Tag Archives: economic fallout

More synchronized action needed to tackle COVID economic crisis, IMF’s Georgieva says

By Andrea Shalal and Marc Jones

WASHINGTON/LONDON (Reuters) – The international community must do more to tackle the economic fallout of the COVID-19 crisis, the head of the International Monetary Fund said on Monday, publicly calling on the World Bank to accelerate its lending to hard-hit African countries.

Some of the key events of the virtual and elongated annual meetings of the IMF and World Bank take place this week, with the most pressing issue how to support struggling countries.

“We are going to continue to push to do even more,” IMF Managing Director Kristalina Georgieva said during an online FT Africa summit.

“I would beg for also more grants for African countries. The World Bank has grant-giving capacity. Perhaps you can do even more… and bilateral donors can do more in that regard,” Georgieva said in an unusual public display of discord between the two major international financial institutions.

No immediate comment was available from the Bank.

Georgieva last week said the IMF had provided $26 billion in fast-track support to African states since the start of the crisis, but a dearth of private lending meant the region faced a financing gap of $345 billion through 2023.

The pandemic, a collapse in commodity prices and a plague of locusts have hit Africa particularly hard, putting 43 million more people at risk of extreme poverty, according to World Bank estimates. African states have reported more than 1 million coronavirus cases and some 23,000 deaths.

G20 governments are expected to extend for six months their Debt Service Suspension Initiative (DSSI) which has so far frozen around $5 billion of poorer countries’ debt payments, but pressure is on the main development banks and private creditors to provide relief too.

HOLDING ONTO GOLD RESERVES

Georgieva said the Fund was also pushing richer member countries to loan more of their existing Special Drawing Rights (SDR), the IMF’s currency, to countries that needed support most, and was “very committed” to finding a way forward for countries like Zambia now needing to restructure their debts.

The United States has blocked Georgieva’s early call for issuance of more SDRs, arguing that it would benefit mostly richer nations, not the developing countries that need it most.

Pledges to the Fund’s Poverty Reduction and Growth Trust, which supports low-income countries, have totaled $21 billion to date, including $14 billion in existing SDR holdings, but more resources were urgently needed, an IMF spokeswoman said.

The IMF chief dodged calls by civil society groups for the IMF to sell off some of its extensive gold reserves, saying the Fund viewed them as an important “financial buffer.”

Profit from selling less than 7% of the IMF’s gold could fund cancellation of all debt payments by the poorest countries to the IMF and World Bank for the next 15 months, the UK-based Jubilee Debt Campaign said in a new report issued Monday.

The IMF said its gold reserve of about 90.5 million ounces (2,814.1 metric tons) was worth about $137.8 billion at the end of December, compared to its historical cost of $4.4 billion.

Georgieva said countries in serious trouble must restructure their debts as soon as possible.

“This is the message for all countries in debt distress… If debt is not sustainable, please move towards restructuring, the sooner the better,” she said.

Georgieva said transparency in lending was critical for all parties, and welcomed what she called “encouraging” statements by China to move toward a more consolidated view of the debts held by the Chinese government and other institutions.

“I believe that now is the moment in this crisis, to make … transparency paramount and mandated to the extent possible everywhere,” she said.

(Reporting by Marc Jones in London, and Andrea Shalal and David Lawder in Washington; Editing by Tom Arnold, Ed Osmond and Andrea Ricci)

Seven weeks into coronavirus lockdowns, Fed has a new, darker message

By Heather Timmons

(Reuters) – One Thursday morning seven weeks ago, Federal Reserve Chair Jerome Powell made a rare appearance on NBC’s “Today Show” to offer a reassuring message to Americans dealing with economic fallout from measures to contain the coronavirus outbreak.

There is “nothing fundamentally wrong with our economy,” Powell told viewers while pointing out the U.S. central bank’s outsized ability to take on lending risk and provide a financial “bridge” over the temporary economic weakness the country was experiencing.

Speaking after the Fed cut interest rates to near zero and rolled out a plan to backstop credit for small- and mid-sized companies, Powell emphasized the first order of business was to get the virus under control.

“The sooner we get through this period and get the virus under control, the sooner the recovery can come,” said Powell, echoing remarks made the day before by Anthony Fauci, a top U.S. health official helping to coordinate the federal government’s response to the coronavirus crisis.

At the time, Powell said he expected economic activity would resume in the second half of the year, and maybe even enjoy a “good rebound.”

But on Wednesday, he offered a much more sober outlook.

In an interview webcast by the Peterson Institute for International Economics, Powell warned  of an “extended period” of weak economic growth, tied to uncertainty about how well the virus could be controlled in the United States. “There is a sense, growing sense I think, that the recovery may come more slowly than we would like,” he said.

Fauci, the director of the National Institute of Allergy and Infectious Diseases, was similarly somber when he told lawmakers earlier this week that the country was by no means in “total control” of the outbreak.

“There is a real risk that you will trigger an outbreak that you may not be able to control and, in fact, paradoxically, will set you back, not only leading to some suffering and death that could be avoided, but could even set you back on the road to try to get economic recovery,” Fauci said.

The pandemic has killed more than 83,000 people in the United States so far , and many epidemiological models now point to a death toll that will surpass 100,000 in a matter of weeks.

Overall new cases of the virus continue to climb as well, as states end lockdowns and reopen local economies without the widespread, uniform testing and contact tracing policies that helped stamp out initial outbreaks in South Korea and Germany.

UNCERTAIN FUTURE

Powell’s remarks on Wednesday mirrored warnings this week from a clutch of regional Fed presidents who outlined the country’s uncertain future.

U.S. central bank officials, and especially the Fed chief, historically choose their words carefully, to avoid alarming or exciting investors or causing swings in financial markets, making their universally dour outlook more remarkable.

St. Louis Fed President James Bullard said the situation could lead to a new Great Depression, with millions of so-far temporary job losses becoming permanent, and businesses failing “on a grand scale.”

“We have to get better at this and get more risk-based with our health policy,” Bullard said.

The U.S. economy can return to growth in the second half of the year, Cleveland Fed President Loretta Mester said on Tuesday, with more testing and contact tracing. If that happens, she said, “as some of the stay-at-home restrictions are lifted, the economy will begin to grow again in the second half of this year and unemployment will begin to move down.”

However, a more pessimistic scenario, in which a surge in infections requires businesses to shut down again or the crisis leads to more bankruptcies or instability in the banking sector, is “almost as likely,” she said.

(Reporting by Howard Schneider, Ann Saphir, Jonnelle Marte, and Heather Timmons; Writing by Heather Timmons; Editing by Dan Burns and Paul Simao)

Pandemic could trigger social unrest in some countries: IMF

Pandemic could trigger social unrest in some countries: IMF
By Andrea Shalal

WASHINGTON (Reuters) – New waves of social unrest could erupt in some countries if government measures to mitigate the coronavirus pandemic are seen as insufficient or unfairly favoring the wealthy, the IMF (International Monetary Fund) said in a new report on Wednesday.

Governments had already spent nearly $8 trillion to combat the pandemic and mitigate the economic fallout, but more fiscal stimulus would be needed once the crisis abated, the global lender said in its semi-annual Fiscal Monitor.

The spike in spending would sharply widen fiscal deficits, with global public debt set to rise 13 percentage points to more than 96% of gross domestic product in 2020, it said.

On Tuesday, the IMF forecast the global economy to shrink 3.0% during 2020 as a result of the pandemic, but warned that its forecasts were marked by “extreme uncertainty” and outcomes could be far worse.

Efforts to halt the disease have shut down large swaths of the global economy, with emerging market and developing countries likely to be hardest hit.

While mass protests are unlikely with strict lockdowns in place, unrest could spike when the crisis appeared to be under control, Vitor Gaspar, director of the IMF’s fiscal affairs department, told Reuters in an interview.

To avert further unrest following numerous protests in many parts of the world over the past year, policymakers must communicate with affected communities to build support for measures to tackle the virus, he said.

“This is something we have emphasized: it is crucial to provide support to households and firms that are made vulnerable by the crisis,” he said. “The goal is to support and protect people and firms that have been affected by shutdowns.”

Tensions are already becoming evident as lockdowns leave day laborers and many in the informal economy without jobs or food.

In India’s commercial capital of Mumbai, thousands of jobless migrant workers protested on Tuesday at a railway station, demanding to be allowed to return to their homes in the countryside, after Prime Minister Narendra Modi extended a lockdown of the population of 1.3 billion.

Unemployment has almost doubled to around 14.5% in India since the lockdown began in late March, according to the Centre for Monitoring Indian Economy, a private think-tank.

In India and elsewhere, shutdowns have sparked an exodus of millions of workers from city jobs in small industries and service jobs back to their home villages.

Daily wage earners are particularly vulnerable, and many are already having to skip meals, say World Bank officials.

IMF chief economist Gita Gopinath said previous crises and disasters had fostered solidarity, but there could be a different outcome this time.

“If the crisis is badly managed and it’s viewed as having been insufficient to help people, you could end up with social unrest,” she told Reuters.

To avoid future protests, she said it was critical for the international community to play a supportive role for poorer countries through concessional financing and debt relief.

The report said government spending to date included direct fiscal costs of $3.3 trillion, public sector loans and equity injections of $1.8 trillion, plus $2.7 billion in guarantees and other contingent liabilities of $2.7 trillion.

It forecast lower output and said government revenue was now forecast to be 2.5% of global GDP, lower than was projected in October.

Gaspar said it was hard to predict how much more spending would be needed, but broad-based fiscal stimulus would be an important tool to foster recovery once the outbreak abated.

(Reporting by Andrea Shalal; Editing by Clarence Fernandez)

McConnell, Pelosi, Mnuchin see deal soon on $2 trillion U.S. coronavirus aid

By David Morgan and Richard Cowan

WASHINGTON (Reuters) – Senior Democrats and Republicans said on Tuesday they were close to reaching a deal on a $2 trillion coronavirus economic stimulus package, raising hopes that the U.S. Congress could soon act to try to limit the economic fallout from the pandemic.

“At last, I believe, we’re on the five-yard line,” Senate Majority Leader Mitch McConnell said, using a football analogy meaning close to scoring, as the chamber opened its session on Tuesday morning.

“We are very close,” added McConnell, the top Republican in Congress.

House of Representatives Speaker Nancy Pelosi, the top Democrat in Congress, said the two sides had agreed to more oversight provisions of a $500 billion fund to help hard-hit businesses, resolving a key sticking point.

“I think there is a real optimism that we could get something done in the next few hours,” Pelosi told CNBC.

Steven Mnuchin, President Donald Trump’s treasury secretary, told reporters that lawmakers hope to have a draft ready within the next two to three hours. He confirmed the changes to the industry fund. “There’s better oversight,” Mnuchin said.

Democrats have twice blocked attempts to advance the bill, saying it did not provide enough money for states and hospitals, lacked sufficient aid for unemployed Americans and did not include adequate supervision of a massive fund to aid big businesses.

Those concerns appear to have been addressed.

“I’m very optimistic that there will be a deal announced this morning,” Democratic Senator Chris Coons said on MSNBC.

Wall Street jumped at the open on Tuesday as signs that Washington was nearing a deal on the rescue package gave a shot of optimism to markets reeling under the biggest selloff since the global financial crisis more than a decade ago.

Trump’s administration has launched a major push for action to try to blunt the economic impact of the pandemic and steep stock market decline, after he spent weeks dismissing the risks.

As talks concluded late on Monday, Senate Democratic Leader Chuck Schumer said the two sides were nearing an agreement and he expected that the legislation would be voted upon on Tuesday.

‘ALL OF THE NONSENSE’

Republicans, Democrats and top Trump aides had negotiated for days over the package, which would be the third and largest passed to address the crisis if it is backed by both the Republican-majority Senate and Democratic-majority House and signed by the Republican president.

“Congress must approve the deal, without all of the nonsense, today. The longer it takes, the harder it will be to start up our economy,” Trump wrote on Twitter on Tuesday.

The coronavirus pandemic has killed more than 550 people in the United States and sickened more than 43,800, shuttered thousands of businesses, thrown millions out of work and led state governors to order about 100 million people – nearly a third of the nation’s population – to stay at home.

Pelosi has introduced her own $2.5 trillion counterproposal that also includes $4 billion that would allow states to conduct the November presidential and congressional elections by mail.

That legislation would likely be irrelevant if a bipartisan deal is forged in the Senate.

While details of the emerging bipartisan bill were not available, it is expected to provide financial aid for Americans out of work because of the virus and help for struggling industries such as airlines.

Republicans normally hold a slim 53-47 majority in the Senate, meaning they need Democratic support to garner the 60 votes required to advance most legislation.

But the coronavirus has affected their ranks, giving Democrats even more leverage. Republican Senator Rand Paul has tested positive for coronavirus and four other Republicans are also unable to vote because they were exposed to Paul or others with the virus.

(Additional reporting by Doina Chiacu, Lisa Lambert and Susan Heavey; Writing by Andy Sullivan and Patricia Zengerle; editing by Scott Malone, David Gregorio and Will Dunham)

Europe to shut borders amid specter of long coronavirus crisis

By Gabriela Baczynska and Francesco Guarascio

BRUSSELS (Reuters) – European Union leaders meeting via videoconference on Tuesday are likely to seal off the EU’s external borders and stress a “whatever it takes” approach to easing the economic fallout from the likely long coronavirus crisis.

France was going into lockdown on Tuesday to contain the spread of the disease and the death toll in Italy jumped above 2,000, as European banks warned of falling incomes and airlines pleaded for government aid.

The EU has scrambled to find a coherent response to the outbreak, with countries imposing their own border checks in what is normally a zone of control-free travel, limiting exports of medical equipment or failing to share key information swiftly.

The executive European Commission warned member states that this was just the beginning of the crisis and Germany said it would run for “months rather than weeks”, diplomats said after talks on Monday evening to prepare for Tuesday’s call.

Three Baltic countries – Lithuania, Latvia and Estonia – criticized Poland for blocking their citizens in transit from returning home.

Pushed by French President Emmanuel Macron, the Commission proposed closing Europe’s external borders to foreigners.

“That was meant to convince European countries to drop internal and unilateral border moves. But it’s hard to see anyone doing it,” an EU diplomat said, adding the move was largely symbolic as the virus was already within.

The leaders will also discuss repatriating Europeans stranded abroad as airlines cut flights. Commission head Ursula von der Leyen said nearly 300 Austrian and other European nationals were flown back from Morocco to Vienna on Tuesday.

EU leaders will also stress their “whatever it takes” approach to cushioning the economic blow from the pandemic, including by relaxing limitations on state aid.

The bloc’s anti-trust chief proposed allowing governments to offer grants or tax advantages of up to 500,000 euros ($550,000) to ailing companies, though some EU countries want Brussels to go further.

The EU is also seeking to pool resources to safeguard medical supplies but the Commission said its first call for more masks and gloves received no offers. It will now try to buy ventilators and testing kits.

“While the EU and its member states are in a fire extinction mode, it is equally important to prepare for the days when the contagion will be contained as the current crisis will have very dire consequences on European economies,” said Claire Dheret of the European Policy Centre think-tank.

“Preparing for the recovery in a coordinated way will be another test case for the EU’s solidarity.”

(Aditional reporting by John Chalmers, Foo Yun Chee, Michel Rose and Andreas Rinke; Writing by Gabriela Baczynska; Editing by Giles Elgood/Mark Heinrich)