the virus, and told his government the pandemic is nothing more than a “psychosis”, to be treated with spirits and saunas. Appeals from the World Health Organisation (WHO) for a lockdown to be imposed fell on deaf ears. Not coincidentally, Belarus now has the largest outbreak in the CEE region after Russia, with 19,255 cases as of May 7, and the largest in per capita terms with one case per 491 people. 

Russia now has the fifth largest tally of infections worldwide after the US, Spain, Italy and the UK, and new infections have been growing by over 10,000 a day in recent days. Moscow didn’t go to the extremes of denial seen in Central Asia — though as in Tajikistan there was a spike in “pneumonia” cases long before major coronavirus outbreak was confirmed — but the authorities were slow to act. The lockdown wasn’t announced even in Moscow, which now has around half of all the cases in Russia, until the very end of March, a good two weeks after most of Central and Southeast Europe. 

Turkey took a similar approach to Russia; after Ankara denied for weeks there were any cases at all, a fairly major outbreak was reported. Then suddenly the authorities announced at 22:00 local time on April 10 that a curfew in 31 cities would begin in two hours’ time. The start of the lockdown was predictably chaotic. 

Erdogan had been under pressure to impose a lockdown, but as bne IntelliNews reported at the time, the Turkish economy was in a fragile state. On March 30, Erdogan commented: “Turkey is a country that needs to continue production and keep the wheels turning under all conditions and circumstances.”

Then there are the leaders who responded to the crisis, but got the response badly wrong. Moldova had 4,476 confirmed cases as of May 7, which is one of the larger epidemics in the region, especially when looked at in per capita terms. 

Chisinau has lined up financing — initially including a controversial $200mn loan from Russia that has since been cancelled by Moldova’s Constitutional Court — and only a mild recession is forecast. However, President Igor Dodon has been deeply at fault in the anti-crisis law, as the government he controls tried to shoehorn into it provisions that are in no way related to the pandemic, such as those concerning duty-free shops, the tobacco industry, free economic zones and mineral resources. Perplexingly, despite this Dodon remains the country’s most popular politician by a wide margin. 

However, in general it is clear that politicians of all orientations fear what the recession will do to their futures. Thousands of deaths and a crushing recession aren’t good for any government.

That’s why in Poland the ruling right-wing PiS government was insisting on going ahead with the May 10 presidential election as scheduled despite warnings on both public health and democracy grounds. Its candidate, incumbent Polish President Andrzej Duda, was on course for a knock-out victory in the first round, mainly because he was the only candidate out in public during the lockdown. PiS was wary of postponing the election, fearing the coronavirus-induced economic crisis would dent Duda’s chances of remaining in power.

PiS only backed down at the very last minute, when party leader Jaroslaw Kaczynski reached a deal with the leader of PiS’s junior partner in the ruling coalition just four days before the vote. It’s now likely to take place in July or August, by which time Duda will have to campaign in the new reality of growing unemployment, decreasing wages and company bankruptcies, as bne IntelliNews’ Warsaw correspondent reported.

Neighbouring Hungary effectively created the EU’s first dictatorship when the parliament adopted legislation granting extraordinary powers to the government for an unlimited period on March 30. The government was given the go-ahead to extend the state of emergency without a time limit and rule by decree as long as the state of emergency is in place.

The government took advantage of the legislation to introduce a new law — not particularly connected to the pandemic — ending legal gender recognition for transgender people.

At the moment, there is a tendency to rally around existing leaders during the time of crisis, but this will not last. People will start assessing their leaders more critically as the crisis continues.

There are already signs of discontent, with “pots and pans” protests by locked down citizens in a growing number of cities, and thousands of people coming out onto the streets for a protest on bicycles in the Slovenian capital Ljubljana.

In recent years the Western Balkans have seen sporadic waves of anti-government protests in countries such as Albania, Montenegro and Serbia. Lockdowns have put paid to these for the time being — though there have been pots and pans protests against the severity of the restrictions in Serbia — but the grievances, usually concerning the lack of opportunities for opposition parties to dislodge ruling parties, remain and will resurface. 

By contrast, elsewhere in the region recent history has shown protest movements based on practical issues directly relevant to people’s lives have gained more momentum than those on principles such as democracy, a prime example being the thousands strong protests in Russia over unsafe landfills. 

The recessions caused by the pandemic are already directly affecting millions of lives, and this will not be immediately alleviated with the lifting of lockdowns. The longer economies are shut down, the deeper the damage will be.

Recent polls from Russia show President Vladimir Putin’s approval ratings are slipping sharply. In the latest from independent pollster the Levada Center, Putin’s approval rating has slipped to its lowest level in more than two decades, 59% in April down from 63% in March, though admittedly still high by Western standards. 

The public have been disappointed by Putin’s hands-off approach to managing the government’s response to the coronavirus epidemic and Russia’s poor performance in fighting the virus, bne IntelliNews reported.

In Belarus, the authorities have clamped down on those that question their handling of the crisis. Early this month, the authorities revoked the media accreditation of a news crew of the Russian Kremlin-controlled television Channel One and deported its correspondent from the country after his report about the snowballing coronavirus crisis. Lukashenko slammed Russia's media for publishing “disgusting information” on the epidemic. 

Belarusian law enforcers then detained popular local blogger Sergei Tsikhanovski, who has been touring Belarus in a camper van for more than a month and making videos about local problems during the coronavirus outbreak, but this sparked protests by his supporters

There has been a lot of discussion about how the lockdowns are bad for democracy, by temporarily taking away people’s freedoms, and leaving open the question of whether they will be returned. The crisis has also been seen as bad for the EU, as Brussels initially seemed slow to respond and member states took the initiative unilaterally by imposing lockdowns and closing borders, whether they were Schengen countries or not. The challenge for politicians and citizens post-crisis will be to ensure these freedoms are restored. 

Yet the crisis could be even worse for the authoritarian leaders who responded with denial or lack of action, rather than being open about the danger their citizens are facing and seeking popular support for a lockdown. They are already looking ahead to the prospect of more deaths and hospitalisations and prolonged lockdowns even as the countries that confronted the pandemic head-on are now lifting restrictions and tentatively allowing their economies to resume. And where there is only one person who is preeminently in charge and has been for a long time — there is only one person to blame when things go badly wrong.