Fight Against Coronavirus: Too Little, Too Late?

The reaction of governments and the global community to the fears of economic contagion from Coronavirus seem to be in stark contrast to how they responded to the 2008 global financial crisis. It is no surprise indices are tanking. 

The World Health Organization’s (WHO) finally declared the current Coronavirus outbreak across 114 countries so far a global pandemic. The decision, which some characterized as much delayed, also seems to have resulted from the WHO’s own assessment on of the apparent lack of serious action from governments.

“WHO has been assessing this outbreak around the clock and we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction”, Director-General Tedros Adhanom Ghebreyesus said Wednesday sending already edgy global markets on a downward spiral.

“Some countries are struggling with a lack of capacity. Some countries are struggling with a lack of resources. Some countries are struggling with a lack of resolve, he summed up voicing an opinion that the markets had already factored in over the past fortnight and had been edgy, despite a 50 basis point cut in interest rates by the US Fed last week. The Fed followed up with another 50 basis point cut on Wednesday though it does not seem to have helped.

The Dow Jones plunged 1,465 points entering a 'bear market' on Wednesday while the Indian benchmark BSE plummeted to a lifetime drop of 3000 points wiping off Rs 15 lakh crore of Indian investors  wealth something akin to the situation in the aftermath of the 2008 financial crisis.

The statement from the WHO though did seem to spur some government into action. India cancelled all tourist visas while the US banned all flights to and from Europe for 30 days.

But the fact remains that few governments, particularly those in the developed world led by the US, seem to have understood or estimated the severity of the situation or the need for urgent action, both as a health emergency or the economic crisis that has now engulfed the world in its wake.

Bankers over Patients?

This is in stark contrast to the speed and action by the US government to the 2008 financial crisis that brought the global banking system to its knees and economies started crumbling. Ben Bernanke the then US Federal Reserve chairman has asked for a $700 billion bailout package in September of 2008 from the US Congress failing which the financial system would implode. It was immediately agreed to and the panic on Wall Street abated soon thereafter. 

At the same time other measures began like the buyout of huge quantities of bonds by the US Fed from the market, which has now come to be known as “quantitative easing” and most central banks resort to when economies seem to be going down. Policy makers claimed they had saved the world from another great depression. It is a different matter that the direct beneficiaries were the large creditors of large financial institutions, mainly the banks, pension funds and mutual funds and the like.

Compare this with the current response of governments and the contrast will be stark. The respective funds apportioned by some countries most affected by the virus, and a few multilateral bodies  total up to a mere $42 billion most of it announced over just the past one week.

British Chancellor of the Exchequer Rishi Sunak announced Wednesday a 5 billion pounds fund promising to do whatever necessary to protect the “economy” from Coronavirus.  The US President Donald Trump cleared an $8 billion package while the World Bank had earlier said it would extend $12 billion in initial funding to governments needing resources to combat the virus. China set aside $16 billion to mitigate the situation. Of this it has already spent $10 billion to fight the situation in Wuhan. 

Virus of Bureaucracy

Most disconcerting is the bureaucracy that surrounds the allocation and use of these funds either from individual governments or even the multilateral funding agencies. A case in point is the emergency pandemic response mechanisms of the World Bank.

The multilateral funding agency set up the Pandemic Emergency Financing Facility (PEF), a financing system in 2017 in the wake of the SARS and Ebola breakouts. It is intended to help the poorest countries to respond to large-scale outbreaks. The fund is stocked with money raised through Bonds that are subscribed by investors betting against a Black Swan kind of scenario. But there is no word yet on whether this fund is operational even though the ground reality warrants deployment of funds from it.

According to the World Bank the PEF’s design is unique in that payments can go directly to governments and pre-approved frontline responder organizations (such as WHO & UNICEF) and it can do so through either its cash window -- or once triggered through its insurance window.

The World Bank in 2017 issued two tranches of pandemic-linked Pandemic Bonds and derivatives collectively worth $425 million. The caveat is that, while the bonds yield an annual return of 6.9% and 11.5% respectively, investors forfeit the investment in the event of 2500 and 250 deaths respectively. “These will be enchased in the event of Covered Disease outbreak for which the geographic spread is regional (involving two or more countries) or global (involving eight or more countries).”

But two and half months since it emerged, and at a time when Coronavirus is a global phenomenon with deaths totaling north of 4000 and 125,000 people in 114 countries contracting it, these funds perhaps appear too little, too late to combat the virus.

Not surprisingly, the gaps in disaster response to the virus are showing up in country after country. While the richer countries might somehow manage by deploying additional resources, the late and inadequate response of the international community to the pandemic will impact the poorer countries the most.