|Wednesday 11th of March 2020
Limiting the Economic Fallout of the Coronavirus with Large Targeted Policies @IMFNews @GitaGopinath
This health crisis will have a significant economic fallout,
reflecting shocks to supply and demand different from past crises.
Substantial targeted policies are needed to support the economy
through the epidemic, keeping intact the web of economic and financial
relationships between workers and businesses, lenders and borrowers,
and suppliers and end-users for activity to recover once the outbreak
The goal is to prevent a temporary crisis from permanently harming
people and firms through job losses and bankruptcies.
The human costs of the coronavirus outbreak have risen at an alarming
rate and the disease is spreading across more countries.
The first priority is clearly to keep people as healthy and safe as
possible. Countries can help by spending more to boost their health
systems, including on personal protective equipment, screening,
diagnostic tests, and additional hospital beds.
Without a vaccine to stop the virus, countries have taken measures to
limit its spread, like travel restrictions, temporary school closures,
Such measures also buy valuable time to avoid overwhelming health systems.
The economic impact is already visible in the countries most affected
by the outbreak.
For example, in China, manufacturing and service sector activity
declined dramatically in February.
While the drop in manufacturing is comparable to the start of the
global financial crisis, the decline in services appears larger this
time—reflecting the large impact of social distancing.
The global supply and demand for dry bulk shipping stocks such as
building materials and commodities has also dropped similar to during
the most acute phase of the global financial crisis, reflecting
curtailed economic activity associated with the unprecedented
This drop was not seen in recent epidemics or after the 9/11 attacks.
Supply and demand shocks
The coronavirus epidemic involves both supply and demand shocks.
Business disruptions have lowered production, creating shocks to
supply. And consumers’ and businesses’ reluctance to spend has lowered
On the supply side, there is a direct reduction in the supply of labor
from unwell workers, from caregivers who have to take care of kids
because of school closures, and sadly, from increased mortality.
But an even larger effect on economic activity occurs because of
efforts to contain the spread of the disease through lockdowns and
quarantines, which lead to a drop in capacity utilization.
In addition, firms that rely on supply chains may be unable to get the
parts they need, whether domestically or internationally. For example,
China is an important supplier of intermediate goods to the rest of
the world, particularly in electronics, automobiles, and machinery and
The disruption there is already having knock-on effects to downstream
firms. Together, these disruptions contribute to a rise in business
costs and constitute a negative productivity shock, reducing economic
On the demand side, the loss of income, fear of contagion, and
heightened uncertainty will make people spend less.
Workers may be laid off, as firms are unable to pay their salaries.
These effects can be particularly severe on some sectors such as
tourism and hospitality—as seen for example in Italy.
Since the start of the recent US equity market selloff on February 20,
2020, airline stock prices have been hit disproportionately, in line
with the post-9/11 terrorist attacks but lower than after the global
In addition to these sectoral effects, worsening consumer and business
sentiment can lead firms to expect lower demand and reduce their
spending and investment. In turn, this would exacerbate business
closures and job losses.
Financial effects and spillovers
As seen in recent days, borrowing costs can rise and financial
conditions tighten, as banks suspect consumers and firms may be unable
to repay their loans on a timely basis.
Higher borrowing costs will expose financial vulnerabilities that have
accumulated during years of low interest rates, leading to a
heightened risk that debt cannot be rolled over.
A reduction of credit could amplify the downturn arising from the
supply and demand shocks.
And when these shocks are synchronized across many countries, the
effects can be further amplified through international trade and
financial linkages, dampening global activity and pushing commodity
Oil prices have fallen dramatically in recent weeks and are about 30
percent below their levels at the start of the year.
Countries reliant on external financing could find themselves at risk
of sudden stops and disorderly market conditions, possibly requiring
foreign exchange intervention or temporary capital flow measures.
Targeted economic policies are needed
Considering that the economic fallout reflects particularly acute
shocks in specific sectors, policymakers will need to implement
substantial targeted fiscal, monetary, and financial market measures
to help affected households and businesses.
Households and businesses hit by supply disruptions and a drop in
demand could be targeted to receive cash transfers, wage subsidies,
and tax relief, helping people to meet their needs and businesses to
For example, among other measures, Italy has extended tax deadlines
for companies in affected areas and broadened the wage supplementation
fund to provide income support to laid-off workers,
Korea has introduced wage subsidies for small merchants and increased
allowances for homecare and job seekers, and China has temporarily
waived social security contributions for businesses.
For those laid off, unemployment insurance could be temporarily
enhanced, by extending its duration, increasing benefits, or relaxing
Where paid sick and family leave is not among standard benefits,
governments should consider funding it to allow unwell workers or
their caregivers to stay home without fear of losing their jobs during
Central banks should be ready to provide ample liquidity to banks and
nonbank finance companies, particularly to those lending to small- and
medium-sized enterprises, which may be less prepared to withstand a
Governments could offer temporary and targeted credit guarantees for
the near-term liquidity needs of these firms.
For example, Korea has expanded lending for business operations and
loan guarantees for affected small- and medium-sized enterprises.
Financial market regulators and supervisors could also encourage, on a
temporary and time-bound basis, extensions of loan maturities.
Broader monetary stimulus such as policy rate cuts or asset purchases
can lift confidence and support financial markets if there is a marked
risk of a sizable tightening in financial conditions (with actions by
large central banks also generating favorable spillovers for
Broad-based fiscal stimulus consistent with available fiscal space can
help lift aggregate demand but would most likely be more effective
when business operations begin to normalize.
Considering the epidemic’s broad reach across many countries, the
extensive cross-border economic linkages, as well as the large
confidence effects impacting economic activity and financial and
commodity markets, the argument for a coordinated, international
response is clear.
The international community must help countries with limited health
capacity avert a humanitarian disaster.
The IMF stands ready to support vulnerable countries with different
lending facilities, including through rapid-disbursing emergency
financing, which could amount up to $50 billion for low-income and
emerging market countries.
a precise response to the exponential multiplicative nature of the
#nCoV2019 by The IMF's Gopinath
How Turkey Lost A Battle Of Wills, And Force, To Russia
Law & Politics
When the history of the Syrian conflict is written, the fighting that
took place between the Syrian Army and its allies on the one side, and
the Turkish military and Turkish-backed Syrian rebels on the other,
from early February through early March 2020 in and around the Syrian
town of Saraqib, will go down as one of the decisive encounters of
Representing more than a clash of arms between the Syrian and Turkish
militaries, the Battle for Saraqib was a test of political will
between Turkish President Recep Erdogan and his Russian counterpart,
Vladimir Putin. History will show Turkey lost on both accounts.
The Battle for Saraqib had its roots in fighting that began back in
December 2019, in the form of an offensive carried out by the Syrian
Army, supported by the Russian Air Force, against pro-Turkish
opposition forces in and around Idlib province.
The Syrian-Russian offensive represented the collapse of the so-called
Sochi Agreement of September 17, 2018, which established what were
known as “de-escalation zones” separating the Syrian Army from
anti-government rebel forces in Idlib.
As part of the Sochi Agreement, Turkey set up a dozen “observation
posts”—in reality, fortified compounds housing several hundred troops
and their equipment—throughout the Idlib de-escalation zone.
In exchange for legitimizing the existence of fortified Turkish
observation posts, the Sochi Agreement mandated specific actions on
Turkey’s part, including overseeing the establishment of a
“demilitarized zone” within the de-escalation zone where tanks,
artillery and multiple rocket launchers were to be excluded, and from
which all “radical terrorist groups” would be removed by October 15,
Moreover, Turkey was responsible for restoring transit traffic on two
strategic highways linking the city of Aleppo with Latakia (the M4
highway) and Damascus (the M5 highway.)
While Turkey established its fortified observation posts, it failed to
live up to any of its commitments under the Sochi Agreement—no
demilitarized zones were created, no heavy equipment evacuated, and no
“radical terrorist groups” removed from the de-escalation zone.
This last point was of particular note, since the most prominent of
these “radical terrorist groups”—Hayat Tahrir al-Sham, or HTS—was also
the largest and most effective of the anti-Assad groups operating in
The objective of the December 2019 Syrian military offensive was to
achieve through force of arms what Turkey had failed to do—restore
transit traffic capability for both the M4 and M5 highways and, in
doing so, evict HTS and other anti-Assad rebel groups from the
By early February 2020 the Syrian Army had, through its advances,
surrounded a number of Turkish observation posts, putting Turkey in
the politically difficult situation of sitting and watching while the
anti-Assad forces it had helped create, train and equip were being
defeated on the field of battle.
07-OCT-2019 :: . China at 70
Law & Politics
The President for Life was seeking to project a sense of inevitable
forward motion and a fulfilment of the promise that Mao Zedong made on
the founding of the People’s Re- public of China on October 1, 1949
that China would stand up.
They have “stood up.”
Xi’s model is one of technocratic authoritarianism and a recent
addition to his book shelf include The Master Algorithm by Pedro
Domingos. Xi is building an Algorithmic Society.
Some of the Xi-era slogans are short and simple, in the manner of
Western advertising, such as the “Chinese Dream,” the catchphrase
embodying the party’s aim to be- come a global power by 2049, the
100th anniversary of the founding of the People Republic of China.
In a way, this is also nothing new.
But Xi has taken the propagation of ideology and the cult of
personality to extremes not seen since the days of Chairman Mao. Xi in
fact has replaced Jesus in Churches and Mohamed in the mosques.
“Unity is iron and steel; unity is a source of strength,” “Complete
reunification of the motherland is an inevitable trend..no one and no
force can ever stop it!” he added.
@Tinder Has Become A News Service About #coronavirus @BuzzFeed
Law & Politics
"Setting my tinder to Wuhan so I can get the real scoop on what's
going on," one user wrote.
Passport, that allows a user with Tinder Plus or Tinder Gold
memberships to choose to swipe in any location — like, say, Wuhan — no
matter where they are.
And despite Tinder being banned in China, users say they're having
luck setting their location to Wuhan, allowing them to match with and
chat to residents to hear their perspective on the global story.
Iran Has Far More #Coronavirus Cases Than It Is Letting On @TheAtlantic
Law & Politics
As of yesterday, according to Johns Hopkins University’s Coronavirus
Resource Center, Iran has reported 6,566 COVID-19 cases, or about one
in every 12,000 people in its population.
The first case appeared on February 19. Right now Iran is third behind
China (80,695) and South Korea (7,314), and just ahead of Italy
But the official Iranian number is almost certainly an undercount,
probably due to the Iranian government’s attempt to hide a desperate
situation for which it is partially responsible.
When the final history of the coronavirus epidemic of 2020 is written,
it may go something like this: The disease started in China, but it
became finally and irrevocably uncontained in Iran.
Knowing that the Iranian number is much higher than currently
disclosed tells the rest of the world that the epidemic is even
further along than official statistics indicate.
The first sign of dishonesty came on February 28, when Masoumeh
Ebtekar, one of the country’s vice presidents, announced that she had
Remember that the official number of cases is 6,566. Yet a variety of
other indicators suggest that far more people in Iran have become
A paper by the University of Toronto’s Ashleigh Tuite and others noted
that, by February 23, cases of Iranian origin had surfaced in Canada,
Lebanon, and the United Arab Emirates.
Given the volume of air travel between Iran and these countries,
Tuite’s team estimated how many native COVID-19 cases must have
occurred in Iran to produce one case each in these other countries.
Their estimate for February 23: 18,300. Since the epidemic reached 100
cumulative cases, the official numbers have doubled roughly every
three days. If that rate held, the estimate as of today would be
On March 3, 23 out of 290 members of parliament—about 7.9 percent—had
(Unlike ordinary people, these MPs probably had reliable access to
diagnosis. State media insisted they contracted the disease not from
one another, but from their home districts.)
The rate of infection of parliamentarians would, if applied to Iran’s
total population, come to 6.4 million cases.
Let’s consider the other politicians. The senior advisory council has
experienced two known deaths out of 39 members; the cabinet has two
known infections out of 30.
Even if no other council or cabinet members had COVID-19, that’s an
infection rate of 5.8 percent. That would mean an estimate of 4.7
The average of these estimates is about 2 million, which is about 250
times the official number and 15 times the total cases acknowledged
According to models, Tuite told me, the point-prevalence of COVID-19
in Canada could rise to 5 to 10 percent of the total population when
the epidemic reaches its peak.
These numbers, which I have shown to experts, suggest that Iran might
be at or near that point.
Does Iran really have 2 million citizens with COVID-19? Perhaps
politicians spend more time in public, and are therefore more
susceptible to infection; if so, some of the estimates above would
overstate the number of cases.
Debt, virus and locusts create a perfect storm for Africa @TheAfricaReport
The year began with promise for sub-Saharan Africa.
All the major institutions tracking African growth said so:
The African Development Bank pronounced in its Economic Outlook that
Africa’s economic outlook continues to brighten. Its real GDP growth,
estimated at 3.4% for 2019, is projected to accelerate to 3.9% in 2020
and to 4.1% in 2021.
The IMF said in its World Economic Outlook sub-Saharan Africa growth
is expected to strengthen to 3.5% in 2020–21 (from 3.3% in 2019).
The World Bank predicted ”Regional growth is expected to pick up to
2.9% in 2020”
Interestingly the World Bank added a caveat which was prescient:
A sharper-than-expected deceleration in major trading partners such as
China, the Euro Area, or the United States, would substantially lower
export revenues and investment.
A faster-than-expected slowdown in China would cause a sharp fall in
commodity prices and, given Sub-Saharan Africa’s heavy reliance on
extractive sectors for export and fiscal revenues, weigh heavily on
Those forecasts are now defunct and it’s only March.
The Coronavirus has to date barely made landfall on the African
continent with only 5 countries reporting infections but a Virus is in
its essence non-linear, exponential and multiplicative and it would be
a Shakespeare-level moment of hubris if policy makers were to pat
themselves on the back.
Diagnostic kits were only recently availed and if South Korea had
tested the same number of People as the entire African Continent, they
too would be reporting single digit cases.
We all know now ”what exponential disease propagation looks like in
the real world. Real world exponential growth looks like nothing,
nothing, nothing … then cluster, cluster, cluster … then BOOM!” and
therefore we will know soon whether we really have dodged the
#Coronavirus Infection Bullet.
The issue at hand now is around the violence of the blowback from the
China #Coronavirus feedback loop phenomenon.
The virus is not correlated to endogenous market dynamics but is an an
exogenous uncertainty that remains unresolved and therefore, it is a
Fantasy predictions of a V shaped recovery in China have been dashed.
In fact China cannot just crank up the ‘Factory’ because that will
risk a second round effect of infections.
Therefore, I expect negative GDP Growth through H1 2020 in China as my
Standard Bank’s Chief Economist has calculated that a one percentage
point decrease in China’s domestic investment growth is associated
with an average 0.6 percentage point decrease in Africa’s exports.
Those countries heavily dependent on China being the main taker of
their commodities are at the bleeding edge of this now negative
feedback loop phenomenon. Commodity prices [Crude Oil, Copper, Coal]
have crashed more than 20% since the start of the year.
You don’t have to be a rocket scientist or an Economist to calculate
which countries in are directly in the line of fire. Angola, Congo
Brazzavile, DRC, Equatorial Guinea, Zambia, Nigeria and South Africa
spring immediately to mind.
Notwithstanding comments by the always upbeat and bright-eyed
President Adesina of the African Development Bank that Africa is not
facing a debt crisis.
He told Bloomberg, “Debt is not a problem, it’s very bad debt that’s a
The point is this.
SSA Countries with no exception that I can think off have gorged on
borrowing and balance sheets are maxed out.
Africa’s sovereign issuance in the Eurobond markets totaled $53bn in
2018 and 2019 and total outstanding debt topped $100bn last year.
Debt burdens have increased and affordability has weakened across most
of Sub-Saharan Africa, while a shift in debt structures has left some
countries more exposed to a financial shock, said Moodys in November
Very few of the investments made are within spitting distance of
providing an ROI [Return on Investment].
Rising debt service ratios are best exemplified by Nigeria where the
Government is spending more than half of its revenue servicing its
More than 50% of SSA GDP is produced by South Africa, Nigeria and Angola.
South Africa reported that GDP in Q4 2019 shrank by a massive 1.4%.
Annual growth at 0.2% is the lowest yearly growth since 2009 and the
tape is back at GFC times.
The rand which has been in free fall has a lot further to fall in 2020.
And this is before the viral infection.
Nigeria’s oil revenue is cratering and there is $16bn of ”hot money”
parked in short term certificates which is all headed for the Exit as
we speak. A Currency Devaluation is now predicted and predictable.
South Africa, Nigeria and Angola are poised to dive into deep recession.
East Africa which was a bright spot is facing down a locust invasion
which according to the FAO could turn 500x by June.
It is practically biblical.
“If I shut up heaven that there be no rain, or if I command the
locusts to devour the land, or if I send pestilence among my people;”
– 2 Chronicles 7:13-14
This is a perfect storm. Buckle up, and let’s stop popping the Quaaludes.