Time for a rethink on debt?
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Hello and welcome to World Business Report from the BBC World Service. I'm Leanna Byrne and on this edition, Russia's economy is booming, according to Russia, but is it really? And in the race for AI dominance, a company called Kroc, with a Q, says its chips can outperform the biggest chip company in the world, Nvidia. And meanwhile, forget retiring to Florida when you can spend your later years in Thailand. Hello and welcome to World Business Report from the BBC World Service.

I looked for sunshine, butterflies and flowers and I came here and I thought I'd give it six months, five years later and I'm still here. We'll hear a little bit more about that later on in the programme. But we're starting today with a warning from some of the world's top economists, including Nobel Prize winner Joseph Stiglitz, who says it's time to rethink how we deal with debt in poorer countries.

They've released a report backed by the Vatican calling for urgent changes to the global financial system so that countries struggling with high debt can invest in things like healthcare, education and climate protection instead of just paying off interest. I spoke to Professor Joseph Stiglitz. He's a renowned economist from Columbia University. And I asked him why in a world still reeling from COVID, high inflation and rising interest rates...

He believes we need a new approach now. And by the way, you'll hear a lot of references to capital here, and that just basically means money or resources. So right now, developing countries are spending enormous amounts of servicing the debt,

Most are not actually going into default. But what we say is it's like a default on development. They're not able to undertake the development investments that they need. The combination of the high level of debt and the high interest rates. And in that, you know, you've criticized multilateral institutions like the IMF and the World Bank for effectively bailing out private creditors. So what should they be doing instead? Yes.

If you look at the flow of money, what you see is that the net flows into developing countries have basically stopped. It's an enormous reversal of the pattern that you would normally think. But when we looked at it historically, it turned out it was not a surprise that episodically money, particularly in global economic slowdowns, money flows slowly.

out of developing countries, a flight to safety into developed countries. So ironically, the poorest countries are the least able to bear the risk, wind up bearing the risk disproportionately. What is financing that flow of money out of developing countries is an inflow of money

from the international financial institutions like IMF and World Bank. In other words, money is going from the IMF and the World Bank and the other multilateral development banks into the country, supposedly for development purposes, but de facto, the money is being used

flowing out of the country into the pockets of the private creditors. So this is de facto bailout of the private creditors. So the first recommendation is there should be no bailout. We have then other recommendations. The IMF used to charge very high interest rates, what they called surcharges, on the countries that were in debt to the IMF

by a large amount for long periods of time, the very countries that were least able to pay. They reduced those surcharges, but it is still the case that the interest rate that the IMF charges goes up in a period like this because it's linked to the interest rates in the United States, Europe, and Japan. And so at the same time, private markets are raising interest rates, so is the IMF.

And we suggest that this kind of pro-cyclical behavior should be stopped. If I'm an investor, though, and I'm seeing that there's more controls on capital flows, would that not scare me off? Another recommendation that we make is the position that IMF took for a long time, that countries should not impose restrictions on capital flows. We criticize that.

Knowing that financial markets are more stable means that the country's economy is going to be more stable. And that makes investing in the country better for those who are really committed to investment. Obviously, if you're a short-term speculator, you won't be putting money in. But our view, very strongly in the report, is we try to distinguish between good capital and

and not so good capital. In other words, capital that actually supports long-term investment and capital that is speculative, that goes into consumption, that doesn't support long-term economic growth. So my view very strongly is that by making the economy more stable, by stopping these very volatile capital outflows,

you actually attract better finance that really wants to contribute to the long-run growth of the economy. And yes, you may discourage the other kind, but that's good. That was Professor Joseph Stiglitz speaking to me earlier. Now, listening to that was the BBC's economics editor, Faisal Islam. Faisal, thanks for joining us. Hello. So what's your reaction to what the professor was saying?

And the context here is that it's 25 years on from the Jubilee campaign that kind of captured the world's imagination and led to sort of focused efforts and campaigns at G7 meetings and led to massive debt cancellation, $100 billion worth of debts for the poorest countries and underpinned a period of strong growth in some of those countries, mainly sub-Saharan Africa.

What we've had now in recent years is obviously a massive run-up in debts, followed by an increase in global interest rates led by the Federal Reserve. And that is leading to incipient, sort of chronic, as Joseph Stiglitz describes, sort of debt crisis without kind of collapse or bankruptcy. But the huge amounts of money spent servicing debts more than, as Professor Stiglitz says,

health expenditure and education expenditure. And so he is proposing and backed by, well, it was an initiative actually of the late Pope, but now the new Pope Leo, they're backing the idea of a new Jubilee campaign, 2025,

and trying to write off some of these debts under a new initiative, similar initiative, but also change the global financial architecture quite intriguingly, including the way in which these debts are dealt with legally, which are often under New York or English law.

Those are the ways in which the sovereign debts, the law under which sovereign debts are made up. And so they're trying to prevent the likes of hedge funds, so-called vulture funds, buying up these debts. Indeed, provide funding for these countries to buy back their debts when they trade very low on international markets. So I think there's going to be some campaigning. There's going to be some government negotiation. There's a big conference in a couple of weeks in Seville, the Finance for Development Conference. We last had one of those a decade ago.

But the world has changed, Leanna. We've seen big declines in development assistance and aid in the US and in the UK. Other methods may be required to meet some of the lofty ambitions we often heard about, such as sustainable development goals. Ten years ago, they were talking about trillions, not billions. None of that stuff has happened. And in the meantime, the financial situation of many, not just developing countries, but actually middle-income countries, is

is suffering. And meanwhile, much of the attention of the richer world has been on military spending, diverting aid to military spending, has been on Ukraine, has been on their own crises. Yeah, so I guess it would be right to be sceptical about plans like these, even though there might be very well thought out, you know, very, you know, great lofty ambitions, but really in this political mood, would anything like this get done?

I think you're right to be sceptical. Indeed, we're hearing in terms of the planning for this conference in a couple of weeks' time already, there was this new phrase now, they call it the G1 instead of the G7, the G1 obviously referring to the US and its approach to things like development, cancelling the phrase sustainable development, for example, replacing it with other phrases. Stock is...

suggestions of the developing world, indeed of the G7, are now sort of going into reverse. So you're right to be sceptical, but there are others in the global community, the Spanish, for example, putting forward quite interesting ideas, and I think they are being picked up. And I think what you're seeing is a lot of campaigning energy now around the Jubilee, being led, if you like, by some of the aid agencies, and then seeing an opportunity now

to corral the same sort of voice that you saw having such an impact 25 years ago. Okay. All right, Fazal Islam, thank you so much for joining us. Now, from struggling economies to one that says it's thriving, it's day three of the St. Petersburg International Economic Forum, which is often referred to as Russia's answer to Davos. And it's the fourth time since Russia's invasion of Ukraine in February 2022. And

That war, of course, triggered sweeping Western sanctions on Moscow and drove many global companies from the country. German Gref, CEO of Sberbank, called the situation a perfect storm. We have been dealing with a large set of problems that today can be called a perfect storm. A very high key rate puts pressure on business profitability.

Businesses are changing their plans, unfortunately, postponing investments, and this obviously poses a threat to economic growth, not only in the current year, but also two to three years ahead. But then President Putin has been speaking at today's conference and is far more upbeat. He says Russia's economy is not just surviving, it's booming.

Despite the difficult external background, Russia's GDP has increased by more than 4% annually in the last two years. At the same time, the overall growth of GDP isn't just tied to the military or industrial background, as some might believe. So who is right? I put that question to Ruben Inakolopov, an expert on Russia's finances, who's a research professor at the Barcelona School of Economics.

It was growing. I think that's something that is really changing right now. Even during the forum, even the minister started basically admitting that the growth has ended. The Russian economy is already in a recession or is about to end the recession. So the statement of Putin is factually correct, but about the past, not the present.

When you were listening to that speech, what do you think is being left out of the picture? Well, I think it's kind of trying to massage a little bit the numbers and trying to show how that the Russian economy is being more complex. Well, I mean, it's not really becoming that much more complex because the main source of the budget is basically still engine of growth. It's really related to oil rents that either current or that were accumulated in previous years that then are channeled to mostly military complexes.

Yes, then from this military complex, it also supports other industries, but it's not the real engine of the growth. The real engine of growth is budgetary expenditures, predominantly on military complex. Then it trickles into other parts of the economy. So that is being a bit left out of the picture. So Putin actually mentioned that, oh, yes, of course, military complex plays a big role, but, well, I mean, but is not very relevant. It's really about military complex most of the time.

It's interesting, though, because he was very hard pressed to say the military economy is not the thing that is propping the Russian economy up and oil and gas are no longer Russia's only lifeline. So, I mean, is that just not true? Are there actually other industries that are stepping up in Russia?

a big difference between like very direct effects or indirect effects because if you give a lot of money to people who serve in the army and then fight in the war and that these people spend this money and uh it it sustains for like trade in their regions well i mean officially it's an increase in trade so it's not related to military expenditure but the reality it is so it's indirectly but related most of the growth is directly or indirectly related to military expenditures

And that is, I think that's pretty obvious. That's what is going on. The relative role of oil and gas probably actually declined. That's true. But a lot of budgetary expenditures are reflecting the previous accumulated reserves from oil and gas, either because it was really monetary money in the fund.

that the government used to sponsor to pay for the budget expenditures. Or basically, it's accumulation of government debt that used to be very low because of previous oil and gas rents. So essentially, if you look at it one way or another way, the ultimate, more fundamental cause of growth is related to oil and military complex. That was Ruben E. Nikolopov, research professor at the Barcelona School of Economics.

World Business Report will be spending the whole of August asking how rising prices are impacting people across Africa. So if you live anywhere on the continent, we want to hear from you. If you want a feature in our coverage, grab a pen as in a moment, I'll give you a WhatsApp number. All you need to do is just send us a voice message explaining how rising prices have been affecting you. And don't forget to tell us your name and where you live.

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Toyota is the best resale value brand for 2025, according to kellybluebookskbb.com. And with a wide range of dependable vehicles for any lifestyle, you can get everything you need in a vehicle today while investing in tomorrow. So choose Toyota and choose value. Shop via toyota.com for great deals and more. Vehicles projected resale value is specific to the 2025 model year. For more information, visit kellybluebookskbb.com. Kelly Blue Book is a registered trademark of Kelly Blue Book Co. Inc.

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Now, when you ask a chatbot like ChatGPT a question, there's a lot going on behind the scenes. And it all depends on powerful computer chips working at lightning speed. Right now, a company called NVIDIA makes most of those chips, but there's a new rival stepping up. It's called Grok. That's Grok with a Q. And some experts say its technology could make AI tools like ChatGPT reply up to 13 times faster. That's a lot.

So Sir and Janet Tawari has been speaking to the company's head of Asia Pacific. And I asked her, how much do Grok's chips set the company apart from the rest?

As we've been hearing, it really is a race to the top of the artificial intelligence industry, isn't it? Whether it be the platforms or their large language models. And now it's pretty much becoming about the chips that are powering these systems. Not only are they powerful enough, are they fast enough, but also are they efficient enough and are they economical enough? So we hear so much about NVIDIA and this other company, Grok, that's Grok with a Q,

Seems to say that it has a chip, its AI chip rather, uses less power to do some tasks compared to NVIDIA's chips.

and that they are a bit more economical and that they're much, much faster. I spoke to the APAC general manager of Grok, Scott Albin, and he told me how and if it is possible to supply the chips for the demand that's required and if companies like himself can scale up. Now, what we do differently is that our chips are far more power efficient

And they use a supply chain that's very, very differentiated than the GPUs, which means that we can actually produce many more of them at a much faster rate. And we think that that's ultimately going to be a benefit to the wide world that wants to adopt AI. And Sir and Dana, Grok manufactures everything in North America. That's quite rare, isn't it? It really is. And it was interesting speaking to Scott Alban because they're very proud of the fact that they manufacture everything in North America.

I asked him, are you sure you don't need anything from Taiwan? Of course, we know that Taiwan is an excellent chip maker and really dominates the market in the manufacture of chip. China is also catching up as well. But Grok has categorically said they're not going to rely on an Asian supply chain. They're going to keep it all within America. And actually, they don't even and they're not seeking China as a customer at all. Here's Scott Alban again.

We wanted to build this technology in America. We thought that was strategically important to be aligned to the US interests. We've built a very resilient supply chain that we think is very diverse, that allows us a lot of flexibility and options. So we don't see any constraints. I think China is trying to produce their own semiconductors. They're making progress.

No doubt. We think it's going to be a competitive race. Now, China is innovating and they're going to keep innovating. But we think that the technology that we're building in North America is outpacing and is going to lead the way. Last question, Sir and Jan, I have to ask when people hear Grok, they probably think of Elon Musk's chatbot, don't they? Did you ask him about that?

Of course I did. I asked him how they manage the fact that people think of Elon Musk's chatbot and he gave me a pretty good answer so I'm going to let him speak for himself. Here's Scott Albin again. Well we are Grok with a Q, we're not Grok with a K. We think that as our reach

is extended as we become more common in the market, people will understand that difference. And I think when I talk to developers, they understand that difference. We build AI chips, we build Grok Cloud, the power inference,

You know, that's what we do. There you go. That was Scott Alban, Grok with the Q's, head of Asia Pacific, speaking to Sir and Janet Tiwari. Now, listening to that was our markets guest for today, Shanti Kelman, chief investment officer at M&G Wealth. Hello, Shanti. Hello. It's very clear that Grok is positioning itself as a very serious challenger to NVIDIA. But I mean, let's remind our listeners, NVIDIA is one of the biggest stars in the stock market, isn't it?

It is. And the thing that makes its position really strong is that they have a whole programming language that they use for their chips that works very well with AI. And you need then all your programmers to know that language. It creates a really big tie-in for people that are using it.

And the energy efficiency also is really important. As the CEO was saying, everyone wants to make the running costs lower. So if someone buys their chips, there's the upfront price to buy them. But then there's also how much it costs to operate them. And that's very important. Let's turn to Japanese inflation, because that's a story we've been keeping an eye on. The latest is that core inflation hit a two year high in May and rise prices. And that's kind of one of the big parts of the story, isn't it? They've actually more than doubled inflation.

Can you remind us, Shanti, what is driving this high inflation in Japan? So energy prices and food prices are big drivers. Japan imports a lot from the rest of the world.

And I think, you know, to some degree, a bit of inflation is quite welcome there because they had such a long period of very low inflation. But now at kind of 3.7%, we're getting to levels where people are a bit less comfortable. And like the rest of the world, we've got to balance the risk of, you know, geopolitical risk, tariffs, denting economic growth,

With not having, you know, having interest rates high, high could also dent that growth. But at the same time, you don't want to lower rates and have inflation rush back in. So it's a balance for everyone. Closer to home, we had new data on UK retail sales. What does it say? What's it telling us?

So it was a bit negative, so down about 2.7%. I think some of it is probably a bit of noise in the data. April was a lot stronger than expected. And then May ends up being a little bit weaker. But there is also the chance that we had a lot of changes to taxation implemented in April. And you don't know if maybe some of that is starting to affect consumers. We probably need a few more months to know for sure. Absolutely. We'll have to see. Shanti Kalman, always a pleasure. Thank you so much for joining us.

Now, from cutting-edge tech to a different kind of future planning, some Western retirees are skipping expensive care homes back home and heading to Thailand instead. They say the care there is not only better but far more affordable. So is this a retirement model other countries could learn from? The BBC's Gideon Long has been finding out.

It's Saturday morning at the care resort Chiang Mai in northern Thailand and a group of Thai carers are running an exercise class for the residents. Ten elderly people are sitting, lifting their arms, stretching their legs, following the instructor's routine. A couple of them are in wheelchairs. Some look very frail. Others less so. After the class, I wander around the resort.

Well there's no denying it is a beautiful place. There are tropical plants everywhere, palm trees and some incredible flowers. The accommodation here consists of bungalows, some of them are overlooking the lake with lovely verandas on them, and all of it nestled in the lush green hills that surround Chiang Mai.

Hi. I meet Lynn Stewart, one of the residents. Did you go to the exercise class this morning? I didn't. No? It's no problem. It's tomorrow. It's every day. Every day. Every day. 10 to 11. Lynn's 81 years old. She's from the US and lived there and in Northern Europe for many years before moving to Thailand. There was a time when I just got fed up with the weather.

and I looked for sunshine, butterflies, and flowers, and year-round beauty. I came here, and I thought I'd give it six months. Five years later, and I'm still here.

It's a sentiment echoed by other residents. My name is Liz Jackson and I'm 83 years old. Liz has been here for a year. I'd already been in a care home in the UK. I had a knee operation done and it was OK. But I just thought, I don't want to die here. I really, really did. For many retirees, cost is a big factor in the decision to move to Thailand. Liz tells me she pays US$1,800 a month for her care.

a quarter of what she was paying in the UK. And that's your food, your cleaning, your laundry. Everything is done for you. This is not all about money, though. The Buddhist culture is very interesting. Peter Millard is another British pensioner at the resort.

There's very little anger. You never hear people shouting. People are extremely gentle and kind, and particularly to the elderly. But, of course, not all elderly people are as healthy as Lynne, Liz and Peter. Some pensioners, sadly, are no longer able to make an informed decision about where they receive care. I visit another care facility, also in Chiang Mai.

Here too, the young Thai staff are coaxing the residents through a class. But it's a calming meditation class. There are eight patients in it and some are clearly very ill. This is the VivoCare dementia facility. I spoke to one of VivoCare's Swiss owners, Roger Holzer. He's been in Thailand for over a decade and has seen the market for retirees expand.

I remember when we started, we had one new guest per year. Now, on average, we get a new guest every three to four weeks. So it has dramatically accelerated. Could it work elsewhere in the world? The next facility we are, I hope, going to open is in Kenya. And in Africa, we have two other destinations we are intending to go to. One is Morocco and the other one is Namibia. Dr Caleb Johnston has researched the private sector care system in Thailand.

who's based at Newcastle University in the UK. Many of these facilities are only able to offer what they can offer because of the abundance of cheap care labour. At the same time, what's a better system? Is it better for care workers to migrate overseas and be separated from their children for five, ten years, working in Canada or the US or Australia? It's

So it's a complicated question. And what is the impact on the local and particularly the public health service in Thailand itself of this influx of foreigners seeking care? The Thai government has seen medical tourism as a key development strategy for decades.

But one of the big critiques of medical migration more broadly is that this infrastructure, all these private hospitals, facilities, they are draining resources away, investment, nurses, doctors, care assistants, equipment from the clinics and hospitals that are desperately needed by the national population. That is a real concern. That was Dr. Caleb Johnson ending that report by Gideon Long.

asked Gideon if he signed up for a retirement in Thailand and he told me, go away, Leanna, I'm not that old. And you can hear more of that episode in today's Business Daily. Just search for it wherever you get your BBC podcasts. This programme was produced by Josh Martin and Victoria

Victoria Holland. James Wickham is our editor. And don't forget, of course, you can always download a possible programme of this episode on World Business Report as a podcast. Just search for us wherever you like to listen to your podcasts. Thanks for being with us. We'll be back next time with more of the top global business stories.

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