IMF declares recession

THE coronavirus outbreak is a dark, blind alley the world is still trying to negotiate. But International Monetary Fund (IMF) chief Kristalina Georgieva’s announcement that the world has entered a period of recession provides one certainty: the pandemic has overturned global economy for the current year. What was going to be a year of slow growth barely two months ago is now a bottomless pit; its depth will depend on the spread and duration of Covid-19. The shock waves have travelled beyond the usual suspects affected by the global travel ban and the insistence on social distancing. Now that industrial activity has slowed or halted, it is not just travel, hospitality and restaurants but the entire economic spectrum that is facing job losses.

The IMF, as the premier bailout institution, is planning to double its financial capacity because the mantra being cited — from Georgieva to RBI chief Shaktikanta Das — is that liquidity is the key to surmounting the crisis. But all bets are off if the world is unable to contain the virus. This makes it all the more necessary for the world’s financial institutions as well as the RBI to ensure there is liquidity for generous and targeted health services support which will not just check the current epidemic but also be the stepping stone for a healthier world.

The choice of terminology by the IMF chief — recession, not depression — is critical as it opens the possibility of a rebound. The chances are that if the world shuns the temptation of private profit and concentrates on public health, and if agriculture and allied activities remain resilient, the economy could recover in 2021. But it is very critical to remember the problems that arose after the 2008-09 world financial crisis. The IMF’s formula of easy credit was eagerly copied by several nations, including India, which landed them in a liquidity problem that dogs them to this day. India needs to be more alert to this trap because its 21-day lockdown, unanchored by evidence or research, will throw up many more problems than the IMF can solve.