Pandemic Bonds

Enlarge this image ERIC BARADAT/AFP via Getty Images ERIC BARADAT/AFP via Getty Images

One of the World Bank's tasks is to get money to needy countries. It does this mostly using low interest loans. But sometimes, when they run into serious trouble, the poorest countries need no-strings cash ASAP. This is especially true in the case of a pandemic. Realizing this, a few years ago, the World Bank came up with a unique concept, a pandemic bond, which would funnel money to poor countries in the event of a pandemic. Kind of like the one happening right now.

The bond works like a regular bond: investors give the World Bank a certain amount of money and get a regular interest payment. At the end of a period of time, the bond matures, and they get their money back. In the event of a pandemic, however, that money goes to countries that need it instead.

It's a great idea in principle: enlightened self-interest and the financial world riding to the rescue. And it should be happening right now. We have a pandemic, and there are a number of countries appealing for much-needed aid. And yet, the bonds are not paying out. In fact, for the next couple of weeks, people will be poring over the bond documents to determine whether this pandemic meets all the terms of the bond - whether the bonds should pay out, to whom and when. Today on The Indicator, why the World Bank's pandemic bonds might be a bust.

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