{"id":458652,"date":"2020-10-23T12:38:35","date_gmt":"2020-10-23T16:38:35","guid":{"rendered":"http:\/\/www.rochester.edu\/newscenter\/?p=458652"},"modified":"2020-10-26T13:58:10","modified_gmt":"2020-10-26T17:58:10","slug":"debt-relief-programs-have-big-return-on-investment-during-covid-19-458652","status":"publish","type":"post","link":"https:\/\/www.rochester.edu\/newscenter\/debt-relief-programs-have-big-return-on-investment-during-covid-19-458652\/","title":{"rendered":"Debt relief programs have big return on investment during COVID-19 pandemic"},"content":{"rendered":"
A Rochester economist says conflict between health priorities and economic policies can create spiraling crises.<\/div>\n

The COVID-19 pandemic may be pushing many emerging market nations into two separate crises that could spiral out of control\u2014one involving public health, the other involving individual country\u2019s national debt.<\/p>\n

That\u2019s according to Yan Bai<\/a>, a professor of economics at the University of Rochester<\/a>, who analyzed how emerging markets are struggling to balance policies designed to keep their populations safe while financing high debt obligations.<\/p>\n

\u201cIf a country has a lot of debt\u2014or if it has difficulty rolling over its debt\u2014the government will have limited capacity to help its people,\u201d she says.<\/p>\n

Bai and fellow economists Cristina Arellano of the University of Minneapolis and Gabriel Mihalache of Stony Brook University detail the financial and health risks in a new paper, \u201cDeadly Debt Crisis: COVID-19 in Emerging Markets<\/a>.\u201d<\/p>\n

They began by studying the effectiveness of lockdowns that began about two months after the initial outbreak and lasted for eight months. Such stay-at-home health orders are effective in reducing the toll of the coronavirus, they note. When half of the workforce stays at home, followed by a gradual relaxation of restrictions, the authors found that the death toll was reduced by half.<\/p>\n

But lockdowns come at a price, especially for countries with limited financial resources. People still need to pay for food, shelter, and basic supplies during a pandemic, but if a country is facing a debt crisis, that nation\u2019s policy makers have fewer resources to help citizens make purchases. That means less revenue goes to vendors and landlords, which puts a further drag on the economy, forcing more people to lose their jobs.<\/p>\n

\u201cA lockdown means people don\u2019t have access to work, which makes it more difficult for them and their families to survive,\u201d says Bai. \u201cThat\u2019s why in Chile, as well as other countries, people have been protesting the lockdown, which, in turn, makes it difficult for the government to sustain its lockdown policies.\u201d<\/p>\n

When that happens, countries often soften their restrictions, leading to a worsening of the health crisis. And, as Bai points out, that leads to a further degrading of the economy.<\/p>\n

At the onset of the COVID-19 pandemic, the International Monetary Fund (IMF) announced that short-term debt loans and funding initiatives would be available for emerging market nations. The authors argue that those programs need to continue.<\/p>\n

\u201cDebt relief programs by the IMF and other international organizations not only help in terms of providing consumption, they also help to save lives,\u201d says Bai. \u201cFrom that perspective, we find that the return on investment is quite high for the debt relief programs.\u201d<\/p>\n

Several countries\u2014including Argentina, Ecuador, and Lebanon\u2014have already gone into default while still dealing with the COVID-19 pandemic. Bai cautions that there could be long-term consequences, as it has historically taken some countries 10 years to come back from economic default.<\/p>\n

Read more<\/strong><\/h3>\n
\n
\"barWhat will it take to restore the economy after COVID-19?<\/strong><\/a>
\n Narayana Kocherlakota, the Lionel W. McKenzie Professor of Economics, says the prospects for economic recovery depend on how effectively we can combat COVID-19.<\/span><\/div>\n
\"manReopening the country will do little to restore the US economy<\/strong><\/a>
\nRochester economist Lisa Kahn says multiple factors\u2014not just stay-at-home orders\u2014combined to generate the recent collapse in the labor market.<\/span><\/div>\n
\"healthCOVID-19 demands a reckoning with hospitals\u2019 fee-for-service business<\/strong><\/a>
\nA health care system that prioritizes volume over routine care is \u201cstructurally incapable\u201d of responding to the challenges presented by COVID-19, writes Mical Raz in a Washington Post<\/em> op-ed.<\/span><\/div>\n<\/div>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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