Justin Robinson | The multilateral system must act boldly
OP-ED CONTRIBUTION: VIRUS IMPACT
The COVID-19 global pandemic is going to trigger a major global recession.
While Caribbean countries are not yet at the epicentre of the pandemic, as the global travel and tourism industry faces a sudden stop, their travel & tourism and remittances dependent economies will be at the epicentre of the economic fallout from the coming global recession.
The major advanced countries around the world are engaging in massive monetary and fiscal stimulae in an attempt to mitigate the short and medium-term economic damage from disruptions to aggregate demand, supply chains and the financial system.
While China is still debating its fiscal response, the United States is proposing a fiscal stimulus package of approximately US$1 trillion to US$2 trillion “One trillion dollars” or approximately 5 per cent of GDP, while all the fiscal measures announced by Eurozone members to date amount to €27 billion, which is around 0.25 per cent of the Eurozone’s GDP. Japan is working on a new spending package of up to ¥30 trillion (US$280 billion), which is around 0.005 per cent of GDP), including cash payouts to households and subsidies to tourism companies hit by a slump in overseas visitors. These fiscal measures are in addition to the extraordinary measures being undertaken by central banks in the above-mentioned countries.
Barbados has announced a stimulus package of BDS$150 million (US$75 million), which is around 1.5 per cent of GDP. Caribbean economies have limited fiscal space and are hardly in a position to undertake major stimulae, but doing nothing, or too little, will lead to long lasting economic damage well after the health crisis has passed.
On March 4, the International Monetary Fund, IMF, made US$50 billion in loans available to deal with the coronavirus, including US$10 billion of zero-interest loans to the poorest IMF member countries. On March 16, the IMF said it "stands ready to mobilise its US$1 trillion lending capacity to help our membership”.
In the same statement, the IMF said it has US$200 billion in current lines of credit, some of which could be used for this crisis, and that they have "received interest from about 20 countries and will be following up with them in the coming days”. It also mentioned that it is aiming to boost its debt relief fund to US$1 billion from its current level of US$400 million.
On March 3, the World Bank announced an initial package of up to US$12 billion in loans for countries to help cope with the effects of the coronavirus. Some US$8 billion of the funding is new loans and the remaining US$4 billion is redirected from current lines of credit.
While these initiatives are laudable they are inadequate for the needs of the heavily travel and tourism and remittance-dependent economies of the Caribbean, which will likely not qualify for concessionary finance. It is therefore critical that the multilateral financial institutions act more boldly to assist these economies at this time of need.
Many persons who don’t even possess a passport will lose their lives or have their lives upended by this global calamity if the multilateral financial institutions do not act in a more timely, bolder and more innovative manner, as major central banks are doing.
The Development Bank of Latin America, CAF, the IMF, and Inter- American Development Bank, IDB, should act boldly and provide travel and tourism and remittance-dependent developing economies with temporary access to concessionary finance to help fund emergency health care responses, and expenditures to strengthen health care systems, fund stretched social security systems and fund support for businesses and workers in the travel and tourism value chain.
The multilateral system would have failed the Caribbean if it does not provide major concessionary finance at this time.
One of the major areas of economic fallout is the loss of foreign exchange reserves as foreign exchange inflows from remittances and travel and tourism face sudden stops.
The IMF can provide immediate relief by undertaking an increase in the allocation of Special Drawing Rights, or SDRs, travel and tourism-dependent developing economies.
In 2009 the IMF undertook a US$283 million increase in SDRs to help countries boost their foreign exchange reserves in the wake of the 2008 financial crisis and ensuing global recession. The IMF needs to do the same for the current crisis, sooner rather than later.
Caricom should seriously consider a concerted and coordinated appeal to the multilaterals and IMF for temporary access to concessionary finance, at least for health care related expenditures, and a special SDR allocation for travel and tourism and remittance-dependent economies. Extraordinary measures are needed in extraordinary times.
C. Justin Robinson is Professor of Finance at UWI Cave Hill, Barbados.