In conjunction with liquidity support, it’s important to manage liquidity competently and channel it properly to accelerate the recovery process.. Image Credit: Getty

The handling of the coronavirus-created economic crisis has varied from one country to another, and this is based on the historical experience with economic development and management in these countries. This will have obvious implications on how the economies can manage the crisis on the one hand, and the speed at which they find a way out from it on the other.

In any case, there are two aspects that all countries need to consider to help overcome the crisis and accelerate the recovery process. First is to support domestic liquidity, without which the consequences cannot be overcome.

For example, the US injected $7 trillion through direct aid and a bit of quantitative easing, a monetary policy whereby the US Federal Reserve bought bonds and other financial assets to inject money into the economy to expand activity. This is equivalent to one-third of the US GDP, while the European Union has approved a stimulus package of 500 billion euros. Britain, China, Russia and the Gulf states also had theirs.

Don’t compromise its effectiveness

In conjunction with liquidity support, it’s important to manage liquidity competently and channel it properly. But more important is not to make decisions that limit the effects, such as withdrawing liquidity through counter-resolutions that lessen effectiveness. This is because the right combination of the two components will allow tackling many implications and overcoming them as quickly as possible.

The consistency between these two components varies considerably between countries. There are those that take decisions based on specialised studies and assign an administrative body to implement the results from them.

While other countries lack professionalism and are dominated by decision-making based on general assessments. This is clearly evident in the contradiction between approaches that hinder each other and minimise the effectiveness of decisions.

Untimely taxes

Apart from general theories, the true approach towards liquidity support must not be hindered by adverse measures that contribute to any sort of untimely withdrawal of portions of it, such as imposition of inappropriate taxes, especially that affects consumption such as a VAT rate. This may reduce local demand and hamper market recovery, leading to a damage of the manufacturing and retail sectors as well as lead to further bankruptcies.

Here is where professionally driven decisions help, since these are made in compliance with objective data, while administrative decisions are taken by a superior power depending on visible phenomena. Those that do not account for the fundamental principles of crisis management will have adverse effects.

Keep the linkage

To avert this impasse, clearly visible in some countries, the nature of the relationship between professional and managerial aspects must be changed. This is simply because the professional aspect does not necessarily have to be good managerial one, and vice versa. A sound managerial approach may lack professional foundations that require research and preparation based on accumulated professional experience.

Therefore, in light of the crisis, whose repercussions seem to continue for a long period, it is necessary to correct this relationship in countries where this imbalance has begun to show up.

These two sides complement each other. The suffering will continue for a long time in those countries where administrators have taken centrestage and professionals remain watching the situation as mere spectators.

The global crisis is deep and has affected all. The disadvantages of the COVID-19 related crisis are almost close to those felt after the First and Second World War as well as the Great Depression in the 1930s.

Today’s crisis requires adopting a professional approach to cope with the unprecedented repercussions.

- Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.