WEBVTT - What the Coronavirus Means for Pandemic Bonds 0:00:10.440 --> 0:00:13.800 Hello, and welcome to another episode of the Odd Thoughts podcast. 0:00:13.880 --> 0:00:17.360 I'm Tracy Allaway. My co host Joe Wisenthal is away 0:00:17.480 --> 0:00:21.400 this week. So the entire world has been watching the 0:00:21.440 --> 0:00:24.959 outbreak of a deadly new coronavirus, and I have to say, 0:00:25.400 --> 0:00:28.480 I'm recording this podcast from my apartment in Hong Kong, 0:00:29.080 --> 0:00:31.480 and a lot of workers in the city have now 0:00:31.560 --> 0:00:34.879 been asked to work from home. And as I'm recording, 0:00:34.920 --> 0:00:38.800 there's this huge thunderstorm outside, So apologies if you hear 0:00:38.960 --> 0:00:43.400 in the background, but I gotta say, the entire atmosphere 0:00:43.400 --> 0:00:46.560 of Hong Kong at the moment feels kind of apocalyptic. 0:00:47.360 --> 0:00:51.840 This morning, China just reported an extra fifteen thousand coronavirus 0:00:51.880 --> 0:00:56.280 cases after changing its methodology for diagnosis, and that takes 0:00:56.280 --> 0:00:59.120 the total cases to more than fifty in who the 0:00:59.320 --> 0:01:02.560 province alone own the epicenter of the outbreak. Deaths are 0:01:02.600 --> 0:01:06.319 now well over a thousand people. That's according to official numbers, 0:01:06.360 --> 0:01:08.720 and of course there's a lot of doubt surrounding those 0:01:08.720 --> 0:01:14.039 official numbers. And in between sort of obsessively checking my 0:01:14.120 --> 0:01:17.360 temperature all week and trying to find masks in Hong Kong, 0:01:17.440 --> 0:01:20.440 most of them are sold out. There's another thing that 0:01:20.520 --> 0:01:23.319 I've been obsessing over, and that is the World Bank's 0:01:23.400 --> 0:01:28.320 catastrophe bonds. Now, these aren't just any catastrophe bonds. CAT 0:01:28.360 --> 0:01:31.960 bonds are typically linked to things like hurricanes and earthquakes 0:01:31.959 --> 0:01:34.800 and other natural disasters. But the ones we're going to 0:01:34.880 --> 0:01:38.959 be talking about today are a three D twenty million 0:01:39.000 --> 0:01:43.480 dollar cat bond issue back in that's linked to pandemics. 0:01:43.520 --> 0:01:47.000 In fact, it's the first pandemic bond ever and it 0:01:47.080 --> 0:01:50.920 was sold in response to the Ebola outbreak from a 0:01:50.960 --> 0:01:56.360 few years ago, and the bond basically backs the World 0:01:56.360 --> 0:02:00.360 Banks Pandemic Emergency Financing Facility, that the thing that is 0:02:00.480 --> 0:02:05.240 used to fund biding these kinds of global outbreaks. Now, 0:02:05.400 --> 0:02:07.440 the idea behind the bonds is that there are a 0:02:07.440 --> 0:02:10.760 way for investors to bear some of the financial risk 0:02:10.800 --> 0:02:13.679 of a global pandemic. If an outbreak gets bad enough, 0:02:13.720 --> 0:02:16.520 then the bonds get triggered and their principal value gets 0:02:16.520 --> 0:02:20.320 paid into the World Banks account to help fund containment 0:02:20.320 --> 0:02:25.000 efforts against whatever disease is currently reaking havoc. In the meantime, 0:02:25.320 --> 0:02:28.280 investors get to earn interest, and I ought to say 0:02:28.320 --> 0:02:33.280 it's pretty good interest. The riskiest trench pays about I 0:02:33.320 --> 0:02:37.359 think over libor, and the least risky trench pays something 0:02:37.400 --> 0:02:42.120 like seven percent over libor. Now I just mentioned riskiest 0:02:42.120 --> 0:02:44.880 trench and the least risky trench, and as you can imagine, 0:02:44.880 --> 0:02:48.400 there are different payout triggers for different parts of the bond, 0:02:49.160 --> 0:02:52.919 and they come into action at different points in time. 0:02:53.080 --> 0:02:56.560 And defining a pandemic isn't something that normally comes up 0:02:56.600 --> 0:03:00.200 a lot in finance. I think it's worth digging into 0:03:00.280 --> 0:03:03.519 these bonds to see exactly what those triggers look like, 0:03:03.720 --> 0:03:06.680 what the structure looks like, looks like, how people in 0:03:06.760 --> 0:03:10.680 finance think about global pandemics, and also what we can 0:03:10.800 --> 0:03:15.200 learn about pandemic containment efforts in general. And so today 0:03:15.200 --> 0:03:17.320 we're going to talk with one of the critics of 0:03:17.320 --> 0:03:20.360 the bonds, but also someone who has a lot of 0:03:20.480 --> 0:03:24.800 experience from an economics perspective with pandemics. Our guest is 0:03:24.919 --> 0:03:28.720 Olga Jonas of the Harvard Global Health Institute and also 0:03:28.840 --> 0:03:32.040 a former economist at the World Bank. Olga, thanks so 0:03:32.120 --> 0:03:35.800 much for coming on, um, thank you very much, very 0:03:35.800 --> 0:03:39.040 glad to be here. So I guess my first question 0:03:39.360 --> 0:03:43.720 is how did you get interested in this particular bond 0:03:43.760 --> 0:03:47.040 issue because I've seen you on Twitter and you tweet 0:03:47.120 --> 0:03:49.240 quite a lot about it, and of course there aren't 0:03:49.240 --> 0:03:52.160 that many people out there on social media who are 0:03:52.200 --> 0:03:56.400 talking about pandemic bonds. Yeah. Well, I mean the origin 0:03:56.440 --> 0:03:59.360 it was that I was working. I'm a macro economy 0:03:59.680 --> 0:04:04.080 but in two thousand and five I was in a 0:04:04.240 --> 0:04:07.560 central policy department at the World Bank, and it was 0:04:07.680 --> 0:04:12.200 at that time that the international response to a van 0:04:13.040 --> 0:04:18.520 influenza and the pandemic threat from avian influenza was launched. 0:04:18.680 --> 0:04:22.440 And you know, just was a fortunitous coincidence that I 0:04:22.480 --> 0:04:25.880 was in the department where this this response was managed 0:04:25.960 --> 0:04:29.120 for the World Bank. So I got very interested in 0:04:29.920 --> 0:04:36.120 pandemics and pandemic risk because it's really very much underappreciated 0:04:36.360 --> 0:04:42.800 and it's not studied very seriously because between episodes of emergency, 0:04:43.279 --> 0:04:47.120 people forget about this risk and and it's not um 0:04:47.360 --> 0:04:51.480 something that they worry about, which is a mistake. And 0:04:51.960 --> 0:04:54.640 as we went through the response to a vin and 0:04:54.720 --> 0:04:58.400 pandemic influenza from two thousand five to two thousand ten, 0:04:59.080 --> 0:05:01.440 you know, it became clear that the world is not 0:05:01.800 --> 0:05:04.320 ready for a pandemic, that there are just you know, 0:05:04.360 --> 0:05:08.919 the capacities to prepare and and to prevent such a 0:05:08.960 --> 0:05:13.000 catastrophic event, you know, are feasible, but they are just 0:05:13.160 --> 0:05:16.680 not there in the poorest counties. So we became very 0:05:16.720 --> 0:05:21.560 interested in sustaining the momentum from the Avian food response 0:05:22.160 --> 0:05:25.159 into you know, building the capacities to prevent and to 0:05:25.240 --> 0:05:30.400 be better prepared for the next episode, which will necessarily come, 0:05:30.480 --> 0:05:33.200 as they say, you know, it's not a matter of if, 0:05:33.480 --> 0:05:38.880 but when. UM. But unfortunately this was sidelined UM, and 0:05:39.080 --> 0:05:42.520 you know, it just didn't occur, and that was very disappointing, 0:05:42.880 --> 0:05:48.039 UM experience, very frustrating. And then you know, the Abole 0:05:48.200 --> 0:05:52.479 outbreak in two thousand fourteen was a reminder that poor counties. 0:05:52.520 --> 0:05:56.000 This was in West Africa where we saw that you know, 0:05:56.040 --> 0:05:59.760 it devastated the economies and then too many people died 0:06:00.040 --> 0:06:06.120 in Liberia and cra Leone and Guinea uh And afterwards 0:06:06.200 --> 0:06:11.320 there was momentum to sort of renew the efforts towards 0:06:11.360 --> 0:06:16.440 being prepared next time, and instead of focusing on the 0:06:16.480 --> 0:06:20.520 capacities in the countries, the World Bank went this other route. 0:06:20.760 --> 0:06:24.360 But unfortunately it's you know, it was not a priority 0:06:24.360 --> 0:06:28.120 in the priorities definitely in the countries to be very prepared, 0:06:29.040 --> 0:06:31.720 and this was very much a response, well, what if 0:06:31.760 --> 0:06:33.920 there is a pandemic, I mean, how do we get 0:06:33.920 --> 0:06:37.480 more money kind of response. But not only is that 0:06:37.640 --> 0:06:41.440 not a lower priority, but it also was shown to 0:06:41.560 --> 0:06:45.800 be not feasible to design it in a way that 0:06:45.880 --> 0:06:48.919 it would work. So it's you know, it's a it's 0:06:48.960 --> 0:06:52.359 it's a sort of an accumulation of sort of errors 0:06:52.400 --> 0:06:56.960 of judgment and analysis that brought us to where we 0:06:57.040 --> 0:07:01.040 are today. So just to back up for one second, 0:07:01.279 --> 0:07:04.240 so you're talking about, you know, the preferred way of 0:07:04.240 --> 0:07:07.240 dealing with a pandemic would be to have a domestic 0:07:07.279 --> 0:07:10.280 health care system that is capable of responding on its own, 0:07:10.400 --> 0:07:13.840 but there was a preference for figuring out some way 0:07:14.000 --> 0:07:19.520 to get additional money funneled into a particular country or 0:07:19.600 --> 0:07:23.160 against a particular series of countries if they're hit by 0:07:23.160 --> 0:07:27.880 the pandemic. So how exactly are these bonds supposed to work? 0:07:27.960 --> 0:07:32.160 How does the money get to the World Bank? Well, 0:07:32.360 --> 0:07:35.800 it's supposed to work the way a cat bond works, 0:07:35.880 --> 0:07:40.520 which you know there are parametric triggers, but it proved 0:07:40.600 --> 0:07:44.240 to be very challenging to define the triggers because it's 0:07:44.360 --> 0:07:48.800 very difficult to anticipate how an epidemic. You know, when 0:07:48.800 --> 0:07:51.920 it starts, it's an outbreak, and then it becomes an epidemic. 0:07:52.000 --> 0:07:55.080 And the idea is that you have to inter being 0:07:55.120 --> 0:08:01.440 as soon as possible at the beginning to prevent the spread, right. 0:08:01.560 --> 0:08:04.680 But but that's very difficult to anticipate what it will 0:08:04.680 --> 0:08:09.280 look like, and that's why in designing it, they shows 0:08:09.400 --> 0:08:13.520 triggers that are much later. There is in fact a 0:08:13.600 --> 0:08:16.680 condition that it has to be at least twelve weeks 0:08:16.720 --> 0:08:21.520 after the beginning of the outbreak before anything can be triggered, 0:08:21.600 --> 0:08:24.440 as well as the number of deaths, you know, the 0:08:24.520 --> 0:08:28.720 high number of deaths and the growing rate of the outbreak, 0:08:29.240 --> 0:08:32.880 So that means that it's triggered much too late. But 0:08:33.080 --> 0:08:36.240 if it was triggered earlier, then the price of the 0:08:36.280 --> 0:08:41.040 insurance would be much higher, right, because there's just so 0:08:41.160 --> 0:08:45.599 much uncertainty in the modeling, And much of the uncertainty 0:08:45.600 --> 0:08:48.040 in the modeling is due to the lack of data 0:08:48.360 --> 0:08:52.440 on these kinds of events, and the lack of data 0:08:52.600 --> 0:08:55.840 is due to the lack of public health systems in 0:08:55.880 --> 0:08:59.760 developing countries, which is what is needed to invest in, 0:09:00.080 --> 0:09:03.640 not health care systems. You know, it's not all health care. 0:09:03.679 --> 0:09:07.160 It's not hospitals and clinics and all that. It's just 0:09:07.320 --> 0:09:11.920 the basic it's called core public health functions, which is 0:09:11.960 --> 0:09:17.360 the capacity to detect, to diagnose, and to respond to 0:09:17.480 --> 0:09:21.000 an now the break, and that's not very expensive. It's 0:09:21.040 --> 0:09:25.360 in fact highly affordable compared to the benefits, and that 0:09:25.480 --> 0:09:29.400 hasn't been done. That's that's what has been sideline, and 0:09:29.440 --> 0:09:32.040 you need that to do to do modeling that would 0:09:32.160 --> 0:09:37.320 actually enable insurance maybe in thirty years from now, when 0:09:37.360 --> 0:09:40.720 the health systems are in place to generate the data 0:09:40.760 --> 0:09:44.080 that you need to do the modeling. So there seems 0:09:44.120 --> 0:09:49.880 to be attention here because obviously, if you're fighting a pandemic, 0:09:50.000 --> 0:09:53.439 you want this extra money as soon as possible. But 0:09:53.520 --> 0:09:56.280 the terms of the bonds make it difficult for them 0:09:56.320 --> 0:09:59.560 to pay out because a you have this sort of 0:09:59.640 --> 0:10:02.880 twelve week limit that you just mentioned, and you also 0:10:02.920 --> 0:10:06.480 have to have deaths that take place in other countries 0:10:06.559 --> 0:10:11.320 outside of the original outbreak country. You mentioned that data 0:10:11.520 --> 0:10:14.080 is quite hard to get um when there is a 0:10:14.080 --> 0:10:18.040 global pandemic. So who's who's the arbiter of when these 0:10:18.040 --> 0:10:21.120 bonds actually pay out. How do they verify that the 0:10:21.559 --> 0:10:26.080 trigger has actually been met? Well, there is actual verification 0:10:26.160 --> 0:10:31.000 of the triggers is spelled doubt in the prospectives of 0:10:31.040 --> 0:10:35.200 the for the bonds, which is three eighty six pages long, 0:10:36.240 --> 0:10:40.400 and there is a verification agent which is uh, you know, 0:10:40.760 --> 0:10:44.200 af firm. It's a commercial contract between the World Bank 0:10:44.320 --> 0:10:48.280 and the and the verification agent, and they are going 0:10:48.320 --> 0:10:51.960 to ascertain whether all the triggers have been met. But 0:10:52.080 --> 0:10:55.400 the triggers are triggers have been described as a maze 0:10:55.400 --> 0:10:58.440 of confusion. So you know, this is not a trivial 0:10:58.720 --> 0:11:03.240 exercise to verify ideas triggers because it's it's really quite complex. 0:11:03.760 --> 0:11:07.839 I mean, it takes three eight six pages to set 0:11:07.840 --> 0:11:11.559 out the terms of the bonds. So when the verification 0:11:11.679 --> 0:11:16.080 agent notifies the World Bank that, you know, the triggers 0:11:16.120 --> 0:11:20.479 have been met, then the World Bank would get the 0:11:20.520 --> 0:11:24.600 money from the bond bonds because it's holding a means 0:11:24.600 --> 0:11:29.520 holding that money, right right, what's the maximum payout that 0:11:29.840 --> 0:11:33.680 the World Bank could get? Well, that's that's the other 0:11:33.800 --> 0:11:37.920 issue that's very disappointing in this whole experience is that 0:11:38.800 --> 0:11:44.520 for coronavirus um, when you look at it. The first 0:11:44.640 --> 0:11:48.960 payoffs if it happens, right, I mean there's no certainty. No, 0:11:49.120 --> 0:11:51.800 I mean there's no way of telling, at least from 0:11:51.920 --> 0:11:55.040 where I said, whether it will happen. It will be 0:11:55.200 --> 0:11:59.960 hundred and thirty one million dollars and the maximum payout 0:12:00.280 --> 0:12:04.640 is one hundred and nineties six million dollars, and that 0:12:04.760 --> 0:12:09.120 will have to be divided among the seventy six poorest countries. 0:12:09.600 --> 0:12:13.120 It's about eight cents per capita because there are one 0:12:13.160 --> 0:12:16.480 point more than one point six billion people in the 0:12:16.520 --> 0:12:20.839 poorest countries that are eligible to get the proceeds. So 0:12:21.040 --> 0:12:24.120 it's eight cents per capita, which you know, and when 0:12:24.120 --> 0:12:27.920 you compare it to what China is already spending on 0:12:28.040 --> 0:12:33.040 its response, right, which we have all seen on UM 0:12:33.080 --> 0:12:37.880 the dramatic images of hospitals being built in one weekend 0:12:38.000 --> 0:12:42.719 and post cities under quarantine, and they have announced that 0:12:42.800 --> 0:12:48.079 they have already allocated ten billion dollars for their response, 0:12:48.559 --> 0:12:51.080 so you can see that. You know, if the poorest 0:12:51.160 --> 0:12:55.440 countries in the world with more a bigger population than 0:12:55.679 --> 0:13:00.760 China to together, they will get only um, you know, 0:13:00.760 --> 0:13:03.320 a fraction of what China is all is spending, so 0:13:03.360 --> 0:13:06.480 it will not make much difference. It will be too little, 0:13:06.640 --> 0:13:09.599 too late. Do you think the bonds will trigger for 0:13:09.640 --> 0:13:15.240 the coronavirus out I hope they do, you know, I mean, 0:13:15.320 --> 0:13:19.400 I really hope they do. Because the tragic one of 0:13:19.440 --> 0:13:22.280 the sort of tragic aspects of this is that in 0:13:22.400 --> 0:13:25.480 fact the payment for the cost of the bonds that 0:13:25.559 --> 0:13:30.520 needs the premiums and the interest and the fees that 0:13:30.679 --> 0:13:36.640 were you know, associated with this pretty complicated transaction, that 0:13:36.800 --> 0:13:40.319 those add up to one and fifteen million dollars, and 0:13:40.440 --> 0:13:46.520 those funds actually came from funds that were intended for 0:13:46.559 --> 0:13:50.160 the poorest countries. They came from IDA, which is the 0:13:50.280 --> 0:13:53.520 soft clone window the World Bank, which is, you know, 0:13:53.640 --> 0:13:57.280 money that donors give for the World Bank to finance 0:13:57.520 --> 0:14:02.000 productive projects in the poorest countries. So that was fifty 0:14:02.040 --> 0:14:06.480 million from IDA. Then fifty million was donated by Japan. 0:14:07.120 --> 0:14:10.560 But I'm sure you know, the Japanese government intended that 0:14:10.800 --> 0:14:16.319 their donation of fifty million benefits the developing countries, benefits 0:14:16.400 --> 0:14:20.640 you know, the poorest countries, protect them from pandemics. And 0:14:20.640 --> 0:14:25.440 and then fifteen million was donated by Germany. So also 0:14:25.520 --> 0:14:29.720 you know, taxpayers, taxpayers in Germany, taxpayers in Japan. So 0:14:29.760 --> 0:14:35.040 altogether one and fifteen million has been paid for premiums 0:14:35.080 --> 0:14:37.560 when interests I mean for the interest and for the 0:14:37.920 --> 0:14:42.240 penniums and for the fees to beneficiaries or you know, 0:14:42.280 --> 0:14:46.280 two recipients who are not for who are in high 0:14:46.280 --> 0:14:50.720 income countries. I mean, these are investors who of course 0:14:50.760 --> 0:14:55.200 they invested their funds and they are you know, at 0:14:55.280 --> 0:14:59.600 risk of losing some of this money because of the triggers. 0:15:00.280 --> 0:15:04.320 But you know, that's a very high return, as you mentioned, 0:15:04.320 --> 0:15:08.080 it's still even over libel or seven percent over libor 0:15:08.080 --> 0:15:12.320 for the other branch. Um, those are very generous returns 0:15:12.360 --> 0:15:18.040 in today's market conditions. And um, you know then I 0:15:18.080 --> 0:15:20.800 think you mentioned when in your introduction that the idea 0:15:20.960 --> 0:15:24.480 was that the investors or the private markets would share 0:15:24.800 --> 0:15:27.800 some of the risks of the pandemic and you know, 0:15:27.880 --> 0:15:32.280 thereby thereby contribute. You know, in fact, when the pandemic 0:15:32.440 --> 0:15:35.720 wortions more than it is already and the anticipate that 0:15:35.760 --> 0:15:41.000 it will worsen, the markets will you know, decline, prices 0:15:41.040 --> 0:15:45.320 of assets fall, so investors are already going to be 0:15:45.400 --> 0:15:49.440 losing a lot of money just because there is a pandemic. Right, 0:16:10.640 --> 0:16:14.240 So these were pitched as sort of something that should 0:16:14.400 --> 0:16:18.440 kind of be uncorrelated with the broader market, But in 0:16:18.520 --> 0:16:21.760 fact whenever they trigger, if they actually trigger, it would 0:16:21.800 --> 0:16:25.360 probably be because something quite serious was happening, and therefore 0:16:25.880 --> 0:16:29.640 markets around the world would be falling anyway, exactly, So 0:16:29.800 --> 0:16:33.160 investors sort of get a double whammy. So for the investors, 0:16:33.240 --> 0:16:35.640 it's not that I don't see how there could be 0:16:36.160 --> 0:16:40.640 much of a diversification than a faith because these bonds 0:16:40.840 --> 0:16:44.560 are going to move with the market from the prices, right, 0:16:45.880 --> 0:16:48.200 So who are the investors who who bought these Who 0:16:48.320 --> 0:16:51.120 who's a typical buyer of this kind of bond? Well, 0:16:51.200 --> 0:16:55.440 I think I don't actually know. Um. I think if 0:16:55.480 --> 0:16:59.440 you know, they were just investors who buy cat bonds, 0:16:59.600 --> 0:17:03.560 who you want to see them in their portfolios as 0:17:03.560 --> 0:17:07.800 an element. Um I think there are some pension funds 0:17:08.000 --> 0:17:13.840 who bought it. But it's definitely the high returns have 0:17:13.960 --> 0:17:17.440 not been earned by developing countries, you know, I'm quite 0:17:17.440 --> 0:17:21.880 certain it's all high income investors. Do you think there's 0:17:21.920 --> 0:17:25.840 any way to structure this kind of bond in a 0:17:25.960 --> 0:17:31.439 way that would be satisfying or attractive for investors but 0:17:31.640 --> 0:17:35.760 also ultimately fulfill the purpose of a pandemic bond for 0:17:35.800 --> 0:17:39.960 public health, which presumably is getting extra money to the 0:17:40.000 --> 0:17:43.760 World Bank as soon as possible. No, well, number one, 0:17:44.160 --> 0:17:48.320 the World Bank does not need the money to respond 0:17:48.359 --> 0:17:51.879 to pandemics. You know, the World Bank is not a 0:17:51.920 --> 0:17:56.359 budget constraint entity. It's a bank. And IDA, the Fund 0:17:56.440 --> 0:18:00.560 for the Poorest Countries, is the largest multila all fund 0:18:01.480 --> 0:18:06.720 public fund to support development in poor countries, which includes, 0:18:07.000 --> 0:18:12.400 for the last fifty years, responding to emergencies. Because emergencies, 0:18:12.440 --> 0:18:16.880 you know, occur um a matter of I mean often, right, 0:18:17.640 --> 0:18:23.040 And IIDA has very you know, ample liquid assets. It 0:18:23.160 --> 0:18:28.280 has reserves, it lends, it makes new loans worth now 0:18:28.520 --> 0:18:33.359 twenty seven billion dollars every year, right, So, and the 0:18:33.400 --> 0:18:36.600 allocations are done on a three year basis. So now 0:18:36.640 --> 0:18:41.399 it's allocating eighty two billion dollars for every three years. 0:18:41.440 --> 0:18:45.840 It's a rolling process. Right. So there's you know, you 0:18:45.960 --> 0:18:49.680 cannot nobody can say that the World Bank needs more 0:18:49.720 --> 0:18:54.280 money in order to respond to outbreaks. The World Bank 0:18:54.359 --> 0:18:56.880 does have the money. And that's this that's the very 0:18:56.920 --> 0:18:59.520 purpose of the World Bank. I mean, that's why it 0:18:59.600 --> 0:19:02.320 was set up. It was set up to support countries 0:19:03.160 --> 0:19:08.159 in there. You know, for their priority needs. As circumstances change, 0:19:08.280 --> 0:19:12.919 and if there is a outbreak of a bola or coronavirus, 0:19:13.560 --> 0:19:16.479 the money is not the issue. The preparedness of the 0:19:16.480 --> 0:19:20.960 World Bank to respond to you know, delivered the financing 0:19:21.000 --> 0:19:24.640 on the ground, and the preparedness of the country too, 0:19:25.640 --> 0:19:28.960 you know, implement the activities that are necessary to control 0:19:29.000 --> 0:19:33.359 the outbreak. But money is not has never been the issue. 0:19:34.880 --> 0:19:37.600 I mean, if you have eighty two billion dollars in 0:19:37.680 --> 0:19:43.240 the fund, you do not issue bonds that library plus 0:19:43.280 --> 0:19:48.960 eleven to obtain a hundred and ninety six million in 0:19:49.040 --> 0:19:53.440 case there is a coronavirus. Right, It's just I mean, 0:19:53.480 --> 0:19:58.280 the World Bank has ample reserves to deal without outbreaks 0:19:58.320 --> 0:20:01.800 in either countries. So this was more of a sort 0:20:01.840 --> 0:20:06.360 of attention getting initiative, you know, to have an innovation, 0:20:06.600 --> 0:20:11.119 to try to innovate in this space. But it was 0:20:11.200 --> 0:20:15.600 not needed and it did not work. So I want 0:20:15.600 --> 0:20:18.199 to broaden out the conversation a little bit and go 0:20:18.320 --> 0:20:21.920 back to some of your experience as an economist dealing 0:20:22.000 --> 0:20:26.760 with other epidemics such as avian flew back in the 0:20:26.840 --> 0:20:31.760 early two thousand's. Um, what what lessons did you learn 0:20:31.920 --> 0:20:34.840 as an economist dealing with those sorts of epidemics, because 0:20:34.880 --> 0:20:37.760 I must admit I don't really know exactly what the 0:20:37.880 --> 0:20:40.600 role is of an economist at the World Bank in 0:20:40.880 --> 0:20:43.600 dealing with those kind of outbreaks. What did you actually 0:20:43.640 --> 0:20:46.840 do and what did you learned? Well, you know, what's 0:20:47.320 --> 0:20:55.000 astonishing is that how underappreciated the economics of epidemics where 0:20:55.320 --> 0:21:00.919 or still are, because there there's very little realization that 0:21:01.680 --> 0:21:05.520 if you act early and if you are prepared to 0:21:05.560 --> 0:21:09.720 stop the outbreak when it's just a few cases, you know, 0:21:09.880 --> 0:21:14.960 before it spreads, then in fact you are avoiding a 0:21:15.119 --> 0:21:18.600 huge cost later. And the huge cost is due to 0:21:18.640 --> 0:21:23.440 the exponentials threat, you know, the exponential growth that can 0:21:23.520 --> 0:21:27.000 happen with these diseases because like two people give it 0:21:27.080 --> 0:21:31.280 to four people, to you know, sixteen people, et cetera. 0:21:31.520 --> 0:21:35.440 It's you know, it's a very rapid progression of growth, 0:21:36.359 --> 0:21:40.159 and that's not understood by the by the sort of 0:21:40.200 --> 0:21:45.480 bureaucratic processes that we have in place to respond two disasters, 0:21:45.680 --> 0:21:49.439 you know, because usually it's a disaster that occurs and 0:21:49.480 --> 0:21:52.520 then there is an estimate of the costs of rebuilding, 0:21:53.240 --> 0:21:56.639 like in a hurricane or or in an earthquake, and 0:21:56.680 --> 0:22:01.040 then there are activities to rebuild, but in this case 0:22:01.680 --> 0:22:05.680 you are averting something that hasn't happened yet. Sort of 0:22:05.720 --> 0:22:09.760 there's an overreaction in reacting, but at the same time 0:22:09.840 --> 0:22:13.840 there's the lack of appreciation of how much money you 0:22:14.000 --> 0:22:19.200 saved by reacting early and being prepared. So that's why 0:22:19.280 --> 0:22:24.280 there's this repetition of you know, panic and then it's 0:22:24.480 --> 0:22:27.800 forgotten because in the health sector, there there are so 0:22:27.840 --> 0:22:33.600 many unmechands that people's attention shifts somewhere else. There's always 0:22:33.600 --> 0:22:37.520 some other priority. It's that comes up and catches attention, 0:22:38.080 --> 0:22:41.880 and then you know that accounts for the high costs 0:22:41.920 --> 0:22:45.320 of responding the next time. If the bank is not prepared, 0:22:45.359 --> 0:22:48.840 the countries are not prepared, it's very difficult. And we 0:22:48.880 --> 0:22:54.360 are seeing it again with coronavirus because basically from two 0:22:54.359 --> 0:22:57.399 thousand fifteen, which was the end of the end of 0:22:57.480 --> 0:23:00.679 the last epidemic that was sort of a major epidemic 0:23:00.760 --> 0:23:04.120 in West Africa, you know, not not much has happened 0:23:04.160 --> 0:23:10.120 to improve preparedness acause the worst countries. M HM. So 0:23:10.280 --> 0:23:14.240 you mentioned that after other disasters like a hurricane or 0:23:14.240 --> 0:23:18.840 an earthquake, there's sort of building activity that starts up 0:23:18.920 --> 0:23:22.879 immediately afterwards, and I would assume that that maybe helped 0:23:23.040 --> 0:23:26.840 stimulate the economy in one way or another. In your 0:23:26.880 --> 0:23:32.680 experience or in your research after a pandemic, what sort 0:23:32.680 --> 0:23:35.520 of economic impact does that have in the long term? 0:23:35.560 --> 0:23:38.880 Does the recovery, the economic recovery after a pandemic look 0:23:39.000 --> 0:23:43.080 different to the economic recovery after an earthquake or a hurricane. 0:23:43.920 --> 0:23:46.679 I mean, it's sort of a high level answers know 0:23:46.920 --> 0:23:51.720 that it's you know, macro economically set tempre a shock 0:23:52.720 --> 0:23:58.040 that bosses as soon as you know, the disruptions um 0:23:58.119 --> 0:24:04.240 of travel and the raid and and you know supply 0:24:04.520 --> 0:24:07.399 chains to Gemen, that comes to an end and things 0:24:08.119 --> 0:24:12.600 return to normal, and there's a um there's no permanent effect, however, 0:24:12.800 --> 0:24:17.040 in when this happens in poor, very poor countries, like 0:24:18.400 --> 0:24:21.800 what happened in West Africa and in thousands fourteen to sixteen, 0:24:22.600 --> 0:24:29.000 the Ebola outbreak had a very severe effect on the 0:24:29.080 --> 0:24:33.959 health care system. A large number of doctors and nurses died. 0:24:34.240 --> 0:24:38.040 And when you think of that in the context of 0:24:38.280 --> 0:24:42.080 a poor country that does not have enough doctors and nurses, 0:24:43.000 --> 0:24:47.000 and you know, these kinds of you know, human capacities 0:24:47.040 --> 0:24:51.159 that make the health care system work, and when they 0:24:51.240 --> 0:24:55.119 lose them in a in a in a uncontrolled outbreak, 0:24:55.200 --> 0:24:58.040 which is what the Abola was in West Africa for 0:24:58.440 --> 0:25:02.680 you know the first years literally, um then that set 0:25:02.920 --> 0:25:07.240 the country back because it takes you know, many years 0:25:07.280 --> 0:25:12.159 to train you and and expensive also you know to 0:25:12.200 --> 0:25:17.880 train new doctors and nurses. So there you would see uh, 0:25:18.240 --> 0:25:22.720 you know development. I mean they estimate that the West, 0:25:22.760 --> 0:25:25.720 in West Africa, development was set back by a decade. 0:25:25.960 --> 0:25:30.120 So losing a decade of growth in a very poor 0:25:30.520 --> 0:25:34.040 in very poor countries, that's very serious. You know, the 0:25:34.119 --> 0:25:38.480 coping with these events is much more difficult in poor 0:25:38.560 --> 0:25:43.960 countries and in poor communities, so they're the effects you know, 0:25:44.000 --> 0:25:48.160 would be long lasting than in countries that are much 0:25:48.240 --> 0:25:52.800 more robust and Brazilian that you know, when the worst 0:25:52.920 --> 0:25:57.160 is over it you can return to normal hopefully. How 0:25:57.200 --> 0:26:00.840 do you see this playing out in China? Specifically? We 0:26:00.960 --> 0:26:06.200 look with astonishment that the measures that are being implemented 0:26:06.240 --> 0:26:10.760 in China, and it's I'm no expert in China or 0:26:10.800 --> 0:26:14.560 in u or these kinds of measures, and I can 0:26:14.600 --> 0:26:17.639 only hope that it's work. We should all hope that 0:26:17.800 --> 0:26:22.240 it's works. Thank you so much. Good that was really interesting, 0:26:22.280 --> 0:26:26.600 Thank you, thank you for having me here. Thank you 0:26:26.680 --> 0:26:42.280 so much for coming on off of so Joe's Away. 0:26:42.320 --> 0:26:44.720 So I'm just going to talk to myself for a 0:26:44.760 --> 0:26:47.280 couple of minutes, but I just want to say I 0:26:47.320 --> 0:26:51.560 always find that kind of deep dive into bond documentation 0:26:51.680 --> 0:26:56.399 very fascinating, and I find this particular conversation fascinating not 0:26:56.560 --> 0:27:01.399 just because coronavirus is impacting so many people around the 0:27:01.400 --> 0:27:04.800 world at the moment and also global markets, but also 0:27:05.000 --> 0:27:08.919 because these pandemic bonds remind me a little bit of 0:27:09.200 --> 0:27:12.280 E s G investing, which is the other hot topic 0:27:12.480 --> 0:27:16.600 in finance at the moment. Investors buy stuff that's supposed 0:27:16.640 --> 0:27:19.600 to be environmentally friendly or aimed at some sort of 0:27:19.640 --> 0:27:24.880 social good or governance related thing, and too often we're 0:27:24.880 --> 0:27:27.360 not asking the right questions about how these things are 0:27:27.520 --> 0:27:31.000 necessarily structured, who's doing the due diligence on them, who's 0:27:31.160 --> 0:27:35.239 monitoring performance versus pay out. A lot of people just 0:27:35.280 --> 0:27:38.520 seemed to be reaching for the hot new thing that 0:27:38.640 --> 0:27:43.240 happens to come with a you know, cuddly do good label, 0:27:43.640 --> 0:27:46.680 and the potent the pandemic bonds remind me a lot 0:27:46.720 --> 0:27:49.800 of that now. If you want to read more about these, 0:27:49.840 --> 0:27:54.240 my Bloomberg colleagues John Lowerman and Tasso's Vassos also wrote 0:27:54.280 --> 0:27:58.000 a great piece about the pandemic bonds last year, definitely 0:27:58.160 --> 0:28:02.760 worth reading. So this has been another episode of the 0:28:02.800 --> 0:28:05.879 All Thoughts Podcast. I'm Tracy Alloway. You can follow me 0:28:06.040 --> 0:28:09.800 on Twitter at Tracy Alloway. You can also follow my 0:28:09.880 --> 0:28:14.679 absentee co host Joe Wisenhal at The Stalwart, and you 0:28:14.680 --> 0:28:18.920