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Blog

Covid-19 as seen by World Bank board member

by Hans Dembowski

Blog

Copper smelting in Zambia: commodity prices have plummeted because of Covid-19.

Copper smelting in Zambia: commodity prices have plummeted because of Covid-19.

Humanity needs a united response to the novel coronavirus. In a brief essay, Jürgen Zattler has spelled out his personal views concerning the matter. He represents Germany on the Bank’s executive board. The complete essay was published by the Center for Global Development, a Washington-based think tank, to coincide with this year’s virtual spring meetings of World Bank and IMF (14 April to 17 April). The meetings are taking place in a digital format. Here are some of Zattler’s important insights.

The global Covid-19 crisis teaches us several lessons. According to Zattler, they include that “human and animal health are interdependent and bound to the health of the ecosystems in which they exist” and that “a weak health system in one country can threaten the entire world, and pockets of poverty can foster the uncontrolled spread – even in high-income countries’.”  That means that “we are all in this together” and that “strong public institutions” are essential,  both at national and supranational levels.

Most economists expect the global downturn now to prove more devastating than the one that started in 2008 after the collapse of Lehman Brothers, the investment bank. The impacts on developing countries will most likely be particularly hard, with remittances falling, commodity prices dropping and capital outflows reaching record levels. Zattler warns of “looming food crisis”. Governments’ emergency programmes to reduce the economic impact and stimulate business are important, but they should also serve the achievement of long-term goals, he demands:

“If companies are not liquidated, workers not fired and business relationships not cut off, the recovery will be stronger after a period of forced “hibernation”. But this should not be an unconditional life-line. It is important to ensure that this stimulus is “future-fit” and supports the structural transformation of our economies. As the UN secretary-general put it: ‘recover better’ – with more inclusive and sustainable models of development, such as tax incentives for green investments (e.g. in energy efficiency) or extending public ‘green’ infrastructure, as well as supporting local entrepreneurs to pilot innovative ideas.”

The World Bank’s current action, according to Zattler, is organised along “three lines of defence”:

  • The first is to boost health care in partner countries.
  • The second is economic stabilisation, expanding partner countries’ fiscal space, including for social-protection transfers without which the development gains of recent decades may be lost.
  • The third is to keep private-sector businesses viable.

The board member acknowledges in passing that debt problems are making it harder for many governments to respond to the crisis.

Zattler regrets that an internationally-coordinated global response to the global Covid-19 crisis is made more difficult by weaknesses of the multilateral system: “Unlike in the security sector with the UN Security Council on top, there is no overarching international governance structure that deals with economic risks.”

A global panel assessing risks the way the Intergovernmental Panel on Climate Change does, would be helpful, Zattler writes. It would also make sense to establish something like a World Crisis Committee led by the UN secretary-general. That proposal was made by Gerd Müller, Germany’s Federal Minister for Economic Cooperation and Development, to whom Zattler reports.

A core challenge is that national governments  show inadequate interest in making efforts related to global public goods (GPG). For obvious reasons, they want others to take care of these issues. However, the current multilateral system also has only limited incentives to invest in GPG and crisis prevention, Zattler laments. That is true even of the World Bank.

“The World Bank’s business model is based on country programmes and demand from member countries. This is a big strength and should not be changed. However, when crises, as the current one, have spill-over effects – the model of GPG, including crises prevention and reaction, gets challenged.”

Zattler insists that humanity needs a stronger multilateral architecture:

“We can be certain that this will not be the last global crisis – with other pandemics looming, climate change accelerating, and biodiversity vanishing; not to speak about local and regional crises such as expanding bushfires and the current locust invasion in East Africa. Just as with coronavirus – there are several other, potentially more disastrous ‘curves'’ that ought to be ‘flattened’ – in and beyond our lifetime.”


Link
Zattler, J., 2020: “Never let a crisis go to waste!”
https://www.cgdev.org/blog/never-let-crisis-go-waste

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