IMF calls for 'equity-like' government support for firms
The International Monetary Fund chief economist Gita Gopinath called for governments to start “equity-like” support for firms affected by the coronavirus.
Gopinath said more firms will become insolvent as they suffer lower revenues for many months in the absence of such support as the coronavirus crisis was unprecedented and affected companies on a large level.
Government support in the form of loans which is what has been currently been offered by many countries, would cripple such companies with huge debt.
“Because there’s a bigger insolvency issue here, government support would have to shift more towards being equity-like as opposed to debt-like. Otherwise, you would end up with a lot of firms that exit this crisis with a huge amount of debt over-hang,” she said.
“If the lending takes form more like equity ... then that’s less onus on the firms. That will make it easier for firms to recover from the crisis,” Gopinath said in a webinar co-hosted by the IMF and the University of Tokyo on Friday.
She did add that the recovery of the global economy will be “highly uneven and highly uncertain.” Consumer inflation is likely to stay low in most parts of the world due to job losses.
“We have more concerns of inflation going too low, rather than inflation going too high.”