Central Bank of Chile June 2020  “Monetary Policy Challenges Facing Emerging Countries Amid the Covid-19 Pandemic” Mario Marcel, Governor of the Central Bank of Chile Itaú Webinar, June 24, 2020 1. The Covid-19 pandemic has unfolded into a global crisis that has left no country unscathed. The economic effects are unprecedented in their origin, size, speed, and simultaneity across the world. 2. While non-pharmacological containment strategies vary across countries given the unknown nature of the virus, almost all of them have included social distancing and lockdown measures that have hit hard on economic activity. Global GDP is likely to lose some 8% to the crisis this year, which will take long to recover– if ever. 3. Economic policy has focused on limiting widening gaps in operational balances of firms and in disposable income of households, with credit called in to cover part of the remaining gap. This would prevent a liquidity problem turning into a solvency one, with the attached string of bankruptcies and long-term unemployment, which would make it much more difficult. 4. Such policy response has taken an unprecedented scale. In contrast with the prior notion of limited policy space, the fiscal, monetary and financial policy response has exceeded that of the Global Financial Crisis in many countries, most notably in advanced economies. 5. Major central banks have been particularly active in this juncture, providing unlimited liquidity through asset purchase programs. This contained the global selloff of mid-March and financial conditions have improved over the last month.
The industrial companies tried to make use of their promised loan facilities with the banks, but the banks were not able to lend money as usual. This resulted in a credit gridlock, which severely limited the access to loans. The problems spread from the United States to Europe and the European credit system also essentially ceased functioning. This meant that the Swedish banks and the Swedish financial system also suffered problems. BIS Review 149/2008  1  …followed by countermeasures and stabilisation In this situation governments, central banks and other authorities were forced to intervene to avoid a collapse in the global financial system. Without these measures the financial markets would most probably have ceased functioning – things were so serious. The measures have taken different forms in different countries, but two main types can be identified. The first is that the banks have been offered risk capital or other guarantees so that they can survive the crisis. The aim is to avoid more defaults like Lehman Brothers occurring when the financial market is so vulnerable. Those who lend money to a bank should be able to feel certain that the bank will still be there when it is time to repay the loan. The second type of measure is that the central banks have continuously supplied the banks with the short and medium-term loans they have not been able to obtain in the usual way on the market.