The Hanoitimes – How policy makers respond now will be crucial in avoiding this worst-case scenario, and deciding whether the recovery path will be V, U, or L-shaped.
Asia’s economies have generally maintained sound macroeconomic policies that can help the region withstand this latest challenge and emerge even stronger.
The coronavirus (COVID-19) pandemic raises the specter of another global debt crisis. The global economy is deep in debt—to the tune of an estimated $250 trillion in 2019—after a decade of historically low interest rates. Global debt-to-GDP hit a record high of over 320%, according to the Institute of International Finance.
Developing countries are often vulnerable to a global credit crunch. The external debt to GDP ratio for developing Asia was 33% in 2018, only slightly lower than 34% during the global financial crisis. Though macroeconomic conditions in Asia are generally sound, the previous crisis made it clear that developing Asia is far from immune to a financial crisis originating in advanced economies. First, G20 policy makers should immediately coordinate actions to provide timely and effective policy support to avoid market panic while taking aggressive, preemptive measures to contain the spread of the virus. Second, coordinated efforts within and across borders are needed to manage business continuity, shore up confidence, prevent massive defaults through tax relief and emergency loans, and provide adequate liquidity in the financial systems. Third, regulators should carefully monitor and guide orderly reduction of undue exposures to leveraged loans and collateralized loan obligations among banks and non-bank investors, particularly those that are systemically important. * Cyn-Young Park is Director for Regional Cooperation and Integration, Economic Research and Regional Cooperation Department