The key role of the World Bank and the International Monetary Fund in fighting the COVID-19 debt crisis

 

Among other issues, the COVID-19 pandemic created an unprecedented consequence on the increase of the international debt due to the "shut-down" effect of virtually all national economies. For sound reasons, the IMF has called it "a crisis like no other", forecasting that global GDP will decrease by 4.9% in 2020, with losses of USD 12 trillion as of 2022. Meaning that apart from the global recession, nations will be facing a noticeable rise in their foreign debt, in order to finance massive injections of cash needed for coping with the measures taken to sustain emergency measures, and to re-establish their productive capacity, and restart their damaged economies.

To underline the situation, global debt has aroused, from more than $10 million in 2019 to $255 trillion in 2020, and worldwide liabilities, at risk of default especially in developing countries, are now 40 % ($87 trillion) higher than at the beginning of the 2009 Financial Crisis. Obviously, measures to fight against this debt crisis will undermine the global efforts to combat climate change, and the rest of SDG's of Agenda 2030, because of the need to attend the expenditures for coping with the current crisis, to achieve the recovery of national economies, and to mobilize trillions of dollars for the transition to a more financially stable, socially inclusive, and ecologically sustainable, global economy (Akhtar et al, 2020; Watts, 2020).

Without any doubt, the International Finance Institutions (The World Bank Group and the International Monetary Fund) have demonstrated their value as development actors during this pandemic. In the case of Colombia, for example, on September 25, 2020, the IMF approved an extension of a Flexible Credit Line (FCL) of USD 17.200 million to this country, until April 30, 2022, with the purpose of strengthening national liquidity during the COVID-19 pandemic, taking into account that Colombia (who has a very close collaborative relationship with the World Bank and the IMF since the creation of both entities) was the first country in the IMF's history in asking for an FCL in 2009 (Banco de la República, 2020; Dinero, 2020; IMF, 2020). 

The real challenge now is not only to obtain new resources (with strong participation of the private sector, as an investor and also as a taxpayer) but how to allocate them in the most effective and efficient way. Maybe this crisis will serve as a catalyst to a radical effort for focusing on people-centered investments that address both climate change and social/economic inequality. In these terms, climate action and social equity must be placed at the top of the agenda (Akhtar et al, 2020; OECD, 2020), and the WBG and IMF are key actors in assuring this course of action, in their role as policy advisors and of course, each one as a potential lender.

In the end, this call to everyone (nations, international organizations, private sectors, and all the individuals) is a reflection on the importance of compassion. At this point, I remember a well known misquote of Darwin, speaking about “survival of the fittest” (the phrase was coined by Herbert Spencer, not by Darwin). It is better to say “survival of the kindest” because compassion is the reason for both the human race’s survival and its ability to continue to thrive as a species (Kukk, 2017; Nelson, n.d.).

Compassion, the most social of emotions, is the one who all of us experiences when feeling concerned for another’s suffering and desiring to enhance that individual’s welfare. Though economists have long argued the contrary, is generally accepted that both animals and humans have a compassionate instinct. In other words, compassion is a natural and automatic response that has ensured our survival, that of course, can be developed by habit; with surprising benefits that overcome any possible costs in altruistic behavior (Seppala, 2013; Lonczak, 2020).

Now it's time to put it into real practice, and IFI's are key figures in doing so, for the benefit of mankind and the planet.

Sources:

Akhtar et al (2020, August 21) Here's how we can defeat debt and strive for sustainability post COVID-19. In The Economic Forum. Retrieved from: https://www.weforum.org/agenda/2020/08/global-debt-for-climate-swaps/

Banco de la República (2020, September 25) Fondo Monetario Internacional (FMI) aprueba ampliación de la Línea de Crédito Flexible (LCF) para Colombia a USD 17.200 millones. Retrieved from: https://www.banrep.gov.co/es/fondo-monetario-internacional-fmi-aprueba-ampliacion-linea-credito-flexible-lcf-para-colombia-usd

(2020, February 10) A Fitch no le molestaría un desembolso del FMI a Colombia. In Dinero. Retrieved from: https://www.dinero.com/economia/articulo/que-piensa-fitch-sobre-el-desembolso-del-fmi-a-colombia/302241

IMF (2020, February 21). Colombia: Declaración al término de la misión sobre la Consulta del Artículo IV de 2020. Retrieved from: https://www.imf.org/es/News/Articles/2020/02/21/mcs-022120-colombia-staff-concluding-statement-of-the-2020-article-iv-mission

IMF (2020, April 9). Comunicado de Prensa Nº 20 / 142. El Directorio Ejecutivo del FMI recibe una solicitud de acuerdo de Línea de Crédito Flexible para 2020 con Colombia. Retrieved from: https://www.imf.org/es/News/Articles/2020/04/09/pr20142-colombia-imf-executive-board-receives-request-for-2020-flexible-credit-line-arrangement

IMF (2020, April 17). Comunicado de Prensa Nº 20 / 369. El Directorio Ejecutivo del FMI Concluye la Consulta del Artículo IV con Colombia correspondiente a 2020. Retrieved from: https://www.imf.org/es/News/Articles/2020/04/17/pr20169-colombia-imf-executive-board-concludes-2020-art-iv-consultation

IMF (2020, September 25). Comunicado de Prensa Nº 20 / 201. El Directorio Ejecutivo del FMI aprueba un nuevo acuerdo de dos años a favor de Colombia por US$10.800 millones en el marco de la Línea de Crédito Flexible. Retrieved from: https://www.imf.org/es/News/Articles/2020/05/01/pr20201-colombia-imf-executive-board-approves-new-two-year-flexible-credit-line-arrangement

IMF (2020, September 25). Comunicado de Prensa Nº 20 / 300. El Directorio Ejecutivo del FMI aprueba una ampliación de la Línea de Crédito Flexible de Colombia. Retrieved from: https://www.imf.org/es/News/Articles/2020/09/25/pr20300-colombia-imf-executive-board-approves-augmentation-of-the-flexible-credit-line

Kukk, Ch. (2017, March 8). Survival of the fittest has evolved: Try survival of the kindest. Retrieved from: https://www.nbcnews.com/better/relationships/survival-fittest-has-evolved-try-survival-kindest-n730196 

Lonczak, H. (2020, September 1) 20 reason why compassion is so important in psychology. In Positive Psychology. Retrieved from: https://positivepsychology.com/why-is-compassion-important/

Nelson, E. (n.d.) Darwin revisited: compassion key to our survival. In Charter for Compassion. Retrieved from: https://charterforcompassion.org/becoming-compassionate/darwin-revisited-compassion-key-to-our-survival

OECD (2020, June 24) OECD policy responses to Coronavirus (COVID-19). The impact of the coronavirus (COVID-19) crisis on development finance. Retrieved from: http://www.oecd.org/coronavirus/policy-responses/the-impact-of-the-coronavirus-covid-19-crisis-on-development-finance-9de00b3b/

Seppala, E. (2013, April 30) The compassionate mind. In Psychologicalscience. Retrieved from: https://www.psychologicalscience.org/observer/the-compassionate-mind

Seppala, E. (2013, June 3) Compassion: Our first instinct. In Psychology Today. Retrieved from: https://www.psychologytoday.com/us/blog/feeling-it/201306/compassion-our-first-instinct 

Watts, G. (2020, June 25). Covid-19 crisis sparks global debt risks. In Asia Times. Retrieved from: https://asiatimes.com/2020/06/covid-19-crisis-sparks-global-debt-risks/