The Rich World’s War, the South’s Bill

There is a number that should frighten every finance minister on earth: conditions in the developing world are now nearing those of the pandemic — the last time the rich world had to freeze the poor world’s debts. The bill for the rich world’s war has arrived, and it is denominated in dollars.

The warning came on Friday morning, delivered in Washington with the flat calm of a man who has seen this movie before. Alexander De Croo, the former Belgian prime minister who now runs the United Nations Development Programme, told reporters that the developing world is being crushed by three crises at once — rising energy costs, the strongest El Niño since 1950, and borrowing costs at their highest in decades — and that conditions are nearing those of the pandemic, when the world’s twenty richest economies had to suspend debt payments for the poorest nations. He spoke of a “domino effect with many, many countries being pushed into financial distress.” Then he stopped. He did not call for new debt relief. The silence, for anyone who has covered emerging markets long enough, was the story. From Mexico City, where I write this, the crisis does not look like a forecast. It looks like arithmetic. Every bond issued in the cheap-money decade is coming due in a world where money is no longer cheap. Every barrel of oil bought to keep the lights on costs more than the budget assumed. And every finance minister from Buenos Aires to Bogotá to Mexico City knows the same cold equation: the interest on the old debt is eating the budget for the new country. Latin America has lived this before — the Volcker shock of the early 1980s turned a borrowing binge into a lost decade, and the scar tissue is still in the national memory. What De Croo described on Friday is the same mechanism wearing new clothes: a war the region did not start, interest rates the region did not set, and a climate shock nobody in the region caused, arriving together in the same fiscal year. The developing world is being asked to pay three invoices at once, and all three are addressed to the wrong party.

The Conflict Morphed Into a Crisis of the South

The numbers behind De Croo’s warning are not abstract. UNDP surveys conducted since the start of the Iran war show the conflict has morphed from a regional war into, in his words, “a crisis which has an impact on approximately 100 countries.” A separate survey of 26 developing nations found that 22 of them now classify the overlapping crisis as a high or medium priority; ten of those countries saw street protests during September alone, driven by the rising cost of living. In much of the Global South, this is already the economy of the pavement: fuel prices, bread prices, transport fares. The fiscal picture is worse than the street picture. This year, the median developing economy is expected to spend 9.5 per cent of government revenue simply servicing its debt — double the share of a decade ago and the highest level in 25 years. Nearly half of the world’s poorest countries are either in debt distress or at high risk of it. Governments have spent years shielding their citizens from surging oil prices with subsidies and price caps; De Croo’s assessment was blunt — the fiscal coffers are now running low, debt levels are rising, and there is no real relief in sight. “Money that should be building schools, hospitals, and clean energy systems is being used simply to keep economies afloat,” he said. That sentence is the whole developing world in one line: the future, cannibalized to pay for the present. And the present is about to get meaner. The strongest El Niño since 1950 — warmer Pacific waters sloshing against weather systems on both sides of the ocean — is expected to bring floods to some regions and droughts to others, and the UNDP expects it to plunge 49 million more people into food insecurity by the end of 2027. For countries like Brazil and Argentina, where soy and wheat harvests are macroeconomic events, and for the small island states where a single failed harvest is a national emergency, the climate layer of this crisis is not a footnote. It is a second war, fought by the sky.

How we got here

Start with the war. The Iran conflict, now in its second year, has done what every oil war does: it has turned energy into a tax on everyone. Government borrowing costs have hit their highest in several decades on heightened fears that the war will keep energy prices elevated and inflation sticky. The American central bank, under new Chair Kevin Warsh, is holding US interest rates between 3.75 and 4.00 per cent after its September increase, with its own projections pointing toward 4.1 per cent by year-end. The US ten-year Treasury — the price of money for the entire planet — is hovering near 5 per cent. Brent crude sits above $90 a barrel, carrying a persistent premium for Hormuz and Gulf disruption. For a developing country whose debt is denominated in dollars and whose fuel is imported in dollars, this is a pincer: the currency weakens, the debt gets heavier in local terms, and the import bill climbs at the same time. This is the trap economists call the “original sin” — borrowing in a currency you do not control — and three decades of lectures about issuing local-currency debt have not cured it. When American rates rise, capital flees emerging markets for the safety of Treasuries; currencies fall; central banks in Mexico City, São Paulo and Jakarta face the impossible trilemma of defending the currency, taming inflation, and not strangling domestic growth all at once. In 2020, the rich world at least offered the Debt Service Suspension Initiative — the G20 freeze that De Croo invoked on Friday as the measure of how bad things are getting. In 2026, no such offer is on the table. That is why De Croo’s refusal to demand one was so telling: the former prime minister of Belgium knows the creditor politics of Washington, Berlin and Beijing better than most, and he chose to warn without asking. The ask, he seemed to understand, would have to wait for Bangkok.

Behind the immediate squeeze sits a slower, heavier wall. Market analysts put more than $3.5 trillion in emerging-market sovereign debt maturing between 2026 and 2028 — bonds sold in the low-rate 2010s that must now be refinanced at 2026’s elevated yields. Debt that accumulates faster than it can be serviced through growth creates its own momentum: each refinancing at a higher rate raises the next budget’s interest bill, which raises the next deficit, which raises the next spread. It is the exact dynamic that produced Latin America’s lost decade, and it is compounding quietly across Africa, South Asia and Latin America at once. Two buffers that once softened these shocks have also thinned. The first is China: the commodity supercycle of the 2000s let resource-rich nations borrow against future revenues that the Chinese property collapse and maturing infrastructure buildout have not delivered — revenue shortfalls are meeting debt service head-on from Zambia to Ecuador. The second is the climate itself, which used to be background noise in debt analysis and is now a line item. The 2026 El Niño is expected to be the most powerful since 1950; its floods and droughts will hit harvests, hydroelectric dams and food prices simultaneously. Back in April, De Croo had already told Reuters that just $6 billion in targeted cash payments or energy subsidies could stop 32 million people from sliding into poverty as energy prices surged — “not a small amount,” he said, “but an investment.” The bill has only grown since.

“No country should have to sacrifice its future development to manage a crisis it did not create.”

The 5D read

Geopolitics: the map of suffering has outgrown the map of the war. UNDP’s surveys say the Iran conflict now touches roughly 100 countries — a regional war that became a global tax. The transmission belt is energy and shipping, and it runs through every economy that buys fuel in dollars. De Croo’s framing was deliberately political: “No country should have to sacrifice its future development to manage a crisis it did not create.” The subtext is the oldest grievance in the development debate — that the Global South pays for crises designed in richer capitals — and the Thai hosts of the October meetings have built their entire agenda around it, with a pillar devoted to opportunities for middle powers in an increasingly fragmented geopolitical landscape. The era of the South as a passive audience for creditor decisions is, at least rhetorically, ending. Macroeconomics: the textbook says emerging markets should let their currencies fall and wait for exports to adjust. The textbook was written before food and fuel were 40 per cent of the consumer basket. In this crisis, depreciation imports inflation, inflation forces rate hikes, rate hikes slow growth, slow growth widens deficits. Central bankers in the developing world are being asked to perform surgery on themselves with borrowed instruments — and to do it while the fiscal shield they built during the oil-price surge is exhausted. De Croo’s prescription — focus on the most vulnerable, targeted cash transfers, keep diversifying energy sources and adapting food systems — is sound economics. It is also, as he admitted, slow: “really tough, tough spot” was his summary of the interval between now and when those adaptations pay off.

Demographics: this crisis is young. The food-insecurity surge — 49 million more people by the end of 2027, per UNDP — will land hardest on the countries where the median citizen is under 25 and where children already bear the debt burden in cuts to schooling. UN analysis earlier this year found that almost half the world’s population now lives in countries spending more on debt interest than on education or health, and that the cost of borrowing for African countries has risen 91 per cent since 2020. A generation is being asked to pay interest on a war it will spend its working life repaying — a demographic time bomb with compound interest. History: the pandemic’s Debt Service Suspension Initiative is De Croo’s explicit benchmark, and the comparison is doing real work. In 2020, creditors agreed the poorest could pause payments because the shock was obviously nobody’s fault. In 2026, the shock is equally exogenous — a war, a weather event, an interest-rate cycle — but the creditor politics are harder, with Chinese, Gulf and private bondholders who were not the G20 of 2020. The deeper rhyme is with 1982, when Paul Volcker’s rate hikes detonated Mexico’s debt and the “lost decade” spread across Latin America. The mechanism is identical; only the trigger has changed. Structure: the crisis is finally forcing the question De Croo has been building toward — that “energy security and the energy transition are no longer separate agendas. They are one and the same.” Countries diversifying their energy sources are buying insurance against the next war premium; those diverting scarce funds into fossil-fuel subsidies to survive this one, UNDP warns, are locking in carbon-intensive systems and slowing the Sustainable Development Goals at once. The Bangkok agenda’s pillar on a new financial architecture for climate adaptation is the institutional version of the same insight: the plumbing of development finance was built for a gentler climate, and the climate is no longer cooperating.

What to watch

All of this now converges on Bangkok. From October 12 to 18, the IMF and World Bank hold their annual meetings at the redeveloped Queen Sirikit National Convention Center — the first time Thailand has hosted since 1991 — with more than 15,000 participants expected from 191 countries. In a telling piece of symbolism, Paraguay will chair the Board of Governors, the meetings’ main decision-making body: the first time in over 70 years the South American country holds the role, and the capstone of a year in which Asunción has chaired the IDB, the World Bank and the IMF simultaneously. The host theme is “Thailand’s New Horizons: Empowering People, Building Resilience,” and the four pillars — digital transformation and AI, middle powers in a fragmented world, a new financial architecture for climate adaptation, and the longevity economy — read like a direct answer to the crises De Croo described. The formal agenda will cover growth, financial stability, jobs, climate and digital transformation, and the IMF is teeing up the week with a drumbeat of releases: a World Economic Outlook chapter on corporate-tax spillovers on October 5, lessons from the cost-of-living crises on October 6, and a Global Financial Stability Report chapter on the tokenization of financial assets on October 8. But the question the developing world will bring to Bangkok is simpler than any agenda: is this 2020 or is this 1982? Will the creditors’ meeting produce a mechanism — relief, restructuring, a new facility — or will the dominoes De Croo warned about start falling while the communiqués are still being drafted? The UNDP chief’s deliberate restraint on Friday — warning of financial distress while declining to demand debt relief — reads as a man keeping his powder dry for the room where it counts. Watch whether the final communiqué mentions the developing world’s distress in its first paragraph or its last. That placement will tell you everything.

The protests are the canary. When ten countries see street demonstrations in a single month over bread and fuel, the finance ministers in Bangkok should read them not as politics but as an early-warning system — the 2026 equivalent of the food-price riots that preceded so many ruptures. Latin America knows this signal intimately: the region’s debt crises were never just balance-sheet events; they were the moments when the pavement vetoed the budget. De Croo’s prescription — shield the most vulnerable first — is not charity. It is the cheapest form of political risk insurance a government can buy, and the one Bangkok’s creditor tables have historically been slowest to fund.

From the emerging-markets vantage — from Mexico City, from São Paulo, from Jakarta and Nairobi — the verdict on 2026 is already in. The bill for the rich world’s war is arriving in the South’s budgets. The bill for the rich world’s interest rates is arriving in the South’s debt service. And now the bill for the rich world’s carbon is arriving in the South’s harvests. Three invoices, one fiscal year, none of them addressed to anyone who caused the expense. De Croo is right that the focus must be the most vulnerable — the 49 million about to go hungry, the children whose schools are being traded for interest payments, the countries with no fiscal shield left. But vulnerability is not a policy. Bangkok has ten days to decide whether the financial architecture has a fire extinguisher or just a fire alarm. In 2020, the world found one. The developing world is about to find out whether the world remembers where it left it.

From Washington’s vantage, De Croo’s warning is a necessary cold shower — but the prescription cannot be the 2020 playbook. The Federal Reserve, under Kevin Warsh, is fighting an inflation that the Iran war keeps rekindling; cutting rates to ease the developing world’s pain would betray its domestic mandate and risk re-accelerating the very price pressures crushing those countries. Western finance officials tend to read the distress as a liquidity problem for some and a solvency problem for others: countries that borrowed recklessly or delayed reforms need IMF programs and conditionality, not blanket relief that would reward the worst managers and punish private creditors who priced the risk honestly.

There is also a creditor-morality argument that carries real weight in Western capitals: broad debt suspension in 2026 would hit a creditor landscape nothing like 2020’s. Chinese state lenders, Gulf sovereign funds and private bondholders — not the Paris Club of old — would be asked to take the haircut, and none of them answers to a G20 communiqué. From this lens, De Croo was wise not to demand relief he cannot deliver; the honest Western offer is faster IMF lending, more SDR recycling, and relentless pressure on borrowers to fix the fiscal plumbing. Sympathy, yes — but no blank checks written in Washington.

From Beijing’s vantage, the story is the boomerang of dollar hegemony. The developing world’s distress is denominated in dollars because the global financial system runs on dollars — a system Washington weaponizes through sanctions and then tightens through rate cycles it sets for its own domestic politics. Eastern analysts note the irony without mercy: the same capitals that lectured the South about fiscal discipline are now exporting inflation through a war premium and exporting recession through interest rates, then offering sympathy instead of restructuring. China’s own answer has been bilateral and quiet — renegotiated Belt and Road loans, yuan-denominated facilities, emergency swaps — the plumbing of an alternative system being laid while the old one creaks.

Moscow and the Gulf read the crisis through the energy weapon’s double edge. For producers, high prices are revenue; for everyone else, they are a tax — and the eastern lens insists the tax was designed in Western capitals, from sanctions architecture to the interest-rate response. The honest eastern caveat is that Beijing’s own slowdown has thinned the commodity-demand cushion that once protected its partners, and Chinese lenders are as allergic to haircuts as any creditor. The eastern prescription is therefore structural rather than charitable: settle more trade in local currencies, build non-dollar safety nets, and treat Bangkok as the moment the South’s dependence on Washington’s monetary cycle gets a formal price tag.

From the South’s vantage, De Croo’s warning is vindication with a bitter aftertaste. The developing world has been saying for two years that the Iran war is not a regional conflict but a global tax — and now the UNDP’s own surveys confirm it: roughly 100 countries affected, ten with protests in a single month. The southern lens reads the creditor politics with clear eyes: in 2020 the rich world found the mechanism in weeks because the shock hit everyone; in 2026 the shock hits the poor first, so the mechanism is suddenly complicated. Latin American memories of 1982 are not nostalgia — they are a warning that Washington’s rate cycle plus commodity dependence is a trap the region has died in before, and African finance ministers, facing borrowing costs up 91 per cent since 2020, are living the sequel.

The southern demand at Bangkok will not be charity but architecture: faster debt restructuring that includes private and Chinese creditors, real SDR reallocation instead of pledges, climate finance that does not arrive as more loans, and a permanent facility for exogenous shocks so that every war and every El Niño does not require a fresh round of begging. Paraguay chairing the Board of Governors — a South American country presiding over the IMF and World Bank — is the symbolism the South intends to cash in. The question the South brings to Bangkok is the one De Croo would not ask aloud: if 2020 proved the system can move when it wants to, what does its stillness now prove?

Sources

• Reuters
• Reuters; Thailand NOW; Asunción Times
• The Eastleigh Voice (UNDP)
• Reuters; Wisevoter