Global leaders, health & economists must hold an international conference to prepare for future epidemics and discuss innovative measures to counter economic crises
A Bretton Woods-style international conference should be held to discuss innovative ways to prepare for epidemics and regenerate global economies.
Critics have complained that Western leaders, in particular, have been unprepared to deal with the ongoing Covid-19 outbreak.
“A pandemic was predictable but instead of paying billions in insurance, we have allowed a disaster that could cost trillions,” said David Aaronovitch, a broadcaster and columnist of The Times.
Such a conference should ideally take place within months after the pandemic ends. Clear leadership is required and successful nations such as Singapore should be included in the top committee with the Group of Seven nations. There are considerable reservations about the undemocratic leadership of China and Russia. A conference could be held with or without them.
It would be more than just a monetary conference such as Bretton Woods in 1944. It would involve global leaders, their health and finance ministers and scientists, medics and entrepreneurs such as Microsoft founder and philanthropist Bill Gates.
Matters under discussion would be payments to a global fund to finance research, vaccines and equipment to fight epidemics.
There should also be contributions to meet climate change and infrastructure needs.
Economic policies were unsatisfactory before the pandemic
Clearly, the current central bank policies of monetary ease and negligible or negative interest rates have only been a temporary palliative in the past few years. They have created stock market booms and slumps, but have worsened global income and health inequalities. Austerity, which worsened problems, has thankfully been sidelined.
Actual economic growth has been disappointing. Organisations such as the International Monetary Fund (IMF), the World Bank and the United Nations should be reformed.
These issues are urgent. Contrary to the likes of Singapore, South Korea, Israel and South Africa, the leadership of the United States and Europe have been well behind the coronavirus pandemic curve.
Moreover, despite efforts to alleviate worker and company pain, present forecasts of the global economy are ones of unremitting gloom. The only difference of opinion relating to the current global recession is the length and depth.
Longer term economic prospects
Even before the pandemic’s disruption of business, sports and other activities, the global economy was swinging downwards. The big question relating to economic prospects are whether current, stale policies will work when the COVD-19 crisis ends and a vaccine is found.
Global economies are on a knife-edge and the current stock market rally indicates that participants are in denial.
Massive global debt seriously worrying
The Institute of International Finance estimates that global debt across all sectors rose by over $10 trillion in 2019, topping $255 trillion. At over 322 per cent of GDP, global debt is now 40 percentage points ($87 trillion) higher than at the onset of the 2008 financial crisis. The pandemic, of course raises the extent by several trillion. Global household debt reached $47 trillion at the end of 2019 This is $12 trillion higher than in the run-up to the 2008 global financial crisis. Over and above that, government and corporate debt is estimated at $34 trillion and $31 trillion respectively.
Lacy Hunt, one of the best economic forecasters in recent years, contends that excessive debt was already weighing on global economies prior to the pandemic. Mr Hunt, the monetary economist at Hoisington, a US Treasury fund manager, believes that more government borrowing will worsen growth in the medium and long term.
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IMF and World Bank receiving numerous calls or help
Governments have been throwing everything but the kitchen sink at economies and are borrowing to finance the spending. The borrowing is at negligible interest rates as central banks are buying the bonds via their renewed quantitative easing.
Kristalina Georgieva, managing director of the IMF, said that the institution was working with the World Bank and other international financial bodies to alleviate the economic fallout.
“Our main preoccupation in this crisis is to rapidly step up financing for countries, especially developing countries that are faced with very significant and growing needs,” she noted. “The IMF has a $1 trillion war chest. We are determined to use as much of it as necessary.”
More than 90 countries so far have applied for assistance from those funds, she revealed.
It is hardly surprising that there is considerable disagreement between economists. Will there be a V-shaped revival, a U-shaped recovery or L-shaped stagnation?
All believe that there will be an initial swift revival because of of pent up demand. The question is how long will it last. With so many imponderables, forecasts can only be regarded as guesses.
This funding and pent-up demand from forced saving during the lockdown could well cause a swift V-shaped recovery, say investment bankers and fund managers.
They contend that the economic crisis is an event rather than a cyclical problem. They have been recommending equity purchases.
Others disagree saying that it is a combination of the two.
Larry Summers, the former US Treasury Secretary and Harvard professor who has coined the term “economic comatose”, and Paul Krugman of New York City University believe that Keynesian borrowing and infrastructure are urgently necessary to keep any recovery going. This would be a U-shaped revival.
Monetary economists such as Brendan Brown, the founding partner of Macro Hedge Advisors, and Tim Congdon, the chairman of International Monetary Research, predict that the current policy, combined with supply shortfalls, will cause an acceleration of inflation.
Mr Brown said the financial asset bust following the longest stock market boom in history will aggravate and prolong the current downturn. Many companies will fail and unemployment will rise. He predicts severe stagflation – stagnant growth combined with inflation rates of 5 to 6 per cent.
Lacy Hunt of Hoisington is doubtful that the recovery will last. Companies and individuals are likely to use any surplus government payouts to reduce debt. Both consumption and direct investment in job creating business will stagnate. This implies an L shaped global economy with few exceptions.
© Copyright Neil Behrmann— first published in The Business Times, Singapore