1 00:00:10,440 --> 00:00:13,800 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts podcast. 2 00:00:13,880 --> 00:00:17,360 Speaker 1: I'm Tracy Allaway. My co host Joe Wisenthal is away 3 00:00:17,480 --> 00:00:21,400 Speaker 1: this week. So the entire world has been watching the 4 00:00:21,440 --> 00:00:24,959 Speaker 1: outbreak of a deadly new coronavirus, and I have to say, 5 00:00:25,400 --> 00:00:28,480 Speaker 1: I'm recording this podcast from my apartment in Hong Kong, 6 00:00:29,080 --> 00:00:31,480 Speaker 1: and a lot of workers in the city have now 7 00:00:31,560 --> 00:00:34,879 Speaker 1: been asked to work from home. And as I'm recording, 8 00:00:34,920 --> 00:00:38,800 Speaker 1: there's this huge thunderstorm outside, So apologies if you hear 9 00:00:38,960 --> 00:00:43,400 Speaker 1: in the background, but I gotta say, the entire atmosphere 10 00:00:43,400 --> 00:00:46,560 Speaker 1: of Hong Kong at the moment feels kind of apocalyptic. 11 00:00:47,360 --> 00:00:51,840 Speaker 1: This morning, China just reported an extra fifteen thousand coronavirus 12 00:00:51,880 --> 00:00:56,280 Speaker 1: cases after changing its methodology for diagnosis, and that takes 13 00:00:56,280 --> 00:00:59,120 Speaker 1: the total cases to more than fifty in who the 14 00:00:59,320 --> 00:01:02,560 Speaker 1: province alone own the epicenter of the outbreak. Deaths are 15 00:01:02,600 --> 00:01:06,319 Speaker 1: now well over a thousand people. That's according to official numbers, 16 00:01:06,360 --> 00:01:08,720 Speaker 1: and of course there's a lot of doubt surrounding those 17 00:01:08,720 --> 00:01:14,039 Speaker 1: official numbers. And in between sort of obsessively checking my 18 00:01:14,120 --> 00:01:17,360 Speaker 1: temperature all week and trying to find masks in Hong Kong, 19 00:01:17,440 --> 00:01:20,440 Speaker 1: most of them are sold out. There's another thing that 20 00:01:20,520 --> 00:01:23,319 Speaker 1: I've been obsessing over, and that is the World Bank's 21 00:01:23,400 --> 00:01:28,320 Speaker 1: catastrophe bonds. Now, these aren't just any catastrophe bonds. CAT 22 00:01:28,360 --> 00:01:31,960 Speaker 1: bonds are typically linked to things like hurricanes and earthquakes 23 00:01:31,959 --> 00:01:34,800 Speaker 1: and other natural disasters. But the ones we're going to 24 00:01:34,880 --> 00:01:38,959 Speaker 1: be talking about today are a three D twenty million 25 00:01:39,000 --> 00:01:43,480 Speaker 1: dollar cat bond issue back in that's linked to pandemics. 26 00:01:43,520 --> 00:01:47,000 Speaker 1: In fact, it's the first pandemic bond ever and it 27 00:01:47,080 --> 00:01:50,920 Speaker 1: was sold in response to the Ebola outbreak from a 28 00:01:50,960 --> 00:01:56,360 Speaker 1: few years ago, and the bond basically backs the World 29 00:01:56,360 --> 00:02:00,360 Speaker 1: Banks Pandemic Emergency Financing Facility, that the thing that is 30 00:02:00,480 --> 00:02:05,240 Speaker 1: used to fund biding these kinds of global outbreaks. Now, 31 00:02:05,400 --> 00:02:07,440 Speaker 1: the idea behind the bonds is that there are a 32 00:02:07,440 --> 00:02:10,760 Speaker 1: way for investors to bear some of the financial risk 33 00:02:10,800 --> 00:02:13,679 Speaker 1: of a global pandemic. If an outbreak gets bad enough, 34 00:02:13,720 --> 00:02:16,520 Speaker 1: then the bonds get triggered and their principal value gets 35 00:02:16,520 --> 00:02:20,320 Speaker 1: paid into the World Banks account to help fund containment 36 00:02:20,320 --> 00:02:25,000 Speaker 1: efforts against whatever disease is currently reaking havoc. In the meantime, 37 00:02:25,320 --> 00:02:28,280 Speaker 1: investors get to earn interest, and I ought to say 38 00:02:28,320 --> 00:02:33,280 Speaker 1: it's pretty good interest. The riskiest trench pays about I 39 00:02:33,320 --> 00:02:37,359 Speaker 1: think over libor, and the least risky trench pays something 40 00:02:37,400 --> 00:02:42,120 Speaker 1: like seven percent over libor. Now I just mentioned riskiest 41 00:02:42,120 --> 00:02:44,880 Speaker 1: trench and the least risky trench, and as you can imagine, 42 00:02:44,880 --> 00:02:48,400 Speaker 1: there are different payout triggers for different parts of the bond, 43 00:02:49,160 --> 00:02:52,919 Speaker 1: and they come into action at different points in time. 44 00:02:53,080 --> 00:02:56,560 Speaker 1: And defining a pandemic isn't something that normally comes up 45 00:02:56,600 --> 00:03:00,200 Speaker 1: a lot in finance. I think it's worth digging into 46 00:03:00,280 --> 00:03:03,519 Speaker 1: these bonds to see exactly what those triggers look like, 47 00:03:03,720 --> 00:03:06,680 Speaker 1: what the structure looks like, looks like, how people in 48 00:03:06,760 --> 00:03:10,680 Speaker 1: finance think about global pandemics, and also what we can 49 00:03:10,800 --> 00:03:15,200 Speaker 1: learn about pandemic containment efforts in general. And so today 50 00:03:15,200 --> 00:03:17,320 Speaker 1: we're going to talk with one of the critics of 51 00:03:17,320 --> 00:03:20,360 Speaker 1: the bonds, but also someone who has a lot of 52 00:03:20,480 --> 00:03:24,800 Speaker 1: experience from an economics perspective with pandemics. Our guest is 53 00:03:24,919 --> 00:03:28,720 Speaker 1: Olga Jonas of the Harvard Global Health Institute and also 54 00:03:28,840 --> 00:03:32,040 Speaker 1: a former economist at the World Bank. Olga, thanks so 55 00:03:32,120 --> 00:03:35,800 Speaker 1: much for coming on, um, thank you very much, very 56 00:03:35,800 --> 00:03:39,040 Speaker 1: glad to be here. So I guess my first question 57 00:03:39,360 --> 00:03:43,720 Speaker 1: is how did you get interested in this particular bond 58 00:03:43,760 --> 00:03:47,040 Speaker 1: issue because I've seen you on Twitter and you tweet 59 00:03:47,120 --> 00:03:49,240 Speaker 1: quite a lot about it, and of course there aren't 60 00:03:49,240 --> 00:03:52,160 Speaker 1: that many people out there on social media who are 61 00:03:52,200 --> 00:03:56,400 Speaker 1: talking about pandemic bonds. Yeah. Well, I mean the origin 62 00:03:56,440 --> 00:03:59,360 Speaker 1: it was that I was working. I'm a macro economy 63 00:03:59,680 --> 00:04:04,080 Speaker 1: but in two thousand and five I was in a 64 00:04:04,240 --> 00:04:07,560 Speaker 1: central policy department at the World Bank, and it was 65 00:04:07,680 --> 00:04:12,200 Speaker 1: at that time that the international response to a van 66 00:04:13,040 --> 00:04:18,520 Speaker 1: influenza and the pandemic threat from avian influenza was launched. 67 00:04:18,680 --> 00:04:22,440 Speaker 1: And you know, just was a fortunitous coincidence that I 68 00:04:22,480 --> 00:04:25,880 Speaker 1: was in the department where this this response was managed 69 00:04:25,960 --> 00:04:29,120 Speaker 1: for the World Bank. So I got very interested in 70 00:04:29,920 --> 00:04:36,120 Speaker 1: pandemics and pandemic risk because it's really very much underappreciated 71 00:04:36,360 --> 00:04:42,800 Speaker 1: and it's not studied very seriously because between episodes of emergency, 72 00:04:43,279 --> 00:04:47,120 Speaker 1: people forget about this risk and and it's not um 73 00:04:47,360 --> 00:04:51,480 Speaker 1: something that they worry about, which is a mistake. And 74 00:04:51,960 --> 00:04:54,640 Speaker 1: as we went through the response to a vin and 75 00:04:54,720 --> 00:04:58,400 Speaker 1: pandemic influenza from two thousand five to two thousand ten, 76 00:04:59,080 --> 00:05:01,440 Speaker 1: you know, it became clear that the world is not 77 00:05:01,800 --> 00:05:04,320 Speaker 1: ready for a pandemic, that there are just you know, 78 00:05:04,360 --> 00:05:08,919 Speaker 1: the capacities to prepare and and to prevent such a 79 00:05:08,960 --> 00:05:13,000 Speaker 1: catastrophic event, you know, are feasible, but they are just 80 00:05:13,160 --> 00:05:16,680 Speaker 1: not there in the poorest counties. So we became very 81 00:05:16,720 --> 00:05:21,560 Speaker 1: interested in sustaining the momentum from the Avian food response 82 00:05:22,160 --> 00:05:25,159 Speaker 1: into you know, building the capacities to prevent and to 83 00:05:25,240 --> 00:05:30,400 Speaker 1: be better prepared for the next episode, which will necessarily come, 84 00:05:30,480 --> 00:05:33,200 Speaker 1: as they say, you know, it's not a matter of if, 85 00:05:33,480 --> 00:05:38,880 Speaker 1: but when. UM. But unfortunately this was sidelined UM, and 86 00:05:39,080 --> 00:05:42,520 Speaker 1: you know, it just didn't occur, and that was very disappointing, 87 00:05:42,880 --> 00:05:48,039 Speaker 1: UM experience, very frustrating. And then you know, the Abole 88 00:05:48,200 --> 00:05:52,479 Speaker 1: outbreak in two thousand fourteen was a reminder that poor counties. 89 00:05:52,520 --> 00:05:56,000 Speaker 1: This was in West Africa where we saw that you know, 90 00:05:56,040 --> 00:05:59,760 Speaker 1: it devastated the economies and then too many people died 91 00:06:00,040 --> 00:06:06,120 Speaker 1: in Liberia and cra Leone and Guinea uh And afterwards 92 00:06:06,200 --> 00:06:11,320 Speaker 1: there was momentum to sort of renew the efforts towards 93 00:06:11,360 --> 00:06:16,440 Speaker 1: being prepared next time, and instead of focusing on the 94 00:06:16,480 --> 00:06:20,520 Speaker 1: capacities in the countries, the World Bank went this other route. 95 00:06:20,760 --> 00:06:24,360 Speaker 1: But unfortunately it's you know, it was not a priority 96 00:06:24,360 --> 00:06:28,120 Speaker 1: in the priorities definitely in the countries to be very prepared, 97 00:06:29,040 --> 00:06:31,720 Speaker 1: and this was very much a response, well, what if 98 00:06:31,760 --> 00:06:33,920 Speaker 1: there is a pandemic, I mean, how do we get 99 00:06:33,920 --> 00:06:37,480 Speaker 1: more money kind of response. But not only is that 100 00:06:37,640 --> 00:06:41,440 Speaker 1: not a lower priority, but it also was shown to 101 00:06:41,560 --> 00:06:45,800 Speaker 1: be not feasible to design it in a way that 102 00:06:45,880 --> 00:06:48,919 Speaker 1: it would work. So it's you know, it's a it's 103 00:06:48,960 --> 00:06:52,359 Speaker 1: it's a sort of an accumulation of sort of errors 104 00:06:52,400 --> 00:06:56,960 Speaker 1: of judgment and analysis that brought us to where we 105 00:06:57,040 --> 00:07:01,040 Speaker 1: are today. So just to back up for one second, 106 00:07:01,279 --> 00:07:04,240 Speaker 1: so you're talking about, you know, the preferred way of 107 00:07:04,240 --> 00:07:07,240 Speaker 1: dealing with a pandemic would be to have a domestic 108 00:07:07,279 --> 00:07:10,280 Speaker 1: health care system that is capable of responding on its own, 109 00:07:10,400 --> 00:07:13,840 Speaker 1: but there was a preference for figuring out some way 110 00:07:14,000 --> 00:07:19,520 Speaker 1: to get additional money funneled into a particular country or 111 00:07:19,600 --> 00:07:23,160 Speaker 1: against a particular series of countries if they're hit by 112 00:07:23,160 --> 00:07:27,880 Speaker 1: the pandemic. So how exactly are these bonds supposed to work? 113 00:07:27,960 --> 00:07:32,160 Speaker 1: How does the money get to the World Bank? Well, 114 00:07:32,360 --> 00:07:35,800 Speaker 1: it's supposed to work the way a cat bond works, 115 00:07:35,880 --> 00:07:40,520 Speaker 1: which you know there are parametric triggers, but it proved 116 00:07:40,600 --> 00:07:44,240 Speaker 1: to be very challenging to define the triggers because it's 117 00:07:44,360 --> 00:07:48,800 Speaker 1: very difficult to anticipate how an epidemic. You know, when 118 00:07:48,800 --> 00:07:51,920 Speaker 1: it starts, it's an outbreak, and then it becomes an epidemic. 119 00:07:52,000 --> 00:07:55,080 Speaker 1: And the idea is that you have to inter being 120 00:07:55,120 --> 00:08:01,440 Speaker 1: as soon as possible at the beginning to prevent the spread, right. 121 00:08:01,560 --> 00:08:04,680 Speaker 1: But but that's very difficult to anticipate what it will 122 00:08:04,680 --> 00:08:09,280 Speaker 1: look like, and that's why in designing it, they shows 123 00:08:09,400 --> 00:08:13,520 Speaker 1: triggers that are much later. There is in fact a 124 00:08:13,600 --> 00:08:16,680 Speaker 1: condition that it has to be at least twelve weeks 125 00:08:16,720 --> 00:08:21,520 Speaker 1: after the beginning of the outbreak before anything can be triggered, 126 00:08:21,600 --> 00:08:24,440 Speaker 1: as well as the number of deaths, you know, the 127 00:08:24,520 --> 00:08:28,720 Speaker 1: high number of deaths and the growing rate of the outbreak, 128 00:08:29,240 --> 00:08:32,880 Speaker 1: So that means that it's triggered much too late. But 129 00:08:33,080 --> 00:08:36,240 Speaker 1: if it was triggered earlier, then the price of the 130 00:08:36,280 --> 00:08:41,040 Speaker 1: insurance would be much higher, right, because there's just so 131 00:08:41,160 --> 00:08:45,599 Speaker 1: much uncertainty in the modeling, And much of the uncertainty 132 00:08:45,600 --> 00:08:48,040 Speaker 1: in the modeling is due to the lack of data 133 00:08:48,360 --> 00:08:52,440 Speaker 1: on these kinds of events, and the lack of data 134 00:08:52,600 --> 00:08:55,840 Speaker 1: is due to the lack of public health systems in 135 00:08:55,880 --> 00:08:59,760 Speaker 1: developing countries, which is what is needed to invest in, 136 00:09:00,080 --> 00:09:03,640 Speaker 1: not health care systems. You know, it's not all health care. 137 00:09:03,679 --> 00:09:07,160 Speaker 1: It's not hospitals and clinics and all that. It's just 138 00:09:07,320 --> 00:09:11,920 Speaker 1: the basic it's called core public health functions, which is 139 00:09:11,960 --> 00:09:17,360 Speaker 1: the capacity to detect, to diagnose, and to respond to 140 00:09:17,480 --> 00:09:21,000 Speaker 1: an now the break, and that's not very expensive. It's 141 00:09:21,040 --> 00:09:25,360 Speaker 1: in fact highly affordable compared to the benefits, and that 142 00:09:25,480 --> 00:09:29,400 Speaker 1: hasn't been done. That's that's what has been sideline, and 143 00:09:29,440 --> 00:09:32,040 Speaker 1: you need that to do to do modeling that would 144 00:09:32,160 --> 00:09:37,320 Speaker 1: actually enable insurance maybe in thirty years from now, when 145 00:09:37,360 --> 00:09:40,720 Speaker 1: the health systems are in place to generate the data 146 00:09:40,760 --> 00:09:44,080 Speaker 1: that you need to do the modeling. So there seems 147 00:09:44,120 --> 00:09:49,880 Speaker 1: to be attention here because obviously, if you're fighting a pandemic, 148 00:09:50,000 --> 00:09:53,439 Speaker 1: you want this extra money as soon as possible. But 149 00:09:53,520 --> 00:09:56,280 Speaker 1: the terms of the bonds make it difficult for them 150 00:09:56,320 --> 00:09:59,560 Speaker 1: to pay out because a you have this sort of 151 00:09:59,640 --> 00:10:02,880 Speaker 1: twelve week limit that you just mentioned, and you also 152 00:10:02,920 --> 00:10:06,480 Speaker 1: have to have deaths that take place in other countries 153 00:10:06,559 --> 00:10:11,320 Speaker 1: outside of the original outbreak country. You mentioned that data 154 00:10:11,520 --> 00:10:14,080 Speaker 1: is quite hard to get um when there is a 155 00:10:14,080 --> 00:10:18,040 Speaker 1: global pandemic. So who's who's the arbiter of when these 156 00:10:18,040 --> 00:10:21,120 Speaker 1: bonds actually pay out. How do they verify that the 157 00:10:21,559 --> 00:10:26,080 Speaker 1: trigger has actually been met? Well, there is actual verification 158 00:10:26,160 --> 00:10:31,000 Speaker 1: of the triggers is spelled doubt in the prospectives of 159 00:10:31,040 --> 00:10:35,200 Speaker 1: the for the bonds, which is three eighty six pages long, 160 00:10:36,240 --> 00:10:40,400 Speaker 1: and there is a verification agent which is uh, you know, 161 00:10:40,760 --> 00:10:44,200 Speaker 1: af firm. It's a commercial contract between the World Bank 162 00:10:44,320 --> 00:10:48,280 Speaker 1: and the and the verification agent, and they are going 163 00:10:48,320 --> 00:10:51,960 Speaker 1: to ascertain whether all the triggers have been met. But 164 00:10:52,080 --> 00:10:55,400 Speaker 1: the triggers are triggers have been described as a maze 165 00:10:55,400 --> 00:10:58,440 Speaker 1: of confusion. So you know, this is not a trivial 166 00:10:58,720 --> 00:11:03,240 Speaker 1: exercise to verify ideas triggers because it's it's really quite complex. 167 00:11:03,760 --> 00:11:07,839 Speaker 1: I mean, it takes three eight six pages to set 168 00:11:07,840 --> 00:11:11,559 Speaker 1: out the terms of the bonds. So when the verification 169 00:11:11,679 --> 00:11:16,080 Speaker 1: agent notifies the World Bank that, you know, the triggers 170 00:11:16,120 --> 00:11:20,479 Speaker 1: have been met, then the World Bank would get the 171 00:11:20,520 --> 00:11:24,600 Speaker 1: money from the bond bonds because it's holding a means 172 00:11:24,600 --> 00:11:29,520 Speaker 1: holding that money, right right, what's the maximum payout that 173 00:11:29,840 --> 00:11:33,680 Speaker 1: the World Bank could get? Well, that's that's the other 174 00:11:33,800 --> 00:11:37,920 Speaker 1: issue that's very disappointing in this whole experience is that 175 00:11:38,800 --> 00:11:44,520 Speaker 1: for coronavirus um, when you look at it. The first 176 00:11:44,640 --> 00:11:48,960 Speaker 1: payoffs if it happens, right, I mean there's no certainty. No, 177 00:11:49,120 --> 00:11:51,800 Speaker 1: I mean there's no way of telling, at least from 178 00:11:51,920 --> 00:11:55,040 Speaker 1: where I said, whether it will happen. It will be 179 00:11:55,200 --> 00:11:59,960 Speaker 1: hundred and thirty one million dollars and the maximum payout 180 00:12:00,280 --> 00:12:04,640 Speaker 1: is one hundred and nineties six million dollars, and that 181 00:12:04,760 --> 00:12:09,120 Speaker 1: will have to be divided among the seventy six poorest countries. 182 00:12:09,600 --> 00:12:13,120 Speaker 1: It's about eight cents per capita because there are one 183 00:12:13,160 --> 00:12:16,480 Speaker 1: point more than one point six billion people in the 184 00:12:16,520 --> 00:12:20,839 Speaker 1: poorest countries that are eligible to get the proceeds. So 185 00:12:21,040 --> 00:12:24,120 Speaker 1: it's eight cents per capita, which you know, and when 186 00:12:24,120 --> 00:12:27,920 Speaker 1: you compare it to what China is already spending on 187 00:12:28,040 --> 00:12:33,040 Speaker 1: its response, right, which we have all seen on UM 188 00:12:33,080 --> 00:12:37,880 Speaker 1: the dramatic images of hospitals being built in one weekend 189 00:12:38,000 --> 00:12:42,719 Speaker 1: and post cities under quarantine, and they have announced that 190 00:12:42,800 --> 00:12:48,079 Speaker 1: they have already allocated ten billion dollars for their response, 191 00:12:48,559 --> 00:12:51,080 Speaker 1: so you can see that. You know, if the poorest 192 00:12:51,160 --> 00:12:55,440 Speaker 1: countries in the world with more a bigger population than 193 00:12:55,679 --> 00:13:00,760 Speaker 1: China to together, they will get only um, you know, 194 00:13:00,760 --> 00:13:03,320 Speaker 1: a fraction of what China is all is spending, so 195 00:13:03,360 --> 00:13:06,480 Speaker 1: it will not make much difference. It will be too little, 196 00:13:06,640 --> 00:13:09,599 Speaker 1: too late. Do you think the bonds will trigger for 197 00:13:09,640 --> 00:13:15,240 Speaker 1: the coronavirus out I hope they do, you know, I mean, 198 00:13:15,320 --> 00:13:19,400 Speaker 1: I really hope they do. Because the tragic one of 199 00:13:19,440 --> 00:13:22,280 Speaker 1: the sort of tragic aspects of this is that in 200 00:13:22,400 --> 00:13:25,480 Speaker 1: fact the payment for the cost of the bonds that 201 00:13:25,559 --> 00:13:30,520 Speaker 1: needs the premiums and the interest and the fees that 202 00:13:30,679 --> 00:13:36,640 Speaker 1: were you know, associated with this pretty complicated transaction, that 203 00:13:36,800 --> 00:13:40,319 Speaker 1: those add up to one and fifteen million dollars, and 204 00:13:40,440 --> 00:13:46,520 Speaker 1: those funds actually came from funds that were intended for 205 00:13:46,559 --> 00:13:50,160 Speaker 1: the poorest countries. They came from IDA, which is the 206 00:13:50,280 --> 00:13:53,520 Speaker 1: soft clone window the World Bank, which is, you know, 207 00:13:53,640 --> 00:13:57,280 Speaker 1: money that donors give for the World Bank to finance 208 00:13:57,520 --> 00:14:02,000 Speaker 1: productive projects in the poorest countries. So that was fifty 209 00:14:02,040 --> 00:14:06,480 Speaker 1: million from IDA. Then fifty million was donated by Japan. 210 00:14:07,120 --> 00:14:10,560 Speaker 1: But I'm sure you know, the Japanese government intended that 211 00:14:10,800 --> 00:14:16,319 Speaker 1: their donation of fifty million benefits the developing countries, benefits 212 00:14:16,400 --> 00:14:20,640 Speaker 1: you know, the poorest countries, protect them from pandemics. And 213 00:14:20,640 --> 00:14:25,440 Speaker 1: and then fifteen million was donated by Germany. So also 214 00:14:25,520 --> 00:14:29,720 Speaker 1: you know, taxpayers, taxpayers in Germany, taxpayers in Japan. So 215 00:14:29,760 --> 00:14:35,040 Speaker 1: altogether one and fifteen million has been paid for premiums 216 00:14:35,080 --> 00:14:37,560 Speaker 1: when interests I mean for the interest and for the 217 00:14:37,920 --> 00:14:42,240 Speaker 1: penniums and for the fees to beneficiaries or you know, 218 00:14:42,280 --> 00:14:46,280 Speaker 1: two recipients who are not for who are in high 219 00:14:46,280 --> 00:14:50,720 Speaker 1: income countries. I mean, these are investors who of course 220 00:14:50,760 --> 00:14:55,200 Speaker 1: they invested their funds and they are you know, at 221 00:14:55,280 --> 00:14:59,600 Speaker 1: risk of losing some of this money because of the triggers. 222 00:15:00,280 --> 00:15:04,320 Speaker 1: But you know, that's a very high return, as you mentioned, 223 00:15:04,320 --> 00:15:08,080 Speaker 1: it's still even over libel or seven percent over libor 224 00:15:08,080 --> 00:15:12,320 Speaker 1: for the other branch. Um, those are very generous returns 225 00:15:12,360 --> 00:15:18,040 Speaker 1: in today's market conditions. And um, you know then I 226 00:15:18,080 --> 00:15:20,800 Speaker 1: think you mentioned when in your introduction that the idea 227 00:15:20,960 --> 00:15:24,480 Speaker 1: was that the investors or the private markets would share 228 00:15:24,800 --> 00:15:27,800 Speaker 1: some of the risks of the pandemic and you know, 229 00:15:27,880 --> 00:15:32,280 Speaker 1: thereby thereby contribute. You know, in fact, when the pandemic 230 00:15:32,440 --> 00:15:35,720 Speaker 1: wortions more than it is already and the anticipate that 231 00:15:35,760 --> 00:15:41,000 Speaker 1: it will worsen, the markets will you know, decline, prices 232 00:15:41,040 --> 00:15:45,320 Speaker 1: of assets fall, so investors are already going to be 233 00:15:45,400 --> 00:15:49,440 Speaker 1: losing a lot of money just because there is a pandemic. Right, 234 00:16:10,640 --> 00:16:14,240 Speaker 1: So these were pitched as sort of something that should 235 00:16:14,400 --> 00:16:18,440 Speaker 1: kind of be uncorrelated with the broader market, But in 236 00:16:18,520 --> 00:16:21,760 Speaker 1: fact whenever they trigger, if they actually trigger, it would 237 00:16:21,800 --> 00:16:25,360 Speaker 1: probably be because something quite serious was happening, and therefore 238 00:16:25,880 --> 00:16:29,640 Speaker 1: markets around the world would be falling anyway, exactly, So 239 00:16:29,800 --> 00:16:33,160 Speaker 1: investors sort of get a double whammy. So for the investors, 240 00:16:33,240 --> 00:16:35,640 Speaker 1: it's not that I don't see how there could be 241 00:16:36,160 --> 00:16:40,640 Speaker 1: much of a diversification than a faith because these bonds 242 00:16:40,840 --> 00:16:44,560 Speaker 1: are going to move with the market from the prices, right, 243 00:16:45,880 --> 00:16:48,200 Speaker 1: So who are the investors who who bought these Who 244 00:16:48,320 --> 00:16:51,120 Speaker 1: who's a typical buyer of this kind of bond? Well, 245 00:16:51,200 --> 00:16:55,440 Speaker 1: I think I don't actually know. Um. I think if 246 00:16:55,480 --> 00:16:59,440 Speaker 1: you know, they were just investors who buy cat bonds, 247 00:16:59,600 --> 00:17:03,560 Speaker 1: who you want to see them in their portfolios as 248 00:17:03,560 --> 00:17:07,800 Speaker 1: an element. Um I think there are some pension funds 249 00:17:08,000 --> 00:17:13,840 Speaker 1: who bought it. But it's definitely the high returns have 250 00:17:13,960 --> 00:17:17,440 Speaker 1: not been earned by developing countries, you know, I'm quite 251 00:17:17,440 --> 00:17:21,880 Speaker 1: certain it's all high income investors. Do you think there's 252 00:17:21,920 --> 00:17:25,840 Speaker 1: any way to structure this kind of bond in a 253 00:17:25,960 --> 00:17:31,439 Speaker 1: way that would be satisfying or attractive for investors but 254 00:17:31,640 --> 00:17:35,760 Speaker 1: also ultimately fulfill the purpose of a pandemic bond for 255 00:17:35,800 --> 00:17:39,960 Speaker 1: public health, which presumably is getting extra money to the 256 00:17:40,000 --> 00:17:43,760 Speaker 1: World Bank as soon as possible. No, well, number one, 257 00:17:44,160 --> 00:17:48,320 Speaker 1: the World Bank does not need the money to respond 258 00:17:48,359 --> 00:17:51,879 Speaker 1: to pandemics. You know, the World Bank is not a 259 00:17:51,920 --> 00:17:56,359 Speaker 1: budget constraint entity. It's a bank. And IDA, the Fund 260 00:17:56,440 --> 00:18:00,560 Speaker 1: for the Poorest Countries, is the largest multila all fund 261 00:18:01,480 --> 00:18:06,720 Speaker 1: public fund to support development in poor countries, which includes, 262 00:18:07,000 --> 00:18:12,400 Speaker 1: for the last fifty years, responding to emergencies. Because emergencies, 263 00:18:12,440 --> 00:18:16,880 Speaker 1: you know, occur um a matter of I mean often, right, 264 00:18:17,640 --> 00:18:23,040 Speaker 1: And IIDA has very you know, ample liquid assets. It 265 00:18:23,160 --> 00:18:28,280 Speaker 1: has reserves, it lends, it makes new loans worth now 266 00:18:28,520 --> 00:18:33,359 Speaker 1: twenty seven billion dollars every year, right, So, and the 267 00:18:33,400 --> 00:18:36,600 Speaker 1: allocations are done on a three year basis. So now 268 00:18:36,640 --> 00:18:41,399 Speaker 1: it's allocating eighty two billion dollars for every three years. 269 00:18:41,440 --> 00:18:45,840 Speaker 1: It's a rolling process. Right. So there's you know, you 270 00:18:45,960 --> 00:18:49,680 Speaker 1: cannot nobody can say that the World Bank needs more 271 00:18:49,720 --> 00:18:54,280 Speaker 1: money in order to respond to outbreaks. The World Bank 272 00:18:54,359 --> 00:18:56,880 Speaker 1: does have the money. And that's this that's the very 273 00:18:56,920 --> 00:18:59,520 Speaker 1: purpose of the World Bank. I mean, that's why it 274 00:18:59,600 --> 00:19:02,320 Speaker 1: was set up. It was set up to support countries 275 00:19:03,160 --> 00:19:08,159 Speaker 1: in there. You know, for their priority needs. As circumstances change, 276 00:19:08,280 --> 00:19:12,919 Speaker 1: and if there is a outbreak of a bola or coronavirus, 277 00:19:13,560 --> 00:19:16,479 Speaker 1: the money is not the issue. The preparedness of the 278 00:19:16,480 --> 00:19:20,960 Speaker 1: World Bank to respond to you know, delivered the financing 279 00:19:21,000 --> 00:19:24,640 Speaker 1: on the ground, and the preparedness of the country too, 280 00:19:25,640 --> 00:19:28,960 Speaker 1: you know, implement the activities that are necessary to control 281 00:19:29,000 --> 00:19:33,359 Speaker 1: the outbreak. But money is not has never been the issue. 282 00:19:34,880 --> 00:19:37,600 Speaker 1: I mean, if you have eighty two billion dollars in 283 00:19:37,680 --> 00:19:43,240 Speaker 1: the fund, you do not issue bonds that library plus 284 00:19:43,280 --> 00:19:48,960 Speaker 1: eleven to obtain a hundred and ninety six million in 285 00:19:49,040 --> 00:19:53,440 Speaker 1: case there is a coronavirus. Right, It's just I mean, 286 00:19:53,480 --> 00:19:58,280 Speaker 1: the World Bank has ample reserves to deal without outbreaks 287 00:19:58,320 --> 00:20:01,800 Speaker 1: in either countries. So this was more of a sort 288 00:20:01,840 --> 00:20:06,360 Speaker 1: of attention getting initiative, you know, to have an innovation, 289 00:20:06,600 --> 00:20:11,119 Speaker 1: to try to innovate in this space. But it was 290 00:20:11,200 --> 00:20:15,600 Speaker 1: not needed and it did not work. So I want 291 00:20:15,600 --> 00:20:18,199 Speaker 1: to broaden out the conversation a little bit and go 292 00:20:18,320 --> 00:20:21,920 Speaker 1: back to some of your experience as an economist dealing 293 00:20:22,000 --> 00:20:26,760 Speaker 1: with other epidemics such as avian flew back in the 294 00:20:26,840 --> 00:20:31,760 Speaker 1: early two thousand's. Um, what what lessons did you learn 295 00:20:31,920 --> 00:20:34,840 Speaker 1: as an economist dealing with those sorts of epidemics, because 296 00:20:34,880 --> 00:20:37,760 Speaker 1: I must admit I don't really know exactly what the 297 00:20:37,880 --> 00:20:40,600 Speaker 1: role is of an economist at the World Bank in 298 00:20:40,880 --> 00:20:43,600 Speaker 1: dealing with those kind of outbreaks. What did you actually 299 00:20:43,640 --> 00:20:46,840 Speaker 1: do and what did you learned? Well, you know, what's 300 00:20:47,320 --> 00:20:55,000 Speaker 1: astonishing is that how underappreciated the economics of epidemics where 301 00:20:55,320 --> 00:21:00,919 Speaker 1: or still are, because there there's very little realization that 302 00:21:01,680 --> 00:21:05,520 Speaker 1: if you act early and if you are prepared to 303 00:21:05,560 --> 00:21:09,720 Speaker 1: stop the outbreak when it's just a few cases, you know, 304 00:21:09,880 --> 00:21:14,960 Speaker 1: before it spreads, then in fact you are avoiding a 305 00:21:15,119 --> 00:21:18,600 Speaker 1: huge cost later. And the huge cost is due to 306 00:21:18,640 --> 00:21:23,440 Speaker 1: the exponentials threat, you know, the exponential growth that can 307 00:21:23,520 --> 00:21:27,000 Speaker 1: happen with these diseases because like two people give it 308 00:21:27,080 --> 00:21:31,280 Speaker 1: to four people, to you know, sixteen people, et cetera. 309 00:21:31,520 --> 00:21:35,440 Speaker 1: It's you know, it's a very rapid progression of growth, 310 00:21:36,359 --> 00:21:40,159 Speaker 1: and that's not understood by the by the sort of 311 00:21:40,200 --> 00:21:45,480 Speaker 1: bureaucratic processes that we have in place to respond two disasters, 312 00:21:45,680 --> 00:21:49,439 Speaker 1: you know, because usually it's a disaster that occurs and 313 00:21:49,480 --> 00:21:52,520 Speaker 1: then there is an estimate of the costs of rebuilding, 314 00:21:53,240 --> 00:21:56,639 Speaker 1: like in a hurricane or or in an earthquake, and 315 00:21:56,680 --> 00:22:01,040 Speaker 1: then there are activities to rebuild, but in this case 316 00:22:01,680 --> 00:22:05,680 Speaker 1: you are averting something that hasn't happened yet. Sort of 317 00:22:05,720 --> 00:22:09,760 Speaker 1: there's an overreaction in reacting, but at the same time 318 00:22:09,840 --> 00:22:13,840 Speaker 1: there's the lack of appreciation of how much money you 319 00:22:14,000 --> 00:22:19,200 Speaker 1: saved by reacting early and being prepared. So that's why 320 00:22:19,280 --> 00:22:24,280 Speaker 1: there's this repetition of you know, panic and then it's 321 00:22:24,480 --> 00:22:27,800 Speaker 1: forgotten because in the health sector, there there are so 322 00:22:27,840 --> 00:22:33,600 Speaker 1: many unmechands that people's attention shifts somewhere else. There's always 323 00:22:33,600 --> 00:22:37,520 Speaker 1: some other priority. It's that comes up and catches attention, 324 00:22:38,080 --> 00:22:41,880 Speaker 1: and then you know that accounts for the high costs 325 00:22:41,920 --> 00:22:45,320 Speaker 1: of responding the next time. If the bank is not prepared, 326 00:22:45,359 --> 00:22:48,840 Speaker 1: the countries are not prepared, it's very difficult. And we 327 00:22:48,880 --> 00:22:54,360 Speaker 1: are seeing it again with coronavirus because basically from two 328 00:22:54,359 --> 00:22:57,399 Speaker 1: thousand fifteen, which was the end of the end of 329 00:22:57,480 --> 00:23:00,679 Speaker 1: the last epidemic that was sort of a major epidemic 330 00:23:00,760 --> 00:23:04,120 Speaker 1: in West Africa, you know, not not much has happened 331 00:23:04,160 --> 00:23:10,120 Speaker 1: to improve preparedness acause the worst countries. M HM. So 332 00:23:10,280 --> 00:23:14,240 Speaker 1: you mentioned that after other disasters like a hurricane or 333 00:23:14,240 --> 00:23:18,840 Speaker 1: an earthquake, there's sort of building activity that starts up 334 00:23:18,920 --> 00:23:22,879 Speaker 1: immediately afterwards, and I would assume that that maybe helped 335 00:23:23,040 --> 00:23:26,840 Speaker 1: stimulate the economy in one way or another. In your 336 00:23:26,880 --> 00:23:32,680 Speaker 1: experience or in your research after a pandemic, what sort 337 00:23:32,680 --> 00:23:35,520 Speaker 1: of economic impact does that have in the long term? 338 00:23:35,560 --> 00:23:38,880 Speaker 1: Does the recovery, the economic recovery after a pandemic look 339 00:23:39,000 --> 00:23:43,080 Speaker 1: different to the economic recovery after an earthquake or a hurricane. 340 00:23:43,920 --> 00:23:46,679 Speaker 1: I mean, it's sort of a high level answers know 341 00:23:46,920 --> 00:23:51,720 Speaker 1: that it's you know, macro economically set tempre a shock 342 00:23:52,720 --> 00:23:58,040 Speaker 1: that bosses as soon as you know, the disruptions um 343 00:23:58,119 --> 00:24:04,240 Speaker 1: of travel and the raid and and you know supply 344 00:24:04,520 --> 00:24:07,399 Speaker 1: chains to Gemen, that comes to an end and things 345 00:24:08,119 --> 00:24:12,600 Speaker 1: return to normal, and there's a um there's no permanent effect, however, 346 00:24:12,800 --> 00:24:17,040 Speaker 1: in when this happens in poor, very poor countries, like 347 00:24:18,400 --> 00:24:21,800 Speaker 1: what happened in West Africa and in thousands fourteen to sixteen, 348 00:24:22,600 --> 00:24:29,000 Speaker 1: the Ebola outbreak had a very severe effect on the 349 00:24:29,080 --> 00:24:33,959 Speaker 1: health care system. A large number of doctors and nurses died. 350 00:24:34,240 --> 00:24:38,040 Speaker 1: And when you think of that in the context of 351 00:24:38,280 --> 00:24:42,080 Speaker 1: a poor country that does not have enough doctors and nurses, 352 00:24:43,000 --> 00:24:47,000 Speaker 1: and you know, these kinds of you know, human capacities 353 00:24:47,040 --> 00:24:51,159 Speaker 1: that make the health care system work, and when they 354 00:24:51,240 --> 00:24:55,119 Speaker 1: lose them in a in a in a uncontrolled outbreak, 355 00:24:55,200 --> 00:24:58,040 Speaker 1: which is what the Abola was in West Africa for 356 00:24:58,440 --> 00:25:02,680 Speaker 1: you know the first years literally, um then that set 357 00:25:02,920 --> 00:25:07,240 Speaker 1: the country back because it takes you know, many years 358 00:25:07,280 --> 00:25:12,159 Speaker 1: to train you and and expensive also you know to 359 00:25:12,200 --> 00:25:17,880 Speaker 1: train new doctors and nurses. So there you would see uh, 360 00:25:18,240 --> 00:25:22,720 Speaker 1: you know development. I mean they estimate that the West, 361 00:25:22,760 --> 00:25:25,720 Speaker 1: in West Africa, development was set back by a decade. 362 00:25:25,960 --> 00:25:30,120 Speaker 1: So losing a decade of growth in a very poor 363 00:25:30,520 --> 00:25:34,040 Speaker 1: in very poor countries, that's very serious. You know, the 364 00:25:34,119 --> 00:25:38,480 Speaker 1: coping with these events is much more difficult in poor 365 00:25:38,560 --> 00:25:43,960 Speaker 1: countries and in poor communities, so they're the effects you know, 366 00:25:44,000 --> 00:25:48,160 Speaker 1: would be long lasting than in countries that are much 367 00:25:48,240 --> 00:25:52,800 Speaker 1: more robust and Brazilian that you know, when the worst 368 00:25:52,920 --> 00:25:57,160 Speaker 1: is over it you can return to normal hopefully. How 369 00:25:57,200 --> 00:26:00,840 Speaker 1: do you see this playing out in China? Specifically? We 370 00:26:00,960 --> 00:26:06,200 Speaker 1: look with astonishment that the measures that are being implemented 371 00:26:06,240 --> 00:26:10,760 Speaker 1: in China, and it's I'm no expert in China or 372 00:26:10,800 --> 00:26:14,560 Speaker 1: in u or these kinds of measures, and I can 373 00:26:14,600 --> 00:26:17,639 Speaker 1: only hope that it's work. We should all hope that 374 00:26:17,800 --> 00:26:22,240 Speaker 1: it's works. Thank you so much. Good that was really interesting, 375 00:26:22,280 --> 00:26:26,600 Speaker 1: Thank you, thank you for having me here. Thank you 376 00:26:26,680 --> 00:26:42,280 Speaker 1: so much for coming on off of so Joe's Away. 377 00:26:42,320 --> 00:26:44,720 Speaker 1: So I'm just going to talk to myself for a 378 00:26:44,760 --> 00:26:47,280 Speaker 1: couple of minutes, but I just want to say I 379 00:26:47,320 --> 00:26:51,560 Speaker 1: always find that kind of deep dive into bond documentation 380 00:26:51,680 --> 00:26:56,399 Speaker 1: very fascinating, and I find this particular conversation fascinating not 381 00:26:56,560 --> 00:27:01,399 Speaker 1: just because coronavirus is impacting so many people around the 382 00:27:01,400 --> 00:27:04,800 Speaker 1: world at the moment and also global markets, but also 383 00:27:05,000 --> 00:27:08,919 Speaker 1: because these pandemic bonds remind me a little bit of 384 00:27:09,200 --> 00:27:12,280 Speaker 1: E s G investing, which is the other hot topic 385 00:27:12,480 --> 00:27:16,600 Speaker 1: in finance at the moment. Investors buy stuff that's supposed 386 00:27:16,640 --> 00:27:19,600 Speaker 1: to be environmentally friendly or aimed at some sort of 387 00:27:19,640 --> 00:27:24,880 Speaker 1: social good or governance related thing, and too often we're 388 00:27:24,880 --> 00:27:27,360 Speaker 1: not asking the right questions about how these things are 389 00:27:27,520 --> 00:27:31,000 Speaker 1: necessarily structured, who's doing the due diligence on them, who's 390 00:27:31,160 --> 00:27:35,239 Speaker 1: monitoring performance versus pay out. A lot of people just 391 00:27:35,280 --> 00:27:38,520 Speaker 1: seemed to be reaching for the hot new thing that 392 00:27:38,640 --> 00:27:43,240 Speaker 1: happens to come with a you know, cuddly do good label, 393 00:27:43,640 --> 00:27:46,680 Speaker 1: and the potent the pandemic bonds remind me a lot 394 00:27:46,720 --> 00:27:49,800 Speaker 1: of that now. If you want to read more about these, 395 00:27:49,840 --> 00:27:54,240 Speaker 1: my Bloomberg colleagues John Lowerman and Tasso's Vassos also wrote 396 00:27:54,280 --> 00:27:58,000 Speaker 1: a great piece about the pandemic bonds last year, definitely 397 00:27:58,160 --> 00:28:02,760 Speaker 1: worth reading. So this has been another episode of the 398 00:28:02,800 --> 00:28:05,879 Speaker 1: All Thoughts Podcast. I'm Tracy Alloway. You can follow me 399 00:28:06,040 --> 00:28:09,800 Speaker 1: on Twitter at Tracy Alloway. You can also follow my 400 00:28:09,880 --> 00:28:14,679 Speaker 1: absentee co host Joe Wisenhal at The Stalwart, and you 401 00:28:14,680 --> 00:28:18,920 Speaker 1: can follow our producer Laura Carlson at Laura M Carlson. 402 00:28:19,400 --> 00:28:23,159 Speaker 1: You can also follow all of Bloomberg podcasts at the 403 00:28:23,200 --> 00:28:26,480 Speaker 1: Twitter handle at podcast. Thanks for listening.