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Academic D.C. Think Tank: World Needs “One Bank for the Whole World”

“For the first time in history virtually all people on earth are faced with the same, imminent common threat,” writes Jürgen Zattler for the Center fo Global Development blog in a piece called Never Let a Crisis Go To Waste.

In the midst of an unprecedented global lockdown, “there is an intensifying call for an internationally coordinated response; it is in every country’s interest to think and act globally.”

The International Finance Corporation, which is a part of the World Bank Group, will provide long-term loans to finance investments. “Generally, the multilateral institutions, such as the UN, the World Bank Group and the IMF, are too siloed from one another,” writes Zattler. “Unlike in the security sector with the UN Security Council on top, there is no overarching international governance structure that deals with economic risks.” This is nothing new.

“Several proposals to strengthen the global economic governance system have been made in the past, particularly in the context of the global financial crisis.” Zattler cites efforts by Germany’s Chancellor Angela Merkel and the UN’s Stiglitz Commission.

These proposals are long shots, he notes. “But there might be more modest steps towards strengthening global economic governance, e.g. to establish an ‘IPCC-like Panel’ on global risks, with the aim to assess global trends, to identify global threats in time, and to suggest options for collective international action.”

Gerd Müller, Germany’s Federal Minister for Economic Cooperation and Development, wanted to establish a World Crisis Committee under the leadership of the UN Secretary-General.

The World Bank would be part of the risk group, writes Zattler. “…[T]he Bank has always changed and adapted to new developments,” he writes. “Today more than ever, we need a bank that lives up to its name. One Bank for the whole world. And that is exactly how it must be set up. The Bank’s business model is based on country programs and demand from member countries.” This should not be changed, says Zattler.

The article seeks to establish how much and in what manners the coronavirus pandemic will change life on earth for humans. The author points to past cataclysms for evidence of the opportunity for drastic change.

“[A]fter the 1929 crisis countries and states began to pump-prime growth by Keynesian demand policies, thus injecting equity into their economies,” writes Kattler. “After World War II a new international order was established with the creation of the United Nations, the International Monetary Fund, and the World Bank in order to overcome the policy fragmentation of the 1930s.”

His words are echoed in a piece on the World Bank blog written by Stephane Hallegatte and Stephan Hammer. “If we get it right, the response to COVID-19 may not only minimize pain and suffering now, but can also build the foundations for a greener, safer, and more prosperous future,” the duo wrote.

Zattler emphasizes that, “we are all in this together.” In the piece, he acknowledges that “placing…economic systems into a sort of hibernation” may cause cascading effects on poor countries.

The resulting economic crisis leads to “remittances falling, depressed commodity prices, record capital outflows and a looming food crisis” leading to greater poverty.

“We need strong multilateral institutions and stronger global governance,” writes Zattler, who cites the words of the President of Ethiopia in his letter to the G20. “These challenges cannot be adequately addressed (…) by one country; they require a globally coordinated response. Just as the virus knows no border, our responses also should not know borders.”

Furthermore, as asset prices plummet and the fiscal budgets dissipating, Zattler calls for “strong counter-cyclical actors” prepared to do “whatever it takes” to manage the crisis.

Zattler highlights the need for strong public institutions as key to successful and sustainable development. “We must not only focus on efficiency, but also on resilience,” he writes, determining this will require “higher spending levels” as well as storage of “crucial products.”

Inequalities between and within countries exacerbate vulnerabilities in regards to the virus “from a lack of ICU beds and compromised immune systems in developing countries, to a lack of access to healthcare in some OECD countries.” How can this be ensured?

“To what extent those responses are coordinated internationally, or at least complementary, is still to be seen,” he said. He points to the Spring Meetings of the World Bank and the IMF as an “important test for global coordination.”

In coordination with the World Health Organization (WHO) and other UN agencies, the World Bank already has created support packages. Zattler says the first goal is to support the health sector and social security systems. “This encompasses conditional cash programs (including, hopefully, for environmental restoration) and undertaking ‘dual use”’investments that support the wider health and social systems,’ he wrote.

Debt vulnerabilities, sudden stops on capital markets and contractions of emerging and developing markets will require substantial fiscal transfers. “It is not clear yet how deep the impact of COVID-19 will be on developing countries’ economies. But – as IMF Managing Director Kristalina Georgieva put it – we should be prepared for the worst case scenarios.”