{
  "title": "Economic Policies for the COVID-19 War",
  "publication": "IMF Blog, April 1, 2020",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2020/04/01/blog040120-economic-policies-for-the-covid-19-war",
  "canonical": "https://www.imf.org/en/blogs/articles/2020/04/01/blog040120-economic-policies-for-the-covid-19-war",
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  "summary": "This blog is part of a special series on the response to the coronavirus.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Giovanni Dell’Ariccia, Paolo Mauro, Antonio Spilimbergo, Jeromin Zettelmeyer\n- Date: April 1, 2020\n- Framing: The COVID-19 pandemic is described as a crisis \"like no other\" and \"feels like a war.\" The public sector plays an increased role, and the pace of recovery depends crucially on policies enacted during the crisis."
    },
    {
      "heading": "Two phases of the crisis",
      "content": "- Phase 1: the war\n  - Description: The epidemic is in full swing; mitigation measures are severely curtailing economic activity.\n  - Expected duration: \"at least one or two quarters.\"\n  - Policy priority: Save lives and limit contagion; support households and firms to preserve the productive fabric.\n- Phase 2: the post-war recovery\n  - Description: Epidemic under control with vaccines/drugs, partial herd immunity, and continued but less disruptive containment measures.\n  - Policy priority: Facilitate return to normal functioning as restrictions are lifted; fiscal measures to boost demand become more effective."
    },
    {
      "heading": "Wartime policy objectives and measures",
      "content": "- Core insight: The output fall is not driven by demand but by containment measures; hence initial policy is not primarily demand stimulus.\n- Three policy objectives:\n  - Guarantee the functioning of essential sectors\n    - Boost resources for COVID-19 testing and treatment.\n    - Maintain regular health care, food production and distribution, essential infrastructure, and utilities.\n    - Possible measures: prioritization of public contracts for critical inputs and final goods; conversion of industries; selective nationalizations; rationing; price controls; rules against hoarding.\n    - Examples: France’s early seizing of medical masks; activation of the Defense Production Act in the United States.\n  - Provide enough resources for people hit by the crisis\n    - Support households who lose income to stay at home while keeping their jobs.\n    - Measures: government-funded sick leave, expanded and extended unemployment benefits, cash transfers to reach the self-employed and those without jobs.\n  - Prevent excessive economic disruption\n    - Safeguard relationships among workers and employers, producers and consumers, lenders and borrowers.\n    - Prevent loss of organizational know-how and termination of long-term projects.\n    - Support to private firms, including wage subsidies and large programs of loans and guarantees (with risks borne by taxpayers).\n    - Examples: EU relaxation of state-aid rules to facilitate direct capital injections; potential expansion of large state holding companies to take over distressed private firms.\n\n- Design principles:\n  - Greater public intervention is justified while exceptional circumstances persist, but must be transparent and include clear sunset clauses.\n  - Policies will involve a mix of liquidity measures (provision of credit, postponement of financial obligations) and solvency measures (transfers of real resources)."
    },
    {
      "heading": "Tradeoffs and implementation details",
      "content": "- Conditionality and equity:\n  - Transfers or subsidized loans to large corporations should be conditional on preserving jobs and limiting CEO compensation, dividends, and stock repurchases.\n  - Bankruptcy ensures equity holders share costs but causes significant economic dislocation.\n  - Intermediate option: government takes an equity stake in firms.\n- When liquidity is the problem:\n  - Central-bank credit through asset purchase programs or government-controlled intermediaries via loans and guarantees has been effective in past crises.\n- Support to small- and medium-sized enterprises and self-employed:\n  - Many practical questions arise in identifying and supporting these groups.\n  - Consider direct transfers based on past tax payments.\n- International dimension:\n  - Maintain international trade and cooperation, especially for health-care items and the free exchange of scientific information.\n  - Limit movement of people for containment, but resist shutting down trade."
    },
    {
      "heading": "From shelter-in-place to recovery",
      "content": "- Recovery challenges:\n  - Higher levels of public debt and possibly expanded government control over parts of the economy.\n  - Relative success in Phase 1 will allow a return to normal policy operations.\n- Fiscal context:\n  - Prior projections: interest rates and inflation were projected to be \"low-for-long\" in most advanced economies before the pandemic.\n  - Preventing major supply-chain disruptions should avoid inflation during the emergency and recovery phases.\n  - If containment measures succeed:\n    - The necessary increase in the public debt ratio will have been sizable.\n    - Interest rates and aggregate demand are likely to remain low in the recovery phase.\n    - Under those circumstances, fiscal stimulus will be appropriate and highly effective in most advanced economies and will facilitate exit from exceptional measures."
    },
    {
      "heading": "Key policy recommendations (summary)",
      "content": "- Prioritize life-saving and essential-service functioning.\n- Provide targeted support to households to preserve jobs and income (government-funded sick leave; expand and extend unemployment benefits; cash transfers for self-employed and informal workers).\n- Prevent firm and financial-sector dislocation via wage subsidies, loans, guarantees, and where necessary equity injections or state holding companies.\n- Make corporate support conditional on job preservation and limits on executive pay, dividends, and stock buybacks.\n- Use a mix of liquidity and solvency measures; rely on central-bank asset purchases and government intermediaries when liquidity constraints dominate.\n- Consider direct transfers for small firms and the self-employed based on past tax records.\n- Maintain international trade in health-care goods and scientific cooperation; avoid trade shutdowns.\n\nSource: IMF blog \"Economic Policies for the COVID-19 War,\" April 1, 2020.\n\n---\n\n\n References\n\n- global community\n- web of relations\n- programs\n- https://www.imf.org/wp-content/uploads/2020/03/eng-march-31-covid-war-table-1.jpg\n- The IMF and COVID-19\n\nSource: https://www.imf.org/en/blogs/articles/2020/04/01/blog040120-economic-policies-for-the-covid-19-war"
    }
  ],
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    "Authors: Giovanni DellAriccia, Paolo Mauro, Antonio Spilimbergo, Jeromin Zettelmeyer",
    "Published: April 1, 2020",
    "Authors: Giovanni Dell’Ariccia, Paolo Mauro, Antonio Spilimbergo, Jeromin Zettelmeyer",
    "Date: April 1, 2020",
    "Framing: The COVID-19 pandemic is described as a crisis \"like no other\" and \"feels like a war.\" The public sector plays an increased role, and the pace of recovery depends crucially on policies enacted during the crisis.",
    "Phase 1: the war",
    "Phase 2: the post-war recovery",
    "Core insight: The output fall is not driven by demand but by containment measures; hence initial policy is not primarily demand stimulus.",
    "Three policy objectives:",
    "Design principles:",
    "Conditionality and equity:",
    "When liquidity is the problem:",
    "Support to small- and medium-sized enterprises and self-employed:",
    "International dimension:",
    "Recovery challenges:",
    "Fiscal context:",
    "Prioritize life-saving and essential-service functioning.",
    "Provide targeted support to households to preserve jobs and income (government-funded sick leave; expand and extend unemployment benefits; cash transfers for self-employed and informal workers).",
    "Prevent firm and financial-sector dislocation via wage subsidies, loans, guarantees, and where necessary equity injections or state holding companies.",
    "Make corporate support conditional on job preservation and limits on executive pay, dividends, and stock buybacks.",
    "Use a mix of liquidity and solvency measures; rely on central-bank asset purchases and government intermediaries when liquidity constraints dominate.",
    "Consider direct transfers for small firms and the self-employed based on past tax records.",
    "Maintain international trade in health-care goods and scientific cooperation; avoid trade shutdowns.",
    "[global community](https://www.imf.org/en/News/Articles/2020/03/27/pr20114-joint-statement-by-the-chair-of-imfc-and-the-managing-director-of-the-imf)",
    "[web of relations](https://blogs.imf.org/2020/03/09/limiting-the-economic-fallout-of-the-coronavirus-with-large-targeted-policies/)",
    "[programs](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19)",
    "[https://www.imf.org/wp-content/uploads/2020/03/eng-march-31-covid-war-table-1.jpg](https://www.imf.org/wp-content/uploads/2020/03/eng-march-31-covid-war-table-1.jpg)",
    "[The IMF and COVID-19](https://www.imf.org/en/Topics/imf-and-covid19)"
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