Coming to Grips with COVID - 19 - Canada's Response and Implications

Posted with permission of its author, William Finseth (March 19th, 2020) 

 

Global Affairs is recommending that all Canadians international development specialists return home.  This, itself, is a serious challenge but there are many follow-on issues associated with that action. Here are just a few:

 

1. Health care coverage  for Canadians return from long term assignments overseas - Many individuals who travel overseas for extended periods of time lose their provincial health care coverage because they are out of the country for extended periods of time or they have performed multiple overseas contracts which have resulted in them being out of their home provinces for extended periods of time. The problem arises is that these individuals are treated in the same manner as "Snow Birds" and people with dual citizenship, like many Lebanese Canadians who return to Lebanon for extended periods of time...their provinces' health care plans turn off their provincial health care coverage for a period of six months, when they return to Canada. This is a situation that should never been allowed to happen for members of the Canadian international development community, whether they be consultants, co-operants, volunteers, UN interns, members of Global Affairs, the Canadian military or RCMP and other police officers working overseas. They are a direct extension of Canadian foreign policy. Almost none of those individuals and their families would be working in overseas developing environments if they weren't required to serve as the "boots on the ground" to carry out Canadian foreign policy. I have been saying for a long time that the provincial health programs need to treat these individuals differently than the rest of the Canadian population who choose to live outside of Canada for an extended period of time. Canadian international development specialists, diplomats and others should have uninterrupted, full health care coverage the moment they return to Canada, no matter how many times they have been out of the country on official international development or diplomatic business.

 

2. The break in continuity across development programs and projects - The return home of Canadian international development specialists, i.e. independent consultants, co-operants, NGO personnel, and the individuals who serve as the in-field executing agencies on behalf of consulting firms like Cowater and Agriteam and NGOs that have competed for and won some of the large international development contracts from Global Affairs and other international development agencies and institutions like the World Bank, UNDP, etc. will effectively cease their operations in the countries that they are working in. With the shut down of operations, the funding stops because no new work is being executed, which means the cash flow that individuals and firms depend upon to keep their operations going at home and abroad and to pay for their own personal needs (rent, mortgage payments, food, etc.) dry up, almost overnight.

 

The shut down will have a major impact on development activities in each of the developing country partner countries. The money will be shut off to pay for local counterparts. Local personnel will have to be laid off immediately or in the very near-term. Major project development infrastructure that has taken Canadian consultants and Canadian consulting firms and NGOs will evaporate overnight because this shut down isn't going to last a fortnight. The shut down of iternational development operations will likely last 18 at a minimum, just to deal with the threat of COVID-19, plus 6 to 18 months to ramp things up. The question is, will there be anything left in place on the Canadian side to relaunch moribund projects and programmes or to complete consulting assignments and the like.

 

3. Impact on Implementing Organizations - Sadly, the reality is that the international development community will face a shut-down of operations, not just for fourteen days or even one or two months of suspended operations, the community will face a complete shut down of at least eighteen months. When the cash dries up, individuals and international developing firms will cease operations. Individuals and firms are likely to become insolvent and will face bankruptcy. The impact will not be dissimilar to what is happening to bars and restaurants that have been forced to close their doors...without any patrons paying their bills few will survive closures for even short periods of time because they don't have the deep pockets needed to suspend operations, even for a couple of months. The situation for the international development community is far more serious that it is for the bars and resteraunts which might survive if their shut-down is only for two to three months because international development operations will be shut down for a very long period of time, in part because a large percentage of the poor developing countries served by Canada will not have the means to effectively fight the coronavirus within their nations. They simply don't have the health resources or the financial resources or the leadership needed to mount national campaigns to stop such a crisis, with the exception of the experience they have gained fighting the AIDS pandemic and other communicable diseases like malaria and tuberculosis...but many of them have struggled to do that well. Moreover, every one of these developing partner countries are going to face a cash-flow drought across all international development activities as the funds from every international development agency, institution, international NGO - representing billions of dollars in foreign aid dries up.

 

International development on a global scale is like a massive cruise ship that is stopping dead because the fuel cocks are being turned off. It's dead in the water and the effort to get it moving again will be immense. Here in Canada, international development stakeholders along with the Canadian government will be hard-pressed to find a workable financial solution to keep everyone afloat during the long period of time it will take to deal with the COVID-19 crisis, not only at home but in the developing country partner nations as well. Until the pandemic is fully dealt with in those nations as well, it will be virually impossible to imagine restarting international development on a large-scale. Clearly, the entire global international development community is facing a crisis that is so serious it may take several years to recover from, if at all. 

 

4. The problem of debt - There is one other is that no one is addressing and that is the problem of DEBT, the national debt of every sovereign nation. Within the last week Canada and the United States have announced debt-financed packages to finance the resources needed to 1) deal the COVID-19 crisis and 2) to provide financial support to businesses and individuals affected by the fall-out of the COVID-19 crisis. In the case of Canada I am not sure of the figures, it's at least $25 billion (but I keep hearing a figure of $89 billion), whereas in the United States its more than $1 trillion dollars.

 

Let's put that into perspective. Back in 2007-2008 before the Harper government took over, Paul Martin through his sound financial management policies had managed to bring Canada's total debt of $650 billion at the end of the Mulroney years down to $400 billion dollars. Compared to all of the G7 countries, that gave Canada ample wiggle room to spend significant amounts to help stimulate growth, roughly 2% of GDP in additional spending in 2007-2008. In the 10 years that Harper was in power, even though he said he would balance the budget, which his government never did, they continued to spend more than the tax revenue, which drobe that national debt up to around $600 billion. Then Trudeau came along and surprisingly won on a campaign with a major plank of deficit spending, partly because interest rates were as low as they had ever been. In four short years he managed to bring the national debt up to $700 billion and after getting re-elected he and finance minister saw no good reason to put on the breaks with additional deficit spending of $25 to $30 billion. Now with the COVID-19 crisis Trudeau and Morneau have just committed to spending an additional $25 billion or is it $89 billion. So far Bank of Canada interest rates are at rock bottom, which is a good thing but it may not be sustainable in the long-run.

 

And what about the situation in the United States. It's a financial house of cards. Prior to the COVID-19 crisis, the Trump administration had increased the level of the US national debt from $18 trillion to $23 trillion and in that last week that number has jumped to $24 trillion. Both countries and the globe are heading into a massive global recession, which means tax revenues are going to tank, which means the size of the proposed deficits are going to run much higher than forecast and this situation won't go away anytime soon. Unlike the financial crisis of 2008-2009,  when the Federal Reserve Bank under a program of quantitative easin pump more than $3 to $4 trillion dollars into the US economy while keeping interest rates at rock bottom prices, the easy money created a spending spree that saw 10 years of unparalleled growth. That has come to a crashing halt beginning in 2020 and along with it the biggest correction in the stock market prior to the crash in 1997. Trillions of dollars in wealth have been wiped off the books of shareholders and large-scale financial investors and financial institutions.

 

The real worry in all of this was the number of people who borrowed money from their chartered banks to invest in the stock market on its way up, which is known as buying on margin. Buying on margin is great on the ride up. Profits are made using someone else's money but following the market crash, the lenders come to the borrowers asking for their money back and the borrowers don't have the money to pay off their margin accounts, which then becomes the problem of the lenders, i.e. the banks like Citibank and Bank of America, etc. This is what happened in the Stock Market Crash of '29, when so many banks failed and went into receivership. The worry in all of this is that America may be heading into another banking crisis except it may be much worse than the sub-prime mortgage crash of 2007-2008. With all of the government debt financing on top of that, we could be facing a global financial armaggedon, except this time around the central banks and the national governments will have no wiggle room left to try and buy their way out of this potential crisis. All of this is to say, that for those of us who work in the international development world, we are facing what will be the biggest crisis that the industry has faced in the past 30 years but there may be a much bigger crisis looming ahead, just around the time that the COVID-19 crisis is addressed and we have any hope of restarting the international development services sector. 

 

5. A financial solution, of sorts - One temporary financial solution for continuing support for the international development partner nation, would be direct financial transfers to those nations with no strings attached, using money that would normally have flowed through Global Affairs to consultants, international development firms and NGOs to pay for their operations and the contracts, projects and programmes they execute. The problem is, that won't do anything to help the Canadian international development community for the next two years because of the fallout of the COVID-19 crisis.

 

In closing...

These are just a few of thoughts I have had regarding the impact of the COVID-19 crisis on the Canadian international development community. In light of that, I think it is imperative for CAIDP and its sister agencies and their broad memberships discuss these issues at length to assess the potential fallout, the needs going forward and possible solution in the near-term and in medium-term and then post COVID-19. I think discussions with Global Affairs at this stage may be too early, with the exception of insuring full health care coverage for all international development, diplomatic and peace-keeping personnel, volunteers and cooperants and their families who are returning from overseas.