{
  "title": "A Post-Coronavirus Recovery in Asia—Extending a “Whatever it Takes” Lifeline to Small Businesses",
  "publication": "IMF Blog, April 23, 2020",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2020/04/23/blog042320-apd-a-post-coronavirus-recovery-in-asia",
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  "summary": "Asia was hit hard by the first wave of the coronavirus: sudden stop in activity struck households and firms simultaneously—first in China, then elsewhere in Asia, and now globally.",
  "sections": [
    {
      "heading": "Overview of the shock and policy response",
      "content": "- Asia was hit hard by the first wave of the coronavirus: sudden stop in activity struck households and firms simultaneously—first in China, then elsewhere in Asia, and now globally.\n- Policymakers responded swiftly with aggressive spending to support the medical response and vulnerable households and firms. Central banks took swift actions to expand liquidity.\n- A new, more dangerous phase of “economic deleveraging” may follow as firms struggle to repay loans and pay workers amid a sudden collapse in cashflow and tighter credit."
    },
    {
      "heading": "Vulnerability of small and mid-sized enterprises (SMEs)",
      "content": "- SMEs are at greater risk in the deleveraging phase and are concentrated in services hardest hit by containment and social distancing measures.\n- Compared to large corporates, small firms:\n  - have thin cash buffers;\n  - are more leveraged;\n  - rely mainly on short-term loans and retained earnings.\n- Some private surveys suggest that small businesses, as the major employers, may have less than 3 months of cash left, raising the specter of a wave of defaults and a surge in unemployment.\n- Banks face pressures as large firms access credit lines to boost cash reserves; banks may prioritize largest customers, leaving smaller firms underserved."
    },
    {
      "heading": "Assessment of current policy measures",
      "content": "- Approaches so far in Asia include encouraging loan rollovers through regulatory forbearance and guarantees, and providing cheap lending to banks.\n- These measures will help but may not be sufficient given:\n  - banks’ capacity constraints and reluctance to take on additional risk;\n  - lack of new working capital to keep workers employed as cashflows dry up.\n- Only the public sector has the means to extend a large-scale temporary lifeline in the face of this unprecedented shock."
    },
    {
      "heading": "Proposal: an economy-wide “working capital bridge loan” via a special purpose vehicle (SPV)",
      "content": "- Objective: provide a temporary lifeline that goes beyond current policies to maintain jobs and incomes and prevent a prolonged depression.\n- Structure and eligibility:\n  - A government-created special purpose vehicle (temporary public entity) would facilitate new working capital loans to small and mid-sized firms.\n  - Eligibility limited to firms that can show they were sound borrowers last year but are now experiencing significant revenue declines from the virus.\n  - Firms would apply to banks for a new 3-year loan covering working capital needs and payments (interest and principal) falling due over the next 12 months.\n  - In exchange, firms would commit to maintain employment and avoid dividends or share buybacks.\n- Funding and risk sharing:\n  - The central bank would provide funding to the SPV to purchase these new “working capital loans” from banks, freeing bank capacity to lend now.\n  - The central bank would be secured by SPV assets and receive some loss protection from the government’s initial equity investment.\n  - Banks would retain a remaining portion of the loan to keep “skin in the game.”\n  - The SPV would manage losses by maximizing recovery value and have banks collect on defaulted loans through foreclosure and bankruptcy.\n- Adaptation to different financial systems:\n  - In bank-centered economies the SPV model applies directly.\n  - In economies with more-developed capital markets (e.g., Japan or Korea), loans could be securitized and tranches sold to institutional investors for broader risk sharing with the private sector."
    },
    {
      "heading": "Fiscal-monetary interactions and alternatives",
      "content": "- Direct government budgeting for widespread loan rollovers faces constraints: many emerging markets in Asia have limited fiscal space.\n- Some countries are considering commercial banks or central bank direct financing of extra fiscal spending (direct monetization).\n- A risk-sharing mechanism using central bank funding flexibility and fiscal loss protection can:\n  - achieve broad working capital support;\n  - preserve central bank independence and banking soundness;\n  - complement monetary policy and enhance economic benefits through greater lending.\n- Advanced economy precedent: the U.S. Treasury and the Federal Reserve’s Main Street Lending Program used SPVs with public risk sharing to support distressed companies.\n- Emerging markets in Asia could adapt this playbook to “do whatever it takes” to rescue their economies given the exceptional measures required.\n\nKenneth Kang, April 23, 2020\n\n---\n\n\n References\n\n- عربي\n- 日本語\n- China\n- elsewhere in Asia\n- globally\n- “crisis like no other,”\n- https://www.imf.org/wp-content/uploads/2020/04/eng-apr-22-apd.png\n\nSource: https://www.imf.org/en/blogs/articles/2020/04/23/blog042320-apd-a-post-coronavirus-recovery-in-asia"
    }
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    "[Markdown version](/en/blogs/articles/2020/04/23/blog042320-apd-a-post-coronavirus-recovery-in-asia/index.md)",
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    "Authors: Kenneth Kang",
    "Published: April 23, 2020",
    "Asia was hit hard by the first wave of the coronavirus: sudden stop in activity struck households and firms simultaneously—first in China, then elsewhere in Asia, and now globally.",
    "Policymakers responded swiftly with aggressive spending to support the medical response and vulnerable households and firms. Central banks took swift actions to expand liquidity.",
    "A new, more dangerous phase of “economic deleveraging” may follow as firms struggle to repay loans and pay workers amid a sudden collapse in cashflow and tighter credit.",
    "SMEs are at greater risk in the deleveraging phase and are concentrated in services hardest hit by containment and social distancing measures.",
    "Compared to large corporates, small firms:",
    "Some private surveys suggest that small businesses, as the major employers, may have less than 3 months of cash left, raising the specter of a wave of defaults and a surge in unemployment.",
    "Banks face pressures as large firms access credit lines to boost cash reserves; banks may prioritize largest customers, leaving smaller firms underserved.",
    "Approaches so far in Asia include encouraging loan rollovers through regulatory forbearance and guarantees, and providing cheap lending to banks.",
    "These measures will help but may not be sufficient given:",
    "Only the public sector has the means to extend a large-scale temporary lifeline in the face of this unprecedented shock.",
    "Objective: provide a temporary lifeline that goes beyond current policies to maintain jobs and incomes and prevent a prolonged depression.",
    "Structure and eligibility:",
    "Funding and risk sharing:",
    "Adaptation to different financial systems:",
    "Direct government budgeting for widespread loan rollovers faces constraints: many emerging markets in Asia have limited fiscal space.",
    "Some countries are considering commercial banks or central bank direct financing of extra fiscal spending (direct monetization).",
    "A risk-sharing mechanism using central bank funding flexibility and fiscal loss protection can:",
    "Advanced economy precedent: the U.S. Treasury and the Federal Reserve’s Main Street Lending Program used SPVs with public risk sharing to support distressed companies.",
    "Emerging markets in Asia could adapt this playbook to “do whatever it takes” to rescue their economies given the exceptional measures required.",
    "[عربي](https://www.imf.org/ar/News/Articles/2020/04/23/blog042320-apd-a-post-coronavirus-recovery-in-asia)",
    "[日本語](https://www.imf.org/ja/News/Articles/2020/04/23/blog042320-apd-a-post-coronavirus-recovery-in-asia)",
    "[China](https://blogs.imf.org/2020/03/20/blunting-the-impact-and-hard-choices-early-lessons-from-china/)",
    "[elsewhere in Asia](https://blogs.imf.org/2020/04/15/covid-19-pandemic-and-the-asia-pacific-region-lowest-growth-since-the-1960s/)",
    "[globally](https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/)",
    "[“crisis like no other,”](https://blogs.imf.org/2020/04/20/a-global-crisis-like-no-other-needs-a-global-response-like-no-other/)",
    "[https://www.imf.org/wp-content/uploads/2020/04/eng-apr-22-apd.png](https://www.imf.org/wp-content/uploads/2020/04/eng-apr-22-apd.png)"
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