LDN - Business

Airline bailouts? Cash handouts? Debate deepens on inoculating economy against coronavirus

[March 17, 2020] By Andrea Shalal

WASHINGTON (Reuters) - The United States and other rich countries need to start spending their way out of the coronavirus crisis, White House advisers, the International Monetary Fund and business groups said Monday, amid growing market panic about the pandemic.

But they are divided about what measures would be appropriate. Proposals range from rolling back payroll taxes to increasing government lending guarantees to sending $1,000 checks to every American.

Global markets moved sharply lower on Monday after a drastic move by the U.S. Federal Reserve to cut interest rates to near zero failed to assuage growing panic about the outbreak and its impact on business revenues and supply chains.

IMF Managing Director Kristalina Georgieva said pressure was growing by the hour for strong, coordinated fiscal stimulus to limit the damage from the fast-spreading outbreak.

Harry Broadman, managing director of Berkeley Research Group and a former senior U.S. trade official, said "a real abyss" loomed if the executive and legislative branches did not soon do "something economically meaningful on the fiscal side."

Leaders of the Group of Seven countries said on Monday they are making their response to the coronavirus pandemic a priority and will coordinate public health measures to help stabilize the global economy.

More than 174,100 people have been infected by the coronavirus across the world and 6,684 have died, with cases and deaths outside China overtaking those in the country where the outbreak began, according to a Reuters tally.

PAYROLL TAX CUTS

The United States could pump $800 billion or more into the economy to minimize damage from the coronavirus outbreak if Congress passes a payroll tax holiday through year end, White House economic adviser Larry Kudlow told reporters on Monday as U.S. officials scrambled to stem the market alarm.

U.S. President Donald Trump has been advocating for the payroll tax to be suspended through the end of the year, a move that would give employees and businesses each about 7% of gross employee income per pay period, but would punch a $1 trillion hole in Social Security and Medicare budgets.

"We have an enormous fiscal plan. It's at least $800 billion and maybe more," Kudlow said, adding that $400 billion in fiscal assistance was already in the pipeline.

The U.S. Chamber of Commerce on Monday urged Trump and top leaders in the U.S. Congress to cancel all payroll taxes paid by employers for the months of March, April and May; pass new legislation to expand and streamline loan programs for small businesses; and provide loans and loan guarantees to employers with more than 500 employees experiencing significant revenue loss as a result of the outbreak.

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A test tube labelled with the coronavirus is placed on U.S. dollar banknotes, in this illustration taken on March 1, 2020. REUTERS/Dado Ruvic

A U.S. House bill that includes small business loans and food security assistance was being held up on Monday on a technicality.

U.S. Senator Mitt Romney, a Utah Republican, on Monday proposed an expanded bill that would give every adult American a $1,000 check, and defer student loan payments for recent college graduates.

CASH FOR AIRLINES

Delta Air Lines Inc <DAL.N>, American Airlines Group Inc <AAL.O> and United Airlines <UAL.O>, the three largest U.S. airlines, are in talks with the U.S. government about potential assistance, and that aid will be a key part of any new fiscal package, U.S. officials briefed on the matter said on Monday.

Kudlow, Treasury Secretary Steven Mnuchin and other White House officials have made the industry a priority; last week Mnuchin told Americans they should keep flying domestically, even as officials recommended limiting nonessential travel.

Kudlow told Fox Business news channel that administration officials would talk to senators on Monday about the industry.

"Flying is such an integral part of our economy," he said. "This is not a question of systemic failure or bankruptcies. This is really a cash flow liquidity question."

"We don't see any of the airlines failing. But if they get into a cash crunch we're going to try to help them. We're consulting with the House and Senate to see what works. And of course the Treasury Department and the Fed have enormous powers on this."

He added he sees the aid as "a liquidity fix, not a bailout."

CONTROL THE VIRUS

Mark Sobel, a former senior U.S. Treasury official, lauded the Fed's surprise rate cut as "forceful and huge" move, but said monetary policy had limited efficacy in this situation.

Until "the United States acts more boldly to bring the virus under control, profound uncertainty will remain, undermining prospects for recovery and limiting the effectiveness of the economic response," said Sobel, now U.S. chairman of the London-based OMFIF think tank.

(Reporting by Andrea Shalal, Jeff Mason, David Lawder, David Shepardson, Lisa Lambert and Tim Ahmann in Washington; Editing by Heather Timmons and Matthew Lewis)

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