The role of international financial institutions in responding to economic shocks

Since the outbreak of the new crown epidemic, international economic organizations, especially international financial institutions, have been paying attention to the impact of the development of the epidemic on the economy. Many international financial institutions have emerged from crises and have experienced many crises. Whenever a crisis comes, they always assume the role of firefighters. This is true of the Latin American debt crisis, the East Asian financial crisis, and the global financial crisis that originated in the United States. In the face of public health crises (such as the Ebola crisis), international financial institutions have played a rescue role. However, this global public health crisis is very different from the previous economic and financial crises. It not only serves as a financial safety net or financial support, but first of all, it is necessary to make a prediction of the impact of the global economy, and secondly, it is for the countries concerned. Put forward country policies and cooperation policies, and finally, they must be implemented, and truly provide financial support for vulnerable countries affected by the epidemic. In terms of macro-analysis, international financial institutions have made timely and detailed calculations of the impact of the New Crown Epidemic on the economy, and both supply and demand will be hit hard. In terms of policy recommendations, international financial institutions have recommended loose policies, including loose monetary policies to prevent large-scale fluctuations in short-term financial markets, loose fiscal policies to increase aggregate demand, and unimpeded information and international cooperation. In terms of financial support, with the spread of the epidemic, financial institutions provide financial support through donations, loans, funds, debt relief, and package plans. The initial funds are mainly used for medical infrastructure, and the later funds are used more for relief The economy affected by the epidemic. In this response, international financial institutions generally learned from the previous crisis response, quickly provided financial support to restore confidence, stabilize the financial market, and no longer attach austerity policies, but promote long-term structural economic policies to promote long-term The economic recovery has saved the losses caused by the impact of the epidemic.

Analyze economic impact

International financial institutions are very sensitive to this crisis. They use the advantages of experts and data to provide timely professional analysis of the possible economic impact of the epidemic. The substantial impact of the new crown epidemic on the economy has become a consensus, and almost all international financial institutions have lowered their expectations for future economic growth. The International Monetary Fund (IMF) stated in its “World Economic Outlook” released on April 14 that the new coronary pneumonia epidemic is causing huge costs worldwide, and the global economy is expected to contract sharply by 3% by 2020. The World Bank published a report on April 12, predicting that the new coronavirus epidemic will cause the Latin American and Caribbean region to decline by 4.6% in 2020. In its “South Asia Economic Focus” report, the World Bank predicts that the economic growth rate of South Asia in 2020 may be From 1.8% to 2.8%, the region’s worst performance in 40 years.

The new crown epidemic is an exogenous shock for the economic system, and international financial institutions have also analyzed its impact on the economy. The IMF believes that this health crisis will have a significant economic impact as supply and demand are impacted differently from past crises. The ADB believes that due to anti-epidemic policies, consumption and investment have decreased, which has led to a reduction in domestic demand. At the same time, it has spread to the world through trade and tourism and has a serious impact on the economy. Other channels include the destruction of the supply side, the decline in commodity prices, and the decline in exports. Claudio Borio, head of the Monetary Economy Department of the Bank for International Settlements (BIS), said that the current global economy is in a downturn, and that the relevant policies to deal with new coronary pneumonia will affect the market, and the hope of a short-term V-shaped recovery is small. The Organisation for Economic Co-operation and Development (OECD) believes that the government’s embargo measures in response to the epidemic will reduce consumer spending in many economies by one third, and the overall output of the economy will drop by one quarter to one fifth And every month of strict blockade measures, the GDP growth rate will drop by two percentage points.

Of course, the epidemic situation is still developing, and the analysis of international financial institutions is also being updated. Based on sufficient data and high-level economists, the analysis of international financial institutions can provide a valuable reference for governments and economic entities of various countries. In particular, it will help countries to recognize the seriousness of the problem and take more decisive and resolute measures. It will also help to create a sense of urgency when there is no winner in the epidemic that needs to be addressed together.

Make policy recommendations

Making policy recommendations is also a way for international financial institutions to exert influence. ADB issued an assessment report “13 Experiences in Dealing with the New Crown Crisis”. The report details 13 experiences from its previous response to infectious diseases. As early as March 2, the Organization for Economic Cooperation and Development (OECD) expressed its concerns about the world economy through its “Mid-Term Economic Assessment Report: The World Economy at Risk”. They believe that the global economy is weak and the downward pressure is more Against the backdrop of a large background, the outbreak of the new crown epidemic has brought short-term challenges to the global economy, and governments must take policy measures as soon as possible.

Considering the direct impact of the epidemic on the economy, many international financial institutions believe that the government should implement targeted policies to help families and businesses affected by the epidemic. The IMF believes that cash transfers, wage subsidies, and tax relief can be provided to households and businesses hit by supply chain disruptions and falling demand to help people meet demand and maintain business operations. The OECD believes that fiscal policies for medical services should be increased, flexible employment forms should be adopted to stabilize employment, and the government should provide support to the transportation and tourism industries directly affected by the epidemic. The World Bank specifically mentioned that for developing countries, health expenditures, social safety nets, and the private sector should be increased. The government should increase investment to strengthen the public health system so that it can treat patients faster and stop the spread of the epidemic, provide cash transfers and free medical services to vulnerable groups, and provide short-term credit, tax incentives or subsidies to the private sector.

The epidemic has brought many uncertainties to the economy, which has also impacted the global financial system. International financial institutions generally believe that the central bank needs to provide liquidity support for financial companies to prevent the impact of the epidemic from becoming a financial crisis. The IMF believes that the central bank should always be ready to provide sufficient liquidity to banks and non-bank financial enterprises, especially those financial institutions that lend to small and medium-sized enterprises. The government can provide temporary and targeted credit guarantees to meet the recent needs of these enterprises. Liquidity requirements. Financial regulators can also encourage financial institutions to temporarily extend loan repayment dates for loans. If the risk of a substantial tightening of the financial environment increases significantly, the central bank should adopt broader monetary stimulus measures, such as lowering policy rates or buying assets. The World Bank believes that if developing countries are to cope with financial market volatility, the central bank should be ready to respond to the disorderly fluctuations in the financial market. It can restore financial stability and promote growth by cutting interest rates and injecting liquidity. Policy makers should use all policy tools including monetary, fiscal, trade and investment policies to boost confidence. The Basel Committee on Banking Supervision stated that in view of the constantly spreading nature of New Coronary Pneumonia, banks and regulators must remain vigilant to ensure that the global banking system remains sound in terms of finance and operations. The OECD believes that the central bank should maintain a low long-term interest rate. Of course, after the 2008 financial crisis, the central banks have less room to continue to loosen monetary policy, and the economic promotion effect will not be particularly obvious. Fiscal policy and structure are needed. Cooperation with sexual policies, and consider in advance how market-based mechanisms should be used to address the impact of rising non-performing assets on the banking system.

Fiscal policy has a more direct effect on the economy and has a better effect in responding to short-term shocks such as the epidemic. International financial institutions have also emphasized the role of loose fiscal policy. The OECD believes that the government should increase public investment. Although the government debt and deficit ratios of some countries are currently high, there is still policy space for some structural investment. At the same time, the one-time impact of the new crown epidemic is systematically reduced and exempted. Taxation is also a good way to alleviate the economic downturn. In addition, when supporting employment, it is necessary to consider the situation of multinational workers.

Regarding how to mitigate the adverse impact of the epidemic on enterprises and workers, the World Bank has made very specific recommendations: First, the most direct way for the government to delay taxation is to delay the payment of corporate income tax. In most countries, corporate income tax accounts for only a few percentage points of tax revenue, but delaying payment by one or two quarters can immediately give the private sector breathing space without affecting fiscal balance. VAT refunds also help to retain liquidity in enterprises. On the one hand, the government can speed up VAT refunds for exporting companies, and on the other hand, delay the VAT payment for importing companies. This is particularly meaningful for EU member states. Greece has already announced this measure. It takes 31 weeks for VAT refunds to purchase equipment, Italy currently has 63 weeks, and it takes the longest time in the EU, while Danish tax refunds take 10 weeks and Germany only takes 5 weeks. China has just begun allowing VAT refunds for equipment purchases, helping all companies increase their liquidity. Second, provide unemployment insurance for laid-off workers to reduce the pressure on small businesses. Not every country has unemployment insurance. With this measure, workers can pay for household expenses, including mortgages, to support families through the economy Slow down. Bulgaria and South Korea have implemented such policies. Third, enterprises with liquidity problems should be regarded as sustainable enterprises. 76 of the 190 economies in the sample of the World Bank’s Business Environment Report have bankruptcy laws, which will trigger foreclosure or takeover procedures after a few weeks of lack of liquidity. Countries that do not include reorganization procedures in the bankruptcy laws need to reduce their difficulties The possibility of business failure. Fourth, the government needs to expand fiscal space for medical care and social security. Priority is given to projects that can provide a large number of jobs without consuming too much budget in the government’s procurement process, and redeployment of financial resources freed from projects that can be delayed. The IMF considers the best time to implement fiscal policy. They believe that the government implements a wide range of fiscal stimulus based on the available fiscal space, which helps boost overall demand, but it will be more effective to introduce fiscal policy when business operations begin to return to normal. .

The epidemic is an unprecedented test for all mankind, and international financial institutions also call on governments to maintain smooth and transparent information, coordinate the implementation of relevant policies, and provide assistance to more difficult countries to jointly fight the epidemic. The World Bank believes that the government should avoid protectionist policies and avoid cutting off global value chains for the prevention and control of epidemics, especially food and medicine and other necessities. The government should work together to support production and ensure that resources flow to where they are most needed. All countries should increase the transparency of information about the spread of the epidemic, because panic and misinformation will increase the impact on the economy. The IMF believes that the impact of the expansion of the epidemic on the economy and confidence will have an impact on the financial and commodities markets. It requires the coordination of governments at the international level and the adoption of coordinated and coordinated response measures.

In addition, the ADB has considered the epidemic from a more long-term and macro perspective. At the mid-term response level, the ADB recommended that countries strengthen exchanges with countries around the world and learn from previous experience to establish a more flexible and effective epidemic prevention system. In the long run, it is recommended that regional countries jointly establish a regional disease prevention and control center (CDC) to better cooperate in the prevention and control of infectious diseases at the regional level.

In general, the policy recommendations of international financial institutions for controlling the epidemic, especially the economic impact caused by the epidemic, are pertinent, and many policies have received responses and support from many countries. The recommendations of international financial institutions calling for international cooperation are more practical. However, as a regional or multilateral economic cooperation mechanism, international financial institutions are not mandatory for member countries in many fields. Especially when certain large countries not only give up their leadership positions, the effect of international cooperation is also greatly reduced. But the more this is the case, the more important it is to strengthen cooperation through international institutions.

Provide financial support

Providing financial support is an important function of international financial institutions. The outbreak first broke out in Asia, and Asian multilateral development financial institutions first responded to the outbreak. ADB first announced on February 7 that it approved a donation of US$2 million for the prevention and control of the epidemic. ADB also provided a 130 million yuan private sector loan to Wuhan-based Chinese pharmaceutical distribution company, Jiuzhou Tong, to protect the continuous supply of essential medicines and personal protective equipment. Subsequently, ADB again approved an initial aid loan of US$2 million to help ADB’s developing member countries fight the new crown epidemic. Since March, the epidemic has spread globally. ADB has increased its assistance to other member countries except China, and provided medical assistance and technical support to countries such as the Philippines and Sri Lanka. On March 18, it also announced the provision of a preliminary response package of US$6.5 billion. ADB announced in April that it would increase its response package to US$20 billion, which is equivalent to ADB’s total financing and free assistance for the entire year of 2019, including about US$2.5 billion in concessional loans and grant funding sources.

The Asian Investment Bank, which has been in operation for just four years, not only invested US$1 million to purchase medical equipment to help China control the spread of the epidemic, but also set up a crisis recovery fund to provide US$10 billion to public and private sector entities. The fund will provide immediate help in three key areas: first, in the form of medical infrastructure and pandemic prevention to help alleviate medical pressure; second, provide liquidity support through loan facilities and credit lines of financial institutions, to Solve the shortage of working capital and liquidity; third, cooperate with other multilateral development banks to provide financial and budgetary support immediately to help the government focus on solving human resources and financial crises. In addition, AIIB has provided emergency public health facility loans in Beijing and Chongqing to support the sustainable development of public health infrastructure systems and emergency response.

The World Bank Group plays an important role in helping the global response to the epidemic. On March 4, the World Bank announced that it will provide up to US$12 billion in support packages to more than 60 countries affected by the new crown epidemic through fast-track access, designed to help developing countries strengthen their health care systems, including better access to health care services , Strengthen disease surveillance, strengthen public health interventions and work with the private sector to reduce the impact on the economy. The $12 billion financing package includes $2.7 billion from the International Bank for Reconstruction and Development (IBRD), $1.3 billion from the International Development Association (IDA), and $8 billion from the International Finance Corporation (IFC) (including existing trade funds 2 billion US dollars), and another 2 billion US dollars from the World Bank Group’s existing investment portfolio to supplement, and use the World Bank Group’s international experience and country knowledge to provide policy advice and technical assistance. The International Development Association focuses on low-income countries, the International Bank for Reconstruction and Development focuses on middle-income countries, and the International Finance Corporation will focus on the private sector’s response to the epidemic, focusing on business and employment status, and connecting commercial banks and enterprises, especially medical care. , Pharmaceutical and other enterprises’ supply chain. Later, as the epidemic continued to expand, the World Bank approved an increase in the size of its rapid financing from the original $12 billion to $14 billion. The funding will also help industries directly affected by the pandemic, such as tourism and manufacturing. Given the unprecedented challenges of the epidemic, the World Bank Group expects to allocate US$160 billion in funds over the next 15 months, including US$50 billion through grants and IDA concessional credits, to help countries protect the disadvantaged and vulnerable groups, support businesses, and promote the economy recovery. The World Bank Group also plans to establish a new multi-donor fund for health emergency preparedness and response (HEPRF). This fund will complement and supplement the aforementioned $160 billion in financing. During this spring meeting week, under the advocacy of the World Bank and the IMF, the finance ministers of the Group of 20 announced that, starting on May 1, official bilateral creditors will be allowed to request the grace of the International Open Association countries to suspend their debt repayment.

As the most critical link in the global financial safety net, the IMF has also taken rapid and positive measures in response to the outbreak. First, in terms of emergency financing, the IMF provides countries with rapid credit and rapid financing tools to quickly raise funds to respond to the epidemic. Loan applications from more than 50 countries have been approved. On April 15, the IMF president announced that the IMF will provide a short-term liquidity line (Short-term Liquidity Line). This is a revolving loan for member countries with good fundamental policies. Second, the IMF provided debt relief to poorer and more affected countries, while rapidly increasing existing procedures to respond to the emergency needs caused by the outbreak. The IMF has approved debt relief for 25 member countries through the Catastrophe Containment and Relief Trust Fund (CCRT). CCRT currently provides approximately US$500 million in grant-based debt relief, and is working to enrich CCRT to US$1.4 billion. Finally, the IMF maintains close cooperation with the authorities of member countries affected by the epidemic to re-prioritize technical assistance and training activities. Considering that the current IMF loan resources add up to US$1 trillion (including a US$440 billion share + US$196 billion new borrowing arrangement + US$344 billion bilateral borrowing arrangement), and the demand for loans has increased significantly, where the share cannot be increased Next, this spring meeting decided to double the size of the new loan arrangement. If the fifteenth quota review concluded last year could reach an agreement to increase the quota, then the IMF will be more calm in dealing with the impact of the new crown epidemic.

In the European region, the outbreak occurred later than in the Asian region, and European interregional financial institutions basically began to respond to the outbreak in March. The European Bank for Reconstruction and Development (EBRD) has launched an emergency plan worth 1 billion euros to support businesses in countries suffering from the crisis. The plan increased to 3 billion euros in April. In response to COVID-19, the European Investment Bank (EIB) has proposed a financing plan to raise up to 40 billion euros, with the help of financial intermediaries in member countries, and cooperation with the State Promotion Bank to ease liquidity and working capital of SMEs Deficiencies. The financing package proposed by EIB specifically includes: First, the bank-specific guarantee plan based on the existing plan: on the basis of the existing plan, a special guarantee plan will be launched to the bank to mobilize the bank to provide up to 20 billion euros in financing, supporting Enterprises in need. Second, provide banks with special liquidity quotas: accelerate and readjust the use of EIB’s intermediate loan instruments and other framework loans so that banks across Europe can specifically help affected companies, which are expected to raise 10 billion euros for these companies . Third, a special asset-backed securities (ABS) purchase plan: by purchasing asset-backed securities worth 2 billion euros from the bank, the resources are reordered so that the most needed companies can obtain working capital. At the same time, banks are allowed to transfer the risk of existing SME loans to the European Investment Bank to free up funds for new loans, which are expected to involve 10 billion euros. Eurozone officials have been discussing the launch of a rescue plan, which will enable the European Stability Mechanism (ESM) to establish multiple credit arrangements for Eurozone countries. After many twists and turns, the finance ministers of the Euro Group finally agreed on a rescue plan of 540 billion euros on April 10. The plan includes a €100 billion employment reinsurance program supported by the European Union’s Multi-Year Financial Framework (MFF); the establishment of a pan-European guarantee fund managed by the European Investment Bank (EIB) to provide 200 billion euros of liquidity funds for European SMEs; Use the European Stability Mechanism (ESM) to provide a credit line of 240 billion euros equivalent to 2% of the economic output of member countries.

The African region has also taken steps to actively respond to this global public health crisis. Since March, the African Development Bank (AFDB) has announced a number of health and safety measures to respond to the outbreak. At the end of March, AFDB launched a US$3 billion “Combine against New Coronary Pneumonia Social Bond”, which became the largest US dollar-denominated social bond in the international capital market. On April 8, the AFDB Group announced the establishment of an emergency fund to assist African countries in combating the new type of coronary pneumonia. The fund will provide up to US$10 billion in funding for the government and the private sector. The US$5.5 billion of the fund will be used for the sovereign operations of the countries where the African Development Bank is located, and US$3.1 billion will be used for national sovereignty and regional operations under the African Development Fund (concessional assistance for many African LDCs), and another 1.35 billion The US dollar will be used for private sector operations. In addition, the African Development Bank approved a grant of US$ 2 million for the World Health Organization’s work on the African continent (see Figure 1).

It is gratifying that international financial institutions have been actively taking action since the advent of this public health crisis, showing a strong desire to strengthen cooperation. However, it is very regrettable that according to the analysis of the International Monetary Fund, the economic consequences of this outbreak are very serious, and many countries will fall into financial difficulties. It will be even more unsustainable. International financial institutions still have insufficient resources. However, increasing financial support capacity requires the cooperation of all countries in the world. The increase in funds of international financial institutions, especially the increase in the share of the International Monetary Fund, the World Bank’s debt relief for low-income fragile countries also faced resistance from some major members. We should actively unite member countries, promote the reform of international financial institutions, and give full play to the role of international financial institutions in global financial governance and the global financial safety net.


In this epidemic, international financial institutions have generally learned the lessons of past crises and assisted governments to quickly provide financial support to restore confidence and stabilize financial markets. At the same time, they no longer attach austerity policies, but promote long-term structural Economic policies to promote long-term economic recovery and save the losses caused by the impact of the epidemic. Not only do they prepare sufficient funds and a large number of tools in advance to deal with potential shocks at any time, but they also give advice to countries from multiple dimensions through research reports and policy recommendations. It is worth noting that, in the context of globalization, with the development of small and micro finance and supply chain finance, today’s international financial institutions have paid more attention to small and micro enterprises and supply chains in response to the crisis, providing specialized resource assistance And loan projects to support small and micro-enterprise loans and supply chain financing, to prevent the collapse of small and micro-enterprises and cut off the supply chain from the root cause a huge impact on the economy. At present, in an epidemic period, it is impossible to assess the impact of the provisions behind the financial assistance provided by financial institutions, but we can see that it is not easy to coordinate assistance programs, but financial institutions are still doing their best to provide assistance, which is crucial for crisis response important.

(Guidance: Ou Minggang, members of the research group: Liu Qiuyin, Zeng Du, Liu Yumin, Qu Junya, Wang Wancheng, Wang Ziqi, Yu Xiaohan)

Global sight monthly information

The United States increased by more than 3 million unemployed troops, but the number of initial jobless claims fell by 5

According to data released by the US Department of Labor on May 7, the number of people claiming unemployment benefits in the United States until May 2 was 3.169 million, estimated at 3 million, and the previous value was revised to 3.846 million. Although the unemployment rate continued to rise, the number of initial jobless claims fell five times in a row.

Germany’s exports in March fell sharply from the previous month, the largest decline in nearly 30 years

On May 8, the data released by the German Federal Statistical Office showed that due to the new crown epidemic, Germany’s merchandise exports in March this year fell by 11.8% month-on-month, the largest month-on-month drop since August 1990. Commodity imports decreased by 5.1% month-on-month, the largest month-on-month decline since January 2009.

The Fed’s aid plan is finally online, and it will start buying corporate bond ETFs

On May 11, the Federal Reserve Bank of New York stated that its monetary policy tool, the secondary market company credit facility, will begin buying qualified exchange-traded funds (ETFs) that invest in corporate bonds on Tuesday. At the same time, credit facilities for primary market companies will also be launched in the “near future.”

US CPI hit the biggest drop in April, inflation short-term “difficult to get back on track”

On May 12, the adjusted CPI for April announced by the US Department of Labor fell 0.8% month-on-month, the largest single-month decline since December 2008. At the same time, the core CPI for food and energy categories fell 0.4% in April, the largest monthly drop since 1957.

U.S. Department of Commerce extends Huawei temporary license, but will upgrade chip control measures

On May 15, the Bureau of Industrial Security (BIS), which is responsible for export control under the US Department of Commerce, issued a notice that the temporary general license (TGL) for Huawei and its affiliates on the “Entity List” will be extended by 90 days to August. 14th.

Japan’s epidemic situation has stabilized again, but the economy may not escape the technical recession

On May 18, Japan announced the initial value of GDP growth rate in the first quarter of 2020. The data shows that, excluding factors such as price changes, Japan’s GDP growth in the first quarter of this year decreased by 0.9% from the previous quarter, and at an annual rate, it was a negative growth of 3.4%.

Economic “V” recovery is difficult to achieve, the European Central Bank hinted at more stimulus measures

On May 22, the minutes of the monetary policy meeting released by the European Central Bank showed that the European Central Bank was “fully prepared” to provide more stimulus measures as early as June to support the heavily damaged economy. The European Central Bank also hinted that fiscal policy also needs to play an important role.

The unemployment rate in the United States may exceed 20% in May, and will remain in double digits by November

On May 25, Kevin Hassett, a senior economic adviser to the White House, said that the high unemployment rate caused by the new coronavirus pandemic will start to decline from June, but it may remain in double digits until this fall.