In much of the rich world, at least, phase one of the coronavirus crisis is passing. As the number of infections falls and lockdowns ease, many governments are entering a new phase — beginning to plan how to reformulate economic policy and support a recovery. Yet co-ordinated international long-term planning is still strikingly absent. Unless this changes, the biggest victims will be poorer countries, which face deep scarring from the crisis.
The pandemic is by no means over. Coronavirus is now hitting many emerging markets harder than advanced economies: Brazil has the highest daily death rate, while the number of deaths is increasing in populous middle-income countries including Mexico, India and Russia. Even while the number of cases declines in Europe and the US, the global growth rate in cases has increased, with Latin America and the Caribbean now at the centre of the pandemic — accounting for roughly two-fifths of all deaths.
Emerging markets have less capacity to respond to the virus, with weaker public health systems and economies that often depend heavily on tourism or remittances. These sources of foreign currency have dried up and, along with the collapse in commodity prices, that has put pressure on financial systems and government budgets. The World Bank estimates, in a report published on Tuesday, that the economy of the average developing country will be 8 per cent smaller after five years than it would have been without the pandemic, thanks to a “recession combined with a financial crisis”. For energy exporting countries, the shortfall rises to 11 per cent.
Efforts to stabilise the international financial system have undoubtedly helped. Last week the IMF said emerging markets had managed partially to reverse an earlier record outflow of capital. Kristalina Georgieva, head of the fund, told a conference they had raised $77bn from the bond markets in April and May to offset the $100bn that left during March. Central banks’ bond-buying and the Federal Reserve’s swap lines have encouraged investors back into emerging markets and eased the dollar funding squeeze.
Now the focus must shift from firefighting to reducing the long-term fallout. The development of a vaccine, potentially by next year, may make this easier, but governments must prepare for the worst today. The call in a letter from former UK prime minister Gordon Brown and 225 past and present world leaders, economists and health experts to hold an urgent G20 summit is well-founded; a co-ordinated approach from a body that includes both richer and poorer nations is called for. So, too, are the signatories’ proposals for debt relief, green investment spending, and increasing the firepower of the IMF and World Bank.
A decade after Mr Brown prodded the G20 to take the lead in fighting the global financial crisis, it is unclear whether the body is capable of doing something similar today. As multilateralism has waned, individual countries are focused on dealing with their own domestic crises. The most meaningful action would need the support of both the US and China at a time when relations are at rock bottom and leaders are using nationalist confrontation to distract from criticism over their handling of the pandemic.
Yet there is still scope for the IMF and World Bank to play a significant role in reducing global economic damage, if enough countries are ready to lend support and back increased funding. International co-operation has already helped ameliorate a potential financial crisis. Now it should be used to prevent an economic one.
