Covid-19 presents opportunity to reset economies: DBS chief

Wed, Jul 22, 2020

Kelly Ng

COVID-19 has hit the reset button on world economies, and governments should look to firm up "exit plans" from their current consumption-focused stimulus packages, said DBS chief Piyush Gupta.

Nobody knows the full extent of the economic damage dealt by the pandemic, although many are bracing themselves for the worst collapse of global gross domestic product (GDP) since the Great Depression.

But what is less appreciated, said Mr Gupta, is that this goes beyond "statistical damage".

"It's not just a matter of (a) slowdown, and then things will sort of come back with a V-shaped recovery… I do think that these are very important structural shifts coming out of the collapse," the chief executive of South-east Asia's largest lender told reporters at a virtual briefing on Tuesday, ahead of DBS's biennial Asian Insights Conference.

While governments around the world have rolled out consumption-focused stimulus packages, such as giving money to the unemployed or to companies so they can keep jobs going, this approach will not be sustainable in the long run.

"(This approach) has a short shelf life. The reason for that is, obviously, governments don't have infinite money. But more importantly, this creates a moral hazard… a mentality where people just get accustomed to the idea of getting payouts," he said.

"It kicks the can down the road."

The environmental, social and corporate governance agenda, in particular, should be "front and centre of the new development paradigm and the new investments that we want to make", Mr Gupta said.

Covid-19 has unveiled stark social inequalities, he said, as he called on governments to start looking at policies that can strengthen social safety nets. This could include establishing a universal basic income or negative income tax rates, he said.

Here, negative income tax refers to the government providing more subsidies to those who earn a relatively lower income, with such subsidies working in effect as a tax credit. This theoretical concept means a negative income tax should offset the amount of tax meant to be paid, with the tax benefit reduced as income rises.

This should be a big part of the private sector's agenda as well, Mr Gupta stressed. They must be thinking about how to create jobs with fair wages, and how to incorporate community and social agendas into each company's raison d'etre.

"We need to rethink how we cali-brate for a world where we do justice to the people essential to us working in society," he said.

United Nations Development Programme administrator Achim Steiner, who also spoke at the briefing, highlighted that infection numbers are rising exponentially.

"The foreseeable future in the next six to 12 months is highly stressful, uncertain and bears enormous risk," said Mr Steiner, who was speaking from New York via video conference.

But the jury is still out as to whether 2020 will go down in the history books as a year of disaster and misery, or one that has kickstarted opportunities for creative disruption.

Leadership is one crucial element that will pave the way ahead, said Mr Gupta.

"Somebody said recently, this is the greatest experiment in comparative government in human history. Because people across the world can observe their governments, their leaders, and how their actions are either succeeding or failing."

Governments will have to come up with "exit plans" that direct resources towards investment, not consumption. Amid its recessionary blows, the pandemic has also presented a "great seed of opportunity" to both governments and the private sector to adopt a more forward-looking approach in their investments.

Many countries have been working focused on the environmental front, Mr Gupta noted. He cited as an instance the European Union's green recovery plan, which seeks to tackle the threat of the climate emergency while rebuilding coronavirus-ravaged economies.

In Singapore, the Emerging Stronger Taskforce convened to spearhead post-Covid-19 recovery, of which Mr Gupta is a member, has also been deliberating on how to put envi-ronment and green recovery at the heart of future job creation and the growth paradigm.

While some have lamented that there are still not enough resources being directed to green recovery, Mr Gupta is relatively optimistic about the situation.

"I tend to look at the glass half full," he said.

"This is an opportunity for us to think differently about what is the kind of world we want. What will the planet allow us to do? How do we define a value prism which is different from 'growth at all costs'?"