(Bloomberg) – World Bank chief economist Carmen Reinhart said the coronavirus pandemic is turning into a major economic crisis and warned of the possibility of an emerging financial crisis.
“It didn’t start out as a financial crisis, but it is turning into a major economic crisis, with very serious financial consequences,” said Reinhart in an interview with Bloomberg Television. “There is a long way to go.”
Reinhart, who took office in June, is best known for her work with then-colleague Kenneth Rogoff of Harvard University on the latest financial crisis in the 2009 book “This Time Is Different: Eight Centuries of Financial Folly”.
The pair then became a reference in the history of defaults governments, recessions, bank runs, selling waves in the foreign exchange market and inflationary peaks.
Asked whether central banks buy bonds to keep yields low, it is ultimately a zero-sum game when everyone does, said Reinhart: “This is a war. During wars, governments finance their war spending as they can and now there are dire needs. ”
“The scenario we are in is not sustainable,” he added.
Reinhart later said that the world’s richest nations agreed to renew a debt relief initiative for the poorest countries by at least the first half of 2021, short of the World Bank’s request for a one-year extension.
China should receive almost 60% of the world’s poorest countries’ debt payments scheduled for this year, according to World Bank data. The Chinese government has provided many loans to developing countries under non-transparent conditions and at higher interest rates than nations can afford, the bank’s president said in August.
Asked about China’s non-participation in relieving the debt suspension, Reinhart said the country was indeed involved, only “less than fully”.
The Development Bank of China, a major creditor, has not joined the initiative, nor have private sector creditors, he said. “Full participation is something that we should be looking for, but unfortunately we haven’t seen yet.”