In the framework of the 75th United Nations General Assembly, Costa Rican President Carlos Alvarado Quesada presented this Friday a proposal for creating the Fund to Alleviate COVID-19 Economics (FACE), as a vehicle for international solidarity in light of the economic recession caused by the pandemic and an instrument to drive a sustainable recovery.
The proposal was presented by Costa Rica’s leader at a panel on which participants included the President of the Government of Spain, Pedro Sánchez; the Deputy Secretary-General of the United Nations, Amina Mohammed; the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena; professors Joseph Stiglitz from Columbia University and Ian Goldin from the University of Oxford; and the Director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD), Richard Kozul-Wright.
“FACE seeks to provide developing countries with the funds they need to cope with the pandemic’s socioeconomic effects on the economy and on people, on concessional and solidarity-based terms,” Alvarado explained in his remarks.
He specified that this is “a fund of half a trillion dollars for one-off support, financed with 0.7% of the Gross Domestic Product (GDP) of the world’s biggest and strongest economies – those that account for 80% of global GDP – to be intermediated by one or several multilateral development banks, as concessional loans to developing countries.”
The President of Costa Rica added that “the funds will be lent for a long term and at fixed rates, to provide one-off financing to developing countries that have limited policy tools for responding to the crisis and keeping their countries on track to comply with the 2030 Sustainable Development Agenda and the Sustainable Development Goals (SDGs).”
Upon presenting the initiative, the Costa Rican leader said that the hope is to strengthen it further and establish a discussion about the mechanisms and alliance-building among countries needed to achieve implementation of FACE as a viable option to address the social and economic effects that the COVID-19 crisis is having in developing countries.
In that vein, President Alvarado referred to the toll that the pandemic has taken globally, noting that 1.6 billion informal workers are forecast to be at risk, many of whom do not have access to social protection, and that between 40 and 60 million people could be pushed towards extreme poverty, while 195 million jobs are likely to have been lost in the second quarter of 2020 alone.
Meanwhile, in his remarks, the President of the Government of Spain, Pedro Sánchez, celebrated the creation of the FACE Fund and expressed his hope that it will become an instrument that supports the global recovery.
“The way in which we respond to this crisis will save the world for future generations. We must act globally. I am especially concerned about the countries of Latin America and the Caribbean. We have to be creative, act together and trust in international and regional mechanisms,” the Spanish leader stated.
The Deputy Secretary-General of the United Nations, Amina Mohammed, recalled that what began as a health crisis has turned into a humanitarian catastrophe. She added that while the measures adopted by financial institutions are welcome, much more must be done to address vulnerabilities.
“Many middle-income countries are particularly vulnerable (for example, small island States and economies that depend on tourism) to the effects of COVID-19. A massive and coordinated international response is needed. We are putting on pressure so that bold measures may be taken to ensure our future,” she sustained.
Joseph Stiglitz, a Columbia University professor and Nobel Laureate in Economics, stressed that a commitment is not only needed to a debt standstill for the poorest countries and for official debt, but also to one that encompasses more countries, including emerging markets.
“FACE is a fantastic initiative that I hope will be part of the solution. Multilateral banks are in a position to operationalize FACE, even for a green recovery,” the economist said.
Meanwhile, Alicia Bárcena, ECLAC’s Executive Secretary, warned that the economic, social and humanitarian crisis prompted by the pandemic has no precedent in the last century and has caused particularly serious effects in developing countries, including those in Latin America and the Caribbean.
She emphasized that FACE is conceived as a support for countries for the post-pandemic recovery and not just to face the current emergency. She added that the fund would distribute resources from developed countries to all developing countries, regardless of their income level.
“The problem of the lack of liquidity is a problem of distribution of liquidity,” she stated.
The senior United Nations official indicated that the inclusion of middle-income countries in loan initiatives is a contribution to global growth and stability.
“Middle-income countries are home to more than 75% of the global population, they account for around one third of global GDP and 96% of the external debt of all developing countries (excluding China and India). The crisis and the debt insolvency of middle-income countries can have a systemic effect on financial stability,” she noted.
She highlighted that FACE complements multilateral initiatives that, while important, are insufficient for confronting the pandemic, and she underscored that while the fund appeals to the solidarity of developed countries, it also appeals to their own interests.
Finally, Alicia Bárcena proposed that FACE be conceived as a rotating fund that uses the reimbursement and payment of debt, or a part of the debt of a group of countries, to provide additional financing to other economies, with the aim of addressing the emergency and recovery in the medium term.
Also speaking at the event were Kamina Johnson-Smith, the Minister of Foreign Affairs and Foreign Trade of Jamaica, and Ambassador Robert Rae, the Permanent Representative of Canada to the United Nations – countries that are convening, along with the United Nations, the initiative on Financing for Development in the Era of COVID-19 and Beyond, which will culminate next Tuesday, September 29 in a meeting of Heads of State and Government. Both of these representatives advocated for greater global financial solidarity as a key element to keep from widening the gap between advanced economies and developing countries.
Proposal in synthesis
In his presentation, President Alvarado specified the most relevant aspects of the FACE proposal:
- Fund of half a trillion dollars for one-off support, financed with 0.7% of the Gross Domestic Product (GDP) of the world’s biggest and strongest economies.
- Resources would be channeled by one or several multilateral development banks, through a special purpose vehicle, such as concessional loans to developing countries.
- FACE would be equivalent to 3% of the GDP of beneficiary countries, a figure representative of the drop in tax income plus the extrabudgetary costs of addressing the pandemic.
- The resources will be dedicated to mitigating the economic impact on people and productive sectors caused by the crisis, as well as to reviving economies through a better return once the pandemic has been overcome.
- The funds will be lent to countries under favorable conditions and on solidarity-based terms: with a 50 year repayment period, a five-year grace period and a zero percent fixed interest rate.
- Beneficiary countries, with the assistance of financial institutions or regional economic commissions, would establish a system for book-keeping and statistical records to identify the fiscal cost of the pandemic, aimed at managing the direct cost as well as the cost deriving from this economic consequence and their policies. This measure will contribute to keeping reliable data on each loan, according to countries’ own needs and vulnerabilities rather than general classifications such as per capita income.
- Financial organizations, to contribute in these special circumstances, would not charge any fees for the intermediation and administration of FACE’s resources.
- FACE’s resources would not be subject to traditional monetary or structural conditions (which are already being covered in accordance with the credit standards of the IMF or World Bank), but would contemplate norms of good governance and a committed fight against corruption.
- The outlays of the resources would be fully aligned with fulfillment of the 2030 Agenda and the SDGs, in order to build resilience and achieve the goals of multilateral environmental agreements, such as the Nationally Determined Contributions, to accelerate progress towards sustainable development in this Decade of Action.
- International financial institutions would maintain dialogue on evaluations of each country’s macroeconomic structural conditions that existed prior to the crisis caused by the pandemic, to preserve fiscal and monetary sustainability.