The coronavirus pandemic has thrown the world into an unprecedented crisis. In many ways, it’s like a war, according to the International Monetary Fund.
And wars need war-time policies.
There are two phases, the IMF’s economists wrote in a blog post: phase one is the war, with the epidemic in full-swing a mitigation measures curtailing economic activity. This could last at least one to two quarters.
Then comes phase two: the post-war recovery.
To ensure a swift and sustainable upswing, the public sector needs to be on top of things.
The success of the pace of recovery will depend crucially on policies undertaken during the crisis,” the economists said. “If policies ensure that workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved, the recovery will occur sooner and more smoothly.”
Governments will need to guarantee the functioning of essential sectors like regular health care, food production and distribution, infrastructure and utilities. On top of that, enough resources and government support need to be provided for people directly hit by the crisis.
Finally, governments need to put policies in place that prevent excessive economic disruptions by safeguarding “the web of relations among workers and employers, producers and consumers, lenders and borrowers,” the economists said.
All of this will come at a price of higher public debt balances across the world, and lower interest rates for a longer period — but it will ensure that the economy can start up again properly after the virus is defeated.