A member of Royal Malaysia Police and soldiers stop motorists at a roadblock set up to maintain the movement control order, which limits the activities of people in Malaysia as a preventive measure against the spread of the Covid-19 coronavirus, in Kuala Lumpur on March 25 2020. Picture: AFP/MOHD RASFAN
A member of Royal Malaysia Police and soldiers stop motorists at a roadblock set up to maintain the movement control order, which limits the activities of people in Malaysia as a preventive measure against the spread of the Covid-19 coronavirus, in Kuala Lumpur on March 25 2020. Picture: AFP/MOHD RASFAN

London — Governments and central banks around the world are ripping up the policy rule book as they battle to immunise their economies from deeper coronavirus carnage.

Printing new money, gargantuan debt spending, loan guarantees, tax breaks and even direct payments to workers are all in the highly unorthodox mix.

AFP surveys the latest responses by major economies as Covid-19 has spread from China to the rest of the world, making a global recession all but inevitable.

Wartime investment

In the US, Senate leaders and the White House early Wednesday struck agreement on a $2-trillion stimulus package for the world's largest economy.

The biggest ever spending plan in US history had been knocked back by Democratic objections to the Republican plan, which was decried as a “slush fund” for bosses.

But party leaders overcame their differences to clinch a “wartime level of investment into our nation”, Republican Senate Majority Leader Mitch McConnell said.

The Senate and House of Representatives still need to pass the legislation before sending it to President Donald Trump for his signature.

The package will put cash directly into the hands of Americans, provides grants to small businesses and hundreds of billions of dollars in loans for larger corporations including airlines, and expands unemployment benefits.

A separate package from US financial overseers including the Federal Reserve would provide a stunning $4-trillion in liquidity to juice up the economy.

The Fed has kept up near-daily announcements to keep dollars flowing, in addition to slashing its main lending rate to near zero.

On Monday, the Fed vowed to buy unlimited amounts of government debt — akin to printing money — and offered to lend directly to small- and medium-sized firms.

Missing in action

Some observers are demanding a collective response from the Group of Seven (G7) and G20 to fight the pandemic, and help poorer nations who lack the borrowing capacity of their richer peers.

Saudi Arabia, which holds the G20 presidency, confirmed that it would convene a videoconference summit of leaders including Trump and China's Xi Jinping on Thursday.

“King Salman will chair the meeting to advance a co-ordinated global response to the Covid-19 pandemic and its human and economic implications,” said a Saudi statement early Wednesday.

On Tuesday, G7 finance ministers and central bank chiefs said they were working on “substantial and complementary packages”.

They reiterated a vow to “do whatever is necessary” to safeguard jobs and the economy.

Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), called for a “sizeable, credible, internationally co-ordinated effort” bigger even than the 1930s New Deal and the Marshall Plan, which rebuilt Europe after World War 2.

Breaching taboos

Germany plans to abandon its constitutional debt limits and raise €156 bn in new borrowing to stop Europe's largest economy from going under.

Others including Britain and France are resorting to levels of state intervention unseen since World War 2.

The EU has suspended limits on members' debt and deficit levels.

Backed by France, hard-pressed Italy wants the EU to breach the ultimate taboo by allowing eurozone members to pool their debts and issue so-called coronabonds.

But in talks Tuesday, EU finance ministers failed to agree on such crisis measures.

Fiscally conservative member states, led by Germany and the Netherlands, believe a huge stimulus announced by the European Central Bank, backed by national spending, will do for now.

Central banks attack

The ECB, after being criticised for keeping interest rates on hold, last week announced a €750bn scheme to buy government and corporate bonds, so circulating huge amounts of cheap cash.

The Fed, ECB and Bank of Japan (BoJ) have joined other central banks in enhancing currency swaps to maintain a plentiful supply of dollars running through seized-up credit markets.

Like the Fed, the BoJ is intervening directly by buying up exchange-traded funds, which has lifted the Nikkei share index this week.

AFP