While the IMF titles today’s crisis the deepest downturn in the world economy in the last 90 years, LvBS is trying to find out what probable scenarios for overcoming the COVID-19 crisis are waiting for the world’s leading countries and what role is assigned to Ukraine. We were looking for the answers in an exclusive interview with Adviser to the Minister of Finance of Ukraine – Masaru Tanaka, an economist with 30-year experience, who held senior positions in the Bank of Japan at various time. He is also Adviser to the Governor of the United Arab Emirates Central Bank and Adviser from the International Monetary Fund at the Central Bank of the Republic of Myanmar.
What is the main difference between the crisis in the world and Ukraine?
There are six types of actions on how the governments, considering the qualitative medical capacity, acted trying to tackle COVID-19 infections. The consequences of the speed and the numbers of the infected, the healed and the deaths differ greatly and the depth of the downturn of the economy and how far the government and the Central Bank can compensate the loss of liquidity in the economy.
Firstly, the governments that have the legal power to hinder democracy partially and order thorough lockdowns accompanied with decent liquidity compensations, if applied simultaneously throughout the country, the numbers of the infected, the healed and the deaths can be contained and the depth of the downturn of the economy will be shallow and the burden on the government and the Central Bank to cope with the downturn will be light. Taiwan, Germany, Austria, Israel, Singapore, Korea, India belong to this group.
Secondly, the governments that have the legal power to hinder democracy and order thorough lockdowns accompanied with decent liquidity compensations, if applied regionally, the qualitative medical capacity will be overthrown, the numbers of the infected, the healed and the deaths can burst and the depth of the downturn of the economy will be deep and the burden on the government and the Central Bank to cope with the downturn will be heavy. China, Italy, Spain belong to this group.
Thirdly, the governments that do not have the legal power to hinder democracy and order partial lockdowns accompanied with decent liquidity compensations, if applied regionally, the qualitative medical capacity will be overthrown, the numbers of the infected, the healed and the deaths can burst and the depth of the downturn of the economy will be deep and the burden on the government and the Сentral Bank to cope with the downturn will be heavy. USA, UK, Canada, Australia, Brazil belong to this group.
Fourthly, the governments that do not have the legal power to hinder democracy and do not order any lockdowns, but without liquidity compensations and considering the qualitative medical capacity by awaiting antibodies to grow, the numbers of the infected, the healed and the deaths can be high. However, the depth of the downturn of the economy will be shallow and the burden on the government and the Central Bank to cope with the downturn will be light. Sweden belongs to this group.
Fifthly, the governments that do not have the legal power to hinder democracy and cannot order lockdowns, but accompanied with decent liquidity compensations and considering the qualitative medical capacity, the numbers of the infected, the healed and the deaths can be gradual. However, the depth of the downturn of the economy will be deep and the burden on the government and the central bank to cope with the downturn will be heavy. Japan belongs to this group.
Sixthly, the governments that have the legal power to hinder democracy and order thorough lockdowns applied simultaneously throughout the country, but without liquidity compensations, the numbers of the infected, the healed and the deaths can be contained, but the depth of the downturn of the economy will be deep and the burden on the government and the Central Bank to cope with the downturn will be heavy. Ukraine belongs to this group.
How is the crisis 2020 differs from its predecessors?
The COVID-19 crisis is unprecedented because it is not a financial crisis but is erasing the demand in the real global economy through global lockdowns which cannot be dealt financially until the lockdowns are lifted globally.
What tools can help a business not to go bankrupt?
The tools differ from country to country based on what the government aims to support under the COVID-19 crisis.
If the objective is to prevent unemployment from prevailing, the government should directly provide liquidity to the business to supplement the salaries of the employees to a certain extent, hence bankruptcy will be avoided, including the realtors who will have to endure non-payable rents.
If the objective is to prevent bankruptcies per se to a certain extent, the government can provide tax allowances and extend soft loans via special purpose mechanisms and the Central Bank can buy commercial papers helping the business to stay aloft, but jeopardizing employment. In this case, the government will need to provide blanket liquidity to individuals in order to prevent starvation.
How can Ukraine benefit from this crisis?
Coping with COVID-19 crisis will be highlighting any existing laws, resolutions, regulations, systems and practices that are preventing actions or blocking the speedy solutions and also pointing out missing laws, resolutions, regulations, systems and practices that need to be introduced immediately. Ukraine should act now to mend the existing defects in the incumbent laws, resolutions, regulations, systems and practices and introduce missing laws, resolutions, regulations, systems and practices. These will be the benefits that Ukraine should attain from this COVID-19 crisis to cope with the next crisis that will be expected soon.
