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Trade wars, populism, and geopolitics. The world is quickly becoming more fraught as complex forces threaten to disrupt and reshape the global economy in profound ways. In this context, the Lowy Institute launched the Global Economic Futures project aimed at better understanding this rapidly changing global economic landscape, where it might take us, and the key choices to be made.

The project examines the future shape of the global economy especially given rising tensions between the world’s two largest economies – the United States and China – and the possible implications for, and changing roles of, major regional economies, including Australia, India, Indonesia and others.

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The facts about global trade in face masks, ventilators and test kits

What impact will coronavirus have on economic globalisation, the force that has so momentously changed our world over the last half century?

An early example is the global trade in medicines and medical products, especially those essential to fighting coronavirus such as face masks, ventilators and test kits. As the US Congressional Research Service (CRS) observed in an 6 April note, Covid-19 “is drawing attention to the ways in which the US economy depends on manufacturing and supply chains based in China”. White House trade adviser Peter Navarro said last month he is preparing an executive order to help relocate medical supply chains from overseas to the United States. Japan has already announced such a plan. Australian Industry Minister Karen Andrews has also joined in, foreshadowing a review of Australia’s reliance on imports of medical products.

Although this is shaping up as an interesting debate, facts may intrude.

One fact is that the global trade in medical products is mostly an advanced economy business. The US itself is a very big exporter of medical equipment and pharmaceuticals. On US Bureau of the Census numbers exports in these two categories last year totalled nearly $100 billion, putting the US just behind Germany as the second biggest global exporter of medical products.

On recent World Trade Organisation numbers, the top six exporters of medical products are Germany, the US, Switzerland, the Netherlands, Belgium and Ireland.

Germany and the US are not only the top exporters but also the biggest importers – and in each case their top suppliers are other Western democracies.

Using those same WTO numbers, all of China’s exports of medical products last year totalled just one 20th of world medical exports, way behind Germany with one seventh, or the US with one eighth.

Policies that injure global trade in medical products would hurt the US and its Western democratic allies more than most, and in a sector well suited to their strengths in technology and intellectual property.

A lesson of the pandemic is certainly that no nation can rely on imports to meet its needs when every nation on earth suddenly wants the same products.

The US Bureau of the Census numbers for trade in pharmaceuticals and medical equipment show the US sells more to China than China to the US. Using a wider category the WTO shows a “medical products” bilateral imbalance in China favour but also shows that while the US accounts for nearly a fifth of China’s imports of medical products, China accounts for less than a 10th of US imports of medical products.

US medical products imports from Ireland, Switzerland and Germany are worth nearly five times US medical products imports from China.

Another intrusive fact is that China is only an important supplier of medicines and medical equipment to the US and the rest of the world in a couple of areas.

Coronavirus testing kits were in short supply in the US (and elsewhere). But China had not been an important exporter of these kits and on the CRS numbers accounted last year for only a tiny share of US imports.

Respirators are another essential piece of coronavirus treatment equipment, but China is not a big exporter to the US. According to the CRS, China accounted for 17% of US imports of respirators, much less than Singapore.

China produces some important active pharmaceutical ingredients (APIs) used by US drug makers, but its most important medical export to the US is face masks and other personal protective equipment (PPE). On CRS numbers China accounts for 72% of US imports of textile face masks, 77% of imports of plastic gloves, and half of imports of protective garments.

Though China restricted exports of face masks in early January, when China’s own requirements were huge, it resumed exports in February. Since 1 March, according to China’s customs service, it has exported 26.7 million N-95/KN-95 masks, 504.8 million surgical masks, 195.9 million gloves, 17.3 million surgical gowns, 873,000 goggles, 3,253 non-invasive ventilators and 112 invasive ventilators.

Air regulator tests during the production of medical ventilators in Spain (Pau Barrena/AFP/Getty Images)

In the categories where it accounts for significant shares of US medical imports, China does not appear to be responsible for shortages. In a 27 February press release addressing issues in medical supplies US Food and Drug Administration Commissioner Stephen Hahn told the media that no US firms importing drugs or active drug ingredients from China reported shortages, and the drugs in question were anyway regarded as “non-critical” for coronavirus treatment. The FDA had contacted US manufacturers producing “essential” medical devices in China. Hahn told the media ‘there are currently no reported shortages’ for these medical devices. In respect of masks, gowns, gloves or other PPE, Hahn told reporters the FDA “is currently not aware of specific widespread shortages”.

So what lessons on globalisation and medical products can we draw from the pandemic?

One is that normal production of medical products will never be enough to meet the extraordinary demands of a pandemic, whether the production is at home or abroad.

Surgical face mask production is a good case in point. Despite China producing half the world’s face masks last year, its output proved nowhere near enough for a population the size of China’s during an virulent epidemic. At the high point, according to the Organisation for Economic Cooperation and Development, China was using 240 million masks a day – more than ten times its manufacturing capacity. It cut off exports, imported masks, and increased domestic production from 20 million masks a day before the crisis to 116 million a day at the end of February. Taiwan, South Korea and India also restricted mask exports (including to China), for much the same reasons.

A lesson of the pandemic is certainly that no nation can rely on imports to meet its needs when every nation on earth suddenly wants the same products, and in vast quantities. At various times and to varying degrees, 60 nations restricted exports of medical products during the pandemic.

But another lesson is that nations cannot routinely produce within their borders the volume of medical equipment and pharmaceuticals needed for a pandemic. It is not a practical possibility for any nation or the entire global economy to produce every year the volume of output that might be needed one year in 20. Instead, the lesson is that every nation needs to stockpile enough essential supplies to get it through to the point where imports in sufficient quantity and emergency domestic production are available.

In the US and elsewhere the level of stockpiling was insufficient. The US Health and Human Services reported earlier this year that the US stockpile of face masks was less than 1% of what would be needed for a year-long epidemic. The face masks stockpile in China was clearly insufficient.

Even so, shortages of medical products do not account for the severity of the epidemic in Lombardy or New York. More testing and therefore more testing kits would have helped, but the great difference could have been made by earlier action to reduce infections, including lockdowns, social distancing, and travel bans.

COVIDcast Episode 7: The cost to the international economy

In this episode of COVIDcast, Roland Rajah sat down with the Institute’s Director of Research Alex Oliver to discuss the impact of the coronavirus on the global economy. Roland is Director of the International Economy Program and Lowy’s lead international economist.

One of the key questions about the economic impact of Covid-19 is whether the shock will be temporary or longer-lasting. Rajah explains in this episode why he believes the economic shock will permanently change the global economy, at least in some respects. Looking at the International Monetary Fund forecasts released this week, he notes that even under the IMF's “rosy outlook”, by the end of 2021 “the global economy will already have lost at least $5 trillion”, the equivalent of missing an economy the size of Japan’s. Under the IMF’s more negative scenarios, by the end of 2021 the world would be “missing an economy almost the size of the entire US”.

Each week since the severity of the coronavirus crisis became clear, Lowy Institute experts have been sitting down to discuss the implications of coronavirus for Australia, the Asia-Pacific region, and the world. Episodes one to six are already online, and this is the seventh instalment in the series, which we’ll be continuing on a weekly basis as this crisis unfolds.

Among other issues Oliver and Rajah discussed were the G20 finance action plan announced this week, and the economic plight of developing and emerging nations. According to Rajah, the virus has inflicted a “violent and unprecedented withdrawal of funds from these countries”. He outlines a proposal made on The Interpreter this week that Australia should extend a significant loan to Indonesia, to boost market confidence and help address the financial shocks it is experiencing.

Amid speculation that China will exploit the crisis to its own advantage by providing economic aid to emerging countries, Rajah points out the limits China will face in doing so and that China will only gain the upper hand if other countries don’t also step up in ways that they can, and should.

COVIDcast is a weekly pop-up podcast hosted by Lowy Institute experts to discuss the implications of COVID-19 for Australia, the Asia-Pacific region, and the world. Previous episodes are available on the Lowy Institute website. You can also subscribe to COVIDcast on Apple Podcasts, listen on SoundCloudSpotifyGoogle podcasts, or wherever you get your podcasts.

Australia should offer Indonesia crisis insurance ­– quickly

The Morrison government needs to urgently consider how it might best help Indonesia manage the economic risks posed by the Covid-19 pandemic. Indonesia faces a perilous outlook. The government is struggling badly to control the virus. Making matters far worse, Indonesia has also been among the hardest hit by the violent rush of money surging out of emerging economies worldwide.

What happens in Indonesia is of special importance to Australia given its size, proximity, and general centrality to our economic, diplomatic, and security interests. Australia should do what it can to help.

Indonesia’s huge size – 270 million people and a trillion-dollar economy – might make it seem impossible to offer meaningful help without this being at such great cost as to be politically infeasible. Especially as Australia’s economy is itself taking a battering from the virus.

Yet, Australian support could make a significant difference and, if structured properly, at little to no cost to the Australian budget.

Specifically, the Australian government could provide the Indonesian government with a sizeable “standby” loan facility – as much as US$10 billion (A$16.1 billion) – that could be drawn upon if Indonesia ran into difficulty raising adequate budget financing from the market. This could be complemented by also extending a currency swap line – perhaps for another US$10 billion – to bolster Indonesia’s defences against excessive currency depreciation, as recently suggested by former Indonesian finance minister Chatib Basri and economists at the Australian National University.

The beauty is that neither arrangement would need to be drawn upon to have a positive insurance effect. Their mere existence would serve to boost market confidence that Indonesia will be able to finance its budget deficit and withstand unwarranted currency pressures, making it less likely that the facilities would be called upon in the first place.

Unfortunately, it is easy to see how a perverse feedback loop might form, with market fears limiting the ability of policymakers to respond effectively, thereby increasing the damage from the virus, prompting more capital outflows, and so on.

Australia has participated in similar standby loan facilities for Indonesia in the past – in 2009 during the global financial crisis, and again in response to the 2013 “taper tantrum”. On both occasions, Australia committed about A$1 billion, that was never drawn upon, as part of a roughly US$5 billion multilateral facility led by the World Bank.

Today’s crisis clearly requires a far larger sum. Yet, the huge pressures on Australia’s own budget risks complicating the politics. To overcome this, a key difference this time around could be to anchor the loan terms close to Indonesia’s own sovereign borrowing costs during “normal” times, instead of providing a semi-concessional loan as in the past. The currency swap could take a similar approach.

Indonesia does not need a modest amount of cheap financing. What it needs is to be able to borrow at normal market rates but with certainty and at scale. Crucially, for Australia this means that, even if the funds were called upon, it would not impact negatively on the underlying cash balance nor fiscal balance of the Australian budget – as the lending terms could be priced for any risk of default.

Australian Prime Minister Scott Morrison with Indonesian President Joko Widodo during a visit to Canberra in February (Australian Embassy Jakarta/Flickr)

To see why such support could be pivotal, it is critical to recognise that Indonesia’s reliance on unstable foreign financing threatens to greatly exacerbate the damage from the virus pandemic.

Indonesia has already suffered around US$10 billion in financial outflows since late January while its currency has plummeted 14%. A sizeable US$410 billion in external debt, owed mostly in US dollars, make this a big problem. Evaporating commodity export demand compounds the difficulties.

Outflow pressures have eased in the last few days. But these could easily return with even greater force – especially if problems in other emerging economies were to spark fears of financial contagion or if Indonesia lost control of its own domestic virus situation.

Equally worrying is if a reliance on unstable foreign financing were to prevent Indonesia from deploying the kind of massive fiscal and monetary expansions needed in all countries to keep the economy (and society) afloat through the pandemic. Worse, Indonesia’s government might be deterred from pursuing adequate public health measures if it fears it would be unable to deliver the policy support needed to mitigate the economic and social fallout that would directly result.

One can already see signs of all this. Indonesia’s economic policy response to the virus has been relatively timid – with new budget measures worth just 2.8% of GDP and interest rates only cut to 4.5% to avoid putting further pressure on the currency. The central government has also only reluctantly begun to slowly roll out enforced social distancing measures.

Far more might be needed on both the health and economic fronts. The question is whether market conditions will allow it. Unfortunately, it is easy to see how a perverse feedback loop might form instead, with market fears limiting the ability of policymakers to respond effectively, thereby increasing the damage from the virus, prompting more capital outflows, and so on. Whatever happens with the virus itself, such a vicious cycle threatens to make things far worse.

Fortunately, Indonesia’s economic fundamentals are sufficiently healthy that, with some additional support, it could be in a good position to withstand the economic pandemic unleashed by the virus. The Australian policy support suggested here, combined with realistic contributions from other governments and multilateral institutions, could make that difference.

If Indonesia is interested in taking out such crisis insurance, Australia should willingly oblige.

Lockdown: A dilemma for the economic optimists

Everyone – including economists themselves – jokes about economic forecasting failures. But the intrinsic difficulties are compounded for the international economic agencies, especially the International Monetary Fund and the Organisation for Economic Co-operation and Development.

Their mistakes are high-profile, as their conjectures are in the headlines and are made on a regular schedule. Unlike private forecasters, they don’t have the opportunity to “forecast early, forecast often”, continually revising to overwrite impending bloopers.

On top of that, they are severely handicapped in their ability to have an agile reaction to unfolding unexpected events. In the “forecasting rounds” that precede the compilation of their numbers, there is extensive consultation with the so-called stakeholders – the representatives of the countries whose performance is being forecast. “Consultation” may not be quite the right word: it’s more an arm-wrestle to get some consensus around the best technical forecast, and the forecast that suits the client government’s current public narrative.

The best arm-waving word to describe the impact on the economy might be “decimate” – in its original meaning of reducing by 10%.

In the feeble recovery after the 2008 crisis, the IMF came under sustained criticism for always being too optimistic about growth prospects. True, they did make technical mistakes, in particular underestimating the depressing effect of the budget austerity of this period. But this was greatly exacerbated by the pressure from member countries to mimic the domestic narrative, helping confidence by staying positive, even optimistic.

The Covid-19 crisis presents a huge problem. At this moment, it looks like it will be necessary to take draconian containment measures to avoid the sort of triage disaster that Italy is experiencing. Yet these sorts of drastic measures will be hugely damaging for the economy. Worse still, if the measures succeed in “flattening the curve” of the epidemic, they will spread the problem out over a longer period, so it’s not just a quarter or two that will be badly affected.

The best arm-waving word to describe the impact on the economy might be “decimate” – in its original meaning of reducing by 10%. Using this round number as in indication of the uncertainty, Australian unemployment could easily exceed 10%, and a fall in GDP of 10% in 2020 is by no means out of the question. But what international agency, sensitive to the views of its membership, would want to print figures like that, when the domestic authorities don’t want to startle the horses and have delayed their own budget process until October because everything is too uncertain?

The IMF made its most recent forecast in January, when their forecasters thought that the world would grow at 3.3%. For the moment, they are sticking to verbal descriptions for the prospects – “a recession at least as bad as during the financial crisis or worse” – when the Fund recorded minus 0.6% growth for the world as a whole in 2009, with minus 3.2% for the advanced economies, and minus 0.6% for the emerging economies. In 2009, China’s 8.7% growth countered weakness elsewhere, but that won’t be repeated in 2020. Let’s see how bold the Fund will be with its forecasts at the April meeting.

Meanwhile, the OECD published interim forecast figures early this month, but they would have been finalised some weeks earlier, in consultation with individual country authorities. Just weeks after publication, these numbers are already looking hopelessly optimistic. The OECD’s chief economist avoided saying very much at all about the forecasts in a recent Financial Times article. The OECD revised down its November projection for world growth in 2020 from an “already low” 3% to 2.4%, with a “downside risk” estimate of 1.5%. China dominates their story, which might be an indicator of how far they are behind current events. The impending revisions can only go one way – down.

After coronavirus: Where the world economy will stand

For all the drama of collapsing output, demand, and jobs in Australia and many economies around the globe, we should expect that output in most countries will begin to recover once new coronavirus infections peak and head down. It will not be soon, but it will happen.

This is, after all, a deliberate economic recession, one created and encouraged by governments to slow the spread of the virus. There is no reason to expect any extensive destruction of the physical capital on which resumed output growth will depend, and no reason to expect workers to lose skills and knowledge.

For that matter there is no reason to expect any big change in what we buy, what we produce, what kind of work we do, or in global trade and investment, compared to the patterns a few months ago. China, Korea, Taiwan, Singapore and Japan are already heading back to work. Bar a major financial disruption – certainly a possibility, but one central banks are alert to control – much of the rest of the world will also be back at work before the end of the year.

Yet for all the likely similarities, it is also apparent that we will be in a somewhat different world.

Union Station, Washington DC (Elvert Barnes/Flickr)

One difference will be a big increase in debt. Coming out of this slump the level of output will be down and government debt vastly up. On numbers from the Organization for Economic Cooperation and Development, gross government debt was 136% of US GDP in 2018, and 66% of Australian GDP. We should expect that in a year or so it will be well over 150% of US GDP, and 80% of Australian GDP. Australia’s government debt to GDP will be similar to Germany’s, while the US will be similar to France, and Italy. For a few years these ratios will probably continue to increase.

At the same time households are to be likely adding to debt and running down savings. Borrowers who need it may be able to get mortgages repayments postponed, but the amounts will be added to their debt. Other families will have to borrow on their houses or run down offset balances. All up we should expect to see Australian household debt, already 120% of GDP, creep up. In this respect Australia is an outlier, mainly because of our preference for buying as opposed to renting homes. Even so, most advanced economies should expect to see a big rise in net household debt as consumers try to sustain their spending despite falling income.

In this crisis the rest of the world owes nothing to the leadership of either superpower.

Like households, many businesses will have to seek a moratorium on debt servicing. This will increase their debt coming out of the downturn. Some debt will be written off as companies go broke, but even so business is likely to come out of the pandemic more indebted than it went in.

The increase in debt compared to GDP need not much affect economic performance and is regardless a necessary consequence of trying to sustain demand while the virus is brought under control. But it will have a notable long term effect. During the course of the downturn central banks will cut interest rates to rock bottom, if they haven’t already. Because of the increased sensitivity of the economy to debt, central banks will have to keep rates very low even after economies have recovered.

Lower for longer is going to be so low for so long that for many years we can forget about central banks capacity to stimulate economies. They will have none. Central banks will retain their valuable capacity to smooth out liquidity strains and payments malfunctions, and to support debt for firms and households. Yet not even the Reserve Bank of Australia will have any capacity to ease the interest rate burden on households or corporations, below current levels. Central banks will have a general policy effectiveness only in one direction – raising rates. It will be many years before that capacity will be needed.

The Asian regional economy, with China at its core, is coming out the crisis faster and stronger than Europe or the Americas (STR/AFP via Getty Images)

The Australian federal government will be issuing several hundred billion in new debt, pushing the price of federal debt down and the interest rate up. To maintain its declared ceiling on bond rates, the RBA will have to buy them whenever the rate is likely to exceed its target rate. This is the point of the new policy. It means that the RBA has committed to indirectly funding the new debt intended to carry the economy through to time when the virus is under control. Like many other central banks, the RBA’s balance sheet will rapidly expand.

Fiscal policy will also be constrained, though not so completely. Most governments will be in deficit for a long while, including Australia’s. The big deficits expected this year and next mostly arise from a vast but avowedly temporary increase in spending on one side, and a collapse of tax revenue on the other. Fiscal policy will then turn contractionary as one off measures end, tax revenue begins to recover, and deficits begin to decline.

We learned in the years from 2009 that Australian tax revenue now recovers only slowly from a big downturn. This will be still more evident under the new tax thresholds and scales, with their built-in reductions. Yet the effect will still be contractionary, and perhaps severely.

Many other central banks had less policy space. But from 2011, the RBA was able to offset the impact of a contractionary fiscal policy by lowering the cash rate and sparking a housing boom. That will not be possible this time round. It follows that a sensible fiscal policy will aim to cut the deficit only slowly. It will be quite some time before government debt stops rising as a share of GDP, even if GDP growth returns to trend.

With interest rates even lower for even longer, financial market investors will have to buy shares. If markets valued companies fairly at the mid-February market peak, and if the economy global recovers to the levels of output and expectations of medium term growth which the market assumed in February, then overall equity prices have a very long way to increase. If the market bottoms out 50% below the February peak, for example, it will have to then increase by 100% just to get back to where it was. Unlike the last decade, it will be a stock pickers market. Many companies will emerge burdened with debt. Many tech companies, which lived on promise rather than sales, will find the post slump market uncongenial. Good fund managers may be able to beat the index.

Tacoma, United States, with social distancing measures in place (Tom Collins/Flickr)

The crisis also has wider implications. It has reminded us of the authority of the state over markets and supranational institutions. At the same time it has reminded us of how much nations have in common with all others, of the inescapable and irreversible fact of globalisation. It has queried the pretensions of the superpowers. In the global contest between China and the US, neither of the proponents have done well.

China quickly controlled the spread of the virus, but its tightly controlled communications also permitted the virus to get a hold, and not just in China. The US has plenty warning yet was unprepared for the epidemic when it hit, and fumbled the early stages of testing and isolating. The most successful countries in dealing with the virus have been Singapore, Taiwan, Hong Kong and Korea – all, like Australia, relatively small and with good health systems. In this crisis the rest of the world owes nothing to the leadership of either superpower.

Although the pandemic started in China, the Asian regional economy, with China at its core, is coming out the crisis faster and stronger than Europe or the Americas. Decoupling from China will seem even more of a fantasy.

It will be a new world, though one with familiar problems. We know about debt overhang and about the limits on monetary and fiscal policy from the past decade. Those constraints will be more pressing in the next.

For its part, Australia is getting by better than might have been expected. Iron ore and coal prices have held up remarkably well. Mining and farm exports look to be okay, at least so far. East Asia, the market for three quarters of Australia’s goods exports was first into this crisis, and looks to be on the way to being first out. Tourism and education will be slow to recover because both industries involve air travel and group activity. Their full recovery probably awaits not only a vaccine but its wide availability.

As for the impact on the idea of globalisation, it is certainly true that countries closed borders against foreigners, that the European Union members closed their borders against each other, and that various restrictions on cross border trade in medical supplies were proposed. Yet it is also true that countries shared information about the virus and its spread, the World Health Organization was able to coordinate and publicise high frequency data, and that countries learned from each other about ways to control the virus and treat the victims. So too the economic remedies have been broadly the same in most countries It was a universal, shared experience. Like individuals, countries were both isolating and communicating.  For a while nations have more in common than they usually suppose.

It will be a new world, though one with familiar problems. We know about debt overhang and about the limits on monetary and fiscal policy from the past decade. Those constraints will be more pressing in the next. In the last decade we became familiar with low productivity growth and faltering business investment. It will be a while before investment levels return to where they were at the beginning of this year, let alone move beyond them. Productivity growth will appear to be spectacular for a quarter or two as economies resume full production, then it will fade.

Still, after coronavirus, the sluggish performance of the past decade will be pleasingly recognisable.

What the G20 needs to deliver

The Covid-19 outbreak has rapidly gone from a crisis for China to a crisis for the world. The pandemic is desperately crying out for international leadership.

So far that has been sorely missing. An extraordinary (virtual) meeting of G20 leaders, to be held on Thursday, will hopefully begin rectifying this.

Many are looking to the G20 to provide the same kind of leadership it did during the 2008–09 global financial crisis. In fact, the need for strong global action goes vastly further this time around.

The G20 should commit now to quickly developing, funding, and rolling out a global health effort to help emerging and developing economies manage what could be an explosion in devastating health disasters.

The global financial crisis was really a North Atlantic crisis, with the core problems lying within the tightly interwoven financial systems of the United States and Europe. Those two getting their own houses in order – or at least re-establishing stability – was the single greatest service to the rest of the world they could provide.

The G20 complemented this by delivering a coordinated stimulus, guarding against a descent into beggar-thy-neighbour protectionism, and supporting the rest of the world via increased funding for the International Monetary Fund and multilateral development banks. That helped restore global confidence, limit the damage, and enable the recovery.

Covid-19, by contrast, is a truly global crisis. As the pandemic intensifies, countries around the world are simultaneously not only facing a dramatic external shock but a massive internal one as well – in the form of national health crises and related public shutdowns coming at high economic cost.

Most worrying, the obvious next stage of the Covid-19 crisis risks being a health and economic disaster in the emerging and developing world. Weak health systems, low state capacity, poverty, slums, inadequate safety nets, and little ability to fund their own policy responses mean the human and economic costs threaten to be far more devastating than what we have seen to date. There is some speculation that the virus doesn’t spread as easily in tropical climates. But that remains unproven.

Acknowledging this harsh reality is fundamental to thinking about the global ambition required.

A 3D print of a SARS-CoV-2 – also known as 2019-nCoV, the virus that causes COVID-19 – virus particle (National Institute of Allergy and Infectious Diseases/Flickr)

The key for the G20 is to begin taking concrete steps while sending a strong signal they are willing to do “whatever it takes” depending on how things evolve – echoing the famous words of former European Central Bank president Mario Draghi at the height of the Eurozone debt crisis.

Today, a truly global crisis requires a global “whatever it takes”. The need is in two broad areas.

The first is delivering a large-scale global health response. The G20 should commit now to quickly developing, funding, and rolling out a global health effort to help emerging and developing economies manage what could be an explosion in devastating health disasters. The World Health Organization could lead in coordinating the response and mobilising funds.

This needs to be coupled with more immediate actions, in particular urgently removing the array of export restrictions on critical medical supplies recently imposed by many countries, including G20 members. These are particularly insidious beggar-thy-neighbour policies, and will hit smaller and poorer countries with little domestic industrial capacity the hardest.

The second priority is on the economic front. The need is not just about coordinating expansionary fiscal and monetary policies as in 2009 but also about ensuring that as many countries as possible are actually able to undertake such measures in the first place.

Most emerging and developing countries, including G20 members such as India, Indonesia, and Mexico, simply cannot finance the kind of massive fiscal expansions – on the order of 10% of GDP and possibly higher – that many advanced countries are currently pursuing to save their own economies.

Many currencies are already plunging, and an emerging markets crisis is now a distinct possibility – with the risk that events in one country could easily spark wider financial contagion and collapse.

Underwriting financial stability and enabling the fiscal expansion needed in these countries will require a large and multi-faceted effort – deploying and dramatically expanding tools including central bank currency swaps, IMF liquidity and balance of payments support, and large-scale budget financing loans from multilateral development banks. For the poorest countries, international aid will be critical.

All of this may need to go far beyond the scope and scale of that delivered during the 2008–09 crisis. Positively, the IMF has begun raising important new proposals that could help. The G20 should heed this advice but also be prepared to go much further.

Importantly, the rationale for a global “whatever it takes” is not too different to that justifying the massive increases in spending currently underway in advanced economies – namely, incredibly low borrowing costs and high returns to acting now to stave off the far worse alternative.

Conversely, the costs to not doing whatever it takes could be catastrophic. And not just in terms of the human and economic toll. It could also deliver a fatal blow to any remaining idea of a stable global order – especially one underpinned by liberal values and led by the United States and its allies.

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