Abu Taher Mustaqim: The coronavirus is wreaking havoc on the developed economies of the world. The procession of death and human suffering is getting longer. Adding to that is a catastrophic recession with huge defaults. The risk of corporate debt is increasing in the financial markets.
While the situation is tolerable for rich countries, developing countries have to deal with a different situation. This is not only in terms of carrying the burden of the disease, but also in terms of considering the impending economic situation.
Health and economic experts have begun discussions. However, it only focuses on rich countries. Health experts are focusing on preventing infections. And to prevent that, they are talking about social distance and lock down. Economists see the global epidemic as a negative push for demand. To deal with this, they are saying to increase the scope of the economy to increase the expenditure. Soon many of them will realize that this push is of a different kind. It’s not like the 2008 economic crisis. Demand fell at that time. But global epidemics like the coronavirus have come as a blow to the supply chain. That is what is changing everything.
If people do not want or cannot spend, then increasing the spending power can be effective. But if various universities, schools, hotels or airlines are shut down to prevent the spread of coronavirus, even if money is given to the people, it will not be able to revive these industries. There is no shortage of demand in these cases. These have been kept closed due to implementation of public health policy to prevent infection. If no industry can produce because the workers are locked down, then even if the demand increases, the product will not come dramatically.
In this situation, economists are looking at making social distance and lock-down tolerable to reduce the loss of supply. The United States and the United Kingdom are planning large-scale spending to increase health care, pay salaries regularly, insure more unemployed people, pay late taxes, prevent unwanted bankruptcy, and help businesses and households recover. Is protected from.
However, the general idea of this approach is that governments will be able to raise the necessary resources. If necessary, they will borrow more from the central bank. Economists are describing the government’s ability to borrow as economic coverage. In short, the more you want to reduce the level of infection, the more you need to lock down your country. And to prevent the deep recession that is being caused by this, the scope of the economy needs to be further expanded.
These issues have suddenly put developing countries at risk. Even in good times, many of these countries manage their economies carefully. And relies on the printing press to run the currency and suffer from the pain of inflation. But now is not the time to do it.
Most developing countries rely on foreign income in a combination of export, tourism and remittances. As these sectors collapse, these governments continue to suffer from a lack of foreign exchange in the economic field and a lack of tax revenue. It is difficult for them to enter the international financial market at this time. Because, investors are busy for the financial security of the United States and other rich countries. In other words, when developing countries are going to prevent this global epidemic, a large part of their financial power is disappearing and huge funding deficits are being created.
Two concerted steps need to be taken to address the fiscal deficit and the internal financial crisis. First of all, you have to spend strictly according to your income through thrift. Second: Rare foreign currency has to be made valuable through devaluation. And it has to be coordinated through international financial assistance. But as a result, countries will become resourceless in the fight against the corona virus and will not be able to protect themselves from the effects of the lockdown on the economy. After all, if all countries take concerted action to address the financial crisis, it will be ineffective and will have a negative impact on neighboring countries.
In this situation, developing countries want to prevent the spread of corona virus, but it will not be possible for them due to lack of capacity. In that case, if people are stuck at home, they are at 10 percent risk of starvation and death if they go to work, but they would prefer to go to work.
Countries need to be provided with a level of financial support to enable them to cope with the corona virus. But in the current situation and in the current financial situation of international organizations, it is not possible to provide that assistance. In the southern part of the world, a resurgence of funding is essential for epidemic management. In that case, the industrialized G-7 and G-20 could consider a number of steps.
First, the US Federal Reserve has announced swap lines with banks in Australia, Brazil, Denmark, Korea, Mexico, Norway, New Zealand, Singapore and Sweden. The swap line is the management of temporary mutual currency between central banks. Through this they agreed to supply their country’s currency for business to the central bank of another country at an ongoing exchange rate. Banks use it for fast and short term loans. Many more countries need to be brought under this system by expanding its scope. The International Monetary Fund (IMF) may intervene in the case if the risk of default or inability to pay becomes an obstacle. To meet the current demand, the IMF is a fast-track business
