Covid-19: Financing versus Financing

March 26, 2020

Javier Surasky
Cepei
j.surasky@cepei.org

March 3, 2020

The COVID-19 pandemic is not only measured in dead-infected-cured cases but also in economic losses.

On March 16, Kristalina Georgieva, Director General of the International Monetary Fund, expressed the institution’s openness to mobilize a trillion dollars to fights against the Coronavirus as part of ‘a coordinated global stimulus,’ calling on governments to adopt fiscal measures to that end. By then, more than 20 countries had requested financial support to the IMF to prevent or control the pandemic. Two days later, the Fund denied a loan to Venezuela in the amount of 5 trillion dollars, to stop the virus: ‘Unfortunately, the Fund is not in a position to consider this request (…) IMF engagement with member countries is predicated on official government recognition by the international community, as reflected in the IMF’s membership (and) there is no clarity on such recognition at this time,’ the IMF spokesperson said.

Meanwhile, the European Union is debating its incentive program, following the announcement by its President, Christine Lagard, that a 5% contraction of the euro area economy could take place.

At the same time, some countries have already made political decisions. A report by the Argentine consultancy PXQ, published on March 18, shows that recently launched economic aid/promotion packages aimed to confront the COVID-19 reach GDP ratios with almost no precedents:

⚪ Germany: 15,7%

⚪ United Kingdom: 15%

⚪ France: 14,1%

⚪ Spain: 8,8%

⚪ United States: 4%

⚪ Italy: 1,2%

Other countries, such as Australia, have begun to financially support their airlines, suffering huge losses in their earnings.

And this is only the beginning.

Beyond the real economic damage caused by the Coronavirus (the International Labour Organization highlighted that up to 25 million jobs could be lost as a result of the pandemic), this is the second opportunity in which money pours out of States coffers. Something similar occurred in 2008 when public money supported private financial losses as a result of the global financial crisis: On October 2 of that year, the United States House of Representatives approved a financial rescue plan promoted by the Bush Administration worth $ 700 billion. Western European countries together contributed with European-based private institutions just over $ 1.7 trillion.

A first conclusion is evident: financial resources exist and can be mobilized if the cause warrants it. A second conclusion is equally evident: the promotion of sustainable development in developing countries has not justified a monetary investment close to the one we are seeing today.

Let us take as reference the Official Development Aid (ODA) provided by the countries mentioned before, and let’s explore it under the perspective of the ‘aid effort’ they carry out, which is the amount of national ODA divided by the GDP of the donor country. The following data reflects the information provided by the Development Assistance Committee (DAC) for 2017:

⚪ Germany: 0,67%

⚪ United Kingdom: 0,70%

⚪ France: 0,43%

⚪ Spain: 0,19%

⚪ United States: 0,18%

⚪ Italy: 0,30%

If this looks bad, an aggravating factor must be added: in 1969, the ‘Pearson report,’ whose real title was ‘Partners in Development,’ pointed out the need for developed countries to help underdeveloped countries to develop with an aid amount equivalent to 0.70% of their GDP. This recommendation became a global objective when the United Nations General Assembly incorporated it in its resolution 2626 (XXV) launching the Second United Nations Development Decade, in 1970. Since then, the so-called ‘0,7 commitment’ has been reaffirmed as many times as most donors have breached it. In 2017 only five of the 29 members of the DAC (Sweden, Luxembourg, Norway, Denmark, and the United Kingdom) complied with it.

If the subject were not so serious, it would be a good idea to remember the phrase that is usually attributed to Groucho Marx: “These are my principles. If you do not like, I have others”. However, in the midst of the current crisis that COVID-19 has generated in the world, it is better to ask what will the economic consequences be if we continue to bet on selfish unsustainable development models, and where will the resources come from to face them. We ask this knowing that if the disaster gets out of control and hits us directly in the face, some will find the ways to mobilize resources that are nonexistent today.

“The United States of America represents approximately 85% of the cases and 84% of the deaths in region. All 50 States, District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands have reported confirmed COVID-19 cases with varying levels of community transmission (defined or widespread) in all but 11 reporting states of the US”.
PAHO, March 25, 2020.

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