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A worker wearing a protective suit sprays disinfectant as a precaution against the coronavirus at a bus garage in Seoul, South Korea, Wednesday, Feb. 26, 2020. The number of new virus infections in South Korea jumped again Wednesday and the U.S. military reported its first case among its soldiers based in the Asian country, with his case and many others connected to a southeastern city with an illness cluster. (AP Photo\/Ahn Young-joon)<\/p><\/div>\n
By Whitney Webb
\nMintPress News<\/p>\n
A <\/span>little known specialized bond created in 2017 by the World Bank may hold the answer as to why U.S. and global health authorities have declined to label the global spread of the novel coronavirus a \u201cpandemic.\u201d Those bonds, now often referred to as \u201cpandemic bonds,\u201d were ostensibly intended to transfer the risk of potential pandemics in low-income nations to financial markets.<\/p>\n Yet, in light of the growing coronavirus outbreak, the investors who purchased those products could lose millions if global health authorities were to use that label in relation to the surge in global coronavirus cases.<\/p>\n On Tuesday, federal health officials at the Center for Disease Control and Prevention (CDC)\u00a0announced<\/a>\u00a0that they are preparing for a \u201cpotential pandemic\u201d of the novel coronavirus that first appeared in China late last year. The World Health Organization (WHO)\u00a0has stated<\/a>\u00a0that an estimated 80,000 worldwide have contracted the disease, most of them in China, while more than 2,700 have died.<\/p>\n However, some have argued that the CDC\u2019s concerns about a likely pandemic have come too late and that action should have been taken much earlier. For instance, in early February, Dr. Anthony Fauci, director of the US National Institute of Allergy and Infectious Disease, had told the\u00a0<\/a>New York Times<\/a><\/em>\u00a0<\/em>that the novel coronavirus is \u201cvery, very transmissible, and it almost certainly is going to be a pandemic,\u201d while former CDC director Dr. Thomas R. Frieden had echoed those concerns at the time, stating that it is \u201cincreasingly unlikely that the virus can be contained.\u201d<\/p>\n Despite those warnings, among many others, the CDC waited to announce its concerns that the virus could spread throughout the United States. Their Tuesday announcement riled markets,\u00a0wiping out $1.7 trillion<\/a>\u00a0in stock market value in just two days. The CDC\u2019s warning\u00a0has reportedly angered<\/a>\u00a0President Trump, who accused the agency of needlessly spooking financial markets.<\/p>\n Notably, WHO officials have taken an even more cautious approach than the CDC in their recent comments, stating that it is still \u201ctoo early\u201d to declare the coronavirus outbreak a \u201cpandemic\u201d while also asserting that \u201cit is time to do everything you would do in preparing for a pandemic.\u201d<\/p>\n The refusal to label the outbreak a pandemic is odd, since it\u00a0refers to<\/a>\u00a0an epidemic or actively spreading disease that affects two or more regions worldwide. This currently describes the geographical spread of the highly contagious novel coronavirus, which has now resulted in significant clusters of cases far from China, namely in Italy and Iran. Countries closer to China, like South Korea, have also recently experienced an explosion in novel coronavirus infections.<\/p>\n It is possible that concerns over using the word \u201cpandemic\u201d could upset global markets and lead to economic turmoil, similar to what happened to the U.S. stock market following the CDC announcement on Tuesday. Though such concerns are valid, there is also evidence that a particular class of bonds issued by the World Bank that are closely related to official declarations of pandemics may also be responsible for having steered WHO and CDC officials away from using this term, even though the consequences of doing so could negatively impact global public health.<\/p>\n In June 2017,\u00a0the World Bank announced<\/a>\u00a0the creation of \u201cspecialized bonds\u201d that would be used to fund the previously created Pandemic Emergency Financing Facility (PEF) in the event of an officially-recognized (i.e. WHO-recognized) pandemic.<\/p>\n They were essentially sold under the premise that those who invested in the bonds would lose their money if any of six deadly pandemics hit, including coronavirus.\u00a0Yet, if a pandemic did not occur before the bonds mature on July 15, 2020, investors would receive what they had originally paid for the bonds back in addition to interest and premium payments on those bonds that they recieve between the date of purchase and the bond\u2019s maturation date.<\/p>\n The PEF, which these pandemic bonds fund, was created by the World Bank \u201cto channel surge funding to developing countries facing the risk of a pandemic\u201d and the creation of these so-called \u201cpandemic bonds\u201d was intended to transfer pandemic risk in low-income countries to global financial markets. According to\u00a0a World Bank press release<\/a>\u00a0on the launch of the bonds, WHO backed the World Bank\u2019s initiative.<\/p>\n However, there is much more to these \u201cpandemic bonds\u201d than meets the eye. For example, PEF has a \u201cunique financing structure [that] combines funding from the bonds issued today with over-the-counter derivatives that transfer pandemic outbreak risk to derivative counterparties.\u201d\u00a0The World Bank asserted<\/a>\u00a0that this structure was used in order \u201cto attract a wider, more diverse set of investors.\u201d<\/p>\n Critics, however, have called the unnecessarily convoluted system \u201cWorld-Bank-enabled looting<\/a>\u201d that enriches intermediaries and investors instead of the funds intended targets, in this case low-income countries struggling to fight a pandemic.\u00a0These critics\u00a0have asked<\/a>\u00a0why not merely give these funds to a body like the Contingency Fund for Emergencies at the World Health Organization (WHO), where the funds could go directly to affected countries in need.<\/p>\n Notably, WHO determines if a pandemic meets the criteria that would see investors\u2019 money be funneled into PEF as opposed to their own pockets, which would take place if no pandemic is declared between now and when the bonds are set to mature this upcoming July.<\/p>\n In 2017, the news site\u00a0Quartz<\/em>\u00a0described the mechanism<\/a>\u00a0of \u201cpandemic bonds\u201d as follows:<\/p>\n Investors buy the bonds and receive regular coupons payments in return.\u00a0If there is an outbreak of disease, the investors don\u2019t get their initial money back.<\/strong>\u00a0There are two varieties of debt, both\u00a0scheduled to mature in July 2020<\/strong>.<\/p>\n The first bond raised $225 million and features an interest rate of around 7%.\u00a0Payout on the bond is suspended if there is<\/strong>\u00a0an outbreak of new influenza viruses or coronaviridae<\/strong>\u00a0(SARS, MERS). The second, riskier bond raised $95 million at an interest rate of more than 11%. This\u00a0bond keeps investors\u2019 money if there is an outbreak of<\/strong>\u00a0Filovirus,\u00a0Coronavirus<\/strong>, Lassa Fever, Rift Valley Fever, and\/or Crimean Congo Hemorrhagic Fever. The World Bank also issued\u00a0<\/a>$105 million in swap derivatives<\/a>\u00a0that work in a similar way. (emphasis added)\u201d<\/p><\/blockquote>\n In 2017, the World Bank issued $425 million in these \u201cpandemic bonds\u201d and the bond sale was reported to have been 200 percent oversubscribed, \u201cwith investors eager to get their hands on the high-yield returns on offer,\u201d\u00a0according to reports<\/a>. The premiums bondholders have received thus far were largely funded by the governments of Japan and Germany, who are also\u00a0the top nation-state funders of WHO<\/a>\u00a0behind the United States and United Kingdom. Reports have claimed that most of the bondholders are firms and individuals based in Europe.<\/p>\n Some analysts have argued that these pandemic bonds were never intended to aid low-income pandemic-stricken countries, but instead to enrich Wall Street investors. For instance, American economic forecaster Martin Armstrong\u00a0has called<\/a>\u00a0the World Bank\u2019s pandemic bonds \u201ca giant gamble in the global financial casino\u201d and a \u201cscheme like no other,\u201d recently arguing that these bonds could present a \u201ca structured derivative time bomb\u201d that could upend financial markets if a pandemic is declared by WHO. Armstrong went on to say that it is in WHO\u2019s interest to declare the coronavirus outbreak a pandemic, but noted that, in doing so, they would cause bondholders to take significant losses.<\/p>\n Even establishment economists like former World Bank chief economist and Secretary of Treasury Larry Summers have criticized the World Bank\u2019s program, dismissing the PEF as \u201cfinancial goofiness<\/a>.\u201d Bodo Ellmers, the director of the Global Policy Forum\u2019s sustainable development finance program, has similarly called pandemic bonds \u201cuseless<\/a>,\u201d while Olga Jonas, who worked at the World Bank as an economist for over 30 years, said the program was \u201cdesigned to fail<\/a>\u201d because the bonds were crafted in order \u201cto reduce the probability of payout.\u201d<\/p>\n Economic and business analyst and host of the podcast \u201cQuoth the Raven<\/a>\u201d\u00a0Chris Irons told\u00a0MintPress News<\/em>\u00a0that, with respect to the pandemic bonds, \u201cWhat\u2019s important is to focus on who stands to benefit from this not being declared a pandemic,\u201d a difficult task given that the identity of most bondholders are not currently publicly available.<\/p>\n Irons also noted that, in his opinion, \u201cWHO and the CDC have been caught a little flat-footed here\u201d and that some governments that fund WHO, particularly the Trump administration, appear \u201cmore concerned with the stock market than giving people information that may be necessary and vital.\u201d He added that behind-closed-doors pressure on WHO by those who stand to lose financially from an official declaration of a pandemic would be \u201cunsurprising.\u201d<\/p>\n As the coronavirus outbreak grows, concern has grown among those invested in pandemic bonds that payout to countries affected by coronavirus will be triggered, despite the clear delay by WHO in declaring the outbreak as a pandemic. While WHO could theoretically alter the criteria that would trigger payout and cause bondholders to lose big, some recent reports have claimed that bondholders are\u00a0seeking to rid themselves<\/a>\u00a0of the bonds prior to their July maturation date.<\/p>\n German media outlet\u00a0<\/a>Deutsche-Welle<\/a><\/em>\u00a0noted<\/a>\u00a0that the trigger for the first class of pandemic bonds, valued at $225 million, would normally have already been met due to the criterion of more than 2,500 deaths in a \u201cdeveloping country.\u201d However, WHO has said this does not meet said criterion because it does not consider China to be a developing country, even though\u00a0the World Bank\u2019s own criteria<\/a>\u00a0do consider China to be a developing country.<\/p>\n For the second and riskier category of pandemic bonds, those bonds are triggered when the disease in question crosses an international border and causes more than 20 deaths in the second country. At the time of publication of this article, Iran\u00a0has recorded at least 50 deaths<\/a>, which should have triggered this second category of pandemic bonds, valued at $95 million. Yet, WHO yet to comment on how this criterion for the second category bonds has been met.<\/p>\n The WHO\u2019s decision to refuse to use the \u201cp-word\u201d may be the result of several factors, though the pandemic bonds loom large as a $425 million incentive for not doing so. While avoiding the use of the term may please pandemic bondholders, it is set to have major negative consequences for global public health, particularly given the fact that early action against epidemic and pandemic outbreaks is widely considered to be an imperative.<\/p>\n Feature photo | A worker wearing a protective suit sprays disinfectant as a precaution against the coronavirus at a bus garage in Seoul, South Korea, Feb. 26, 2020. Ahn Young-joon | AP<\/p>\nPandemic Bonds: a \u201cscheme like no other\u201d<\/h2>\n
How to trigger a payout<\/h2>\n