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Covid-19: first lessons from a crisis

Covid-19: first lessons from a crisis

Covid-19: first lessons from a crisis

The Covid-19 coronavirus pandemic already affects at least 150 countries and 220,000 people have been diagnosed. This number is likely to be actually 6 to 8 times higher, given the large number of people who are asymptomatic or have not been able to be diagnosed due to the scarcity of the test in a large number of countries -including the US-, but that has the ability to infect many people.

The virus has already claimed the death of approximately 10,000 people, according to data from the World Health Organization (WHO), and to this day it is already Italy, and not China, that has the bitter record of deaths. Meanwhile, all of Europe is ravaged by the virus. In the United States, the spread of the coronavirus has started strongly this week, and as of March 19, there are already 12,000 confirmed cases and 182 people dead. Figures that are growing exponentially.

In Latin America, the problem is just beginning and it is expected that the worst will happen in April and May, when winter comes to the southern hemisphere. But already all countries, to some extent, are taking measures to contain the virus, closing borders, restricting the movement of people, closing schools and universities, and in some cases even decreeing a curfew.

Added to the enormous human cost in lives is a brutal global economic crisis: the world is closed due to illness. A first idea of ​​the possible impact is given by the figures for China, in January and February, with the crisis already unleashed: -13.5% drop in GDP, -20.5% in retail sales and -24.5% in investment in fixed assets. And that when the rest of the world worked.

In what is perhaps her most famous, and most erroneous, phrase, Margaret Thatcher said that "there is no such thing as society: there are individuals and families." This gigantic global health and economic crisis reminds us that we are a society, and that we organize and function thanks to institutions. And that the State has an irreplaceable and key role to play, not less, but different and complementary to that of companies and individuals.

What is not known and generates maximum uncertainty is how long the Covid-19 will remain. Sectors such as tourism, commercial aviation, restaurants and face-to-face retail - with the exception of supermarkets and pharmacies - have seen their sales decrease dramatically worldwide. People are definitely not buying, not only because they should have stayed at home, but because they are panicking. Stock markets have fallen dramatically worldwide: the S&P 500 is around 25%; 33% the London FTSE 100; 44% the Bovespa de Sao Paulo; 25% the Ipsa of Santiago de Chile, and so ...

Latin America receives the thankless visit of the Covid-19 at a bad time. According to Cepal estimates, the region grew just 0.1% in 2019, and its forecasts placed the growth rate at around 1.9% in a scenario without Covid-19. It is clear that in this new scenario the region will contract strongly, affected by internal and external factors, such as the fall in the price of raw materials, which is already a fact. Oil is at dramatically low prices, as are metals. The two major countries in the region, Mexico and Brazil, will also be affected by the interruption of the global supply chains to which they are highly integrated, especially Mexico.

Faced with this situation, countries are responding with mitigation measures, fiscal and monetary policy: lower interest rates, increased social spending focused on the most vulnerable, postponement of tax payments, suspension or extension of payment of bank loans , subsidies to pay wages, support to small and medium-sized companies with lines of credit and other measures in order to avoid a massive collapse of economic activity.

Aware that monetary policy no longer had much room for maneuver - and despite the fact that central banks around the world lowered interest rates to values ​​close to zero - countries are launching packages of fiscal policy measures without exceptions .

The Donald Trump government has revealed that it has a plan of the order of US $ 1 trillion (one million million), which represents approximately 5% of the country's GDP. This includes salvage measures for certain industries, such as commercial aviation, tourism.

It also includes help to the medium and small business sector and direct income to individuals and families by sending them a check. In Europe, Germany is proposing a package that reaches 16% of GDP, and France of 14% of GDP, although a very important part of this is the responsibility of their central banks, not fiscal policy. The conservative UK government, so far reluctant to act, has just announced a strong package of measures that includes paying up to 80% of company wages.

In this context of planetary crisis, leadership that encourages global coordination is missed, as was done in the 2008 crisis under the strong leadership of the United States, with President Barak Obama and the Fed at the helm. We consider the deployment of powerful multilateral actions vital, both health and economic, since without them it will be very difficult to combat the pandemic.

Of course, we cannot now have such leadership from the United States under the leadership of isolationist Trump, who among his many daily atrocities called the Covid-19 a "Chinese virus." The deterioration that Trump generated in relations with China and Western Europe will be a heavy liability in solving the crisis.

Either way, history teaches us that this crisis will also pass. Today it is about minimizing its damage and consequences. And after the crisis, surely, many things will change. In its passage, we hope, it will take prejudice and beliefs. One of them will probably be the idea, which many still subscribe to today, that the State is always part of the problem and not part of the solution; the dogma that we need a state as small as possible. The same heads of large banks who declared this as an article of faith, tearfully came to implore the support of the State so that their banks did not fail after the 2008 crisis, and they obtained it.

Today it is the entire population that demands, first of all, health systems and state support that account for the emergency, while companies and workers go to the State to help mitigate this crisis, which adds a crisis of supply - due to the breakdown of supply chains - with a crisis of demand, due to the fall in employment, wages and the almost impossibility of consuming . Many economists already speak of the state as the plaintiff or buyer of last resort, equivalent to the role of central banks as lender of last resort.

In what is perhaps her most famous, and most erroneous, phrase, Margaret Thatcher said that "there is no such thing as society: there are individuals and families." This gigantic global health and economic crisis reminds us that we are a society, and that we organize and function thanks to institutions. And that the State has an irreplaceable and key role to play, not less, but different and complementary to that of companies and individuals.

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