Economists: A financial crisis “of unknown magnitude” awaits us after the epidemic

Economists: A financial crisis “of unknown magnitude” awaits us after the epidemic

12/14/2020 18:00:38

Economists - A financial crisis of unknown magnitude awaits us after the epidemic{Economist: Al Furat News} Determining which companies should be rescued or left to die will be a major challenge facing governments after the epidemic, according to the report of the Group of 30 issued today, Monday.
The report gives a picture of the difficult economic environment after the pandemic, as companies must try to get rid of the massive levels of debt they have accumulated in order to survive the downturn and the exceptional circumstances accompanying the crisis.
Once the huge financial support programs launched by governments to mitigate the effects of the pandemic are exhausted, the group of international economists fears a crisis in financial solvency, according to the report, “Agence France-Presse” quoted the report.

We are by no means saying that we know the scale of the problem, ” said Raghuram Ragan, a former Reserve Bank of India governor who now works at the University of Chicago, who oversaw the report . This was masked by a lot of extensive support provided.
While former European Central Bank President Mario Draghi, who also participated in the report, said that there are relatively few bankruptcies so far because “the flow of funds (financial support) hides a basic fact.”

The global group report, which is made up of economic and financial leaders from the public and private sectors and academia, aims to guide governments on how to avoid providing resources to companies that will be at a disadvantage in the post-pandemic world, and instead “adapt to the realities of the new world.”
This includes encouraging “necessary or desirable trade shifts” in sectors that are increasingly digitized. The report also recommends rethinking bankruptcy laws for heavily indebted companies that are difficult to survive even if they have a viable strategy.

essence of the challenge lies in the fact that while the current crisis is producing many more companies with sound underlying business models but bad balance sheets, most jurisdictions have bankruptcy procedures that basically assume that a company with a bad balance sheet is wrong. Incorrect structure.
The report also urged a broad shift in the financing structure toward equities rather than debt, adding that governments could put in place policies to encourage balance sheet restructuring, or take stock themselves.

“These government initiatives, properly organized, can generate substantial investment profits to partially or fully offset the cost of incentives or losses incurred by governments from companies that collapse.”