Alloway is an executive editor at Bloomberg News in Hong Kong and co-host of the Odd Lots podcast with Joe Weisenthal.money because of the triggers, but
that is a very high return. The idea
was that investors or the private
market would share some of the risks
of a pandemic and thereby contribute.
When a pandemic worsens, the
markets will decline and the prices
of assets fall, so investors are already
going to be losing a lot of money just
because there is a pandemic.So these were pitched as something that should be uncorrelated with
the broader market, but if they trigger, it would probably be because
something quite serious was happening and therefore markets around
the world would be falling anyway.
Exactly.
Do you think there’s any way to structure a bond that would be
attractive to investors but also get extra money to the World Bank
when it’s needed?
The World Bank does not need extra
money to respond to pandemics. The
World Bank is not a budget-
constrained entity. It’s a bank. And
IDA, the fund for the poorest coun-
tries, is the largest multilateral public
fund to support development in poor
countries, which includes—for the
last 50 years—responding to emer-
gencies. IDA has very ample liquid
assets, reserves. It makes new loans
now worth $27 billion every year.
The money is not the issue, it’s the
preparedness of the World Bank to
respond, deliver the financing on the
ground, and the preparedness of the
country to implement the activities
that are necessary to control the out-
break. But money is not, has never
been, the issue. So this was more a
sort of attention-getting initiative to
try to innovate in this space, but it
was not needed and it did not work.What lessons did you learn as an economist dealing with those sorts
of epidemics?
What is astonishing is how under-
appreciated the economics of epi-
demics were or still are. There’s very
little realization that if you act early,
if you are prepared to stop the out-
break when it’s just a few cases,
before it spreads, then in fact you are
avoiding a huge cost due to the
exponential growth that can happen
with these diseases. That is not
understood by the sort of bureau-
cratic processes that we have in place.
Usually it is a disaster that occurs,
and then there is an estimate of the
cost of rebuilding like in a hurricane
or an earthquake, but in this case you
are averting something that hasn’t
happened yet. So that’s why there’s
this repetition of panic, and then it’s
forgotten, because in the health
sector there are so many unmet needs
that people’s attention shifts
somewhere else. So that accounts for
the high costs of responding
next time.Does the economic recovery after a pandemic look different from the
economic recovery after an earthquake or a hurricane?Macroeconomically, it’s a temporary
shock that passes through disrup-
tions of travel and trade and supply
chains. And when that comes to an
end, things return to normal, and
there is no permanent effect.
However, when this happens in very
poor countries—like what happened
in West Africa in 2014 to 2016, the
Ebola outbreak had a very severe
HǑHFW on the health-care system. A
large number of doctors and nurses
died. It takes many years and is
expensive to train new doctors and
nurses, so there you would see devel-
opment set back by a decade. Losing
a decade of growth in very poor coun-
tries is very serious.VOLUME 29 / ISSUE 2 13