The Institute for International Finance (IIF), the Washington D.C.-based body that represents more than 450 financial institutions from approximately 70 countries, has called on the international community to respond to the economic and financial impact of coronavirus with a short, blunt, coordinated and action-oriented statement – backed by actual policies – just as the G7 did with success in 2008 when faced with the credit crisis.
The IIF said the action needs to be genuinely coordinated on a global basis and should comprise five core elements: domestic stimulus; support of dollar liquidity; preparation now by the multilateral development banks (MDBs) led by the World Bank, to act when poorer countries are hit; action to halt the rise of trade protectionism; and a call by the G20 to the international community in a “short, action-oriented” statement to take the above actions and particularly ensure that healthcare products and services flow freely across borders to those worst hit.
On domestic stimulus, the IIF said it applauds the actions and policy proposals being considered in individual countries to try to limit the damage, stabilise the financial system and promote economic recovery.
It noted that monetary authorities have been “aggressive” and “creative” with different monetary tools, including interest rates, quantitative easing, forward guidance and expanding the type of assets they could purchase.
The IIF said is also supports coordinated fiscal action but recognises that this is a difficult area. “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.
Liquidity for financial and non-financial corporates is vital in a crisis because, for the international system, the role of the dollar is at its core, said the IIF.
The body noted that the US dollar is in a “privileged” position as the world’s reserve currency, and said: “With this position comes the responsibility of keeping the global financial system stable. In that context, the IIF commends the Federal Reserve for opening its swap lines this past week to both developed and emerging markets, and recommends that it be open to considering expanding such lines to other jurisdictions.”
The IIF also applauded the International Monetary Fund for making it clear that credit facilities are available. But it added: “We would recommend that it works with some of its key members to find a way to lessen any stigma that appears to be attached to utilising these facilities.”
As for the MDBs led by the World Bank, the IIF said they should be ready to assist poorer countries in multiple pathways. These include:
- The MDBs should help countries’ health systems – particularly in detecting, monitoring and reporting about the virus; training front-line workers; and equipping hospitals
- The MDBs should consider assisting countries with trade finance as there is potential that the private sector may step back at some point
- Shareholders of the MDBs should be prepared to provide more capital to these institutions as they may need to expand their balance sheets.
The prevention of another rise in trade protectionism needs to be another critical policy objective, according to the IIF. To avoid the ‘beggar thy neighbour’ policies adopted during the Great Depression in the 1930s, the international community should lower tariff and non-tariff barriers to cross-border trade of medical goods and services.
“The United States – followed by other countries – should reduce the tariffs put in place over the past two years (even on a temporary basis). Consumers and producers alike need a more efficient system during difficult times, not another tax. All G20 countries should relax data-localisation requirements so that important medical data (including clinical trials) can be transferred and accessed on a global basis,” it advised.
At G20 level, is is critical that the global community acts to ensure that healthcare products and services flow freely across borders and specifically to those countries most afflicted by this pandemic, said the IIF.
Also, the G20 countries should resolve the global price war on oil markets – led by two key members in the G20: Saudi Arabia and Russia – it added.