World Bank chief economist Carmen Reinhart said the coronavirus pandemic was turning into a major economic crisis and warned of the possibility of a financial crisis.
“It didn’t start as a financial crisis, but it escalates into a major economic crisis with very serious financial consequences,” Reinhart told Bloomberg Television. “There’s a long way to go.”
Reinhart, who took on a new role in June, is best known for working with then-Harvard colleague Kenneth Rogoff on the latest financial crisis in their 2009 book, This Time is Different: Eight Centuries of Financial Stupidity. This made the pair a source of information on the history of government defaults, recessions, banking operations, currency payments and inflation spikes.
Asked if central banks buy bonds to keep yields low, it ends up being a zero-sum game when everyone does it, Reinhart said: “It̵7;s a war. During wars, governments finance their military spending, but they can still be extraordinary. needs “.
“The scenario we are in is not sustainable,” she added.
Reinhart spoke after the world’s richest countries agreed to renew the initiative to reduce debt to the poorest at least during the first half of 2021, not responding to the World Bank’s calls for an extension for a year.
Read more: Why there is a debt crisis in emerging markets: QuickTake
China is to blame according to the World Bank, almost 60% of the money that was to be returned to the world’s poorest countries this year. He has provided many loans to developing countries on terms that are not transparent and have higher interest rates than countries can afford, the bank’s president said in August.
Asked if China was not involved in the debt relief, Reinhart said the country was actually involved, only “less than completely”.
The Chinese Development Bank, the main lender, has not joined the effort, as have private sector creditors, she said. “Full participation is something we should strive for, but unfortunately we haven’t seen it yet.”