The World Bank created, in 2017, a mechanism similar to insurance to help the poorest countries to fight against a possible pandemic. The Wuhan coronavirus epidemic could lead to the first application of this tool, the usefulness, and effectiveness of which have been questioned.
Yesterday, they were torn off, today nobody wants them anymore. “Pandemic bonds” have lost more than 50% of their value since the start of the coronavirus epidemic originating in the Chinese city of Wuhan, reports the Qatari news channel Al-Jazeera, Thursday 18 Investors who own it fear that the Covid-19 may become the triggering event causing them to lose part of their initial bet.
These bonds, created by the World Bank in 2017, operate on a principle similar to insurance: as long as there is no pandemic, the buyers of these securities receive high annual interest and insurance premiums, but if a health crisis occurs, they must return all or part of their investment to a specific World Bank fund intended to fight pandemics.
These sums must then be used to help the poorest countries contain disease or a virus and limit the economic impact of the epidemic. ”Financial clumsiness” For NGOs and actors in the health sector, the new coronavirus, which has infected nearly 80,000 people worldwide, more than 2,600 of them deadly, represents a “critical test” for the viability of a controversial mechanism, the Financial Times said.
Larry Summers, a former chief economist at the World Bank and ex-secretary of the Treasury to US President Bill Clinton, called “pandemic bonds” “financial clumsiness” and “embarrassing error”. Olga Jonas, an economist who has become the most virulent critic of this mechanism after spending more than 30 years at the World Bank, believes that investors have been the only winners.
Why so much hatred? Originally, these “pandemic bonds” had, however, all a good idea. The World Bank developed them in response to the Ebola epidemic, which killed more than 11,000 people between 2014 and 2016. These financial instruments are intended to transfer part of the economic risk associated with a pandemic to the sector financially.
The money must, moreover, be quickly mobilized since investors are obliged to pay when predefined conditions are met. There is, therefore, no need to wait for the outcome of sometimes difficult political negotiations when raising funds from States to respond to a crisis. The World Bank has issued two types of bonds. One covers a wide range of pandemic risks, such as coronaviruses, Ebola, Crimean-Congo hemorrhagic fever and even Rift Valley fever.
It is considered riskier – and more lucrative – than the second “pandemic bond” because the conditions triggering reimbursement by investors are easier to meet. The other covers only the hypotheses of an influenza pandemic and coronavirus. Investors – mainly pension funds and specialists in “catastrophe insurance” – immediately rushed on these two financial vehicles and the World Bank had no struggling to reach its goal of selling for $ 330 million in bonds.
An eagerness which suggests that these financiers felt a good deal, Economist Olga Jonas writes in an article very critical of pandemic obligations that appeared in the scientific journal Nature in 2019.
Are the criteria too restrictive? The wolf was in the 386 pages of documentation detailing the functioning of the obligations and, above all, the conditions to be fulfilled for a pandemic to involve the transfer of money to the special fund of the World Bank. “The triggering of the reimbursement mechanism is calculated according to a complex formula taking into account the number of deaths in the country of origin [of the epidemic], deaths in another country and the acceleration of the number of ‘Infection and Fatality Rate,’ summarizes the Financial Times.
The second Ebola outbreak illustrated the limitations of this World Bank tool. Started in 2018 and still in progress, this health crisis has already claimed the lives of more than 2,200 people, almost exclusively in the Democratic Republic of the Congo… but has not moved a single dollar from the portfolio of holders of “pandemic bonds” to the World Bank. The reason: it would take at least 250 deaths in the country of origin of the epidemic and also 20 deaths in a second country to trigger the mechanism, which is not yet the case.
If the World Bank has established criteria that may seem restrictive, it is partly so that this insurance is only triggered in the event of a real risk of a pandemic, but also “to attract investors”, notes the Wall Street Journal. They could have been less inclined to participate in this adventure if the conditions had been less strict. It is also for this reason that the international institution has agreed to generous interest rates, which currently oscillate around 10% for both types of pandemic bonds.
But to want to please investors, the World Bank would have neglected the interest of poor countries hit by an epidemic, denounce the detractors of the mechanism. The mechanism can only be triggered when the situation on the ground has already deteriorated sharply, while “to be effective, you have to be able to act early”, underlines Olga Jonas.
Perhaps this time, these obligations to be able to play their role? It is the fear of investors. But even if it did, critics fear it is “too little and too late,” said Bodo Ellmers, a Global Policy Forum official, an NGO that follows the work of international organizations, interviewed by the Financial Times.
Indeed, if the Covid-19 leaves 20 dead in a country outside of China (and which must be included in the list of poor countries of the Bank (excluding South Korea or Iran), the money that can be mobilized will amount to a maximum of 195 million dollars, notes Canadian public radio. In addition, it takes 84 days after the first WHO “situation report” on an epidemic before funds are mobilized.
In the case of Covid-19, this first report was released on January 21, 2020, which means that poor countries that may need this financial support would not see the color of money until April. if the Covid-19 leaves 20 dead in a country outside of China (and which must be included in the list of poor countries of the World Bank, which excludes South Korea or Iran), the money which can be mobilized will amount to a maximum of $ 195 million, notes Canadian public radio.
In addition, it takes 84 days after the first WHO “situation report” on an epidemic before funds are mobilized. In the case of Covid-19, this first report was released on January 21, 2020, which means that poor countries that may need this financial support would not see the color of money until April.
If the Covid-19 leaves 20 dead in a country outside of China (and which must be included in the list of poor countries of the World Bank, which excludes South Korea or Iran), the money which can be mobilized will amount to a maximum of $ 195 million, notes Canadian public radio. In addition, it takes 84 days after the first WHO “situation report” on an epidemic before funds are mobilized.
In the case of Covid-19, this first report was released on January 21, 2020, which means that poor countries that may need this financial support would not see the color of money until April. the money that can be mobilized will be a maximum of $ 195 million, notes Canadian public radio.
In addition, it takes 84 days after the first WHO “situation report” on an epidemic before funds are mobilized. In the case of Covid-19, this first report was released on January 21, 2020, which means that poor countries that may need this financial support would not see the color of money until April. the money that can be mobilized will be a maximum of $ 195 million, notes Canadian public radio.
In addition, it takes 84 days after the first WHO “situation report” on an epidemic before funds are mobilized. In the case of Covid-19, this first report was released on January 21, 2020, which means that poor countries that may need this financial support would not see the color of money until April.
