The chief economist of the International Monetary Fund, Geeta Gopinath, has urged governments to switch to equity-like support from loan-focused support while the Coronavirus pandemic continues to harm companies.
"The sheer scale of the shock means more companies will go bankrupt as they struggle with declining revenues for several months," Gopinath said.
She added that government support in the form of loans would burden these companies with a huge debt, which would be a tax that would make it difficult for them to get out of the crisis.
"Because there is a bigger bankruptcy case here, government support has to move more towards becoming a property-like, unlike debt-like, otherwise many companies that emerge from this crisis will end up with a massive amount of excess debt."
"If lending takes a equity-like formula, that is a lesser burden for companies," she added at an online seminar hosted by the fund in conjunction with the University of Tokyo. "This will make it easier for companies to recover from the crisis."
No details were provided on how this type of financing would work, and during its domestic banking crisis in the late 1990s, Japan injected capital into companies through programs through which state entities bought preferred shares issued by those companies.
Gopinath said any recovery in the global economy would be "very uneven and shrouded in great fog."
She added that while food inflation rises in some countries, consumer price inflation in general will likely remain low in most parts of the world because losing jobs will hold back wages.
The current IMF is the worst recession since the Great Depression of the 1930s. In its most recent forecast in June, the fund expected global output to shrink in 2020 by 4.9%, compared to an expected 3% contraction in forecasts released in April.