About a year ago, the oldest continuously running university in the Western Hemisphere, Universidad de San Marcos, kindly invited me to deliver a keynote lecture on a topic of my choice. As I was thinking about what to discuss, I bumped into Nouriel Roubini at a party in NY. We talked and enjoyed a brief but good time, reminiscing some about our debates during past crises times. And the topic came to me: The Next Global Crisis.
Needless to say, and unfortunately, I did not predict the ongoing Covid-19 crisis in my May 2019 talk. I did emphasize, however, that crises come in different kinds and shapes, which makes predicting them a virtually hopeless endeavor.
I also asked: What have we learned, then, from so many years of research on crises, especially for policy? I did mention two lessons that, I believe, turn out to be applicable to today’s crisis. The first one is that, when a crisis hits, a top priority of economic policy is to prevent “crisis multiplication” by providing ample liquidity to the financial system. For a number of countries, especially emerging economies, the needed liquidity is in dollars, and hence those countries are best served from a strong international reserves position and low levels of external debt.
The second lesson has to do with the acceptance that we do not know where the next “Next Crisis” will come from. The clear suggestion is that we should start designing and implementing robust policy mechanisms, with emphasis on resilience, flexibility, and agility to respond. This is an idea that my friend Norman Loayza, at the World Bank, had started to push in the 2014 World Development Report, which in fact has a box devoted to the possibility of a world pandemic. If we had listened to Norman then, the cost of Covid-19 would have been much lower. Hopefully we will pay attention now and devote the needed resources to developing resilient policy frameworks for when the next big crisis arrives. Which it will.