The banker tells how we will go out of quarantine and how the current situation will impact the financial sector and the global economy.
Dominique Menu is one of the most experienced bankers of the former CIS countries. He made his career in one of the most important financial groups in the world – BNP Paribas. Dominique started his professional path as a specialist in Project Finance and Asset-Based Financing working on major industrial projects and shipping and aircraft financing deals across all five continents.
Dominique Menu arrived in Ukraine in 2005 to establish the Representative office of BNP Paribas in Ukraine. He also was a Country Head for Kazakhstan.
After the completion of the contract with BNP Paribas, Dominique Menu has been acting as an Independent Member of the Supervisory Board of the State Ukreximbank.
With the consent of the Dominique Menu, Invest in Projects translates and publishes the interview of Minfin with the banker about the future after quarantine, its impact on the financial sector, and the global economy.
How will the global economy change as a result of today’s crisis?
Today’s development is an uncommon crisis. Coronavirus impacts the whole global economy. Before this crisis, we were able to make forecasts and believed that we could control better our projects through using these forecasts. But today it is a lot more complicated to make forecasts. Everything depends on how soon the vaccine will be available.
IMF central projection is based on the assumption that the global economy will undergo a recovery that can be described by U letter. It means that after a sharp decline we will return to the previous point. I also believe the U-Scenario is more likely to happen. Though there is a risk that it will be more like an L crisis, i.e., the economic recovery may be less resistant than the main scenario. It looks likely that in some countries, the crisis will follow an L-Scenario.
Which countries will manage to lose less while going through the crisis?
I believe that Ukraine will overcome the crisis easier than in many other countries. It can make money on the export of food products. Moreover, due to the war and many other crises, which took place in the country, Ukrainians are more robust against challenges. That’s why it will be easier for them now.
The states without access to the sea have a far more complicated situation than those with seaports. See is freedom of trade.
The most complicated situation will experience the countries that make money on oil and gas. For example, Saudi Arabia may deport many foreign workers. Many countries may close the labor markets for migrants. It will have a negative impact on the political situation in a series of states that send workers abroad.
Does Ukraine have other advantages that may help it to overcome the crisis? Is there a possibility other countries will relocate their production from Asia to Ukraine?
It is early to make any conclusions so far. But Ukraine has a winning position due to a partnership agreement with the European Union. That is why it has excellent opportunities if European companies decide to relocate their production from Chine to Europe.
Which countries will strengthen their role in the global economy as a result of quarantine? Do you believe in the possibility of China’s ability to push the USA aside?
Some countries, such as China and Germany, developed their economies mainly due to export. During many years the USA was its number one client. IMF pointed out this fact many times. This situation could not last forever.
Covid-19 crisis works as a catalyst for changes in international trade affairs. Importers have acknowledged that they were very dependent on other countries. No doubt, there will be an inevitable shift though it is too early to say what exactly and how. A lot will depend on the reviewing of existing trade agreements.
What will be with the idea of globalization?
The transformation of globalization will depend on the decision of policymakers of various countries. I think there will be more protectionism, and it will change the concept of globalization itself. It is more likely the countries may abandon it for a certain period before they reopen borders and markets again. In 5 years, we should return to the point before coronavirus.
How will the structure of the global economy change?
It depends on how and what direction the world trade and international trade agreements will be concluded. If we assume the governments have to concentrate more on economic processes inside their countries, we will see the decision to cut relations with other countries, including China. States can return factories, including productions for the medical field from Asia. There will be more protectionist laws.
Do you think the corporations will reevaluate the remote work’s benefits to cut the office space?
It is hard to make decisions and solve issues without live communication. I think that impact of remote work will be with a further decrease in office property prices etc. Though it will not be as significant as everyone forecasts.
Do you think the new series of debt crises is possible?
Sure, it is possible. That is why the President of the World Bank David Malpass, offered to launch an international repayment holiday for the poorest countries. Also, it is essential to remember that many countries have got significant volumes of financing from China for infrastructure development, and today they have to ask for restructuring these debts. China owns about 40% of debt in many other countries. But we must realize we do not know for sure how much China has provided loans to emerging countries. To me, it is one of the hottest points on the modern world map.
A research of the National Bureau of Economic Research of the USA gives us details about this. Its authors carefully considered loans of Chine to 152 countries and concluded that over 50% of loans issued by China are nonpublic i.e., which means that neither the IMF nor the World Bank knows about them.
According to the United Nations Conference on Trade and Development (UNCTAD) in 2020-2021 years, the emerging countries will lack $2 trillion to meet their obligations under the debts. May it lead to a debt crisis with the involvement of creditors in the manufacturing of the developed countries? How is it possible to avoid a disaster?
Solutions will be found out based on international cooperation. The pivotal will be how China and other international financial organizations will deal with debtors.
Will a debt burden from China grow after a crisis? What is the critical factor?
If taking into account than officially the volume of the gold and a foreign currency reserve of China is three times bigger than the opportunities of IMF ($1 trillion), then at first thought you would say yes. But we should take into account that the larger amount of foreign currency reserves of China can be blocked and invested in various projects, which means they can’t be available quickly. That is why it is hard to answer the questions. We should understand that we do not know enough about the volume of the real assets of China abroad. What is known indeed is that many poorest countries of Asia and Africa owe China a large amount of money, and today it is a real issue for these countries.
How does France support economy and business?
France helps organizations that can’t operate during the quarantine. It provides them with grants, incentives, and repayment holidays. Weekly, there are more and more supportive measures. Three hundred billion euros were allocated to support the economy of France. The state pays 85% of the salaries to employers of the organizations that have stopped working.
The French government’s key idea is to copy measures undertaken by Germany in 2008-2009 years. Germany decided to help businesses keep the labor market in good shape unless the economy started growing.
Did banks work during quarantine in France?
During the quarantine period, all banks were closed. They operated online. People use cashless not to risk and touch paper currency. The number of online payments is growing.
France focused on supporting the businesses that are banks’ consumers. That’s why we can say that this is indirect support of the financial sector. Though, there has been no direct assistance provided to financial institutions so far.
What relief measures would be necessary for banks and society in Ukraine?
I have been in France for many months. So it is not easy to make a precise assessment of NBU acts. But I can say that the issue related to the protection of the creditor’s right is still up-to-date. Some dishonest borrowers can use the quarantine to avoid regular payments to banks.
Of course, the repayment holiday should be offered to the businesses that are willing to work and to be the banks’ partner. Entrepreneurs who take loans for their companies should provide banks with their guarantees.
Which banks will not survive quarantine?
In Ukraine, the proportion of the state banks in terms of banking system assets is 60% (according to NBU data as of 1 January 2020). International banks from Europe, Russia, and other regions constitute 27% of assets. Private banks from Ukraine account for 13%. There are 75 banks in the country. And I think that their number will decrease.
It will be quite complicated for small niche banks to adapt to the international legal system. Foreign banks will focus on their domestic markets. I do not think that we will see significant expansion of the global bank capital in Ukraine soon.
Do you think there will be the exit of international banks from Ukraine?
I do not think so. Ukraine’s foreign banks have already restructured their operations after the crisis in 2008, and today they demonstrate excellent results. Only small players among foreign banks can be an exception. Though, the question is whether they would be able to find a buyer today.
Representatives of the Ukrainian business often complain that foreign banks undertake serious checks or refuse to work with clients from Ukraine or post-soviet countries what local business is ready and wants to open accounts abroad.
Compliance will strengthen. We experienced a shock when in 2014, in the USA, BNP Paribas paid $9 billion fine for compliance norms violations.