Samson: Debt relief is an urgent necessity during a pandemic
6th May, 2020 Gordon Brow Lawrence Summers
The developed world has responded to the emerging crisis of Coronavirus (Covid 19) by supporting their local economies and financial systems in bold and unprecedented ways, on a scale that no one would have imagined three months ago
By contrast, when the world’s finance ministers and central bankers meet online this week in the framework of the semi-annual meetings of the International Monetary Fund and the World Bank, steps will be taken to fortify the international system. But nothing could match what countries do at the local level
Historians such as Charles Kindleberger have made convincing arguments to demonstrate that it was the failure of international cooperation that made the Depression of the 1930s “great.” Even when the world witnessed coordinated movements in response to the crises that have occurred since then, it was often taken after incurring heavy human costs
The Bretton Woods conference on rebuilding the international financial system followed the devastation of a global war. Brady’s plan to solve the Latin American debt crisis was approved only after the region suffered a lost decade
However, the 2009 G20 meeting in London, which dealt with the global financial crisis, demonstrated the value of early and coordinated action to reduce the damage to the global economy, maintain trade and support fragile emerging markets
The next wave of (Covid 19) crisis is expected to occur in the developing world. About 900,000 people are likely to die in Asia, and about 300,000 others in Africa, according to grim estimates, but they may be wary, from Imperial College London
While social estrangement in the West has been the way to suppress the virus, the busy cities of the developing world and its densely populated slums often make isolation extremely difficult. Advice on washing hands becomes meaningless when the ability to access running water is minimal. In the absence of basic social safety nets, the choices become narrow and harsh
Either you go to work and risk getting sick, or you stay at home to starve you and your family. But if the disease is not contained in these places, it will return – in second, third and fourth waves – to chase every part of the world
The spread of economic and financial failure in emerging markets also threatens the viability of supply chains on which all countries depend.
Given its sheer size, emerging market debt threatens the stability of the global financial system, which is already dependent on strong central bank support. And because emerging markets account for more than half of global GDP, global growth is also under threat
Just as the Federal Reserve in the United States and other major central banks have expanded their balance sheets in ways that could not have been imagined before, the international community this week, in the words of the former central bank chief Mario Draghi, should “do whatever it takes” to maintain the performance of the global financial system.
And at a time when the United States is borrowing an additional $ 2 trillion to meet its needs, it will be tragic for austerity to be imposed on the already exhausted developing world
First, the International Monetary Fund, the World Bank, and regional development banks must move as strongly as global central banks have done to expand their loans. This means realizing the fact that the interest rate environment currently close to zero makes it possible to use more leverage than before, and that maintaining reserves becomes meaningless if it is not possible to benefit from them now
The World Bank almost tripled its lending in 2009. Perhaps a more ambitious target is appropriate now, along with a significant increase in subsidized lending at a time when low lending rates in rich countries are making lending cheaper.
The International Monetary Fund, with its gold reserves equal to $ 150 billion and a network of credit lines with central banks, should be prepared to lend up to a trillion dollars
Second, if there is an appropriate moment to expand the use of the international currency known as special drawing rights, it is now. If global money is to remain balanced with domestic monetary expansion in rich countries, the urgent need to increase special drawing rights to more than $ 1 trillion
Third, it would be a tragedy and a farce at the same time if increased global financial support to developing countries ended in helping those countries’ creditors, not their citizens. National debt due before the crisis should be at the top of the international financial agenda
The current proposal is that creditor countries offer to freeze bilateral debt payments for a period of six or nine months, at a cost of $9 billion to $13 billion. But this proposal is restricted in its timeframe and the scope of the creditors it includes
We suggest reducing more than $ 35 billion owed to official bilateral creditors over the next year and the next, because the crisis will not be resolved within six months and governments need to be able to plan spending with certainty
Here, the role of China, which holds more than a quarter of this bilateral debt, becomes crucial
Nearly twenty years ago, when we argued in favor of debt relief for nearly 40 heavily indebted poor countries, nearly all of the debt was owed to several official or multiple creditors, a small portion of which was owed to private sector actors. Now, we find that $ 20 billion – borrowed at often high interest rates – is due by the end of 2021 for private creditors
The international finance provider, representing the creditors of emerging markets from the private sector, also admitted that the private sector must bear its share of the pain. It is unreasonable to use the money flowing from our multilateral institutions to help the poorest countries not to spend on health care or anti-poverty measures, but simply to pay off private creditors
Especially creditors such as the major American banks that continue to pay dividends to their shareholders in a time of crisis.
Ministers and governors meeting this week should work to unify their authority with the authority of the International Monetary Fund and the World Bank to mobilize the private sector around a voluntary plan to deal with this debt
Just as the epidemic can be contained in the most effective and least costly way with bold early measures, the lesson from the past is that the best way to deal with periods of international recession and their human costs is rapid, bold action. Now we have to move quickly and work together
Gordon Brown – Former Prime Minister of the United Kingdom (2007 – 2010) and Secretary of its Treasury (1997 – 2007
– Lawrence Summers – The United States Treasury Secretary (1999 – 2001), the Director of the National Economic Council US (2009 – 2010 and President of Harvard University (2001-2006 LINK
Don961: Proposals to get out of the economic crisis
Tuesday 05 May 2020
Baghdad / Farah Al-Khaffaf
At a time when Iraq is facing a new economic crisis after the decline in the price of selling crude oil in global markets due to the outbreak of the Corona virus in the countries of the world that led to stopping most of the work fields, government and parliamentary agencies are accelerating to find quick solutions to get out of this crisis or reduce its repercussions, amid expectations With the increase in oil prices in the coming months.
In this regard, Member of the Finance Committee MP Majida Al-Tamimi submitted a set of proposals that would quickly provide the Treasury with liquidity to overcome this economic crisis.
Al-Tamimi stressed “the necessity of forming a rescue committee of specialists working with different visions and applying new ideas and taking bold decisions to be supported by the government and work will be in two tracks, the first track includes urgent solutions to distribute wealth fairly among all segments of society and reduce total expenses and provide cover for the salaries of employees, retirees and social care In addition to financing health services and security institutions. “Al-Tamimi indicated that” the second track includes corrective proposals for fiscal and monetary policies within the medium and long-term ranges of time. “
The Chairman of the Finance Committee, Haitham Al-Jubouri, also announced the agreement of a package of reforms consisting of 70 paragraphs, stressing the proposal to be in the form of a national project for economic reform.
Al-Jubouri expressed his hope that “the production cut that took effect at the beginning of this month will be reflected on world oil prices and that the crisis will end within the next two months so that the problems of salaries and operational budget are addressed.”
Al-Jubouri also said: “The financial crisis in Iraq is serious and the amount of revenue has not reached more than 20 percent of the total budget,” stressing “the existence of measures to address the deficit in the issue of salaries.”
Two borrowing plans
He added in a statement quoted by the Iraqi News Agency that “the financial committee has two plans: the first urgent, which intends to borrow from internal banks, transfer some of the secretariats to some ministries, and assign the central bank through banks with national bonds, as well as external borrowing that needs legislation.”
He pointed out that “the second plan includes futures solutions, which are a package of reforms, namely, collection, customs tariffs, taxes, insurance, oil derivatives support issues, and others that need to be reviewed.”
The financial advisor to the Prime Minister, Mazhar Muhammad Salih, had earlier denied a decision to deduct a percentage of the employees ’salaries.
Saleh said: “Talking about a decision to deduct 25 percent of the employees’ salary due to the low oil prices due to the repercussions of the Corona crisis is a shame for the health”.
He added that “deduction of a percentage of the employees’ salaries requires a decision by the Council of Ministers, otherwise no decision can be issued.”
increasing of demands
Amid this picture, the financial expert, Thamer Al-Azzawi, expected oil prices to rise within three months.
Al-Azzawi told Al-Sabah: “After China and American cities return to opening the economy and Europe begins to recover from the Corona virus, it is hoped that the demand for fuel will increase, and within two to three months, oil reserves in many countries will decrease, which contributes to an increase in Purchases and then price increases. “
Al-Azzawi also suggested that prices fall in the coming months between 30-40 dollars in the best conditions, and then improve at the beginning of the year 2021 with the continued reduction in production according to an agreement OPEC +. LINK