SEATTLE, Washington –The impact of the COVID-19 pandemic will likely far outlast the virus’s immediate consequences. Indeed, if proper steps are not taken to mitigate the damage being done to the global economy, experts believe that the aftershocks will continue to disrupt livelihoods for years to come. That is why the IFC’s response to COVID-19 is critical not only on a business level but also for the world’s most vulnerable.
What Is the IFC Doing to Help?
The International Finance Corporation (IFC) is a branch of the World Bank that focuses on providing investment and management services to the private sector in developing countries. In particular, it accomplishes this by encouraging the development of new markets, which then leads to new opportunities for jobs and income.
In March 2020, the organization strengthened its response to Covid-19 with a further commitment of $2 billion toward the cause. This brings the total of the IFC’s financing availability to $8 billion, up from a previous $6 billion. Its purpose is to provide support to businesses struggling to stay afloat amid the pandemic.
“By ensuring our clients sustain their operations during this time, we hope the private sector in the developing world will be better equipped to help economies recover more quickly,” said IFC Chief Executive Officer, Philippe Le Houérou. “In turn, this will help vulnerable groups to more quickly recover their livelihoods and continue to invest in the future.”
Breaking Down the Investments
The IFC’s response to Covid-19 consists of four key segments.
Under its Real Sector Crisis Response Facility, the IFC assigned $2 billion to safeguard critical industries, such as manufacturing, agriculture and the healthcare sector. This largely takes the form of loans and share purchases.
Its Global Trade Finance Program provides $2 billion to cover the payment risks of institutions that finance the imports and exports of small-to-medium enterprises. Hence, helping to soften the blow to global supply chains and keep trade flowing.
Another $2 billion ensures that smaller businesses can continue to pay their bills and employees’ salaries. Additionally, this includes a longer-term restructuring of certain businesses to guarantee their continued operation.
Lastly, the IFC dedicated the final $2 billion of the package to local banks that provide financing to companies in emerging markets. Thus, relieving some of the risks the banks must shoulder.
However, the impact of the IFC’s involvement is not likely to stop there. Indeed, the history of the organization demonstrates a strong multiplier effect when it comes to its investments. Take a look at fiscal years 2018 and 2019, for example. Within that time period, each dollar invested by the IFC spurred an additional $1.8 of private investment.
The organization also reiterated its commitment to creating new projects in developing countries. IFC Chief Operating Officer, Stephanie Von Friedeburg, emphasized the importance of such work, stating that if the organization could hasten development in that regard, “we’ll be able to help some of those countries get back on their feet.”
While the IFC’s response to COVID-19 is poised to make a major impact internationally, there was no guarantee that the initiative would be able to get off the ground. After all, as the United States holds veto power within the World Bank, any attempt to increase funding for the IFC would require congressional approval. However, thanks in large part to an effort led by California representative Maxine Waters, the measure would pass as part of the United States’ COVID-19 relief package.
Secretary of the Treasury Steve Mnuchin acknowledged Rep. Waters’ efforts on March 21, 2020, stating, “With your leadership, we have negotiated a new package of reform commitments with IFC management that will strengthen the institution and ensure that it uses its resources in ways that benefit the individuals most in need during this crisis.” These commitments include, among others, greater transparency within the corporation’s intermediary finances as well as an audit of its investments in Myanmar.
Altogether, the IFC’s response to Covid-19 came rapidly and with broad support. Because of that, millions will receive the assistance they need both now and in the long-run. Amid a global crisis, multilateral support like this is essential to making sure that both high- and low-income countries can move forward on equal footing.
– Scott Boyce