00:00 Yes,
00:00 Bill,
00:01 you can start now.
00:02 OK.
00:02 All right.
00:03 Um,
00:04 welcome to
00:05 all of you,
00:06 um,
00:07 who have come online,
00:08 I guess we all are at this point,
00:09 um,
00:10 to this session on the macroeconomic policy in the time of COVID-19,
00:14 a primer for developing countries.
00:17 Um,
00:18 I'm Bill Maloney,
00:19 chief economist for
00:20 Uh,
00:21 EFI
00:22 and we have an all-star lineup today.
00:24 We're going to begin with a presentation of about 2025 minutes by Norman Loweza
00:29 of his primer.
00:31 Um,
00:31 Norman is the lead economist and development research group at the bank,
00:35 and he's currently in the Malaysia hub
00:37 of the research group.
00:38 Um,
00:39 then we will have,
00:40 um,
00:41 distinguished panelists,
00:43 uh,
00:44 from.
00:45 Roberto Chung from Rutgers University.
00:48 He's professor of Economics at Rutgers and research
00:50 associate at the National Bureau of Economic Research.
00:53 Then we will have
00:55 um Pierre Olivier Gonza,
00:57 um,
00:58 who is at
01:00 uh UC Berkeley.
01:02 Um,
01:03 many accolades,
01:04 um,
01:05 Ricardo Hausman,
01:07 an old friend who is director of the
01:08 Growth lab at Harvard Center for International Development,
01:11 and Rafik Hariri,
01:13 professor of the Practice of International Political Economy
01:16 and Development,
01:17 uh,
01:17 at Harvard Kennedy School.
01:18 It's a very long title,
01:19 Ricardo.
01:20 Um,
01:21 and then he's,
01:23 uh,
01:23 we'll probably dial in a little bit later,
01:25 but Andres Velasco,
01:26 who is the Dean of the School of Public Policy
01:29 at the London School of Economics and Political Science.
01:31 Uh,
01:32 so,
01:33 We're going to have Norman go first
01:36 and then
01:37 we will for 20 minutes,
01:38 25 minutes,
01:39 then each of our panelists will have 10 minutes
01:42 to correct him on his errors
01:45 and reinforce him where he's correct,
01:47 and then we'll
01:49 open it up for questions both from YouTube and from
01:54 from Webex.
01:55 They're going to be pre-filtered by
01:58 by the staff here just so we get a good variety of them in that case prevent overload.
02:03 Um,
02:04 so without further ado,
02:06 I think I'll turn it over to Norman.
02:08 Um,
02:09 go ahead.
02:12 Many thanks,
02:12 Bill.
02:13 Let me share my screen first.
02:22 All right.
02:24 Thanks,
02:24 thanks,
02:25 Bill,
02:25 uh,
02:26 for that nice introduction.
02:28 Uh many thanks to our,
02:30 uh,
02:30 our distinguished members of the panel,
02:32 Roberto,
02:32 Pierro Olivier,
02:34 Ricardo,
02:34 Andres.
02:37 My,
02:37 uh,
02:37 presentation,
02:38 in fact,
02:39 is intended to set
02:41 the stage,
02:42 uh,
02:42 for the discussion that will come later on.
02:46 Well,
02:47 and,
02:47 and the presentation is based on a paper
02:50 that Steven Pennings
02:52 and I
02:53 working with a group
02:54 here in Kuala Lumpur,
02:56 uh,
02:56 have written.
02:58 We started working on this presentation on this,
03:00 uh,
03:01 paper
03:02 about 3 weeks ago.
03:04 At that time,
03:05 most of the discussion in regards to
03:08 the policy response
03:09 to the pandemic
03:11 was focused on
03:12 advanced economy.
03:14 We thought that it was uh important
03:17 to highlight the differences
03:19 on how my macroeconomic policy should be conducted
03:23 uh in the context of developing countries and that is the subject of
03:27 my uh presentation of the paper and my presentation today.
03:32 I think we all know that we are facing a public health and
03:37 and an economic
03:38 crisis.
03:40 Uh,
03:40 that
03:41 we have not seen
03:43 in the recent past,
03:45 public health emergencies caused by
03:47 the new
03:48 coronavirus
03:50 that has two
03:51 fatal characteristics.
03:53 First is that it's highly.
03:56 It,
03:56 it is highly contagious.
03:57 It's at least 10 times more contagious than SARS,
04:01 and.
04:02 The second is that
04:03 it is.
04:06 Deadlier.
04:07 It has,
04:07 it is between 3 and 30 times deadlier than seasonal influenza.
04:12 If unattended,
04:14 this pandemic could cause
04:16 millions of people to die.
04:20 We have seen a rapid increase in the number of
04:23 cases of infection.
04:25 Starting in,
04:26 uh,
04:26 China,
04:27 of course,
04:27 the epicenter,
04:28 the original epicenter of this pandemic
04:31 followed by a number of advanced countries in,
04:34 in Europe,
04:35 um,
04:36 lately in the US,
04:37 but,
04:37 uh,
04:38 countries in the developing world
04:40 are also seeing rapid increases
04:43 in the numbers of infection
04:45 and the number of deaths
04:46 as well.
04:48 The numbers of infections are multiplying by multiples of 5,
04:51 10 times
04:53 in some cases uh over just
04:55 1 week or two.
04:58 Now this uh
05:01 Public health crisis is producing at the same time an economic crisis.
05:06 What happens is that
05:08 the measures to contain the spread of the disease.
05:11 These measures are based on social distancing.
05:14 Uh,
05:14 the most extreme
05:16 example of social distancing is
05:18 a lockdown.
05:20 This implies a sharp reduction in,
05:22 uh,
05:22 in economic activity.
05:25 Now this adverse shock.
05:28 Health related and
05:30 economic related
05:31 is massive and global.
05:34 We can even say that this is worse than the global
05:37 financial crisis
05:39 in its potential consequences.
05:42 Economic shock,
05:44 if unattended,
05:45 can lead to mass unemployment
05:47 and business closures.
05:49 For poor
05:50 and developing countries,
05:52 the crisis can be
05:54 even worse.
05:55 This can turn into a humanitarian crisis
05:58 of unseen consequences,
06:01 worsening poverty.
06:02 Uh,
06:03 a lack of basic social services because governments would have
06:08 their revenues and their ability
06:10 much diminished
06:11 the social services in
06:14 education,
06:14 in health and safety.
06:16 And this
06:18 The situation can lead in extreme cases to social conflict.
06:24 Now why is it worse in developing countries?
06:27 First,
06:27 because they are suffering.
06:29 A massive
06:30 global economic shock
06:32 as we know
06:33 this um.
06:36 It is a shock has
06:38 made
06:39 the engines of growth of the international economy,
06:42 China,
06:43 Europe,
06:43 the US
06:44 will slow down significantly
06:46 because of this
06:48 there is a reduction
06:49 of exports,
06:51 especially raw materials that come from uh
06:54 from developing countries.
06:56 With a drop in commodity prices
07:00 to historical lows.
07:02 A sharp decline in services,
07:04 especially in tourism.
07:06 Many countries in
07:08 the developing world depend
07:10 on these services.
07:11 For instance,
07:12 where I live
07:13 in Southeast Asia,
07:14 many of the countries here
07:16 are heavily dependent
07:17 on,
07:17 on the,
07:18 on tourism.
07:21 The the fact that there is a decline in incomes in
07:25 developed countries means also that there is a decline in the remittances
07:29 that these foreign workers can send home
07:31 to
07:32 uh
07:33 developing countries.
07:36 On top of this,
07:38 Access to international financial markets.
07:42 Has become
07:43 recently more difficult and more expensive,
07:46 particularly for low
07:48 and middle income countries
07:49 because this capital
07:52 capital has returned
07:53 to the places of quote unquote
07:55 safety
07:56 in um
07:57 the deve the developed world.
08:01 This global shock.
08:03 Um,
08:05 comes.
08:07 At the
08:09 To
08:10 attack.
08:12 Situations in developing countries
08:14 that are structurally weak,
08:17 in fact,
08:18 we see the degree of
08:20 pandemic preparedness
08:22 in um.
08:24 Developing countries.
08:26 And this is a graph taken from a recent publication
08:29 at the,
08:30 at the World Bank.
08:32 It shows that.
08:34 This,
08:34 uh,
08:34 pandemic preparedness is
08:38 much lower
08:39 in the case of
08:40 developing countries,
08:42 uh,
08:42 in the case of poorer nations.
08:46 Now,
08:47 the structural conditions that make
08:49 this uh
08:51 preparedness lower.
08:53 Can be listed
08:55 as 4
08:56 1st
08:57 the dismal public health care capacity
08:59 that these countries have.
09:01 Give you an example.
09:03 Malawi
09:04 has
09:05 only 25 intensive care units for a population of 70 million,
09:10 and Zimbabwe has none.
09:13 It.
09:14 Fiscal space that is
09:16 the ability to deploy
09:17 funds and resources by the state
09:20 to counteract the shocks is low
09:23 in developing countries.
09:25 This poor governance,
09:26 which means that the state has low effectiveness
09:30 in uh managing these jobs.
09:32 And
09:34 importantly,
09:35 In many of these countries,
09:37 the informal
09:39 sector is rampant.
09:41 Fact
09:42 In um
09:44 in sub-Saharan Africa and in South Asia.
09:48 The
09:49 share of informal to total workers is over 80%.
09:54 It is also very high in East Asian Pacific,
09:56 in Middle East and North Africa,
09:59 and in Latin America.
10:01 Now why is this important?
10:03 Because
10:04 these informal workers
10:05 don't have unemployment
10:07 insurance.
10:09 Leave benefits,
10:10 paid leave.
10:12 And they don't have access to health insurance
10:15 because they are.
10:17 Most of them are self-employed.
10:20 Low income,
10:21 their level of savings are also
10:23 very low.
10:26 This creates
10:29 In some,
10:30 a very difficult situation.
10:32 What makes managing this health emergency so challenging.
10:37 Is that if unattended,
10:39 it could lead to countless numbers of fatalities.
10:43 Yet
10:44 if drastic measures to contain
10:46 the spread of the disease are imposed.
10:49 It can produce a deep recession
10:51 with business closures,
10:53 mass unemployment,
10:55 and poverty.
10:59 As the economist recently
11:00 wrote,
11:01 the trade-off
11:03 between saving lives
11:05 and saving livelihoods
11:06 is excruciating.
11:11 Although this is an excruciating trade-off
11:14 and real
11:15 and is unavoidable.
11:17 The terms of the trade-off can be changed.
11:21 In fact,
11:22 we argue
11:23 that
11:24 they can be
11:25 changed.
11:27 The,
11:27 the difficult trade-off can be eased
11:30 if,
11:30 uh,
11:30 two types of
11:31 public policy measures are taken.
11:34 The first
11:35 that I will not discuss in detail today
11:38 is about smart containment and mitigation measures.
11:41 These are
11:43 measures
11:44 that are suited
11:45 to developing countries that can
11:48 reduce the spread of the disease but don't have but would not have
11:52 such large
11:53 negative consequences
11:55 on economic reform.
11:58 Those are based
11:59 on um.
12:00 Protecting the most vulnerable groups,
12:03 insulating,
12:04 for instance,
12:04 the elderly.
12:06 Uh,
12:07 scaling up testing.
12:09 For antibodies and antigens.
12:12 And
12:12 also
12:13 isolating the cases of infection.
12:19 The second type of econo of public policy,
12:22 and this is the one that I will refer to in the rest of my presentation,
12:26 has to do with relief and recovery measures,
12:29 macroeconomic policies
12:32 to face the pandemic.
12:34 We find that it's instructive
12:36 to divide
12:37 macroeconomic policies.
12:41 Into two groups.
12:43 Depending on the timing
12:44 that they must be deployed.
12:47 During health crisis.
12:49 That is
12:50 while this containment and mitigation measures are
12:54 undertaken
12:56 that these measures that restrict
12:59 the supply
13:00 and to some extent also the demand
13:02 for economic
13:04 goods and services
13:05 and in the aftermath
13:07 that is
13:08 after
13:09 the health crisis
13:11 as.
13:12 Ended.
13:15 During the health crisis,
13:17 these macroeconomic policies should be mostly about relief.
13:21 And
13:22 in the aftermath
13:23 we can think about
13:25 recovery measures.
13:26 Let me go
13:27 one by one
13:28 relief measures.
13:30 We think the objective here.
13:32 The goal of macroeconomic policy
13:35 uh during this time of crisis
13:36 is not really to stimulate the economy.
13:39 This is impossible because
13:41 the containment measures
13:44 contain
13:45 to mitigate the spread of the disease
13:47 are actually based on
13:49 slowing down economic activity.
13:51 You cannot try to stimulate economic activity if on the other hand,
13:55 you are trying to.
13:56 Decrease it.
13:58 But rather
14:00 During this time of crisis,
14:02 public,
14:02 uh,
14:03 policy
14:04 should macroeconomic policies should be directed to
14:06 increasing public health care capacity
14:09 and supporting those
14:11 most affected
14:13 by the public health measures based on social distancing.
14:17 And
14:18 the more most extreme cases lockdown.
14:21 How do we do this?
14:23 In the paper we offer some specific suggestions
14:27 with examples.
14:28 Here I will be brief.
14:30 The first is
14:32 redirect
14:33 public expenditures to healthcare.
14:36 There are certain
14:37 Issues that
14:39 can be obtained with.
14:42 With
14:43 an increase in expenditures,
14:46 uh,
14:46 a redirection of public expenditures towards
14:50 important healthcare.
14:51 For instance,
14:52 in
14:53 increasing emer emergency hospital space.
14:57 Ventilators,
14:58 protecting medical equipment,
15:00 and
15:01 increasing the salaries
15:02 and compensation of medical personnel,
15:05 probably even including
15:06 uh insurance
15:08 for them.
15:10 The second
15:12 has to do with providing income support to people.
15:15 For formal workers,
15:17 this can be done through extending unemployment.
15:20 And leave benefits,
15:22 but as I said before,
15:24 the majority of workers are informal
15:26 and many people are very poor in these countries.
15:29 So for them.
15:31 General or targeted cash transfers
15:34 are
15:35 recommended.
15:36 General cash transfers
15:38 in cases where
15:39 the majority of the population
15:41 are poor
15:42 and targeted cash transfers where
15:45 a.
15:47 A group of people
15:49 that needed cash transfers can be clearly identified.
15:54 This usually happens in middle income
15:57 country context.
16:00 The third policy has to do with
16:02 With assisting affected businesses.
16:05 Many businesses have been affected,
16:07 not all,
16:07 of course,
16:08 but some crucially so.
16:10 For them,
16:11 wage subsidies are advised
16:13 as well as tax cuts,
16:15 moratoriums on debt repayments,
16:17 and credit lines.
16:19 Many of these
16:21 businesses and of course people as well depend on the financial system
16:26 to manage the shock.
16:28 So a
16:29 4th
16:30 measure
16:31 of relief
16:32 is reducing the stress on the financial system
16:35 by
16:36 cutting interest rates.
16:38 By reducing reserve requirements.
16:41 And by lowering the rates and increasing the maturity
16:45 on the discount window
16:47 that
16:48 banks can
16:49 tap on the central bank.
16:53 Korea has given us many examples on how to
16:57 manage this crisis.
16:59 They have also given us examples on these relief measures.
17:02 Uh,
17:02 they have allocated
17:05 a
17:06 budget
17:07 for relief measures in the order of 1.5% of GDP.
17:10 That's about $425 per capita.
17:14 And they have distributed
17:16 this uh.
17:18 Package
17:19 In the percentages that you can see.
17:22 In the slide,
17:24 health care,
17:25 that's the first topic that I spoke about,
17:27 about 10%
17:28 households
17:30 support
17:31 for,
17:31 uh,
17:32 income income
17:33 at the family level,
17:34 25%
17:36 and support for businesses
17:38 in many different ways,
17:39 some of
17:40 which I explained before
17:42 around 65%.
17:44 I believe.
17:47 That
17:48 many high
17:51 Income countries or are
17:53 Upper middle income countries
17:55 can actually.
17:57 Replicate a similar strategy,
17:59 a similar distribution
18:01 of uh of of public expenditures in in the times of the crisis
18:06 or.
18:07 Lower
18:09 income countries,
18:10 these shares may change a bit.
18:12 For instance,
18:13 the portion for households
18:16 would have to increase,
18:17 probably would take the lion's share
18:20 of the relief measure,
18:21 and the amount for businesses
18:23 would have to be correspondingly lower.
18:28 Now let me now turn to recovery measures.
18:31 So once the worst of the health emergency
18:35 is over,
18:37 Or that is,
18:38 once the containment and mitigation measures
18:41 have been,
18:42 uh,
18:42 lifted or reduced,
18:44 then the objective is to switch from
18:47 crisis management to macroeconomic stimulus.
18:51 The
18:52 goal is to help the economy regain its pre-crisis pattern.
18:57 That's what we'd like to call
18:59 a V-shaped
19:00 recovery.
19:04 How can we
19:05 do this or how can we approach at least
19:07 this goal?
19:09 Well,
19:10 the first thing obviously has to do with
19:12 the relief measures that I spoke
19:15 spoke about before.
19:17 Avoiding the collapse through relief measures
19:19 actually allows for recovery.
19:21 There will be nothing to recover
19:23 if everything has been lost and collapsed
19:26 because relief was not well implemented.
19:30 Then we can turn to.
19:33 The more uh classical ways
19:35 of uh macroeconomic policy,
19:38 monetary policy first
19:40 well in principle
19:41 monetary policy could be effective
19:43 in developing countries
19:45 because the majority of them.
19:48 For the majority of them,
19:49 the policy interest rates are well above
19:52 the zero lower bound.
19:55 Which means that the,
19:56 the interest rates could be reduced
19:58 and through that.
20:00 Tool,
20:01 uh,
20:01 aggregate demand,
20:03 that is aggregate investment and aggregate consumption
20:06 could increase.
20:08 That's in principle,
20:09 in theory.
20:10 In practice,
20:11 what we see is that the monetary transmission
20:14 mechanism
20:15 is
20:16 weak,
20:17 especially in low income
20:19 settings.
20:21 Um,
20:21 there is heterogeneity,
20:22 of course.
20:23 So some countries,
20:25 some countries,
20:25 monetary transmission mechanism
20:28 is sufficiently strong and so monetary policy is useful,
20:31 but in many others it's not.
20:33 A policy rate
20:35 determined by the central bank could decrease,
20:37 but this,
20:38 this may not have an effect
20:40 on
20:40 the lending rate
20:42 that businesses and
20:43 households
20:45 can obtain.
20:48 monetary policy is not very effective,
20:51 then governments may want to turn to fiscal policy.
20:54 This in theory as well could be effective,
20:58 but in practice what we have seen.
21:00 Is that
21:02 Because
21:02 fiscal space that is the resources that these economies have
21:06 is small.
21:07 The tax base
21:09 It's small.
21:11 And the fiscal multipliers are low.
21:14 That means that fiscal policy
21:16 is.
21:18 Usually in this,
21:19 in,
21:20 in settings of developing countries,
21:22 uh,
21:23 not very effective.
21:25 By fiscal multipliers being low,
21:27 I mean that
21:28 for
21:29 every dollar that the government spends,
21:32 GDP increases less than $1.
21:35 Most of the evidence
21:36 in fact points out
21:38 to a low
21:39 multiplier.
21:41 There are some cases
21:42 we can make the argument that
21:44 the fiscal multipliers are larger for
21:47 transfers to families.
21:49 In the case of public investment
21:51 or whenever the economy is in a recession,
21:54 yes,
21:55 there are some cases where
21:57 fiscal multipliers are larger.
22:00 But the evidence here is not very robust.
22:04 This leads us to conclude
22:06 that for
22:07 recovery measures,
22:08 a more reasonable objective.
22:12 Especially for low income countries
22:14 is to ensure continuity
22:16 of public goods and services,
22:18 of course,
22:18 including healthcare.
22:20 Maintaining macroeconomic stability
22:23 and providing for the poor and vulnerable.
22:28 The continuity of public goods and services here
22:31 is
22:32 key.
22:33 Uh,
22:34 for the
22:35 Returning to normality.
22:37 And providing for the poor and vulnerable is also crucial
22:41 so that
22:42 the hurt
22:44 from this crisis
22:45 uh does not lead to the humanitarian emergencies that I spoke about before.
22:52 Let me conclude here.
22:54 By highlighting two points
22:56 that we emphasize in
22:59 our
23:00 article.
23:02 Well,
23:02 a common cry.
23:05 During crisis is that desperate times call for desperate measures.
23:10 The problem with desperate measures
23:11 is that they are often wrong.
23:15 We think
23:15 that critical times actually call for well designed
23:19 government action and effective public.
23:22 Service delivery.
23:23 This is
23:24 government action
23:25 and
23:26 service delivery that is based on evidence
23:29 that is based on the capacities that these developing countries
23:32 can actually have
23:34 to exercise policy.
23:36 The principle then
23:38 is to preserve rather than ignore.
23:41 The practices for macroeconomic stability and for proper governance.
23:46 They have served
23:47 these countries in
23:48 good times
23:50 they can keep serving these countries in bad times.
23:54 And the second conclusion is in
23:56 regards to international cooperation and coordination.
24:00 That is the importance of it.
24:03 This shock
24:04 is large,
24:06 is global,
24:07 is highly contagious.
24:09 Because
24:10 of this,
24:10 the fact that it,
24:11 it is a systemic massive shock,
24:14 it requires international coordination.
24:17 This international coordination can internalize
24:21 the positive externalities of reducing 1st and 2nd wave infections.
24:25 We don't want,
24:26 for instance,
24:26 that if
24:27 once Europe has.
24:30 Has reduced the number of infections significantly that
24:34 because other countries say India
24:37 has lots of infections then
24:38 it can then reinfect
24:40 Europe.
24:44 The second
24:46 Externality that must be internalized through international coordination,
24:49 the negative externalities of unilateral actions
24:53 that may hurt other countries' economic.
24:56 By coordinating and cooperating,
24:58 countries can internalize
25:01 these externalities and obtain
25:04 altogether a better outcome.
25:08 Now,
25:08 given the magnitude of this negative shock.
25:12 Um
25:14 Developing countries are going to see their revenues drop.
25:17 That's
25:18 unavoidable.
25:20 And their access to financial markets dry up.
25:24 We have already seen how difficult it is now for
25:27 developing countries to access financial markets.
25:30 They will need financial assistance.
25:33 They will need financial assistance from international organizations
25:37 and
25:37 from advanced countries.
25:39 In the form of grants if they are
25:41 low income countries
25:43 and if they are.
25:45 Middle income countries most likely in the form of credit lines
25:49 and
25:50 debt renegotiation.
25:52 We think the international coordination and cooperation may yet prevent
25:57 the worst effects of the,
25:58 of this pandemic.
26:02 Thank you very much.
26:05 Thanks,
26:06 Norman,
26:06 uh,
26:07 for that excellent and concise presentation.
26:09 I think it gives us a nice,
26:11 um,
26:12 basis on which to,
26:13 um,
26:14 to,
26:15 to build our conversation.
26:16 Let's start alphabetically.
26:18 Um,
26:19 so,
26:19 Roberto,
26:20 would you have 10 minutes of wisdom to impart?
26:25 Thank you very much thank you for the invitation.
26:27 It's a pleasure to be here.
26:28 Let me share my.
26:30 It's here.
26:43 You see them?
26:45 Can you hear me?
26:46 Yes,
26:47 yes,
26:47 thank you.
26:48 Thank you.
26:49 OK,
26:50 um,
26:51 I,
26:51 um,
26:52 let me start by,
26:53 uh,
26:54 actually thanking.
26:55 Uh,
26:57 Loyce and Pennings for an excellent summary of problems.
26:59 I mean,
27:00 I,
27:00 I really enjoyed,
27:01 uh,
27:01 looking at the.
27:02 At at
27:03 their,
27:04 their primer their policy.
27:06 I learned a lot.
27:07 It's a very comprehensive summary of some of the difficulties
27:11 and approaches to the problem from the viewpoint of uh developing
27:15 countries,
27:15 and for that we have to be
27:18 quite grateful.
27:24 There's a lot in the.
27:26 In the primer and I wanted to focus on
27:30 um.
27:31 Particular point
27:34 Think can serve to uh motivate
27:36 a reflection on how we have been approaching the problem as economists.
27:41 And um.
27:42 The paper
27:44 emphasizes the need for coordination.
27:46 And
27:47 um
27:48 at the end of his,
27:49 uh,
27:49 discussion,
27:49 Norman said,
27:50 well,
27:50 international coordination is key,
27:51 but I,
27:52 there's a different kind of coordination that also turns out to be
27:56 essential,
27:56 which is coordination of
27:58 public health,
27:59 uh,
27:59 policies and approaches and macroeconomic policy.
28:04 That's what um in the abstract for example I identified
28:08 as a point that um caught my attention.
28:11 Partly because
28:15 Now I think it's fair to say.
28:17 That until this particular
28:20 crisis
28:21 there has been uh
28:22 very little
28:23 communication
28:25 between public health experts and macroeconomists.
28:29 It has not been zero.
28:30 I know for a fact that for example
28:33 more than 10 years ago there was a working group at the Federal Reserve
28:36 trying to uh devise some kind of coordination
28:39 with epidemiologists associated with the avian flu,
28:43 um.
28:44 Possibilities
28:45 to to design some kind of policy response so so there has been
28:49 some dialogue but um
28:51 the dialogue.
28:52 Up to this point has been quite um.
28:56 You and far in between
28:59 But I'm going to make a point that even now,
29:01 uh,
29:02 given the urgent situation where,
29:04 uh,
29:04 some
29:04 dialogue and learning from each other turns out to be essential.
29:08 Um,
29:09 the public health response and macroeconomic
29:11 policy proposals have essentially developed as a
29:14 separate enterprises.
29:17 What do I mean with this?
29:18 I mean,
29:18 I think about
29:19 most of what um
29:21 has been proposed.
29:24 Essentially
29:25 starts with the public health problem right so
29:28 public health side
29:30 recognizes well we have
29:31 this huge shock.
29:34 And uh
29:35 the shock of the public health emergency is modeled some by some kind of version of
29:40 of of some
29:42 contagion
29:43 uh virus contagion and epide epidemic models.
29:48 Often based on what is called the the SES model.
29:53 And uh that model actually is is building a particular way,
29:56 right?
29:56 I mean,
29:56 for example,
29:57 it emphasizes the fact that well the more people bump into
29:59 each other and uh infected people meet other non-infected people then
30:04 um you know we're going to
30:05 have a higher rate of infections and depending on
30:09 on that then.
30:10 That
30:11 implies for example that we should try to prevent people from meeting
30:15 so or or or or to to to to pursue activities that
30:18 that increase the frequency with which they
30:21 they meet.
30:21 So for example we uh it has been
30:24 um
30:25 recommended to try to flatten the curve directly by say
30:29 preventing people from meeting
30:30 that's the idea of mitigation or suppression.
30:34 But,
30:35 uh,
30:35 nevertheless,
30:36 you know,
30:36 the,
30:36 the,
30:36 the,
30:36 the,
30:37 um.
30:38 Predictions for example
30:39 are huge and the economic role in some sense
30:44 is is viewed as
30:45 two things.
30:46 One is,
30:46 well,
30:47 you know,
30:47 we want to alleviate the
30:50 pain
30:50 caused by,
30:51 uh,
30:52 you know,
30:52 the virus directly and also by the
30:54 associated restrictive policy measures,
30:56 whatever they are,
30:57 to,
30:58 um,
30:58 try to prevent.
31:00 Uh,
31:01 the problem of,
31:02 of,
31:02 of contagion and the pandemic.
31:05 And then uh in what Norman um
31:08 mentioned as or or or termed
31:10 the recovery phase I think uh we economic policy should try to prevent
31:15 a subsequent,
31:16 uh,
31:17 problem of possible crisis amplification and multiplication.
31:20 I mean we can
31:21 we're worried about for example
31:23 financial crisis or or or or the the breakdown of uh of payment systems or whatnot.
31:29 But here essentially economists are taking.
31:33 The outcomes of the public health analysis and
31:36 the recommendations as given
31:38 as the shock that economists
31:41 have to think about in in devising uh
31:43 public uh economic uh responses.
31:47 Now what's being ignored?
31:49 Well,
31:51 It's not um.
31:53 Too hard to actually believe that the dynamics
31:55 of uh of the coronavirus virus uh spread,
31:59 for example.
32:01 Um,
32:01 depends on,
32:02 on what people actually think that is going to be the economic situation and the,
32:06 the analysis.
32:08 Yes,
32:09 can we just hold one second,
32:10 um,
32:11 because a bunch of people are writing to me and saying they can't see your slides.
32:15 Is,
32:15 can you let me know
32:17 by chat if you can't see them?
32:20 I can see them,
32:21 yeah.
32:22 You can see,
32:22 no,
32:23 but,
32:23 but every,
32:23 I'm just there's a general
32:26 uh.
32:28 We,
32:29 I,
32:29 I can see them.
32:29 Um,
32:30 can you,
32:31 OK,
32:32 OK,
32:32 OK,
32:33 OK.
32:33 All right,
32:33 so,
32:35 OK,
32:35 so let's go.
32:36 And if I get any more complaints,
32:38 then,
32:38 uh,
32:38 I'll stop again.
32:40 OK,
32:41 thanks.
32:41 Sorry.
32:42 All right,
32:42 no problem.
32:43 Um,
32:46 What is being ignored in this
32:48 approach is
32:49 the fact that
32:51 um
32:52 essentially.
32:55 The dynamics of of of the of of the
32:58 spread of of coronavirus and um
33:01 the effectiveness if you want of public health measures like suppression measures
33:06 may depend
33:07 on
33:08 how people perceive and what they expect about their
33:11 economic situation.
33:13 And uh people make choices,
33:15 right?
33:15 I mean,
33:15 um,
33:16 here.
33:17 For example,
33:17 we have the case of Peru.
33:19 Peru is under a lockdown,
33:21 right?
33:22 And,
33:22 uh,
33:22 this,
33:22 this,
33:23 this photograph was taken a few days ago
33:25 when the lockdown is in place,
33:27 but people are still
33:28 in some areas going to the markets because
33:31 they have to
33:32 or they actually think they have to.
33:34 OK,
33:35 Roberto,
33:35 sorry to interrupt one time.
33:36 Are you sharing,
33:37 are you sharing your screen?
33:40 Yes,
33:40 it says,
33:41 uh,
33:41 my,
33:41 my screen says you're sharing a Microsoft
33:43 PowerPoint.
33:44 All right,
33:45 all right,
33:46 we just keep going.
33:47 I I apologize.
33:48 Yeah
33:49 I'm sorry.
33:51 Um,
33:54 So
33:55 We might want to think about the fact that
34:00 The choices that people make with respect to
34:02 whether for example to comply or not with uh
34:06 stay at home or lockdown directives are affected.
34:10 By uh what
34:12 their cost benefit analysis of say.
34:15 Staying at home or going to a market might be
34:18 I mean that's a situation that for example Andres Velasco and I
34:21 are trying to to model now.
34:23 Uh,
34:24 for example,
34:25 the,
34:25 the problem that people that are faced with the,
34:28 with,
34:28 with the question of whether to stay at home or not
34:30 may depend on the costs of staying at home and losing say current income
34:35 versus the costs of going to the market
34:38 and being infected at a higher rate than at home.
34:41 Which might actually mean that they
34:44 lose also future income
34:46 number one and also they actually suffer some kind of
34:49 of cost in a physical sense.
34:53 Now
34:54 when you think about it,
34:55 that actually depends on economic equilibrium.
34:57 I mean people are going to think that.
35:00 The loss of future income if they get infected is higher.
35:04 If the equilibrium there in the recovery phase of Norman's uh
35:09 um
35:10 um timing
35:11 actually is better than if it's not I mean uh
35:15 and therefore
35:15 you know these
35:16 uh decisions will depend
35:18 on macro policy but the point is also that these decisions will determine
35:22 the dynamics of contagion.
35:26 So
35:26 in that sense economic policy current and future
35:30 will
35:30 affect people's
35:32 costs and benefits of for example uh staying at home or not
35:36 complying with the
35:38 health directive.
35:39 And also affect the size of the shock in the economic sense
35:44 so we cannot think about those independently.
35:48 So this view has a lot of implications.
35:51 For example,
35:52 one is that the details
35:53 of economic policy proposals actually
35:56 are going to affect the dynamics of the epidemic.
36:00 I mean,
36:00 notice
36:01 that this is actually in contrast with the dominant models,
36:04 for example,
36:04 of the SERS type
36:05 right which take the dynamics of the epidemic
36:09 as as largely independent.
36:12 Independent of of uh expectations in particular
36:15 of economic uh
36:17 policies.
36:19 And um
36:21 by uh by the same token expectations about
36:23 future economic policy will affect the size of what
36:26 in the literature has been called the added demand and supply shock.
36:32 No,
36:33 this is particularly important for developing countries,
36:35 right,
36:35 because there's the risk that say obvious policies.
36:40 We actually
36:41 work at odds with um.
36:45 Health policies
36:46 like suppression
36:47 by providing the wrong incentive.
36:50 It's also an opportunity,
36:51 right?
36:51 I mean we can see that properly designed economic responses
36:55 can in fact facilitate
36:57 the effectiveness of health policies.
37:01 So to name an example
37:03 from.
37:06 Uh,
37:07 the paper,
37:07 uh,
37:08 by Lois and and pendings
37:10 they mentioned,
37:10 well,
37:11 at some point,
37:12 uh,
37:12 uh,
37:12 Norman also mentioned that
37:13 economic policies you should,
37:15 uh,
37:15 accompany,
37:17 um.
37:18 Health measures,
37:19 right?
37:20 Some of these measures,
37:21 uh,
37:22 economic policy measures are,
37:23 uh,
37:23 subsidized medical attention for prevention and cure
37:26 direct income support to vulnerable populations,
37:29 including cash transfers.
37:31 There was some discussion about whether these
37:33 transfers should be general or targeted.
37:37 No,
37:37 in thinking about this,
37:39 I think that we should recognize that these alternatives
37:41 not only have uh.
37:43 Different uh
37:45 implications for things like income distribution but also
37:48 they provide different incentives
37:50 for suppression policies
37:52 and compliance and therefore
37:54 for the dynamics of the epidemic.
37:57 So this is a problem that
37:58 as economists we should actually
38:01 pay more attention to.
38:02 And uh it may have to be um
38:05 Crucial
38:06 to try to differentiate.
38:09 Uh,
38:09 between policies that seem seem to be,
38:11 uh,
38:11 apparently similar.
38:13 Any case,
38:14 let me just conclude with,
38:15 um,
38:16 praising again and thanking,
38:18 uh,
38:18 Loyce and Pennings uh for a paper that we should all read,
38:21 right?
38:21 but I wanted to raise this
38:24 question
38:25 issue of the interaction of macroeconomic policy
38:27 and the dynamics of virus and infection
38:30 which essentially has been,
38:32 um,
38:33 not,
38:33 uh,
38:34 uh,
38:35 an issue in the literature I think it should be.
38:38 Thank you very much.
38:40 Thank you,
38:40 Roberto.
38:42 Uh,
38:42 Pierre Olivier,
38:43 um,
38:44 welcome,
38:45 and,
38:45 um,
38:46 your comments,
38:46 10 minutes please.
38:48 Yes,
38:48 um,
38:49 can you hear me?
38:50 Very well.
38:51 OK,
38:52 so let me share my screen.
38:54 Uh,
38:54 actually,
38:55 let me just
38:57 make sure I get this right.
38:59 Oh
39:03 OK.
39:05 Can you share the,
39:06 can you see my slides?
39:09 Yes,
39:09 we can.
39:10 OK,
39:11 excellent.
39:12 Well,
39:12 first,
39:12 uh,
39:13 thank you,
39:13 uh,
39:14 for inviting me to,
39:15 uh,
39:16 discuss this,
39:16 uh,
39:17 uh,
39:17 very interesting paper by
39:19 Norman and Stephen.
39:20 I,
39:21 uh,
39:21 will offer,
39:22 um,
39:23 some brief remarks and,
39:26 um,
39:27 that will,
39:28 you know,
39:29 be quite,
39:30 quite general.
39:30 I,
39:30 I think the first point to observe is that the situation
39:33 varies a lot across.
39:35 Countries
39:37 among emerging and developing countries and,
39:39 and,
39:39 and so
39:40 um
39:41 there are some general observations that we can make and I think the paper
39:44 uh is,
39:45 is very pertinent,
39:46 uh,
39:47 but we should keep in mind that there is,
39:48 there's still enormous uh heterogeneity here.
39:51 Um,
39:51 now,
39:52 um,
39:52 in,
39:53 in terms of,
39:53 um,
39:54 organizing my own thoughts and,
39:56 and I think that's the perspective that
39:58 Uh,
39:58 the paper adopts as well,
40:00 uh,
40:00 there is this,
40:01 uh,
40:01 this tension and,
40:03 and possibly interactions between,
40:05 between the pandemic curve and,
40:06 and the recession curve that,
40:08 uh,
40:08 Norman has discussed and,
40:09 and,
40:10 um,
40:10 and Roberto,
40:11 um,
40:12 uh,
40:12 came back,
40:13 uh,
40:13 came back to,
40:13 and I want,
40:14 I want to make two points on this.
40:15 The first,
40:16 sort of,
40:16 um,
40:17 the,
40:17 the general point is,
40:18 is very well,
40:19 I think at this
40:20 point in the,
40:21 uh,
40:21 discussion is very well understood that,
40:24 um,
40:24 the public health policy is trying to
40:27 Uh,
40:27 flatten the curve and try to keep the
40:30 number of infected people um
40:32 within
40:33 reasonable distance of the capacity of the healthcare sector
40:37 and that those measures,
40:39 health policy measures have
40:41 in the short run at least.
40:42 They have some
40:44 economic cost
40:45 and then on top of that,
40:46 uh,
40:47 this economy costs can be amplified if,
40:48 if,
40:49 if,
40:49 if no action is taken to try to,
40:52 uh,
40:52 to control
40:53 how much dislocation this causes in,
40:55 uh,
40:56 in,
40:56 in,
40:56 in,
40:57 in,
40:57 in,
40:57 um,
40:58 in the economy and that's the flattening of the recession curve.
41:01 But there are,
41:01 there are two important I think observations here that one
41:05 wants to keep in mind.
41:07 Um,
41:08 the first one,
41:09 is
41:10 that,
41:11 uh,
41:11 the,
41:12 the,
41:12 anything we do on flattening the,
41:14 uh,
41:14 the pandemic curve is,
41:16 uh,
41:17 is the nature of a global public good,
41:19 uh,
41:20 and so there are,
41:20 there is potentially strong,
41:22 uh,
41:22 feedback from,
41:24 uh,
41:24 whatever happens in emerging markets in developing
41:27 countries back to the advanced economies.
41:29 And,
41:30 and if
41:31 this is not contained in,
41:33 in the advanced,
41:34 in the,
41:34 in the emerging world then,
41:35 and then it's not contained
41:37 anywhere.
41:38 Um,
41:39 the,
41:39 the second,
41:40 the second observation which I think,
41:42 uh,
41:42 as we mentioned,
41:43 and I think is also very important is,
41:45 is the one Roberto just spent some time talking about the feedback from,
41:50 from the macro policies to,
41:52 uh to the health policy and I think there
41:54 the point is that if you don't have the
41:57 capacity to implement.
41:59 Uh,
41:59 um,
42:00 uh,
42:01 the,
42:01 the,
42:01 the,
42:02 from a macroeconomic point of view,
42:03 the
42:04 health policy rules,
42:05 um,
42:06 you know,
42:07 asking people to to be self-isolating or to be confined in their houses,
42:12 but somehow without having
42:14 income programs or support that will guarantee that
42:17 they don't need to go out,
42:18 well then they will go out and that's the picture that
42:21 Uh,
42:21 Roberto shared with us,
42:23 uh,
42:24 it's not because most people don't want to follow
42:27 instructions coming from the health authorities,
42:29 it's often because
42:31 there is very little,
42:32 very little choice,
42:33 and so
42:33 there is an interaction that goes both ways and I think it's very important to,
42:37 uh,
42:37 to keep that in mind.
42:39 Now when I think about emerging market and developing countries,
42:42 I,
42:42 I think
42:43 there are 4 observations I would like to make.
42:47 The first one is about the,
42:48 the time scale of the 3 different
42:52 crises that these countries are facing,
42:54 and I would say there's,
42:56 there's a financial crisis and sudden stop,
42:58 uh,
42:59 there's pandemic crisis,
43:00 and then there's a sort of recession macro crisis.
43:04 And I think that the time scales are different and this
43:07 is something that is important when we think about this.
43:09 So
43:10 the,
43:10 the,
43:11 the,
43:11 the timescale for the financial crisis is,
43:14 is the fastest,
43:15 and so that's the thing that is happening already.
43:18 Uh,
43:19 we know that
43:20 uh and I'm gonna share some uh some graphs here,
43:22 we know that the
43:24 the sudden stop is there and it's hitting
43:26 a large number of countries
43:28 already.
43:29 Uh,
43:29 the,
43:29 the timescale for the health crisis.
43:33 is not as fast as
43:35 the financial crisis or the sudden stop uh timescale,
43:40 um,
43:41 especially in the,
43:42 in many of the developing and emerging countries.
43:44 I mean,
43:44 I think
43:45 they're a bit behind in terms of where they are in
43:48 the development of the pandemics compared to the advanced economies,
43:51 and that's something
43:52 that um
43:54 is important to keep in mind that,
43:55 that can play a role in the way we think about policy.
43:58 And then the,
43:59 the,
43:59 the,
44:00 uh,
44:00 slowest timescale is the macro timescale,
44:03 and,
44:03 and here,
44:04 uh,
44:04 what this means is that the macro implications of both the policies
44:09 we put in place,
44:09 but also their
44:11 side effects and,
44:12 and if they're not accompanied properly,
44:14 are potentially going to last
44:16 much,
44:16 much longer than,
44:18 um,
44:18 than,
44:19 uh,
44:19 than either the sudden stop or,
44:20 or even the health crisis,
44:22 uh,
44:22 with,
44:23 with the feedbacks I,
44:23 I mentioned.
44:25 Um,
44:25 and,
44:26 and so here on the macro side,
44:27 uh,
44:28 the,
44:29 the,
44:29 um,
44:30 outlook and the description that Norman gave us is,
44:32 is,
44:33 is very grim and I think entirely accurate.
44:35 In many countries there is
44:37 limited,
44:37 uh,
44:37 fiscal and institutional capacity.
44:39 There is very little room
44:41 to do anything
44:43 on the scale that we've seen in,
44:46 um,
44:46 the advanced economies.
44:48 Um,
44:49 and in fact I'm going,
44:50 going to argue in,
44:51 in,
44:51 in,
44:52 uh,
44:52 my fourth bullet point on the slide that,
44:54 that it's even worse than that,
44:55 it,
44:55 the,
44:56 the fiscal policy that are implemented in
44:58 advanced economies may actually be making it harder
45:02 for
45:02 emerging and developing countries to,
45:05 uh,
45:06 to implement their own fiscal policy.
45:08 Um,
45:09 and so there,
45:10 the one saving grace for,
45:13 uh,
45:13 the,
45:14 on the macro side.
45:15 Um,
45:16 you know,
45:16 if I take them in reverse order,
45:17 the,
45:17 the,
45:17 the,
45:18 the,
45:18 the one saving grace on the macro side is,
45:20 is,
45:21 uh,
45:21 that maybe,
45:23 um,
45:24 the economy
45:25 will be able to rebound a little bit
45:27 faster than,
45:29 um,
45:30 you know,
45:30 advanced economies for a similarly sized initial contraction.
45:34 And this is where maybe,
45:36 you know,
45:36 we should think that informality is a
45:38 problem when we're in the lockdown phase because
45:41 that means that many of the
45:43 mechanisms by which we would disburse help may not reach
45:46 the people that are intended to help,
45:48 but it also probably means that there's a little bit more flexibility
45:52 on the exit side compared to,
45:54 let's say advanced economies,
45:55 and I think we,
45:56 we ought to keep that in mind that some,
45:58 some of the argument
46:00 for trying To preserve the network of
46:04 employer-employee matches and,
46:06 and,
46:06 and suppliers and firms matches,
46:08 etc.
46:09 that network may be able to reconstitute itself
46:13 more rapidly in,
46:15 in,
46:15 in some emerging and developing countries
46:18 and,
46:18 and that's maybe something that would
46:21 provide some,
46:22 some breathing room on the macro side,
46:24 on the,
46:24 on the exit part of the,
46:26 of the crisis.
46:27 Now
46:28 on the pandemic side.
46:30 The fact that emerging and
46:32 developing countries are a little bit behind,
46:35 not all of them,
46:35 of course,
46:36 as I said,
46:36 there is
46:37 tremendous heterogeneity across countries,
46:39 but on average,
46:40 this pandemic crisis has not hit yet at full force.
46:45 Um,
46:46 emerging and developing countries,
46:48 that gives us
46:50 some,
46:50 uh,
46:51 uh,
46:51 some ray of hope in the sense that,
46:54 you know,
46:54 potentially,
46:56 uh,
46:56 um,
46:56 we might be able to redeploy resources.
46:59 Um,
47:00 it's,
47:00 it's a global problem and the,
47:01 and the health capacity should maybe should be thought of as a,
47:04 as,
47:04 as a global health capacity and that's,
47:06 that's something that,
47:08 uh,
47:08 that's going to be important.
47:10 But of course
47:11 there the one,
47:14 the one concern that we may have is uh
47:16 is the negative feedback from the macro side.
47:19 If really nothing can be done
47:22 to help support confinement policies and,
47:25 and isolation policies and mitigation policies,
47:28 then
47:30 there's a much stronger risk that
47:32 either
47:33 uh uh it will be much longer lasting with many more people.
47:37 infected in a short amount of time
47:40 and,
47:40 and therefore with a much stronger negative effects,
47:42 and so
47:43 the,
47:43 the,
47:44 the concern there is that yes we have a little bit more time to,
47:47 to pivot and address the health side,
47:49 but at the same time there's much less capacity.
47:51 I think that's the tension.
47:53 Now on the financial side,
47:55 as I said,
47:55 you know,
47:57 the countries are already facing
47:58 Um,
47:59 what I call the mother of all 7 stops,
48:01 and the,
48:02 the,
48:02 the data is absolutely
48:03 horrifying when you look at the capital outflows
48:07 from,
48:08 uh,
48:08 the emerging market economies.
48:09 The,
48:09 the gross portfolio flows have,
48:11 have been,
48:11 have been very,
48:12 very large.
48:12 This is what this graph here from the uh
48:15 uh uh Institute for International Finance,
48:17 uh,
48:17 has put together and they're updating their data uh almost weekly and,
48:21 and,
48:21 and you can see it accumulated on the right,
48:23 accumulated.
48:24 Uh,
48:24 non-resident portfolio flows,
48:26 uh,
48:27 dwarf anything we've seen either in the global financial crisis,
48:30 that would be the blue line
48:32 or the time of the taper tantrum or in 2015 where there were some
48:36 Uh,
48:36 uh,
48:36 volatility related to China
48:38 and so this is really a much bigger,
48:41 a much bigger problem.
48:42 Now some of it is,
48:44 is in fact due to,
48:45 you know,
48:45 the repricing of risk that is generally happening
48:48 across
48:49 the world with investors becoming
48:52 much more cautious,
48:54 uh,
48:54 um,
48:55 and,
48:55 and you In the context where
48:57 you may anticipate that maybe the crisis will be
49:00 more severe on the macro and health side,
49:02 in developing countries,
49:02 it's not too surprising that there will be
49:05 a strong response of capital,
49:07 uh,
49:07 uh,
49:07 of capital flows,
49:08 but I want to argue that
49:10 there's also
49:11 a very significant component of that could be related to the fact that
49:16 um advanced economies are embarking on an unprecedented
49:20 borrowing binge.
49:21 And you know,
49:23 uh,
49:23 the world is a closed system
49:25 and if advanced economies are going to be borrowing huge amounts and there are,
49:29 you know,
49:29 whether it's the US,
49:31 European countries,
49:32 uh,
49:32 uh,
49:32 the UK,
49:33 Canada,
49:34 Japan,
49:34 or even China just announced a very significant
49:38 borrowing program,
49:40 there is
49:41 a potential that some of it will be coming from,
49:44 uh,
49:44 you know,
49:45 the emerging,
49:46 emerging countries that are looking maybe for safety or,
49:48 or even if you think in terms of gross flows just.
49:51 Uh,
49:51 foreign investors retrenching and,
49:53 and repatriating their,
49:55 their capital,
49:56 and so there's,
49:56 there's a compounding effect here on the macro side that I think we,
50:00 we ought to keep in mind.
50:02 Uh,
50:02 and so the,
50:03 the,
50:03 the upshot of all this is we,
50:05 we are looking,
50:06 um,
50:08 You know,
50:08 uh,
50:08 I,
50:09 I think a lot of people have started to realize
50:10 is we're looking at potentially a wave of sovereign defaults
50:15 the likes of which we've not seen,
50:17 uh,
50:17 um,
50:18 uh,
50:18 you know,
50:18 any time in,
50:19 in,
50:20 uh,
50:20 recent,
50:21 in recent history,
50:22 certainly much bigger
50:23 than
50:24 the last,
50:25 uh,
50:26 um,
50:26 synchronized wave of sovereign defaults in the 1980s,
50:30 and mostly concentrated in Latin America.
50:32 Uh,
50:33 so
50:34 that's one of the safety valve,
50:37 one of the few safety valves that many of these countries may have,
50:40 and,
50:40 and,
50:40 and there's a,
50:41 there's a certainly a big concern that
50:43 this is,
50:44 this is looming on,
50:45 on the horizon.
50:47 OK,
50:47 thank you very much,
50:48 Pierre Olivier.
50:49 Yeah,
50:49 we're gonna have to move on.
50:50 Um.
50:53 Um,
50:54 I just hit a few points and then,
50:55 and then,
50:56 uh,
50:56 I'm,
50:56 I'm almost done.
50:57 This is my last slide.
50:58 One minute.
50:59 OK,
51:00 so,
51:00 um,
51:01 let me just hit those three points I want to make here.
51:03 The first one is
51:04 on the pandemic,
51:05 the fact that it's staggered,
51:07 uh,
51:08 suggests that,
51:09 uh,
51:09 an important priority would be to have
51:11 some rotation of the health equipment and personnel,
51:15 uh,
51:15 uh,
51:16 from the countries that are past the peak of the
51:18 curve and free up some capacity to the others,
51:20 and I think there is something very important here.
51:22 I call it the International
51:23 COVID brigade.
51:25 That should be happening on the health side.
51:27 On the financial side,
51:28 as I said,
51:29 if nothing happens,
51:31 the global safety net is wholly insufficient,
51:35 so we're going to have a wave of sovereign default.
51:39 What needs to happen is an increase in the capacity
51:41 of financial institutions like the IMF and the World Bank,
51:45 but also
51:46 to have a serious discussion about a possible debt moratorium
51:49 for all emerging and developing countries.
51:52 And then on the third step,
51:53 I want to echo what Norman said,
51:55 which is
51:55 desperate measures,
51:56 desperate times call for desperate measures,
51:59 but you want to be careful about not throwing out
52:02 all the progress that has been done on improving governance
52:06 and institutions
52:07 by implementing things that might cast a very long shadow.
52:12 I will stop here.
52:14 Thank you,
52:14 um,
52:15 and look forward to the discussion.
52:17 Thank you very much,
52:17 Pierre Olivier.
52:19 Uh,
52:19 our next,
52:20 uh,
52:20 two commentators have additional qualifications,
52:23 and both were,
52:25 uh,
52:25 ministers in,
52:26 uh,
52:27 their respective governments.
52:28 Ricardo
52:29 Hausman was,
52:30 I think,
52:30 minister of planning in Venezuela,
52:31 and Andres Velasco was minister of finance,
52:34 um,
52:35 in Chile.
52:36 So they can bring an additional perspective,
52:38 uh,
52:38 as policymakers.
52:40 Um,
52:41 so,
52:41 Ricardo,
52:42 if you would go ahead,
52:43 10 minutes,
52:43 please.
52:44 Well,
52:44 thank you very much.
52:45 Uh,
52:46 thanks,
52:46 uh,
52:47 Norman for an excellent,
52:48 uh,
52:49 paper and thanks to,
52:51 uh,
52:51 Roberto and Pierre Olivier for excellent comments.
52:55 Um,
52:55 uh,
52:56 the first thing,
52:57 uh,
52:57 I would like to
52:59 Uh,
52:59 to say is that,
53:00 um,
53:02 uh,
53:02 we have,
53:03 so like in Norman's paper,
53:04 a general outline
53:06 of,
53:07 uh,
53:07 of the pandemic,
53:09 uh,
53:09 but there are very,
53:11 very important
53:12 details,
53:13 uh,
53:14 that,
53:14 um,
53:15 we don't know
53:17 and that we know that we don't know.
53:19 And that
53:20 uncertainty,
53:22 I think,
53:22 is paramount in
53:24 designing macroeconomic policy.
53:27 Uh,
53:27 for developing countries.
53:28 Let me say that right now,
53:30 uh,
53:30 the Growth lab is working with about 10 countries
53:33 across the world in,
53:35 in Central and South America,
53:36 in Europe and
53:37 the Middle East and in Africa,
53:40 um,
53:40 and we're trying to,
53:41 we've created a task force to,
53:43 to work with them through their day to day decisions
53:47 on,
53:47 on how to manage this situation and I'm going to
53:50 tell you a little bit my impressions if you want from,
53:53 from those front lines.
53:55 Um,
53:56 the first thing.
53:57 That,
53:58 uh,
53:58 Norman spoke about was two periods,
54:00 the period of,
54:01 of the pandemic and then the recovery.
54:04 Um,
54:04 it's very important to know
54:06 how long a period we are talking about.
54:08 Is this a 100 m dash race?
54:10 Is this a marathon?
54:12 How long it is,
54:13 and that depends on some parameters,
54:16 uh,
54:17 epidemiological parameters,
54:18 and we've been talking to epidemiologists and they've been
54:21 sort of like confessing to us all the things
54:23 that they
54:24 wish they knew.
54:26 Uh,
54:26 that they know that they don't know and that are critical.
54:30 Um,
54:31 some of them have to do,
54:32 you know,
54:33 with the percentage of
54:35 Of,
54:35 of people who,
54:36 who have the disease without any symptoms and consequently they become immune.
54:42 What,
54:42 what's that percentage in the population,
54:44 nobody knows,
54:45 nobody knows.
54:47 How effective
54:49 are these lockdown measures,
54:51 because it takes a long time for them to show up in the data and that long time,
54:55 say 3 weeks,
54:56 is an infinite amount of time from the point of view
54:58 of,
54:59 of,
54:59 you know,
54:59 the economic costs of the lockdown and so on.
55:02 So,
55:02 so there's a lot that,
55:03 that,
55:04 uh,
55:04 we don't know.
55:06 In addition,
55:07 you know,
55:07 as Pierre Olivier mentioned about flattening the curve,
55:10 you know,
55:11 flattening the curve also means
55:13 delaying
55:14 the amount of time in which we are fighting
55:17 the pandemic,
55:18 so it makes it a longer term,
55:20 it makes it a longer term,
55:22 um,
55:23 uh,
55:23 um,
55:24 uh,
55:25 crisis.
55:26 So,
55:26 uh,
55:27 you know,
55:27 does this peak in July?
55:28 Does this peak in October?
55:30 Does this peak in January of next year?
55:32 Um,
55:33 uh,
55:33 what,
55:34 what,
55:34 how,
55:35 how difficult,
55:36 um,
55:37 you know,
55:37 what is the time period for which we need to plan,
55:40 uh,
55:41 these things,
55:42 um.
55:44 Now,
55:44 um,
55:45 other countries that we're working on,
55:47 or most of them are under lockdown,
55:50 and right now the,
55:51 the issues that policymakers are facing is how do you manage the lockdown,
55:55 who's allowed to leave,
55:56 who's not allowed to leave?
55:57 How do you compensate the people so that they stay home?
56:00 Can you make them transfers,
56:02 uh,
56:03 um,
56:03 um,
56:04 how do you organize,
56:05 uh,
56:06 uh,
56:06 you know,
56:07 what kind of,
56:07 of,
56:08 uh,
56:09 force do you use to,
56:10 you know,
56:10 encourage people to stay home,
56:12 etc.
56:12 etc.
56:13 And,
56:14 and that
56:15 Prevents them from using the,
56:17 the lockdown period for what the lockdown period really is,
56:20 which is
56:21 a very,
56:21 very expensive purchase of time.
56:24 What are you doing,
56:25 uh,
56:25 from the point of view of,
56:27 of using that lockdown period to,
56:29 to,
56:30 uh,
56:30 to influence or affect the way you
56:33 come out of,
56:34 how,
56:34 what happens after the lockdown?
56:36 And here I want to make a second important point
56:39 that there is no clean break between
56:41 the pandemic period and the recovery period because
56:45 uh the measures,
56:46 the epidemiological measures are going to bleed into the next phase.
56:51 From what we think we know about this pandemic is that if you
56:55 lift the lockdown and go back to business as usual,
56:59 the R factor will be significantly above 1
57:02 and you will get the exponential back again.
57:05 So,
57:06 uh,
57:06 um,
57:07 so,
57:07 uh,
57:08 it's obvious that in the period after this
57:10 severe lockdown cannot be a normal period.
57:14 It will be a period that will also have macroeconomic consequences.
57:18 It will also have negative
57:20 supply,
57:20 uh,
57:21 consequences
57:22 for,
57:23 for,
57:23 for these economies.
57:26 Uh,
57:26 so,
57:27 um,
57:28 er.
57:30 In addition,
57:31 I think that we've,
57:32 we've talked uh broadly about the
57:35 different shocks to the economy,
57:37 but the discussion up to now has been sort of like in a very,
57:40 to some extent in a closed economy kind of framework
57:44 in which there is no balance of payments constraint.
57:47 But I think that the balance of payments
57:49 constraint is going to become dominant in many countries
57:53 for the reasons that Norman mentioned.
57:56 For the,
57:56 you know,
57:57 that exports and remittances and tourism and so on.
58:00 By the way,
58:01 by the way,
58:01 the shock to tourism.
58:03 How long will it be?
58:04 It will not depend on your own pandemic.
58:08 It will depend on everybody else's and the recovery of international travel,
58:11 which is going to be probably
58:14 the slowest to recover,
58:15 and that goes again into this idea that appeared
58:18 afterwards is not a period without any supply shock,
58:21 supply side restrictions.
58:25 Um,
58:26 so in this context,
58:29 uh,
58:29 let's,
58:30 so I'm thinking,
58:31 I'm thinking,
58:31 by the way,
58:32 we need
58:33 to have,
58:35 uh,
58:36 I,
58:36 I second very much what Roberto Chang was saying
58:39 and,
58:39 in his paper that he mentioned with,
58:41 uh,
58:42 Andres Velasco
58:43 that we need to somehow integrate.
58:46 Uh,
58:46 the
58:47 people's decisions during the lockdown and so on,
58:51 uh,
58:51 those are economic decisions that they will be optimizing,
58:53 and we,
58:54 we need to
58:55 integrate macro.
58:57 And epidemiology in the same way as
59:00 it has been discussed in previous events of this seminar series
59:03 with
59:04 um
59:05 Eichenbaum
59:06 and Rebelo's paper,
59:08 but
59:11 Uh,
59:11 we need to
59:12 help countries design exit strategies
59:16 that
59:17 do not
59:17 imply that they can replicate
59:20 Korea's capacity to test and track and so on.
59:24 I think that's,
59:25 that is not going to happen in part because
59:27 there's a,
59:28 a,
59:28 a glut,
59:29 there is a,
59:30 a shortage in,
59:31 in the market for tests and so on.
59:34 And
59:35 countries won't have the capacity
59:37 to implement uh
59:40 uh test and track and trace and so on,
59:42 uh,
59:43 the way,
59:43 the way,
59:44 uh,
59:44 you know,
59:45 uh,
59:45 Singapore does it.
59:47 So there's one idea that I want to,
59:49 to highlight that I wish we would discuss
59:52 more about,
59:53 which is the idea by this professor
59:55 Baruch Barzel from Bar Ilan University in Israel,
59:58 which is this alternating lockdowns.
1:00:01 That 1 week,
1:00:02 1 household
1:00:04 stays home,
1:00:05 and the next week they go out.
1:00:07 All businesses are open,
1:00:09 but maybe with half of their labor force.
1:00:12 And,
1:00:13 and that this weekly thing um
1:00:15 helps screen people so that if you got infected and you go home for a week,
1:00:19 you would probably get symptoms.
1:00:21 So if you get the symptoms,
1:00:22 you stay home.
1:00:23 And that way in his modeling,
1:00:25 it significantly lowers the R factor
1:00:27 and you may get
1:00:28 to uh an R factor maybe below 1
1:00:32 and uh on your exit and,
1:00:34 and that may be your exit out.
1:00:36 It's,
1:00:37 it requires social capital.
1:00:38 It does not require much fiscal resources,
1:00:40 it requires organization,
1:00:42 but I think it is something that given
1:00:45 its promise
1:00:46 and its fiscal cost,
1:00:48 And its capacity cost,
1:00:49 it,
1:00:50 it looks very promising,
1:00:51 and I think we should,
1:00:52 we should spend more time thinking about it.
1:00:55 Now,
1:00:56 the next thing is,
1:00:57 OK,
1:00:58 you mentioned,
1:00:59 Norman mentioned that we have limited fiscal space.
1:01:03 What
1:01:03 do you use it for and when do you use it?
1:01:06 He mentioned,
1:01:06 you know,
1:01:07 you need to use it in the relief
1:01:08 period because otherwise there's no economy to recover,
1:01:11 but then you have to use it in the recovery period.
1:01:14 My guess
1:01:15 is that countries are going to run out of fiscal space
1:01:19 during the relief period.
1:01:22 That uh they will have already committed,
1:01:25 uh,
1:01:25 you know,
1:01:25 all of their flexibility
1:01:27 uh during the relief period,
1:01:30 and that the amounts of money that have been
1:01:31 put on the table by the international community,
1:01:35 uh,
1:01:35 do not.
1:01:37 Do not represent a sufficient enough
1:01:40 um
1:01:41 uh solution
1:01:42 uh for to avoid uh uh the kind of catastrophe that Norman
1:01:47 uh was worried about.
1:01:49 So.
1:01:50 Uh,
1:01:51 um,
1:01:52 it is,
1:01:52 it is important to,
1:01:54 to think about the timing of this fiscal space
1:01:58 because I'm thinking that this process is going to be relatively long,
1:02:02 that,
1:02:03 the more successful we are in flattening the curve,
1:02:06 the longer it will take.
1:02:08 So,
1:02:08 it will be,
1:02:09 it will be a long period,
1:02:10 you know,
1:02:11 there's,
1:02:11 there are countries that have decided we're going to make
1:02:14 social transfers,
1:02:15 and then they immediately realize they can make it once,
1:02:18 they cannot make it twice,
1:02:19 they don't have the fiscal space for it.
1:02:21 So,
1:02:21 my,
1:02:22 my fear is that,
1:02:23 uh,
1:02:23 the fiscal space will be exhausted before
1:02:26 we get
1:02:27 uh out of the 1st,
1:02:28 1st phase.
1:02:30 On monetary policy,
1:02:31 I think there's an enormous variability across countries
1:02:36 because they have different exchange rate regimes.
1:02:39 Some of them have fixed exchange rate regimes,
1:02:41 so there is really no monetary policy there
1:02:44 except
1:02:45 22 things.
1:02:47 Should they devalue?
1:02:49 Should they devalue?
1:02:51 Uh,
1:02:51 is this the time to devalue?
1:02:53 Uh,
1:02:53 would
1:02:54 everybody devaluing at the same time be a beggar thy neighbor policy
1:02:58 or not?
1:02:58 You know,
1:02:58 what are the general equilibrium implications of that?
1:03:01 And how much of their international reserves should they use?
1:03:05 By the way,
1:03:06 this is a question also for countries that have inflation targeting,
1:03:10 floating,
1:03:10 and so on.
1:03:11 They have international reserves.
1:03:13 When should they put them on the table?
1:03:15 Is this the time and,
1:03:16 and,
1:03:16 and,
1:03:17 and for the countries with floating exchange rates,
1:03:19 uh,
1:03:20 you know,
1:03:20 it's very complicated for the central bank to start intervening in
1:03:23 the exchange rate market with what rules should there be auctions,
1:03:26 etc.
1:03:26 etc.
1:03:27 So those are important questions that we need to think about
1:03:30 in.
1:03:31 And finally,
1:03:32 er,
1:03:33 I like very much the comments that Pierro Olivier made uh about,
1:03:37 about the fact that capital is moving out of
1:03:39 er emerging markets and that,
1:03:41 er,
1:03:42 the world is a closed economy.
1:03:45 So in essence,
1:03:46 what we have is the need to recirculate
1:03:48 capital back to developing countries at scales
1:03:52 that are not in line
1:03:54 with the products.
1:03:56 That the international community has to date.
1:03:59 So,
1:04:00 I second very much the idea
1:04:02 that the IMF has to expand
1:04:06 the rapid finance instrument
1:04:08 by another doubling probably.
1:04:11 That we need
1:04:12 Significant more resources allocated to the IMF and the World Bank.
1:04:17 And that without that,
1:04:20 we should not exaggerate the amount of policy space countries will have
1:04:24 to manage this crisis.
1:04:26 Thank you very much.
1:04:28 Thank you,
1:04:28 Ricardo.
1:04:29 Uh,
1:04:30 welcome,
1:04:30 Andres.
1:04:31 Um,
1:04:32 and,
1:04:33 uh,
1:04:34 10 minutes,
1:04:34 please.
1:04:37 Thank you,
1:04:38 everybody.
1:04:38 Let me just make sure that I'm sharing my screen here.
1:04:42 And that um
1:04:45 Did it show up there?
1:04:46 Yes,
1:04:46 you can expand it though.
1:04:48 Yeah,
1:04:48 I'm about to do that once I find the um the right place.
1:04:52 OK.
1:04:54 Um,
1:04:56 All right,
1:04:56 can you see it?
1:04:58 Yes,
1:04:59 wonderful.
1:05:00 Well,
1:05:00 thank you,
1:05:01 uh,
1:05:01 Bill.
1:05:02 Thank you,
1:05:02 Norman,
1:05:02 for the invitation to,
1:05:04 uh,
1:05:04 participate in this,
1:05:05 uh,
1:05:06 discussion.
1:05:06 Pleasure to be sharing
1:05:08 the panel with my dear friends,
1:05:10 Roberto,
1:05:11 um,
1:05:11 Pierre Olivier,
1:05:12 and Ricardo.
1:05:14 Uh,
1:05:14 I will also begin by saying that I learned a lot from the paper that,
1:05:17 uh,
1:05:18 that Norman and,
1:05:19 uh,
1:05:19 co-author provided.
1:05:20 I think it's a very nice summary of the issues.
1:05:23 Let me just try to dig a little deeper,
1:05:26 uh,
1:05:26 into a few of them.
1:05:29 The first one is that obviously,
1:05:31 and once again,
1:05:32 the economist put it very well,
1:05:34 our big uh trade-off,
1:05:37 if there is one,
1:05:38 or the challenge,
1:05:39 put it that way,
1:05:40 is that we all have two goals in mind.
1:05:43 We want to save lives,
1:05:45 and we also want to save livelihoods,
1:05:48 that is to say,
1:05:49 save the economy.
1:05:51 And to make things more complicated,
1:05:54 we have to do this over several periods,
1:05:56 but there are two main periods.
1:05:58 The very short run,
1:06:00 when,
1:06:00 uh,
1:06:01 you know,
1:06:01 the urgent measures,
1:06:03 what some people have called disaster relief have to be put into place,
1:06:07 and the medium run,
1:06:08 when,
1:06:08 you know,
1:06:09 the lockdown restrictions begin to ease and the economy begins to recover.
1:06:13 And granted,
1:06:13 as Ricardo just said,
1:06:15 we don't quite know when that will happen.
1:06:17 Uh,
1:06:18 and that is something that we need to keep in mind.
1:06:21 The question I want to ask is,
1:06:23 is there always a trade-off between these two goals?
1:06:27 And the second question we need to ask is,
1:06:30 if there is a trade-off,
1:06:31 what can we do?
1:06:34 Well,
1:06:36 There isn't always,
1:06:37 always,
1:06:37 always a trade-off,
1:06:39 uh,
1:06:39 because,
1:06:40 uh,
1:06:40 if you begin to,
1:06:41 you know,
1:06:41 Roberto and I have been playing with a couple of models,
1:06:44 um,
1:06:45 uh,
1:06:45 you can tell stories in which,
1:06:47 you know,
1:06:47 a very restrictive lockdown policy,
1:06:50 you know,
1:06:50 saves lives today,
1:06:52 but also cause a lot of layoffs,
1:06:54 firms,
1:06:54 uh,
1:06:55 destroy valuable organizational capital,
1:06:58 fire workers,
1:06:59 and this,
1:07:00 of course,
1:07:00 delays the recovery or maybe makes the recovery impossible.
1:07:04 In that case,
1:07:05 there is a sharp trade-off.
1:07:07 But it could well be that if you save a lot of lives today,
1:07:09 you have more workers that are healthy tomorrow,
1:07:12 and that makes the recovery faster and more vigorous.
1:07:15 In that case,
1:07:16 maybe there isn't a trade-off,
1:07:17 or there isn't a trade-off that is quite as sharp.
1:07:21 So one message is that,
1:07:23 you know,
1:07:24 fighting,
1:07:25 uh,
1:07:25 or flattening the infection curve,
1:07:27 as many people,
1:07:28 including Pierre Olivier,
1:07:29 have said,
1:07:30 need not always flatten the economy.
1:07:33 And the devil very much is going to be in the details.
1:07:36 And I think one
1:07:38 job for analysts,
1:07:39 economists,
1:07:41 and concerned experts that we really have to sort out
1:07:44 over what ranges of what policies there is a trade-off,
1:07:48 um,
1:07:49 when there isn't a trade-off.
1:07:50 And as usual,
1:07:51 the devil is going to be in the details.
1:07:53 And
1:07:54 a lot will hinge on what the post lockdown period looks like.
1:07:59 And the difficulty,
1:08:00 uh,
1:08:01 is,
1:08:01 and here I want to echo what both Roberto and Ricardo said,
1:08:05 the problem is that we don't know very much about that,
1:08:09 but quite crucially,
1:08:10 what happens
1:08:11 in the future
1:08:12 will determine
1:08:13 what policies may or may not be um
1:08:16 appropriate today,
1:08:17 and that.
1:08:19 Feedback loop is very,
1:08:20 very delicate.
1:08:21 Uh,
1:08:22 Roberto made the point,
1:08:23 and I want to,
1:08:24 uh,
1:08:24 emphasize that.
1:08:26 Now,
1:08:27 there is a trade-off,
1:08:28 uh,
1:08:28 and of course,
1:08:29 over many ranges of many policies,
1:08:32 there will be a trade-off.
1:08:33 Uh,
1:08:34 what do we do?
1:08:36 Well,
1:08:36 clearly,
1:08:37 we want to ameliorate the trade-off.
1:08:39 Uh,
1:08:40 nothing,
1:08:41 nothing,
1:08:41 uh,
1:08:42 very new or mysterious here.
1:08:43 We want to change the,
1:08:45 the slope of that,
1:08:47 uh,
1:08:48 pandemic possibility frontier,
1:08:50 if you want to put it in those terms.
1:08:52 And here,
1:08:53 there are three kinds of policies.
1:08:55 The first one is,
1:08:57 we call it health and containment policies.
1:09:00 And I get the sense that in the rush to lockdown,
1:09:04 and as a former policymaker,
1:09:06 and as a recovering politician,
1:09:08 I know that the political incentives are all there
1:09:11 to rush into lockdown very quickly.
1:09:13 Um,
1:09:14 you know,
1:09:14 if the country next door is doing it,
1:09:16 and you're not doing it,
1:09:17 and you're the president or the prime minister,
1:09:19 then you will very easily be accused of being slow,
1:09:22 being careless,
1:09:23 being indolent.
1:09:25 So you will move.
1:09:26 But the question is,
1:09:27 of course,
1:09:27 not only to move quickly,
1:09:28 but also to move intelligently.
1:09:31 And there's probably some policy space here
1:09:33 for things like massive and early testing.
1:09:36 There
1:09:37 is a proposal by Paul Romer that goes into this direction.
1:09:41 Uh,
1:09:42 for lockdowns that insulate the elderly,
1:09:44 a very important point is that if we're all locked in
1:09:47 with our,
1:09:48 you know,
1:09:48 grannies,
1:09:49 and we
1:09:51 infect our grandparents,
1:09:53 then the cost is tremendous.
1:09:54 So not all lockdowns
1:09:56 are created equal.
1:09:57 And last but not least,
1:09:58 there's maybe be room.
1:09:59 Ricardo just mentioned one alternative.
1:10:02 Uh,
1:10:03 you know,
1:10:03 sort of half the families,
1:10:04 you know,
1:10:04 the even number of families go out one week.
1:10:07 Um,
1:10:08 and the odd number of families go,
1:10:09 uh,
1:10:10 out at different weeks.
1:10:10 Countries like Panama have been
1:10:12 experimenting with days in which women go to work and days when men go to work.
1:10:16 Um,
1:10:17 there's probably room here,
1:10:19 uh,
1:10:19 uh,
1:10:19 for institutions like the World Bank with a lot of,
1:10:22 uh,
1:10:23 professional capacity
1:10:24 to experiment,
1:10:25 to think,
1:10:26 to,
1:10:26 uh,
1:10:26 to tell us more about this.
1:10:29 Then,
1:10:29 of course,
1:10:29 there are labor policies.
1:10:31 Uh,
1:10:31 you want to make it easier to work from home,
1:10:34 and some countries have incredibly restrictive,
1:10:37 uh,
1:10:37 labor codes that make it very difficult to do this.
1:10:40 It should be kind of a no-brainer,
1:10:43 very low hanging fruit to modify those rules to make it easier to work from home.
1:10:47 You want to extend sick pay and do other things that allow people
1:10:50 to remain productive while at home.
1:10:53 Last but not least,
1:10:54 and this is what I want to focus,
1:10:56 uh,
1:10:56 uh,
1:10:57 uh,
1:10:57 some of my remaining time on,
1:11:00 you want to ameliorate the trade-off
1:11:02 by following intelligent macroeconomic policies,
1:11:06 uh,
1:11:06 or to put it differently,
1:11:07 if you follow the wrong macro policies,
1:11:09 or if you follow no countercyclical counter-crisis macro policies,
1:11:14 you're going to be the victim of some very nasty,
1:11:17 some very toxic multipliers that are going to be,
1:11:20 be setting in
1:11:21 early on.
1:11:23 And instead of ameliorating the trade-off,
1:11:24 you will be worsening the trade-off in a
1:11:26 way that is quite dramatic and quite substantial.
1:11:31 So if you begin to think about the macroeconomics of a pandemic,
1:11:34 um,
1:11:35 and,
1:11:36 uh,
1:11:36 Roberto and I with a third co-author,
1:11:38 uh,
1:11:39 Luis Felipe Cesves from the University of Chile have been,
1:11:42 have been playing around with a,
1:11:44 a,
1:11:44 a model along these lines.
1:11:46 You can think of the pandemic in many ways,
1:11:48 but one simple way is to say that you suddenly have a massive negative supply shock.
1:11:54 You lose workers,
1:11:55 you lose sales,
1:11:57 firms lose revenue.
1:11:59 Uh,
1:11:59 so,
1:11:59 um,
1:12:00 they're cashless.
1:12:01 They're penniless,
1:12:02 at least in the short run.
1:12:04 Uh,
1:12:05 and the key challenge,
1:12:06 maybe not the only one,
1:12:07 but let me emphasize it to keep,
1:12:09 uh,
1:12:09 the story clear.
1:12:11 The key challenge is to preserve organizational capital,
1:12:14 because if you run a good firm,
1:12:16 you probably spent a lot of time and effort,
1:12:18 you know,
1:12:18 finding just the right work,
1:12:20 and just the right suppliers.
1:12:22 And if you fire all of your workers,
1:12:23 and if you
1:12:24 stop paying all of your suppliers,
1:12:26 then you cannot simply
1:12:28 rebuild those networks,
1:12:30 rebuild that specialized labor force
1:12:32 in the future.
1:12:34 So to be productive tomorrow,
1:12:36 you have to spend money today.
1:12:38 And the question is,
1:12:39 well,
1:12:39 how do you keep paying wages?
1:12:40 How do you keep,
1:12:41 um,
1:12:42 your suppliers happy by paying the money you owe to them?
1:12:45 And here,
1:12:46 the question is,
1:12:47 you know,
1:12:47 very,
1:12:47 it has a very simple answer is credit,
1:12:49 credit,
1:12:50 credit,
1:12:50 credit,
1:12:50 credit,
1:12:51 not just rollovers of existing debts,
1:12:54 but new resources for working capital.
1:12:57 And it's important to emphasize here that tax cuts alone will not do the trick.
1:13:02 A tax cut means that you're
1:13:05 paying the government less,
1:13:07 but,
1:13:07 uh,
1:13:07 this does not mean that you have working capital
1:13:10 to do things like keep paying your wage bill.
1:13:12 And interest rate cuts alone will not do the trick
1:13:16 because firms are not constrained by
1:13:18 the size of the interest payment.
1:13:20 Firms are simply quantity constrained,
1:13:22 not price constrained
1:13:24 by the fact that they need more cash and
1:13:26 they don't necessarily have access to that cash.
1:13:29 So what do most countries do?
1:13:30 What a lot of central banks have done is simply say,
1:13:32 we'll give you a credit line,
1:13:34 we will lend to you,
1:13:36 banks,
1:13:36 uh,
1:13:36 and the banks,
1:13:37 in turn,
1:13:38 will lend to these firms.
1:13:40 But it is very easy to imagine scenarios in which you will have a catch-22,
1:13:45 because,
1:13:46 um,
1:13:47 even if the
1:13:48 commercial bank can get cheap credit from the central bank,
1:13:51 well,
1:13:51 the commercial bank
1:13:53 will lend to the firm if I,
1:13:54 uh,
1:13:55 it thinks that the firm will be healthy in the future.
1:13:57 But the firm will be healthy and productive in the future,
1:13:59 if and only if
1:14:01 it can retain organizational capital,
1:14:03 and that requires
1:14:04 that the bank lend.
1:14:06 So,
1:14:06 um,
1:14:07 it is not hard at all to imagine situations in which you have very bad equilibria,
1:14:12 uh,
1:14:13 and in which bad self-fulfilling prophecies can set in.
1:14:17 The policy implication,
1:14:19 of course,
1:14:19 is that you need not only cheap financing for banks,
1:14:22 but you also are going to need a very active
1:14:24 role for government to rule out those bad equilibria.
1:14:28 And here there's room for the regulator.
1:14:30 There may be room for commercial banks that are state owned and
1:14:33 other agents to be very active ruling out those bad equilibria.
1:14:37 Cheap credit alone,
1:14:38 low interest rates alone are not going to do the trick.
1:14:43 I have 2 more slides,
1:14:44 uh,
1:14:45 on,
1:14:45 uh,
1:14:46 two other issues that seem important to me.
1:14:49 Um,
1:14:50 if this is a hard job in general,
1:14:51 it is particularly hard,
1:14:53 and I'm thinking of the macroeconomic containment
1:14:56 in the case of emerging markets and developing countries.
1:15:00 One unique issue,
1:15:01 of course,
1:15:02 is the prevalence of self-employed and informal workers,
1:15:06 because
1:15:07 it makes it very hard to say to a firm,
1:15:09 I will lend to you as long as you keep the payroll the same,
1:15:13 because we have no idea what the payroll
1:15:15 was because there were no official labor contracts.
1:15:18 It makes it also very hard to lend to a firm because,
1:15:21 you know,
1:15:21 the firm has no income statements and no balance sheets.
1:15:24 So what do you learn against?
1:15:26 That's the bad news.
1:15:28 Now,
1:15:28 the good news may be,
1:15:29 and I think,
1:15:30 uh,
1:15:30 Pierro Olivier,
1:15:31 maybe Ricardo mentioned this,
1:15:32 that um
1:15:33 the big formal firms probably have a lot of um.
1:15:37 Uh,
1:15:38 specialized employment,
1:15:40 a lot of organizational capital.
1:15:42 So if they fire workers,
1:15:43 there's a big social debt weight loss.
1:15:46 Informal firms may have less of this,
1:15:48 and as a result,
1:15:49 if there's some labor shedding,
1:15:51 it can probably
1:15:52 be undone at a later stage without tremendous,
1:15:56 there will be some,
1:15:57 but without tremendous,
1:15:58 uh,
1:15:59 productivity losses.
1:16:01 The other big issue,
1:16:02 and a couple of my uh predecessors,
1:16:05 uh,
1:16:06 uh,
1:16:06 in the floor have said it,
1:16:08 you know,
1:16:08 um,
1:16:09 a difference between advanced countries and emerging
1:16:12 markets is institutional capacity and credibility.
1:16:16 You know,
1:16:16 I'm living in the United Kingdom right now.
1:16:18 This is a very,
1:16:19 uh,
1:16:19 organ,
1:16:20 you know,
1:16:20 orderly country.
1:16:21 If Boris Johnson says stay home,
1:16:23 people stay home.
1:16:25 Uh,
1:16:25 in developed,
1:16:26 uh,
1:16:27 sorry,
1:16:27 in developing countries,
1:16:29 there are fewer,
1:16:30 um,
1:16:31 enforcement,
1:16:31 enforcement capabilities.
1:16:34 Governments have less credibility,
1:16:36 but crucially,
1:16:37 the trade-off is very different,
1:16:39 because I'm,
1:16:40 you know,
1:16:41 if I'm a poor worker,
1:16:42 I will stay home today,
1:16:43 if and only if,
1:16:45 I think that I will have a reasonable income tomorrow,
1:16:48 uh,
1:16:48 so that,
1:16:49 uh,
1:16:49 I will be able to feed my family tomorrow.
1:16:52 But I,
1:16:52 I,
1:16:52 if I have no income today,
1:16:54 and I expect my family will have no income tomorrow,
1:16:56 then I will go out today,
1:16:57 no matter what
1:16:58 the cost in terms of likely infection.
1:17:01 So this is another area,
1:17:03 uh,
1:17:03 and Roberto emphasized this,
1:17:05 in which they're very,
1:17:06 uh,
1:17:07 complicated
1:17:08 feedback,
1:17:08 uh,
1:17:09 loops between what happens today,
1:17:11 both on the health front and the economic front,
1:17:14 and what happens tomorrow on the economic and the health,
1:17:17 uh,
1:17:17 front.
1:17:18 And there could be tremendous scope for,
1:17:21 uh,
1:17:21 self-fulfilling prophecies,
1:17:22 bad equilibria,
1:17:23 uh,
1:17:24 and other nasty outcomes that governments have to endeavor to rule out.
1:17:28 Last but not least,
1:17:30 Ricardo said this,
1:17:31 and,
1:17:31 and I think everybody has said this,
1:17:33 um,
1:17:34 EMs and DCs have much less fiscal space.
1:17:38 A handful of emerging markets,
1:17:40 some in Latin America,
1:17:41 may have some capacity to borrow,
1:17:43 but they are really the exception rule.
1:17:45 Most emerging and developing countries don't have uh much fiscal space.
1:17:49 Whatever they have,
1:17:50 they're probably spending,
1:17:52 uh,
1:17:52 uh,
1:17:52 or getting rid of already.
1:17:54 So,
1:17:55 the role of external financing,
1:17:57 the role of the IFIs is going to be absolutely crucial,
1:18:00 absolutely essential in this crisis.
1:18:03 So let me,
1:18:04 uh,
1:18:04 and this is my last slide,
1:18:06 uh,
1:18:06 say a couple of things about that.
1:18:09 First of all,
1:18:10 priority number 123,
1:18:12 and 4 should be the resources
1:18:14 for the emergency health measures.
1:18:16 Um,
1:18:17 in the big scheme of things,
1:18:19 this is not so much money.
1:18:22 Um,
1:18:23 the World Health Organization has estimated that $40 billion
1:18:27 are what EMs and DCs need
1:18:30 to,
1:18:30 uh,
1:18:31 um,
1:18:32 face the pandemic with reasonable health resources.
1:18:36 $40 billion is a lot of money,
1:18:38 but Uh,
1:18:39 you also have to keep in mind that to some extent,
1:18:42 this expenditure
1:18:43 pays for itself,
1:18:44 because it really ameliorates all the other trade-offs.
1:18:47 And in the end,
1:18:48 both on humanitarian grounds and on efficiency grounds,
1:18:53 it makes a lot of sense to make this money available.
1:18:56 Secondly,
1:18:57 um,
1:18:59 uh,
1:19:00 you have to think about all the resources,
1:19:02 uh,
1:19:02 that are macroeconomically essential,
1:19:05 uh,
1:19:05 for keeping households and firms liquid,
1:19:08 so that they can keep spending,
1:19:10 paying,
1:19:10 paying their debts,
1:19:11 paying salaries,
1:19:12 etc.
1:19:13 Uh,
1:19:14 the headline figures,
1:19:15 of course,
1:19:15 are gigantic.
1:19:16 They are unimaginably big.
1:19:18 If you begin to tally some of the programs of,
1:19:20 uh,
1:19:21 you know,
1:19:21 announcing rich countries,
1:19:23 you see,
1:19:24 uh,
1:19:24 numbers that are 10% of GDP,
1:19:26 uh,
1:19:27 and in some cases,
1:19:28 uh,
1:19:28 substantially bigger.
1:19:30 Now,
1:19:31 the question,
1:19:31 of course,
1:19:31 is where could developing countries or emerging markets get 10% of GDP?
1:19:36 Probably not even the,
1:19:38 the ones that have a lot of fiscal space like Chile,
1:19:40 you know,
1:19:41 could afford to spend 10 points of GDP.
1:19:43 But the headline is really misleading,
1:19:45 I think,
1:19:46 because this is gross spending,
1:19:47 this is not net spending.
1:19:49 And what I mean by this is that in the absence of this spending,
1:19:52 you're going to
1:19:53 To have a big recession,
1:19:55 an economic collapse,
1:19:56 and in the end,
1:19:57 um,
1:19:58 revenues,
1:19:59 state revenues will fall,
1:20:00 uh,
1:20:01 and,
1:20:01 uh,
1:20:02 the,
1:20:02 uh,
1:20:02 economic situation and the fiscal situation will be even worse.
1:20:06 To put it in a somewhat unfair and somewhat provocative way,
1:20:10 you can spend a lot of money upfront,
1:20:12 and in the end,
1:20:13 uh,
1:20:13 come out ahead.
1:20:14 The US government,
1:20:15 uh,
1:20:16 sorry,
1:20:16 the US government
1:20:17 actually made money
1:20:19 bailing out
1:20:20 the biggest,
1:20:21 uh,
1:20:21 12 banks and AIG a little over a decade ago.
1:20:25 It bailed out GM and Chrysler,
1:20:27 and that cost in present value terms American taxpayers
1:20:30 only $8 billion on a much,
1:20:33 much,
1:20:33 much bigger
1:20:34 initial,
1:20:35 uh,
1:20:35 initial layout.
1:20:36 So,
1:20:37 um,
1:20:38 if we don't spend this money upfront,
1:20:40 we may end up,
1:20:41 uh,
1:20:41 in fact,
1:20:41 uh,
1:20:42 with a much larger fiscal burden later on,
1:20:45 and somebody will have to pay that bill,
1:20:47 including creditors,
1:20:48 of course,
1:20:48 because as Pierre Olivier mentioned,
1:20:50 we could be looking at a big,
1:20:53 big,
1:20:53 um.
1:20:54 And debt problems down the road.
1:20:57 The alternative to um
1:20:59 spending the money in emerging and developing countries
1:21:02 is simply
1:21:03 letting the pandemic uh run wild until herd immunity is attained,
1:21:09 that is to say,
1:21:10 until large numbers of people are infected,
1:21:12 and that alone stops the spread of the disease.
1:21:16 This was a strategy that the UK uh briefly considered and eventually discarded,
1:21:21 and it did so to some extent because of political reasons,
1:21:24 but also because the estimates
1:21:27 led policymakers to believe
1:21:29 that in the United Kingdom alone,
1:21:31 the deaths could be in the hundreds of thousands.
1:21:34 Um.
1:21:35 Apply this,
1:21:36 um,
1:21:37 this logic to the Asian continent or
1:21:40 to Sub-Saharan Africa,
1:21:42 and it is not hard to come up with estimates of deaths are in the millions.
1:21:46 So the alternative to spending,
1:21:48 uh,
1:21:48 the money that is required
1:21:50 is truly unthinkable and truly horrendous.
1:21:54 And this is my last point,
1:21:55 uh,
1:21:55 and Ricardo said this very clearly,
1:21:57 and I want to echo
1:21:59 what he had to say.
1:22:00 This means that,
1:22:02 um.
1:22:04 If 10 years ago,
1:22:05 the world needed a lot from the World Bank,
1:22:07 and especially from the IMF,
1:22:10 today,
1:22:10 the world needs a great deal more,
1:22:13 and this is not the time to be cautious,
1:22:15 and this is not the time to be conservative.
1:22:17 At the very least,
1:22:18 I think
1:22:19 we need a very fast financing of the IMF.
1:22:23 And given that the Federal Reserve is,
1:22:25 you know,
1:22:25 the ultimate source of dollars,
1:22:27 and as Ricardo pointed out,
1:22:28 what the world is going to need here is dollars,
1:22:31 one can imagine.
1:22:33 Swap arrangements between the Fed and the IMF,
1:22:36 which,
1:22:36 uh,
1:22:36 in turn,
1:22:37 of course,
1:22:37 the IMF could take the resources and lend them
1:22:40 to emerging markets.
1:22:41 Uh,
1:22:42 the beauty of that is that the Fed doesn't take country risk.
1:22:45 The IMF,
1:22:46 uh,
1:22:46 ends up with a country risk,
1:22:47 but of course,
1:22:48 that's what the IMF is for.
1:22:50 Secondly,
1:22:51 you know,
1:22:51 um,
1:22:52 and this may be too time consuming,
1:22:55 but at least we should put it uh very quickly on the table.
1:22:58 We need to expand,
1:22:59 uh,
1:22:59 SDRI availability,
1:23:01 and we also need to,
1:23:03 to allow in the IMF uh lending,
1:23:05 which is a much bigger multiple of quota.
1:23:07 And last but not least,
1:23:08 for countries that are indebted,
1:23:10 um,
1:23:11 debt relief must be very much the name of the game because as Ricardo pointed out,
1:23:16 very soon,
1:23:16 balance of payments considerations are going to be the overwhelming concern
1:23:20 in many developing countries and in many emerging markets.
1:23:24 So,
1:23:24 financing is absolutely key,
1:23:26 and there,
1:23:27 the international financial community has a great deal
1:23:30 of homework to do.
1:23:32 Let me stop there.
1:23:33 Thanks very much.
1:23:35 Thanks,
1:23:35 Andres.
1:23:36 Um,
1:23:37 thanks to all of you.
1:23:38 We have 5 minutes,
1:23:41 uh,
1:23:41 left,
1:23:42 um,
1:23:43 and there have been several questions,
1:23:44 but I'm just gonna pose to,
1:23:46 distill them to 21 is
1:23:48 on this trade-off between life and livelihood.
1:23:51 Um,
1:23:52 the one way of shifting the curve seems to be
1:23:55 early detection,
1:23:56 testing,
1:23:56 and,
1:23:57 uh,
1:23:57 and quarantining.
1:23:59 Is this really the overall feeling from the panel has
1:24:03 been that this is not that feasible in developing countries.
1:24:07 Do you subscribe to that,
1:24:09 or it seems to abandon that particular
1:24:13 approach,
1:24:14 really condemns us to a very dark outlook.
1:24:17 The second thing is we keep talking about these massive.
1:24:22 Needs for resources,
1:24:24 some of which will appear,
1:24:25 but many won't.
1:24:27 What is your
1:24:28 five year forecast for global inflation?
1:24:36 Bill,
1:24:37 Bill,
1:24:37 can I?
1:24:38 Sure.
1:24:40 OK,
1:24:40 let me address the,
1:24:41 the first,
1:24:42 uh,
1:24:42 the first question.
1:24:44 Sure,
1:24:44 I think we have,
1:24:45 we have all recognized that.
1:24:47 That there is a trade-off,
1:24:49 at least for developing countries.
1:24:51 Uh,
1:24:51 Andres
1:24:52 spoke about the possibility that
1:24:55 Under certain circumstances that might not be one,
1:24:58 but I think those circumstances apply mostly to advanced countries,
1:25:01 if any.
1:25:02 But for developing countries,
1:25:03 I think the overwhelming
1:25:05 evidence is that there is a trade-off,
1:25:08 this very hard trade-off between saving lives and saving livelihoods,
1:25:12 and
1:25:12 I believe that from all the.
1:25:16 Opinions given in this in this panel
1:25:18 we can.
1:25:20 Conclude
1:25:21 that what we need is a combination of
1:25:24 intelligent macro policies,
1:25:26 intelligent labor policies,
1:25:28 and
1:25:29 intelligent public health measures.
1:25:32 And
1:25:33 on the we have spoken a lot about
1:25:35 the first two,
1:25:37 but I also want to emphasize now
1:25:39 the importance of
1:25:41 smart containment and mitigation policies.
1:25:44 They are feasible
1:25:46 in developing countries.
1:25:48 They are not only about.
1:25:50 Uh,
1:25:50 testing,
1:25:51 but they do rely on testing.
1:25:53 There is a paper that is now being produced by
1:25:56 some people in,
1:25:57 uh,
1:25:57 at the World Bank,
1:25:58 Adija Matu,
1:25:59 and Jeff Friedman,
1:26:00 and,
1:26:01 uh,
1:26:02 Damian Delwke.
1:26:04 They are
1:26:06 Presenting a possibility,
1:26:07 a strategy
1:26:08 that has worked in some places
1:26:10 for scaling up both
1:26:12 antibody and antigen testing,
1:26:15 that's one
1:26:15 aspect of,
1:26:16 of,
1:26:16 of the
1:26:17 intelligent or smart containment and mitigation policy.
1:26:20 The second aspect is about insulating the most vulnerable groups,
1:26:24 possibly
1:26:26 in households.
1:26:27 There's also some evidence,
1:26:28 and that can be done.
1:26:29 And the third possibility,
1:26:31 the third aspect of this,
1:26:33 uh,
1:26:33 smart.
1:26:34 strategy
1:26:35 is to.
1:26:37 Isolate the groups
1:26:38 that are currently infected.
1:26:41 If we work through this.
1:26:44 And uh and impose other measures that are
1:26:47 very cost effective.
1:26:48 So for instance,
1:26:49 wearing masks in,
1:26:50 in public,
1:26:51 uh,
1:26:52 that this may be a requirement.
1:26:54 It is something that the international community,
1:26:56 uh,
1:26:57 hesitated a bit a lot at the beginning.
1:26:59 But now even the CDC
1:27:01 has proposed that this is,
1:27:03 this,
1:27:03 this is recommended.
1:27:05 So if we do something like this,
1:27:07 we may be able
1:27:08 to ease the trade-off
1:27:10 between,
1:27:11 um,
1:27:11 saving lives and saving livelihoods.
1:27:14 But it would have to be through this combination
1:27:17 of intelligent
1:27:18 macro policies.
1:27:20 Intelligent labor policies
1:27:22 and intelligent containment and mitigation policies.
1:27:29 Thanks Bill.
1:27:33 All right.
1:27:33 One minute apiece from our distinguished commentators before we go.
1:27:40 Well thank you very much.
1:27:41 I am
1:27:43 impressed by the um by the discussion.
1:27:46 Let me just um mention about uh in particular this uh fiscal costs that as um,
1:27:52 Andres has emphasized,
1:27:54 uh,
1:27:55 this,
1:27:55 um,
1:27:56 some of the
1:27:57 commitments may not.
1:28:00 May not be needed at the end if for example
1:28:03 we can prevent a multiple equilibria and bank ranks and crisis
1:28:08 and also that feeds back into people's
1:28:11 expectations about the future and their decisions about whether
1:28:13 to comply or not for example with public uh
1:28:16 uh containing
1:28:18 containment measures at this point.
1:28:20 That that's,
1:28:20 that was my point and uh you know I interpret
1:28:23 that Norman talked about smart policies and I think that we
1:28:27 have to recognize the
1:28:28 impact of incentives,
1:28:30 uh,
1:28:31 in fact the dynamics of the of
1:28:33 of Coronavirus spread.
1:28:39 Uh,
1:28:40 yeah,
1:28:40 just,
1:28:41 uh,
1:28:41 uh,
1:28:41 just very brief remarks.
1:28:42 I mean I thought it was a terrific panel.
1:28:44 I learned a lot from both the paper and uh my co-panelists.
1:28:48 Um,
1:28:49 on the question that,
1:28:50 um,
1:28:50 is implicit in,
1:28:51 in Bill's,
1:28:53 um,
1:28:54 question to us,
1:28:55 I think,
1:28:56 um,
1:28:56 about the likelihood of future inflation.
1:28:59 I think
1:28:59 there are two points I want to make here.
1:29:01 The first one is
1:29:03 We have to,
1:29:04 um,
1:29:06 we have to be careful about
1:29:08 not repeating some of the mistakes of the
1:29:11 way we handle the,
1:29:12 um,
1:29:13 uh,
1:29:13 global financial crisis in 2008.
1:29:16 Where the global economy pivoted towards fiscal austerity
1:29:21 way too early
1:29:23 and
1:29:24 because of concerns about that sustainability.
1:29:26 Now there are,
1:29:26 as we,
1:29:27 as we discussed since I made that point,
1:29:28 there are issues with that sustainability in
1:29:31 many emerging
1:29:33 and developing countries right now,
1:29:35 that's not a concern for most of the advanced economies and it,
1:29:37 it,
1:29:38 we have to be careful about not pivoting too early
1:29:41 towards a discussion of um fiscal austerity.
1:29:44 Now,
1:29:44 what about inflation?
1:29:46 Well,
1:29:46 I'm,
1:29:46 my,
1:29:47 my short answer would be that inflation would be a sign that things are normalizing.
1:29:50 It would be a sign that people are
1:29:52 coming out,
1:29:52 they want to spend,
1:29:53 maybe the supply is not quite there yet.
1:29:55 Their purchasing power has been protected during the crisis,
1:29:59 and as a result,
1:30:01 there is a general rise in prices.
1:30:03 That's something that central banks
1:30:05 are equipped and policymakers are equipped to deal with.
1:30:08 I'm,
1:30:09 I'm in a sense that uh comes
1:30:11 number 56 or 7 in,
1:30:14 in the list of worries
1:30:15 I have about,
1:30:16 about the current situation.
1:30:17 Certainly it doesn't come,
1:30:18 not 1,
1:30:19 not 2,
1:30:19 not 3,
1:30:20 not even 5.
1:30:21 Um,
1:30:23 now,
1:30:23 what is also true is I think there's going to be a lot of movements in relative prices.
1:30:27 It doesn't mean that generally we're going to have
1:30:29 a rise in inflation,
1:30:30 but I think relative prices are,
1:30:32 are likely to change a lot because there is a lot of readjustment in
1:30:37 the global production
1:30:39 and so that's something that could
1:30:41 have local consequences that could be,
1:30:44 could be um
1:30:45 important.
1:30:46 Um,
1:30:47 I will stop there.
1:30:49 Great,
1:30:50 Ricardo.
1:30:56 Ricardo,
1:30:57 are you still there?
1:30:59 Yeah,
1:31:00 yeah,
1:31:01 yeah,
1:31:01 sorry.
1:31:02 Quick,
1:31:02 a final pithy remark.
1:31:05 Look,
1:31:05 uh,
1:31:05 one idea,
1:31:06 simple idea,
1:31:08 uh,
1:31:08 El Salvador sort of stumbled into it.
1:31:11 The informal sector,
1:31:13 uh,
1:31:14 pays the formal sector.
1:31:16 They pay electricity bills,
1:31:18 water bills,
1:31:18 uh,
1:31:19 uh,
1:31:19 telephones,
1:31:20 they,
1:31:21 they pay,
1:31:21 uh,
1:31:22 interest on,
1:31:23 on,
1:31:23 you know,
1:31:24 motorcycles or,
1:31:26 or electrical
1:31:27 equipment that they bought from department stores.
1:31:30 Those are formal companies.
1:31:32 You can
1:31:33 restructure.
1:31:34 You can force these companies to
1:31:36 give
1:31:37 their clients,
1:31:38 uh,
1:31:39 uh,
1:31:40 uh,
1:31:40 you know,
1:31:40 a loan on the
1:31:41 next 9 months,
1:31:43 next 3 months of payments or whatever.
1:31:45 And,
1:31:46 in that way you're essentially using
1:31:48 your moral suasion or your capacity to regulate the formal sector
1:31:52 to extend liquidity
1:31:54 to the informal sector and those kinds of ideas I think
1:31:57 are at a premium
1:31:59 these days.
1:32:00 OK.
1:32:01 And uh Andres,
1:32:03 the last thought.
1:32:07 We've lost him.
1:32:09 Yes,
1:32:10 uh,
1:32:10 no,
1:32:10 I'm here.
1:32:10 I'm here.
1:32:11 Can you hear me?
1:32:12 Yes.
1:32:14 I,
1:32:15 I want to take up in a few sentences your concern
1:32:19 about um inflation.
1:32:22 Uh,
1:32:23 and I want to arrive at the same conclusion as Per Olivier did,
1:32:26 but,
1:32:27 but phrase it somewhat,
1:32:28 somewhat differently.
1:32:29 Um.
1:32:32 If I had told you in 2005,
1:32:36 that the Federal Reserve would multiply its balance sheet
1:32:39 by a factor of 4,
1:32:40 and that inflation would remain at zero,
1:32:43 you would have probably said that I was crazy.
1:32:45 I've been smoking something.
1:32:47 Um,
1:32:48 but that's exactly what happened.
1:32:50 Um,
1:32:51 and,
1:32:51 uh,
1:32:52 to understand that,
1:32:53 we,
1:32:53 I think we have to understand that,
1:32:55 uh,
1:32:55 macroeconomic circumstances changed massively.
1:32:58 That,
1:32:59 um,
1:33:00 central banks began paying interest on reserves,
1:33:03 that,
1:33:03 of course,
1:33:04 because the world interest rate fell sharply,
1:33:06 the interest rate had to pay was very,
1:33:08 very little.
1:33:09 And so a great deal more liquidity could be
1:33:11 injected into the system without any destabilizing consequences.
1:33:16 Yes,
1:33:16 the world is different today than it was 12 years ago.
1:33:19 But um there's one thing that
1:33:21 the world then and the world today share,
1:33:24 and that is
1:33:26 the real interest rate across the board on planet Earth remains incredibly low.
1:33:32 And because it remains incredibly low,
1:33:35 two things are true.
1:33:36 You can issue a lot of debt,
1:33:38 uh,
1:33:38 as long as,
1:33:39 um,
1:33:40 Uh,
1:33:41 as the interest rate is low
1:33:43 without necessarily opening yourself up to a big debt crisis,
1:33:47 and secondly,
1:33:48 if,
1:33:49 you know,
1:33:49 if the nominal interest rate is 0%,
1:33:51 government bonds and money are perfect substitutes.
1:33:53 So you can also issue a lot more money
1:33:56 without necessarily prompting a run out of money.
1:33:59 That may not last forever.
1:34:01 Um,
1:34:02 you know,
1:34:02 5 years from now,
1:34:03 of course,
1:34:03 if the real interest rate in the world rises,
1:34:06 that equilibrium may be harder to sustain.
1:34:08 But today,
1:34:09 we are in that world,
1:34:11 and,
1:34:11 uh,
1:34:12 you know,
1:34:12 the world is nasty in many dimensions.
1:34:14 In this particular regard,
1:34:16 it is not so nasty.
1:34:17 So I think for many countries,
1:34:18 not only the very rich countries,
1:34:20 but also some middle income countries,
1:34:21 and emerging economies,
1:34:23 their debt carrying,
1:34:24 uh,
1:34:24 capacity has risen a lot in this environment of very low,
1:34:27 uh,
1:34:28 world interest rates.
1:34:29 And that is an opportunity to be aggressive,
1:34:31 uh,
1:34:32 not an invitation to be shy.
1:34:34 Great.
1:34:35 Thank you very much,
1:34:36 Andres.
1:34:36 Thank you,
1:34:36 Ricardo.
1:34:37 Thank you,
1:34:38 Pierre Olivier.
1:34:39 Thank you Roberto,
1:34:40 and especially thank you
1:34:42 Norman.
1:34:43 Uh thank you all online and stay tuned for the next
1:34:47 uh
1:34:48 Episode of
1:34:50 uh economics in the COVID era.
1:34:53 Thank you all.
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