Chopra warns coronavirus will have ‘deeper’ impact than financial crisis

Former IMF official says there may need to be ‘standstill on private debt repayments’

The coronavirus crisis has hit the world economy "much harder and much faster than anything before", and will have a deeper impact than the 2008 financial crash, former International Monetary Fund (IMF) chief Ajai Chopra has warned.

“The combination of public health and economic crisis makes this radically different from the crises we’ve faced in the past,” he told a web seminar event hosted by the Dublin-based Institute for International and European Affairs .

“This time it really is different. By that I mean this is not a crisis that is caused by financial folly.”

Mr Chopra, who was the IMF's head of mission during Ireland's 2010 troika bailout, said economies were facing a sudden stop in activity from measures to contain the virus, combined with a trade shock from falling commodity prices.


He said there may need to be a “standstill on private debt repayments” until the true scale of the problem and likely fallout could be assessed, as well as some sort of debt relief for emerging market countries.

Mr Chopra noted that foreign investors had withdrawn around €90 billion from emerging markets since January, four times the outflow seen in the same period after the start of the 2008 crisis.

“There is a strong risk of disorderly defaults in emerging markets, and international co-operation is paramount.”

However, the international response so far had been weak, “with rich countries becoming more inward looking as they fight the pandemic themselves” .

In particular Mr Chopra singled out the lack of leadership from the US, and what he described as unhelpful comments from US leaders, who have labelled the disease "the Wuhan virus".

He said the demand for IMF financing had skyrocketed since the crisis, with 85 countries applying for emergency assistance.

The IMF estimates the financing needs of developing countries will be in the region of $2.5 trillion. Mr Chopra said IMF’s lending capacity was $800 billion.

Support measures

Speaking at the same event, former Central Bank of Ireland governor Patrick Honohan warned that like the 2008 crash there was a danger that the "scope and scale" of the current crisis may be underestimated and that support measures maybe "unambitious".

He noted there was a “vagueness about the endgame”, and how the State was going to exit the lockdown and restart the economy.

Mr Honohan said the “big trade-off” in this crisis has been between public health and economic shutdown.“It’s quite clear that the choice to shut down is a correct choice on any kind of cost-benefit calculation.”

However, he said the reopening of the economy – whether it will be done in phases and which categories of workers will go back first – had not been adequately addressed.

John Moran, former secretary general at the Department of Finance, said this time around the government would be able to borrow to cushion the blow to the economy. Yet the money would not be free, and therefore should not be thrown around "indiscriminately" .

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times