IIF calls for fiscal and monetary measures to fight coronavirus crisis

The institute says the global economy needs ample dollar liquidity and for nations to shun protectionism

TOPSHOT - A traffic police personnel holds a placard on a deserted road during a one-day nationwide Janata (civil) curfew imposed as a preventive measure against the COVID-19 coronavirus, in Hyderabad on March 22, 2020. Nearly one billion people around the world were confined to their homes, as the coronavirus death toll crossed 13,000 and factories were shut in worst-hit Italy after another single-day fatalities record. / AFP / NOAH SEELAM
Powered by automated translation

The world requires an internationally coordinated combination of policy steps, including fiscal and monetary action, to steer through the coronavirus crisis that has hammered global economic growth, according to the Institute of International Finance.

Countries require targeted fiscal stimulus packages, the global economy needs ample availability of dollar liquidity and nations should shun trade protectionism to put the global growth on a path towards recovery, the institute said in its latest report released on Sunday.

The US government needs to ensure ample availability of dollar liquidity while nations globally need to shun trade protectionism to put the economy on a path towards recovery, the institute said in its latest report released on Sunday.

Soft loans and grants by institutes such as the International Monetary Fund and the World Bank will be vital for the economic survival of countries overwhelmed by the pandemic, it argued.

“No one action can turn the tide, but international coordination will prove crucial to limiting the damage,” said Clay Lowery, IIF’s executive vice president for research and policy. “While each crisis is different, there are some hardy perennials; perhaps most importantly, we live in an integrated global system, and thus a globally-integrated approach will be most effective.”

Action taken by the G7 countries during the 2008 financial crisis, where they released a “short, blunt, coordinated and action-oriented statement – backed by actual policies”, should serve as a template for globally-coordinated efforts this time, he noted.

Monetary authorities including the US Federal Reserve, G7 central banks and their counterparts in Asia and the Middle East have coordinated in rate cuts, quantitative easing and in some cases issuing guidance on the types of assets they could purchase to support markets.

Coordination on a fiscal response, however, is more difficult, the IIF said.

“We would advocate individual jurisdictions taking substantial action to undergird the social safety net, target assistance to industries that will be hardest hit, and provide stimulus measures aimed at boosting the economy,” it said.

The availability of liquidity for the financial and non-financial corporate sector is vital given the dollar's role as the global reserve currency, the IIF added.

The Fed opened swap lines last week to both developed and emerging markets to allow access to dollars, and the IIF recommended opening similar facilities to other jurisdictions. The IMF also has credit facilities available that are not tied to its economic programmes and can substitute as dollar liquidity facilities, the IIF noted.

The IMF in the past week said it is ready to mobilise $1 trillion (Dh3.67tn) by providing some of the poorest nations with soft loans to cushion the economic impact of the global pandemic. Multilateral development banks (MDBs), led by the World Bank, have also stepped up efforts to provide financing to struggling countries around the world.

“Many of these countries have not yet been hit with the Covid-19 pandemic, but their preparedness should be increased, and the MDBs should be ready to assist them,” Mr Lowery said.

The focus should be on health care systems, training front-line workers and equipping hospitals. Trade finance can also be extended to these countries as there is potential that the private sector may step back at some point, he noted.

The international community, Mr Lowery said, had stepped up to limit trade and investment protectionism during the 2008 financial crisis and a “similar effort should be made now”.

“At a minimum, jurisdictions should lower tariff and non-tariff barriers to cross-border trade of medical goods and services,” he said.

The US and other countries should also reduce the tariffs put in place over the past two years – even on temporary basis – as consumers and producers alike need a more efficient system during difficult times, “not another tax”, he said.

The IIF also pressed the G20 to issue an “action-oriented statement” calling for a coordinated global approach and to make sure health care products and services flow freely across borders, specifically to countries that need them the most.