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      What Has COVID-19 Done to Small Businesses?

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      Small and medium-sized enterprises (SMEs) are businesses with revenues, assets or employees below a certain threshold. SMEs are important to the health of any country as they tend to form the backbone of the economy. When compared to large enterprises, SMEs are generally greater in number, employ far more people, are often situated in clusters and typically entrepreneurial in nature. They drive local economic development, propel job creation and foster growth and innovation.

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      According to the World Bank, SMEs represent about 90% of businesses and 50% of employment worldwide. In the United States, 30 million small businesses make up 44% of GDP, 99% of the total businesses and 48% of the workforce, amounting to 57 million jobs. In India, the SME sector consists of about 63 million enterprises, contributing to 45% of manufacturing output and over 28% of GDP while employing 111 million people. SMEs in China form the engine of the economy comprising 30 million entities, constituting 99.6% of enterprises and 80% of national employment. They also hold more than 70% of the country’s patents and account for more than 60% of GDP, contributing more than 50% of tax collections.

      Different Countries Define SMEs Differently

      Though most experts agree on the crucial role SMEs play in any economy, the definition of an SME varies by country. In the US, the Small Business Administration (SBA) defines SMEs broadly as those with fewer than 500 employees and $7 million in annual receipts, although specific definitions exist by business and sector. Annual receipts can range from $1 million for farms to $40 million for hospitals. Services businesses such as retail and construction are generally classified by annual receipts, while manufacturing and utilities are measured by headcount. In June, the Indian government revised its SME definitions, expanding the revenue caps on medium and small enterprises from $7 million and $1.5 million to $35 million and $7 million respectively. In the United Kingdom, a small business is defined as having less than 50 employees and turnover under £10 million ($12.7 million), whereas a medium business has less than 250 employees and turnover under £50 million. 

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      Proper definitions matter. If SMEs are classified well, their access to capital and other resources can improve. They can apply for grants, get tax exemptions, collaborate on research with governments or universities or access other schemes. This gives SMEs better opportunities to survive and thrive.

      Since SMEs tend to be the biggest employers in most economies, a good policy to promote them creates jobs and develops worker skills. Furthermore, proper definitions enable governments to focus their efforts regarding SMEs and level the playing field for them vis-a-vis large corporations.

      Given the scale and nature of their business models, SMEs operate at the mercy of vagaries of the economy, geopolitical events and local policies. They battle competition from multinational giants, volatile cash flows, fickle customers, demanding suppliers and constantly churning employees. But the COVID-19 pandemic has crossed all boundaries. While the 2000 crisis was a dot-com bust and 2008 was a collapse of the financial systems, 2020 is clearly the SME crisis. It is Murphy’s Law at its extreme — anything that can go wrong has indeed gone wrong.

      The coronavirus crisis started off in early 2020 as a supply shock, which has now turned into a demand shock, impacting customers, employees, markets and suppliers alike. The consequences can be potentially catastrophic with the International Monetary Fund estimating that SME shutdowns in G20 countries could surge from 4% pre-COVID to 12% post-COVID, with bankruptcy rates in the services sector increasing by more than 20%.

      SMEs are bearing the brunt of the economic and financial fallout from the COVID-19 pandemic, not least because many were already in duress before the crisis. This could have a domino effect on the economy, given the pivotal role played by SMEs. Therefore, it comes as no surprise that most governments have sought to intercede legislatively with their fiscal might to ameliorate the predicament of SMEs.

      Indian and American Response

      It is instructive to note how different countries have responded to the economic crisis. India is a good country to start with. In early May, the government announced a 20-trillion-rupee ($250 billion) stimulus package called Atmanirbhar, equivalent to 10% of India’s GDP. It was a mixture of fiscal and monetary support, packed as credit guarantees and a slew of other measures. The centerpiece was an ambitious 3-trillion-rupee ($40 billion) initiative for SMEs, including instant collateral-free loans, subordinate debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. Perhaps the largest component of the stimulus was the Emergency Credit Line Guarantee Scheme (ECLGS) that provides additional working capital and term loans of up to 20% of outstanding credit. 

      Although the scheme received positive feedback, the initial uptake was slow. On the supply front, bankers fretted about future delinquencies arising out of such accounts as the credit guarantees only covered incremental debt. On the demand side, SMEs were worried about taking on additional leverage when there is uncertainty about economic revival. Moreover, a 20% incremental loan may not suffice to service payrolls and operating expenses and keep business alive.

      Also, while this scheme addressed existing borrowers, the fate of those who are not current borrowers is unclear. While initial traction for the scheme was low, the recent momentum has been encouraging. The finance ministry reports that as of July 15, banks have sanctioned 1.2 trillion rupees ($16 billion), of which 700 billion rupees ($9 billion) have been disbursed largely by public sector banks, although private sector banks have joined in lately.

      Meanwhile, even the largest global economy has struggled with its SME relief program. In mid-March, US President Donald Trump approved a $2.2-trillion package under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help Americans struggling amid the pandemic. One of the signature initiatives under the act was the $660-billion Paycheck Protection Program (PPP) aimed at helping small businesses with their payroll and operating expenses. This program was distinct from its peers in its loan forgiveness part, in which the repayment of the loan portion used to cover the first eight weeks of payroll, rent, utilities and mortgage would be waived. 

      The program, though well-intentioned, has struggled with execution issues exacerbated by labyrinthian rules. Matters came to a head when the initial tranche of $349 billion ran out in April. The program had to be refinanced but, by June, it was closed down with $130 billion of unused funds in its coffers. The program was restarted again and extended to August by Congress.

      Worse, the program saw refunds from borrowers who were unclear about the utilization rules. Loan forgiveness would be valid only if the amount was utilized within eight weeks. This stipulation made SMEs wary because their goal was to use cash judiciously and optimize the use of the borrowed amount to last as long as possible. These rules have since been amended by the Small Business Administration. It now gives SMEs 24 weeks to use the borrowed funds and allows them more flexibility on the use of funds. In any case, questions have been raised about capital not reaching targeted businesses and unintended parties benefiting instead. 

      Despite the changes in SBA rules, the jury is still out on whether more SMEs will take out PPP loans. Some are lobbying for full loan forgiveness. However, dispensing of repayment requirements essentially creates handouts that could lead to the lowering of fiscal discipline and increasing incentive for fraud. A recent proposal by two professors, one from Princeton and the other from Stanford, suggests “evergreening” of existing debt, a practice that involves providing new loans to pay off previous ones. Though innovative, it is not quite clear how such a policy would provide better benefits compared to a loan repayment moratorium, especially when it comes to influencing future credit behavior. 

      In addition to the PPP program, the SBA has announced the Economic Injury Disaster Loans (EIDL) program. This offers SMEs working capital loans up to $2 million to help overcome their loss of revenue. The program was closed down on July 13 after granting $20 billion to 6 million SMEs. Maintaining equitability and efficacy in the distribution process has been a challenge, though.

      European Responses

      Europe’s largest economy, on the other hand, has fared relatively better. In early April, German Chancellor Angela Merkel announced a €1.1-trillion ($1.3 trillion) stimulus termed the “bazooka.” This constituted a €600-billion rescue program, including €500 billion worth of guarantees for loans to companies. The German state-owned bank KfW is taking care of the lending. The program also includes a cash injection of €50 billion for micro-enterprises and €2 billion in venture capital financing for startups, which no major economy has successfully managed to execute. Notably, the centerpiece of the German program is the announcement of unlimited government guarantees covering SME loans up to €800,000. These loans are instantly approved for profitable companies.

      Berlin’s relief measures were specifically targeted at supporting Germany’s pride, the Mittelstand. This term refers to the 440,000 SMEs that form the backbone of the German economy. They employ 13 million people and account for 34% of GDP. Many of these firms manufacture highly-specialized products for niche markets, such as high-tech parts for health care and auto sectors, making them crucial to Germany’s success as an export giant. Not surprisingly, these companies have seen a contraction in revenues, especially the ones that depend on global supply chains. 

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      The swift implementation of these initiatives, coupled with the resilience of the Mittelstand, is demonstrating that SMEs can survive and thrive in this environment. The Germans have also been preaching and practicing fiscal prudence in normal times, which has now worked in their favor. Germany can afford to inject capital and do whatever it takes to save its SMEs.

      Since its first stimulus, Berlin has followed up with an additional €130-billion package consisting of tax, SME loans and spending measures aimed at stimulating demand. This included a €46-billion green stimulus focused on innovation and sustainable projects such as e-mobility and battery technology. In keeping with the German tradition, the SMEs who make the Mittelstand have stayed agile as well. They are diversifying their customer base and pivoting their business models to more recession-proof sectors. 

      The UK, another major world economy, also launched an array of relief measures, including the Coronavirus Business Interruption Loan Scheme (CBILS) worth £330 billion ($420 billion). This was designed to support British SMEs with cash for their payroll and operating expenditure. It also announced the Bounce Back Loan Scheme (BBLS) focused on smaller businesses. This enjoyed a better launch than CBILS because the latter, with its larger loan quantum, required more vetting and paperwork.

      Loans from the CBILS initiative, although interest-free for a year, are only 80% guaranteed by the government. This makes banks less willing to lend during these troubled times because they are afraid of losing 20% of the loan amount. This slows credit outflow and starves SMEs of much-needed capital. As of July 15, less than 10% of the allotted capital had been utilized, which banks blame on an inadequately designed scheme. By mid-July, only £11.9 billion had been disbursed to 54,500 companies through the CBILS and £31.7 billion to 1 million smaller firms through the BBLS.

      Businesses have sought modifications from policymakers to existing schemes. These include hiking government guarantees for loans to 100% and waiving personal guarantees for small loans. The Treasury has agreed to some of these demands. Critics also point to structural deficiencies in the system. They believe the administrative authority for SME loans should be a proper small business bank instead of the British Business Bank, which was not designed for SMEs. Already, the UK government has warned that £36 billion in COVID loans may default. More drastic measures seem to be on the way, including a COVID bad bank to house toxic SME assets.

      Responses Elsewhere

      Economies around the world have been responding to disruption by COVID-19. It is impossible to examine every response in this article, but Japan’s case deserves examination. The world’s third-largest economy had been battling a recession even before the pandemic. Declining consumption, falling tourism and plunging exports were increasing the pressure on an aging society with a spiraling debt of over $12.2 trillion. The pandemic has strained Japan’s fiscal health further.

      In response to the pandemic, the Bank of Japan announced a 75-trillion-yen ($700 billion) package for financing SMEs, which included zero-interest unsecured loans. Additionally, the National Diet, Japan’s parliament, enacted a second supplementary budget, which featured rent payment support and expanded employment maintenance subsidies for SMEs.

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      The execution of these programs has been tardy. The government’s 2015 digitalization drive is still incomplete, impacting the distribution of subsidies and the implementation of other relief measures. Of the more than 400,000 applications for employment adjustment subsidies, only 80,000 companies received aid by mid-June. Application procedures are unnecessarily complex, adding to the woes of SMEs.

      Any discussion on SMEs in the global economy would be incomplete without examining China, which was the first country to deal with the COVID-19 disease. In February,  the government announced a 1.2-trillion-renminbi ($174 billion) monetary stimulus. Large state-owned banks were ordered to increase lending to SMEs by at least 30% in the first half of 2020. Three of these banks alone were supposed to lend 350 billion renminbi ($49.7 million) to small businesses at preferential rates. In addition, Beijing encouraged local policymakers to provide fiscal support to keep SMEs afloat.

      China’s stimulus seems more understated compared to other major economies and their own 2008 bailout package. After controlling the first COVID-19 wave in March, the Chinese have focused on restarting the economy and reopening businesses instead of relief measures and bailouts.

      In February, surveys in China showed that 30% of SMEs had experienced a 50% decline in revenue. Surveys also found that 60% of SMEs had only three months of cash left. At the end of March, almost half a million small businesses across China had closed and new business registrations fell by more than 30% compared to last year. The resumption of work has been an uphill struggle. In April, the production rate of SMEs had crossed 82% of capacity, but the sentiment had remained pessimistic. Notably, the Small and Medium Enterprise Index (SMEI) had risen from 51.7 in May to 53.3 in June, indicating that SMEs are slowly reviving.

      With the easing of lockdown measures, domestic demand in China has picked up, driving SME sales. In turn, greater demand is increasing production activity and accelerating capacity utilization, causing a mild rise in hiring. The green shoots of recovery of Chinese SMEs should encourage authorities worldwide. 

      Policy Lessons for the Future

      Governing nation-states is an arduous task at the best of times and especially so in a nightmarish year of dystopian proportions. No wonder governments worldwide have appeared underprepared to combat the COVID-19 crisis. Whilst predicting a global pandemic of this scale would be next to impossible, there were early warning signs that severe disruptions to global health care, supply chains and business models were imminent. Yet scenario planning and stress testing of economic models has been flawed, impacting the swift rollout of relief measures.

      The crisis has also underlined the importance of fiscal discipline when economies are doing well. Countries that do so can build a robust balance sheet to leverage during troubled times. This crisis also brings home the importance of evaluating and reevaluating the efficacy of the entities that deal with SMEs. Policymaking is an iterative process, especially when it comes to SMEs and bodies that oversee them must be overhauled periodically.

      Importantly, policies pertaining to SMEs must have inputs from those with domain expertise. Structures must take into account execution capabilities and speed of delivery. Instant loan approvals with suboptimal due diligence have to be constantly balanced against longer vetting but slower turnarounds. Similarly, policymakers have to analyze the various types of instruments, fiscal and monetary, that can be used for SMEs. What works in one country may not work for another. 

      It is important to remember the nuances of different policy measures, such as guarantees, forgiveness, monitoring and moratoriums. Guarantees are a sound instrument for relief but are potential claims on the government’s balance sheet and contingent liabilities. They also have little economic value if capital is not promptly delivered to SMEs. Forgiveness provisions have their own issues. They may be important in a crisis but could incentivize subpar credit behavior in the future. Similarly, monitoring is important but is impractical when millions of SMEs are involved. There is no way any authority can keep a tab on the intended usage of funds. Finally, moratoriums have their own problems. Businesses could misuse moratoriums, putting pressure on banks and making accounting difficult. They were cheered at the onset of the crisis but further extensions could be costly to the ecosystem. 

      Going forward, governments need to prepare for the long haul. The consequences of the COVID-19 pandemic will stay with us for the foreseeable future. What began as a liquidity crisis might well become a solvency crisis for SMEs despite the best attempts to avoid that eventuality. If that does happen, governments will need to plan for efficient debt restructuring. They will have to institute insolvency management processes while figuring out how to handle bad asset pools. In simple language, governments will have to make tough decisions as to distributing gains and losses not only among those living but also future generations.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Real Scandal of Chinese Hacking

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      The image most people have of the world of espionage spans an intriguingly varied cast of contrasting personalities. It includes the colorful, the creepy, the beautiful but also the deceptively ordinary. It features a sexy Mata Hari and Christine Keeler. It stretches across history from Christopher Marlowe to the Cambridge Five, from Rosencrantz and Guildenstern to Julius and Ethel Rosenberg. And most people retain the image of the world-weary Cold War spies that have populated the novels of Graham Greene and John le Carré and the movies inspired by them.

      The advent of the internet has significantly transformed the landscape of spy-duggery. To be a spy used to require a solid education followed by intensive behavioral training and cross-cultural awareness. But in contrast with the past, the people identified as spies these days tend to be nerds: hackers, digital pirates and cyber-spies. Just as drone operators sitting in a remote location operating what resembles a video game console have increasingly replaced the soldier on the battlefield, the spies in today’s news are faceless operators. Their personalities are unknown and biographies singularly devoid of color and drama.

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      The picture becomes even more complex when we consider how the stories told about the cyber-spies emerge in the media. The source tends to be a government exposing them. But with so little substance to expose other than designating hidden lines of code, the public can’t even be sure that a newly-identified spy is real. And given that any clever coder motivated enough to rise to the challenge can hack the most secure target, the act that is identified as espionage may just be a feat of coding prowess by a teenager seeking to impress a few cyber-friends.

      We must not forget the need of some politicians in democratic nations to raise the alarm from time to time either to justify exceptional security measures they wish to impose, possibly for other reasons, or simply to prove to the electorate how vigilant they are in defending their vulnerable nation. In such circumstances, decoding the political intent behind incidents caused by coding becomes a major challenge. It is in such a context that, over the past week, the governments of the US and the UK have signaled at least two cases of spying by everyone’s favorite enemies in treachery: Russia and China.

      In the harvest of spy alerts from the past week, there was also what has become the obligatory mention of Russian meddling in Western elections (the Scottish independence referendum of 2014). But in the two contemporary cases that made the headlines, the goal turned out not to be the usual military, electoral or cultural goal (“sowing doubt” and “creating confusion”) but medical. The spies in question were seeking to hack research into the responses to COVID-19, the disease caused by the novel coronavirus.

      According to The Guardian, the US Justice Department has indicted two Chinese hackers “for seeking to steal Covid-19 vaccine research” and other acts of industrial espionage. “Justice Department officials said Li [Xiaoyu] and Dong [Jiazhi] targeted biotech companies in California, Maryland, Massachusetts and elsewhere but did not appear to have actually compromised any Covid-19 research.”

      Here is today’s 3D definition:

      Compromise:

      Allow an idea, concept, process or object to escape from the hands of a person or institution that has been jealously hoarding the idea, concept, process or object with a view to reaping the maximum profit from it

      Contextual Note

      The message that nothing was compromised will reassure the public. But, as often in these cases, the motivation and the supposed agency of the Chinese government are implied rather than proven. With its typical lack of clarity, CNN clarifies: “While the indictment does not specify if the hackers had been working at the behest of the Chinese government as they targeted the coronavirus projects, senior national security officials have been warning of Chinese government attempts to steal coronavirus research from US institutions for months.”

      In other words, much like Russiagate, if “national security figures” warned that something might be initiated by an identified agent (the Chinese government) and then something (but not exactly the thing they feared) does seem to happen, the conclusion requires no further investigation. That is exactly how conspiracy theories are built and justified, but it is also how the best scoops in the media are constructed.

      Historical Note

      In the world of geo-diplomatic intelligence spawned by the Cold War and continued by all nations who can afford it ever since, spying, hacking and spreading disinformation have become a kind of operational norm. This means that whenever a political leader needs to create a scare, there will always be one available for immediate exploitation. Over the past 70 years, alarms about spying and foreign meddling only burst into the media at moments in which leaders judge it expedient to draw such incidents to the public’s attention. In the midst of an intractable pandemic that has caused severe political grief to the leaders of the US and the UK, this is one of those moments.

      Most of these cases produce mild diplomatic incidents that may have immediate pragmatic consequences but rarely alter the balance of power or degenerate into forms of durable conflict. In today’s case, pitting China against the US, after the closure of the Chinese Consulate in Houston, the consequences appear to be far from negligible. It is, after all, an election year in the US and Donald Trump’s chances of getting a new four-year lease on the White House are rapidly dwindling. This may be just the first act of a four-month drama or an alternative scenario — alongside the Israel-Iran conflict — for Trump to have the tail towag the dog.

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      With the ultimate prospect of an intercontinental war, no one in the media seems to notice what is special and different about the idea of hacking research on COVID-19 treatments, cures and vaccines. That is because both the media and politicians have failed to ask the basic question: Why would anyone want access to urgent medical research?

      In a rational world in which nearly 8 billion people find themselves assailed by fear of contamination, accompanied by the gutting of their economies and the violent transformation of their way of life, research on treatments and cures should logically take the form of a universal collaborative project spontaneously shared among all competent experts and researchers across the globe. Instead, we are passively witnessing a competition driven solely by the profit-motive of a few.

      The real question is: Why isn’t this research already being shared? Why must it be hacked? Everyone knows the answer to that question. It is too obvious, too much a part of the landscape to mention. That is why they dare not even ask the question or assess the consequences. The winner of the race expects to be handsomely rewarded, benefiting from a monopolistic position. And the nation that harbors the winner will be the first to exploit it, with the option of hoarding.

      That is how today’s world order works and everyone seems to accept it as normal, even in these far from normal times. It’s a unified ideological system that governs both geopolitics and the economy. Competition, profit and what Thomas Piketty has called the “sacralization of property,” including industrial property, are the pillars of our historical heritage from the industrial age. 

      Secrets permit monopolies. Monopolies guarantee excessive profit. The rule of the game is that researchers on one side of the world must be unaware of the progress of their colleagues elsewhere. May the best researcher win. Yet this not only slows down progress toward a satisfactory solution, but it also increases the risk that the winning solution may be flawed or incomplete.

      In today’s world, sharing means compromise. But that is deemed unacceptable for a simple reason: Compromise means being compromised. Totally unacceptable.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      COVID-19: Balancing Health Emergencies and Human Rights

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      The COVID-19 pandemic has led to governments around the world imposing state emergencies under the pretext of protecting public health. Such measures, which have included both partial and full lockdowns to slow the spread of the novel coronavirus that causes the COVID-19 disease, have had an impact on fundamental freedoms. These rights, which are highlighted under international human rights law (IHRL), include access to health care, non-discrimination, privacy, free speech, freedom of movement and peaceful assembly.

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      On April 30, the UN Human Rights Council (UNHRC) categorically stated that under the International Covenant on Civil and Political Rights (ICCPR) — the human rights treaty of the UN — governments are not allowed to deviate from their human rights obligations and commitments while combating a global pandemic. This statement was released after a majority of officials served notices to the UNHRC about the declaration of state emergencies and the restrictive measures that undermined their human rights obligations under the ICCPR. Nonetheless, all restrictive measures enforced to combat the pandemic must meet the IHRL framework and comply with the purposes and principles of the UN agency.

      Moreover, the UNHRC asserted in its statement that many other countries had imposed similar restrictive measures without formally notifying the UN body about the derogation of certain human rights. The UNHRC advised states against neglecting their obligations under international human rights law by resorting to excessive emergency actions.

      COVID-19 Pandemic and Human Rights

      There are several non-negotiable human rights principles enshrined in the IHRL framework. These include the right to life; no torture and slavery; a fair trial before a court of law; no imprisonment for breaches of contractual obligations; freedom of thought, conscience and religion; and the right to recognition as a person. Consequently, Article 4(1) of the ICCPR states:

      “In [a] time of public emergency which threatens the life of the nation and the existence of which is officially proclaimed, the States Parties to the present Covenant may take measures derogating from their obligations under the present Covenant to the extent strictly required by the exigencies of the situation, provided that such measures are not inconsistent with their other obligations under international law and do not involve discrimination solely on the ground of race, colour, sex, language, religion or social origin.”

      This does not mean that other human rights obligations can be shelved during a public health emergency against the principle of legal proportionality of restrictive measures. But there is a set of laws that consist of both procedural and substantive legal requirements. States have to meet these guidelines while combating the COVID-19 disease without eschewing their human rights obligations under the IHRL framework.

      On the other hand, UN Human Rights High Commissioner Michelle Bachelet has underscored that balancing “the economic imperatives with the health and human rights imperatives during the COVID-19 pandemic is going to be one of the most delicate, daunting and defining experiences for all leaders and all governments. Their place in history will be decided by how well or how badly they perform over the coming months.”

      Pre-Derogation Measures by States

      As a general rule during health emergencies, states must announce the human rights provisions from which they have decided to relax and inform other nations through the UN secretary-general about their intentions. However, if states decide to extend the duration or geographical coverage where the derogation of rights takes place, they must issue additional notifications.

      Similarly, there is a need for immediately notifying officials in case of the termination of derogation. Pragmatically speaking, emergency measures can only restrict other human rights according to the “extent strictly required under the exigencies of the situation.” This must be as outlined in the General Comment No. 29 under Article 4 of the ICCPR.

      These steps consider the duration, location and scope of measures imposed during a state of emergency. However, countries must ensure that enforced measures are necessary, legitimate, non-discriminatory and proportionate to the emergency situation. These steps were incorporated in the Guidance on Emergency Measures and COVID-19 issued by UN High Commissioner for Human Rights on April 27.

      Derogation Under Regional Human Rights Frameworks

      Guidelines for regional human rights protection (RHRP) are complementary pillars of the IHRL framework to protect and promote human rights. Similar derogation provisions are incorporated in the RHRP framework. For example, Article 15 of the European Convention on Human Rights (ECHR) is based on the draft Article 4 of the UN Draft Covenant on Human Rights, which later became Article 4 of the ICCPR and Article 27 (1) of the American Convention on Human Rights (ACHR).

      But the protocol of derogation cannot be used if a state is simply unable to guarantee the fulfillment of human rights under the ECHR, the ACHR and the RHRP. In other words, a country cannot hide behind the option of relaxing human rights policies under exceptional circumstances if it is unable to even uphold them during normal times. On the contrary, a state is obliged to announce the measures taken that might involve the relaxation of its requirements under the RHRP.

      Yet in March and April, several European countries notified the secretary-general of the Council of Europe about their plan to derogate from their human rights obligations as per the ECHR. Despite this, they had to resort to emergency powers within the IHRL framework while responding to a health emergency like COVID-19. In addition, emergency powers must be temporary, with a vision of restoring normalcy at the earliest.

      Second Wave?

      It is evident that there is no clarity about the number of governments complying with the requirements of the derogation protocol under the ICCPR while dealing with the pandemic. There is every chance that the novel coronavirus will soon result in a second wave and once again derail life as we know it. This would lead to repeated lockdowns, and human rights would be part of the conversation.

      It is clear that states have to be on their toes to fulfill their IHRL obligations. During this crisis, governments must avoid instances of sidestepping their human rights requirements. Such violations must be probed and the culprits brought to justice.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Price of America’s Complacency in the Face of COVID-19 Is Survival

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      On Monday, California Governor Gavin Newsom ordered many businesses statewide to shut down in response to the raging resurgence of COVID-19 in nearly all 50 US states. That same day, a friend of mine landed in San Francisco after having spent six months living in Japan. On his flight, a United employee sitting behind him failed to wear a mask, as did numerous other people on the flight. No one said or did anything. Upon arrival, he was not asked where he had been or if he had any symptoms of the virus. His temperature was not taken and there was no mention of any requirement for 14 days of quarantine. He boarded a connecting flight and was on his way — six months after the pandemic that has ravaged the world began.

      Countries the world over have gotten so many basic elements of the battle against the virus right. Why not America? The unfortunate politicization of COVID-19, the failure to implement mandatory and consistent rules nationwide, the absence of rule enforcement, selfishness, laziness and a culture of silence are all combining to doom us to the consequences of our shared failure. Our collective apathy, complacency and idiocy are killing us.

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      Not long ago I was in Whole Foods, in the produce section where foods are not packaged, and a perfectly healthy-looking woman in her 30s was the only one not wearing a mask. No one said a thing until I approached her and said she needed to wear a mask and that it had been the law in Connecticut since April. I was told to mind my own business. It is my business, of course, and everyone else’s business in that store, yet no one said or did a thing as she continued to breathe all over the produce. I even went to store management and said something. They had to let her in because she said she had an underlying medical condition that prevented her from wearing a mask. It just so happens that the law in Connecticut allows for that exception, but no doctor’s note is required.

      There are plenty of reasons why America continues to lead the world in COVID-19 infections and deaths, but our own stupidity and selfishness have not been talked about much in the media. Every time we see someone not wearing a mask, or wearing it over one’s mouth but not the nose, or under the chin, we should be going up to that person and saying something. Every time. Our culture of silence is raging every bit as much as the virus in this country.

      So is local, state and national authorities’ failure to make mask-wearing and social distancing mandatory in all public places throughout the country, backed up by enforcement, which is a critical ingredient that is missing. Many governments across the world have backed their policies with strict enforcement measures and fines. That is why countries such as China and South Korea have been able to successfully battle the virus, and why Morocco, which just started doing the same, now has a reasonable chance of beating down infection rates.

      America is capable of doing all this, but the politicization of the virus and silly interpretations of what freedom of action means under the US Constitution have prevented us from following their example. Yes, you are free to take your own health and life into your own hands by being stupid and selfish, but you are not free to do the same with someone else’s health and life. And that is what the “Live Free or Die” movement and conspiracy theory believers among us fail to acknowledge.

      Every one of us needs to remind ourselves that other peoples’ actions impact us, and start to act accordingly. Say something when you see someone not wearing a mask in public, or failing to wear it properly. If everyone did so, those who are failing to do so would stop. The majority of us who are now wearing masks and social distancing have the power, but our own complacency is preventing us from taking control of inconsiderate fellow citizens. We have a responsibility to ourselves and everyone else to say something. We should also be putting pressure on lawmakers to crack down on violators and enforce mandates.

      Until America gets smarter about how to battle the coronavirus, we will continue to lead the world in infections and death, and we will deserve it. We have only ourselves to blame for being so dumb and failing to take corrective action. America has the resources to get COVID-19 under control, especially if we start treating this as a war and start acting like our collective survival depends on it — because it does.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      COVID-19 and Populism: A Bad Combination for Europe’s Banks

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      As Germany takes over the EU’s rotating presidency, Chancellor Angela Merkel noted that the bloc is facing a triple challenge: the coronavirus pandemic — in retreat but still requiring constant vigilance — the EU’s steepest-ever economic downturn and political demons waiting in the wings, including the specter of populism. With the pandemic somewhat under control, European policymakers’ focus is shifting toward the knock-on effects of months of lockdown.

      Economies in Central, Eastern and Southeast Europe (CESEE) are in a particularly precarious situation, as a number of factors, from bad debt to populist legislation, are cramping the ability of the banking sector —which performs a vital role in stabilizing the economy through loans, payment holidays and other forms of financial support to local businesses in times of crisis  — to withstand a potential economic downturn.

      Bad Loans on the Rise

      A troubling report recently released by the Vienna Initiative (created during the 2008 financial crisis to support emerging Europe’s financial sector) has indicated that CESEE banks are facing a wave of bad loans, or non-performing loans (NPL), caused by the COVID-19 pandemic that could last past 2021. The issue of bad debt is by no means limited to CESEE countries, but the problem is exacerbated by populist political decisions in many nations in the region.

      European banking regulators had previously estimated that EU banks had built up adequate buffers to withstand a certain number of bad loans, with “strong capital and liquidity buffers” that should allow them to “withstand the potential credit risk losses.” But many banks in the CESEE region, operating in more volatile economies and with their reserves already whittled away by populist measures, are uniquely vulnerable if hit by too many NPLs.

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      At the heart of the problem is the fact that an excess of NPLs can drain banks’ capital reserves, making them reliant on support from governments and central banks. If the regulators and politicians don’t then put the necessary measures in place to support banks, the entire economy could be in danger of collapsing.

      Lenders in countries including Hungary, Czech Republic, Croatia, Slovakia and Bulgaria have sought reassurance from national authorities in recent months that they will receive the necessary protections should restrictive COVID-19 measures last much longer, particularly if the continent is hit by a second wave of the virus before a vaccine or an effective treatment is found. At present, it is unclear whether governments across Europe will be willing to continue with the same level of support packages to businesses and employees. 

      It’s not just a matter of renewing special coronavirus provisions. In return for providing additional financial support to businesses, lenders understandably expect reciprocal measures from governments and central banks. These include favorable tax measures, or the relaxation of excessive levies, so that banks are able to maintain their reserve levels, a lowering of countercyclical capital buffers and a guarantee of emergency financial support from central banks if necessary.

      Populist Measures Exacerbate Financial Strain

      In the wake of COVID-19, banking sector outlooks have already been revised to negative in several countries including Poland, Hungary, the Czech Republic and Croatia. These problems are in danger of being intensified by populist political decisions in many CESEE countries, where governments have a tendency to see punitive measures on banks as an easy way of shoring up popular support.

      In particular, many CESEE countries’ financial sectors are still suffering from 2015 decisions to convert loans taken out in Swiss francs into loans denominated in the euro or the local currency. The conversions came in response to a sudden surge in value of the Swiss franc, which had previously allowed lenders to offer low-interest loans. The forced conversions benefited borrowers but left the country’s banks to pick up the tab, making it difficult for them to build up capital buffers.

      While some countries which carried out the forced loan conversions, like Hungary, at least provided lenders with euros from the central bank to ease the blow, others, such as Croatia, left banks to shoulder the full loss. Croatia’s loans conversion, pushed through quickly ahead of the 2015 parliamentary elections, was applied retroactively, foisting a bill of roughly €1 billion on the country’s banks, many of which are subsidiaries of financial institutions from elsewhere in the EU. A pending court ruling on whether or not Croatian borrowers who had taken out Swiss franc loans could apply for further compensation could impose another €2.6 billion in losses on the banks at the worst possible time.

      Nor is the controversial loans conversion the only policy sapping CESEE banks’ capital reserves. As part of its coronavirus recovery plan, the Hungarian government announced a special tax on both banks and multinational retailers back in April. The additional banking tax was worth HUF 55 billion ($176 million). Prime Minister Viktor Orban had already announced the toughest COVID-19 measures of any central or eastern European country, including a suspension of all loan payments until the end of the year. The move ignored a call from Hungary’s OTP Bank for a reduction in taxes to help banks deal with the pandemic’s fallout.

      A number of other countries in the region, including the Czech Republic and Romania — though Romania later eliminated the levy — have raised banking taxes in recent years, making it harder for the financial sectors in these emerging economies to respond to the crisis and has left it in a more precarious position should the effects of COVID-19 continue into 2021.

      The CESEE region’s financial sector suffered greatly in the wake of the 2008-09 global financial crisis, and much work has been done in the intervening years to shield the sector from future downturns. The Vienna Initiative report, however, makes it clear that the region’s banks still face headwinds due to the COVID-19 crisis. Hopefully, policymakers across CESEE will take heed of the report’s findings and realize that trying to scapegoat banks in these uncertain times will only make them more vulnerable, leaving them ill-equipped to deal with the onslaught of loan defaults expected over the next 12 months.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Getting Qatar’s Tourism Sector Back on Track After COVID-19

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      COVID-19 has undoubtedly had a massive impact on the global tourism industry, perhaps none more so than in Europe, where many countries are considering or have already reopened resorts to limit the damage. While Qatar’s tourism sector remains small by comparison, there can be no denying that it has also taken a hit. However, this is not the first time the country has confronted an existential challenge to this increasingly important economic activity.

      Tourism makes a formidable contribution to the global economy. According to the World Travel and Tourism Council, in 2019 the sector accounted for 10.3% of global GDP and approximately 330 million jobs. Unsurprisingly, COVID-19 has been nothing short of a disaster for this vital sector. Thanks to lockdowns and other precautionary measures, this past April and May witnessed a near 100% reduction in tourist arrivals worldwide.

      The United Nations World Tourism Organization (UNWTO) warns that COVID-19 might yet result in the loss of 1.1 billion tourist arrivals, $1.2 trillion in revenues and 120 million jobs. Hotels are already feeling the pinch, with the Intercontinental Group expecting revenue per available room — a commonly used indicator — to have dropped by 80% in April. Other hotel chains have made equally gloomy predictions.

      Trouble Ahead

      Though not as developed as major destinations in Europe, North America and further afield, Qatar’s tourist sector has also suffered under COVID-19. Statistics for March indicate a 78% reduction in tourist arrivals, with the figures for April and May expected to be even worse. With lockdown measures still firmly in place, it remains to be seen how many of the country’s restaurants and local tourist facilities will emerge from the pandemic unscathed.

      Qatar’s hosting of the FIFA World Cup 2022 nevertheless underlines why its tourist industry needs to make as full a recovery as possible from COVID-19. It is expected that millions of fans will visit the country for the world’s top football tournament. Most will require accommodation and entertainment beyond the stadiums.

      In keeping with governments around the world, Qatar has initiated general support and subsidized loan programs to mitigate the impact of the coronavirus on business revenues. The country can also draw inspiration from a number of international efforts to restart the global tourism sector. These include 23 actionable recommendations developed by the UNWTO to mitigate the impact of COVID-19, accelerate recovery through national policies and build resilience through lessons learned.

      In a similar vein, the European Union has developed a comprehensive framework for rejuvenating its tourism sector. This calls for a recovery strategy and a common approach to lifting travel restrictions between member states. Additional measures include the development of detailed health and safety measures for hospitality establishments and the transportation of passengers and personnel to and from tourist destinations. In the case of the latter, Greece has already issued a list of protocols for traveling around its network of islands by ferry.

      When it comes to small states, Singapore has developed two initiatives that might be of interest to Qatar. The Marketing Partnership Program aims to improve cooperation and encourage synergies between stakeholders in the city state’s tourist industry. To assist, the program makes funds available for marketing costs and collaboration between businesses. From there, the Stories Content Fund encourages local and global content creators to create compelling and positive stories about Singapore’s tourist sector.

      Been Here Before

      These are by no means the only initiatives Qatar might look to when reawakening its currently dormant tourist sector. There is also a case for taking the best ideas from as many global efforts as possible to develop a hybrid action plan with two interconnected phases.

      Focusing on the short term, phase one is concerned with mitigating the impact of COVID-19 and restarting tourism activities following the easing of travel and social distancing measures. Taking a cue from Singapore, Qatar could develop public relations activities to highlight that the country is a safe and interesting place to visit. This could be supported by tourism vouchers for Qatar Airways stopover passengers, an initiative that resonates with the EU’s travel vouchers program.

      Phase two is focused on strategic and structural issues. As per the mandate of the Qatar National Tourism Council, the country should accelerate efforts to develop a clear vision for its tourist industry. Inspiration could be drawn from Australia’s bid to become “the most desirable and memorable destination on earth” or Morocco’s practical goal to make tourism an engine of development. Either way, Qatar needs to factor agility and resilience into its future tourism sector. This entails working with stakeholders to identify challenges as well as opportunities to diversify the country’s tourism offerings. Doing so will help shield Qatar from the volatility of limited market penetration.

      It should also be remembered that Qatar has prior experience of navigating its tourism industry through difficult times. In 2016, almost 3 million tourists visited the country, the majority coming from fellow Gulf Cooperation Council and Arab states. Tourist arrivals have nevertheless diminished in recent years due to the reduction of visitors from the states involved in the ongoing blockade of Qatar. According to the Qatar Planning and Statistics Authority, arrivals from the Arab world declined by 76% between 2016 and 2019.

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      Qatar has responded with a strategy to diversify tourist arrivals and new tourism markets. In the immediate aftermath of the blockade, nationals from 80 countries were granted visa-free entry into the country. The development of the Qatar National Museum and other tourist attractions was also expedited. High-profile marketing campaigns such as Qatar Airways’ “A World like Never Before” continue to highlight the diversity of the country’s tourist sector.

      Such initiatives undoubtedly contributed to a 38% increase in tourist arrivals from other parts of the world between 2016 and 2019. Additionally, hotel bookings rose from 4.97 million nights in 2016 to 5.38 million in 2018, suggesting that the average length of stay in Qatar has increased. The country’s museums also benefited from a fresh approach to attracting tourists, with visits rising from 477,000 in 2016 to 597,000 just two years later. According to the UNWTO, Qatar’s tourism sector generated $5.6 billion in 2018 despite the negative impact of the blockade.

      Qatar’s response to the blockade offers key insights into how tourism can get back on track once the worst of COVID-19 is over. Tourism sectors around the world will need to act quickly and decisively upon the resumption of business as usual. Well-executed, creative public relations campaigns should highlight what makes a country, resort or attraction a compelling place to visit. Diversity, safety and resilience will also be at the heart of tomorrow’s tourism strategies.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The City on the Hill Has Lost Its Shine and Its Bounce

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      In a dramatic headline, Yahoo News expresses its surprise if not dismay that a “staggering 62 percent of Americans no longer see America as Ronald Reagan‘s ‘shining city on a hill.’” Yahoo and YouGov published their poll to give an idea of the mood of the nation on this year’s Fourth of July weekend. The […] More

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      Will Paraguay’s President Abdo Benitez Redeem His Name?

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      Paraguay’s current president, Mario Abdo Benitez, was elected in April 2018. When he was sworn into office in August that year, it represented a second consecutive five-year term in power for the conservative Colorado Party, following the right-wing presidency of Horacio Cartes. At 48, Abdo Benitez is one of the youngest heads of state in […] More