Covid-19 will cost the US economy trillion

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The economic toll of the Covid-19 pandemic in the US will reach US$14 trillion by the end of 2023, our team of economists, public policy researchers and other experts have estimated.

Putting a price tag on all the pain, suffering and upheaval Americans and people around the world have experienced because of Covid-19 is, of course, hard to do.

More than 1.1 million people have died as a result of Covid-19 in the US, and many more have been hospitalized or lost loved ones. Based on data from the first 30 months of the pandemic, we forecast the scale of total economic losses over a four-year period, from January 2020 to December 2023.

To come up with our estimates, our team used economic modeling to approximate the revenue lost due to mandatory business closures at the beginning of the pandemic.

We also used modeling to assess the economic blows from the many changes in personal behavior that continued long after the lockdown orders were lifted – such as avoiding restaurants, theaters and other crowded places.

Workplace absences, and sales lost due to the cessation of brick-and-mortar retail shopping, air travel and public gatherings, contributed the most. At the height of the pandemic, in the second quarter of 2020, our survey indicates that international and domestic airline travel fell by nearly 60%, indoor dining by 65% and in-store shopping by 43%.

We found that the three sectors that lost the most ground during the first 30 months of the pandemic were air travel, dining, and health and social services, which contracted by 57.5%, 26.5% and 29.16%, respectively.

These losses were offset to a degree by surges in online purchases, a series of large fiscal stimulus and economic relief packages and an unprecedented expansion of the number of Americans working from home – and thus were able to keep doing jobs that might otherwise have been cut.

From 2020 to 2023, the cumulative net economic output of the United States will amount to about $103 trillion. Without the pandemic, the total of GDP over those four years would have been $117 trillion – nearly 14% higher in inflation-adjusted 2020 dollars, according to our analysis.

We also simulated four different possible economic outcomes had the number of Covid-19 deaths been different because of either more or less successful public health strategies in the first 30 months of the pandemic.

The direct health expenses, driven mostly by hospitalization costs in these scenarios, would have totaled $20 billion in a best-case scenario in which 65,000 Americans would have died from January 2020 to June 2022. In the worst-case scenario, about 2 million would have died during that period, with $365 billion in direct health-related expenses.

Based on our findings, most economic losses were not due to these health care expenditures.

Why it matters

The Covid-19 pandemic’s economic consequences are unprecedented for the US by any measure. The toll we estimate that it took on the nation’s GDP is twice the size of that of the Great Recession of 2007-2009.

It’s 20 times greater than the economic costs of the 9/11 terrorist attacks and 40 times greater than the toll of any other disaster to befall the US in the 21st century to date.

Although the federal government has now lifted its Covid-19 Public Health Emergency declaration, the pandemic is still influencing the US economy. The labor force participation rate, which stood at 62.6% in April 2023, has only recently neared the February 2020 level of 63.3%.

What is not known

We modeled only the pandemic’s standard economic effects. We didn’t estimate the vast array of economic costs tied to Covid-19, such as lost years of work after an early death or a severe case of long-Covid-19.

We also didn’t assess the costs due to the many ways that the disease has affected the physical and mental health of the US population or the learning loss experienced by students.

Jakub Hlávka is Research Assistant Professor of Health Policy and Management; Schaeffer Center Fellow, University of Southern California and Adam Rose is Professor of Public Policy, University of Southern California

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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China expands economic reach in US’ backyard

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In early March 2023, General Laura Richardson, head of the United States Southern Command, told a US congressional hearing that Chinese actions in South America posed a threat to US safety. According to General Richardson, China is on a relentless march to replace the United States as the leader in the region.

While China’s presence in the region has grown substantially in the past decade, it is unlikely that China will replace the United States as the dominant political, economic and military power in Latin America for the foreseeable future.

On the economic front, China has made inroads into South America and the Caribbean, a region where US power once went unchallenged. Starting in the late 1990s, Chinese interest in South America and the Caribbean began to grow.

In order to sustain its unprecedented economic growth China began to search the globe for oil and other raw materials. In 2000, Chinese trade with the region totalled US$12 billion, reaching $314.8 billion in 2021. In 2023, China is the largest trading partner of nine countries in the region: Argentina, Brazil, Bolivia, Cuba, Chile, Peru, Paraguay, Uruguay and Venezuela.

While the growth in trade between China and the region is impressive, the United States remains Latin America and the Caribbean’s largest trading partner. In 2020, US trade with the region was $758.2 billion. But 71 per cent of this trade was with Mexico. In 2021, Chinese foreign direct investment in the region totalled $130 billion.

Before the Covid-19 pandemic, China was the biggest lender to the region, with Chinese development banks having issued $66.5 billion in loans — mostly for infrastructure projects that offer Chinese companies better access to the region’s rich natural resources. A small portion of these loans were provided under China’s Belt and Road Initiative (BRI).

While China’s economic footprint in the region has increased significantly, the United States and the European Union remain the largest foreign investors, accounting for 36 per cent and 34% of total investment respectively.

As China faces an economic slowdown due to the Covid-19 pandemic, Chinese loans have dried up. When countries in the region fall into financial crisis, Western institutions such as the International Monetary Fund have provided the lion’s share of structural adjustment loans, not China.

The extent to which China’s economic gains in the region have resulted in political and diplomatic influence is unclear. While China has been Brazil’s largest trading partner for over a decade, tensions have arisen under both left- and right-wing Brazilian governments.

Chinese President Xi Jinping and Brazilian leader Luiz Inácio Lula da Silva in a state of embrace. Image: Twitter

In Panama, after relentless US pressure, several multibillion dollar infrastructure contracts initially awarded to Chinese companies were cancelled and given to South Korean and Japanese companies.

During her testimony to Congress, General Richardson also warned that China has increased its support for anti-US regimes in the region including Venezuela, Cuba and Nicaragua.

But with the exception of Venezuela, Chinese investment and trade with these countries is minimal compared with its presence in most other countries in the region. In the cases of Cuba and Nicaragua, their desperate economic situations and US sanctions render them less attractive to China.

In the defence and security sector, China has made modest inroads into the region. While the number of South American and Caribbean military and security officers going to China for training has increased, the United States remains the primary destination for training thousands of officers from the region. The United States has dozens of bases and other installations throughout the region and is the region’s ultimate guarantor of security.

While the power of the United States in the region remains solid, challenges on the economic front are increasing. No other power — not even the Soviet Union — has been able to challenge US economic dominance of the region.

Apart from in Cuba, Soviet trade and aid to the region was negligible and its diplomatic influence limited. While most countries in the region want to maintain close ties with the United States, they also want the benefits of China’s massive trade and investment flows.

On the eve of the pandemic, total trade between China and Latin America had hit $314.8 billion. Chinese foreign direct investment in Latin America was about $130 billion and net development lending by the China Development Bank and Export–Import Bank of China was about $66.5 billion. Taking 2000 as the baseline, the figures in all three categories have grown exponentially.

China is taking many steps to improve its economy and its currency. Photo: Facebook

While trade and FDI inflows dipped slightly during the pandemic, Chinese development lending to the region dropped to zero in 2020. With just two years of operation in Latin America and the Caribbean, the BRI accounts for only a few million of the $43.5 billion disbursed to the region by Chinese policy banks between 2015 and 2019.

China’s growing presence and rising economic importance to the Global South should be expected. But China was able to build such a strong presence in Latin America and the Caribbean in large part due to US neglect of the region.

The United States can no longer take the region for granted. Perhaps Washington should start treating Latin America as its front yard rather than its backyard.

Loro Horta is a diplomat and scholar from Timor-Leste. He has served as Timor-Leste’s ambassador to Cuba and counselor at the Timor-Leste embassy in Beijing.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Singapore digital banks behind the regulatory times

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The digital banking ecosystem among Southeast Asia’s approximately 687 million inhabitants is diverse.

Some ASEAN members, including the more developed ASEAN-5 economies and Brunei, have well-consolidated financial services sectors, while others — especially in their rural areas — have large unbanked populations. Traditional banks and fintech start-ups have increasingly turned to digital banking to solve this problem but various issues demand greater regulatory oversight.

Digital banks have proliferated across Southeast Asia and financial authorities in Singapore, Malaysia and the Philippines are seeking to incentivize financial innovation by supporting fintech growth without compromising financial stability. Some of these initiatives include rules for digital wallets, peer-to-peer lending, application programming interfaces, licensing frameworks for digital banks and regulatory sandboxes.

Digital banking adoption is influenced by numerous factors including unmet customer needs, technology adoption, talent and national identification tech systems. The World Bank estimated that the region’s connectivity rate of 133% contrasts with only 27% of the population having a bank account. It is estimated that 80% of Indonesia, the Philippines and Vietnam, and 30% of Malaysia and Thailand are unbanked.

Traditional banks such as the United Overseas Bank and Commerce International Merchant Banks have increasingly leveraged technology to compete with online-only banks and fintech start–ups. But with increasing mobile connectivity, monetary authorities — including the Monetary Authority in Singapore — have leaned towards licensing digital-only banks and nurturing fintech start-ups to compete with traditional banks.

The number of fintechs in Southeast Asia increased from 34 to 1,254 between 2000-2022. Southeast Asian fintechs have a cumulative total of US$4.8 billion of equity funding — the largest share of these start-ups located in Singapore.

Singapore’s position as a financial hub and the region’s leading digital economy for tech-driven innovation makes it an ideal choice to observe the motivations and challenges for technological transformation in financial services.

In December 2020, the Singaporean Monetary Authority awarded digital full bank licenses to GXS Bank and Sea Limited’s Mari Bank and gave significantly rooted foreign bank privileges to Trust Bank to create competition for traditional incumbents and encourage financial innovation and digital banking.

These initiatives prompted the three biggest traditional banks in Singapore — namely the Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) — to accelerate their transformation processes. With high overheads, traditional banks must transform to compete with fintechs in terms of costs, products and services.

DBS approached this challenge in its journey toward being a tech-minded company by collaborating with cloud computing provider Amazon Web Services to retrain its staff in digital tools, artificial intelligence (AI), and machine learning. Over 3,000 DBS employees — including senior executives — were trained in innovative technologies.

DBS differentiated itself by developing 85% of its technology in-house — rather than outsourcing — during its cloud-based tech infrastructure transition. Data is used for personalized intelligence and analytics to enable a greater understanding of customers’ desires and expectations. DBS is industrializing the use of AI and machine learning to power differentiated customer experiences.

Fundamentally, DBS had to operate as a start-up and embed an appropriate organizational start-up culture — a particular challenge for incumbent banks transitioning into the tech space. Adopting a hybrid multi-cloud infrastructure, DBS aims to reduce infrastructure costs by adapting its architecture to the cloud and reimagining its processes to be customer-centric.

In this context, Singapore’s Smart Nation Initiative “Singpass”, a digital identification framework, could play a key role in enrolment and verification. DBS has become a technology company, enabling flexibility to experiment and implement changes faster, and integrate with customer systems.

For example, DBS and GovTech are teaming up to pilot Singpass face verification technology for faster digital banking sign-ups among seniors aged 62 and above.

During Singapore’s economic post-Covid-19 transition, DBS created the DBS Digital Exchange to manage its integrated digital ecosystem. Self-directed trading is possible via its digibank app. DBS and JPMorgan also co-created “Partior” as a blockchain-based cross-border clearing and settlement provider that harnesses smart contracts to transform the future of payments.

Before experimenting with intelligent banking, DBS built its proprietary AI machinery using an integrated approach. This combines predictive analytics, AI and machine learning, and customer-centric design to convert data into hyper-personalized nudges to help customers make informed decisions.

Because DBS provides “insights” and “nudges” for customers on its digibank app, the technology must be consistent and dependable. Yet despite spending billions on tech, training, contracting reputable vendors and using proven technology, DBS still encountered technical problems in its digitalization journey.

On May 5, 2023, DBS’ online banking and payment services were disrupted for the second time in two months. Previously, on March 29, 2023, DBS lost electrical power, disrupting its digital services for 10 hours. These two disruptions come 16 months after an outage in November 2021 which lasted for two days, causing access problems to the bank’s control servers.

The DBS Digital Exchange is 10% owned by Singapore’s SGX stock exchange. Image: Twitter

For the 2021 outage, the Monetary Authority required DBS to apply a multiplier of 1.5 times to its risk-weighted assets for operational risk, amounting to US$700 million of regulatory capital to ensure sufficient liquidity.

As traditional banks like DBS digitalize and embrace technology, they must have robust business recovery and continuity capacity built into their digital frameworks. Regulatory authorities like the Monetary Authority have driven digital transformation and highlighted the need for banks to continually review their digital banking infrastructure.

But regulators also need to increase monitoring and supervision of banks’ digital processes and transformation models.

Dr Faizal Bin Yahya is Senior Research Fellow in the Governance and Economy Department of the Institute of Policy Studies, National University of Singapore.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Nobel Trust announces sustainability standards body

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The Nobel Sustainability Trust will inaugurate the World Sustainability Standards Organization in October 2023, in partnership with numerous governments and international organizations, NST Chairman Peter Nobel announced May 12. The announcement was made simultaneously in New York and Zürich, where the WSSO will be headquartered.

WSSO’s mission, Mr. Nobel said, is to unify standards in sustainable development fields such as energy, carbon credit, green finance, the environmental industry, energy conservation, carbon neutrality-related technologies, and ESG (environmental, social and governmental) investing.

In addition, WSSO will support the roll-out of the carbon market and other projects outlined in the Paris Agreement. It will seek to strengthen international coordination of carbon payment and settlement by integrating the central bank digital currencies of different countries. WSSO aims to promote global convergence of standards, help form a cross-regional common carbon market, and coordinate the use of CBDCs for carbon settlement and other mechanisms for global collaboration.

WSSO will establish research centers and various professional committees in Zurich, Beijing,  and New York. In the future, it will open standard certification centers in multiple regions and countries around the world,  supporting the synchronization of national and regional standards and reducing geographical, economic, and technical barriers to international cooperation in sustainable development.

The announcement said that the organization believes that “the goals, principles, policies, measures, and institutional arrangements of existing global climate treaties, such as the Kyoto Protocol and the Paris Agreement, are based on scientific research and understanding of historical responsibilities” Noting that “these agreements were formed after long-term and arduous negotiations,’” it says that they “evince deep respect for history and advance the shared goal of sustainable development.”

Within this framework, the organization will encourage each country to “take constructive and transparent actions and cooperate in solidarity,” the announcement says. “WSSO’s purpose is to strengthen the principles and provisions of existing conventions and agreements. The existing institutional arrangements are beneficial to developing countries and provide channels for developed countries to help developing countries achieve carbon neutrality.”

WSSO’s priority is “to establish a global carbon market mechanism, the announcement says. “The carbon market mechanism was stipulated in Article 6 of the Paris Agreement and should be implemented swiftly and conscientiously. The EU’s carbon border adjustment mechanism tax is unilateral, so a global carbon market should be established in accordance with Article 6 to hedge this unilateral measure.”

Bruno Wu. Photo: Asia Times files

As for how the carbon footprint of products should be measured in the spirit of the Paris Agreement, the announcement says: “WSSO believes that technical standards and models need to be researched and advanced by the various standard-setting organizations worldwide, and a consensus needs to be reached through thorough negotiation and then embodied in a generally accepted algorithm for carbon conversion.”

WSSO will appoint three representatives, one each from China, the United States, and the European Union, to manage the daily work of its executive committee, under the secretariat system of responsibility. The first head of the secretariat will be Bruno Wu, PhD, one of the first recipients of the Nobel sustainability award medal. 

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Elections won’t rescue middle income-trapped Thailand

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Clearly, self-awareness isn’t Prayut Chan-ocha’s forte as the Thai prime minister warns of a “black hole of conflict” in what was once one of Southeast Asia’s most promising economies.

The conflict about which Prayut warns is assured if voters support opposition groups in Sunday’s general election, or so he claims. Yet many economists agree that Prayut’s nine years in power have been their own black hole of dysfunction and complacency.

In May 2014, the general-turned-politician led the latest military junta to grab power in Bangkok. Since the 1930s, Thailand has experienced at least 28 coups. And just like most junta leaders who came before him, Prayut had no real plan to improve the efficiency of government or raise living standards.

In fact, the last nine years of political gridlock were preceded, too, by eight years of complacency. An earlier coup, in 2006, showed then-prime minister Thaksin Shinawatra the door. After that, a revolving door of governments came and went with few, if any, upgrades to raise Thailand’s economic game.

This lost period is coming back to haunt the kingdom, regardless of who wins on May 14 — be it Prayut’s United Thai Nation Party or one of the opposition parties. These last 17 years of political turbulence have greatly increased the odds that Thailand is falling into the dreaded “middle-income trap.”

“Thailand is a middle-income economy that risks having its lunch eaten by lower-income rivals competing in similar manufacturing segments —especially Vietnam,” warns economist Vincent Tsui at Gavekal Research.

As generals plotted and politicians dithered, Tsui says, “Thailand has suffered a steady deindustrialization, with both the export and investment share of GDP having fallen, while that for tourism-related services has risen — although badly hit in the pandemic.”

The real black hole to worry about here is how China, India, Indonesia, Vietnam and other competitors got their innovative acts together. The pace at which Indonesia alone is minting tech “unicorn” startups should panic officials in Bangkok.

So should the ways in which Vietnam is arguably the biggest winner from the US-China trade war. Vietnam is winning a disproportionate amount of the factories, jobs and longer-term investment fleeing the mainland.

To understand why Thailand is stuck in place, says economist Peerasit Kamnuansilpa at Khon Kaen University, one has to recognize it’s dominated by central economic development agencies, which provide economic incentives for large businesses, investors and wealthy entrepreneurs in the forms of income and capital gains tax breaks coupled with other indirect benefits such as business protection or market monopolies.

Prime Minister Prayut Chan-ocha is flanked by CP Group chairman Dhanin Chearavanont (2nd R) and ThaiBev founder billionaire Charoen Sirivadhanabhakdi (L) at Government House in a file photo. Photo: AFP Forum / Chanat Katanyu

This latest experiment with “trickle-down economics,” though, isn’t working. “Perhaps the most important obstacle to long-term economic prosperity is its institutional weaknesses,” Peerasit notes. “All economic development policies have been formulated and strategic choices have been made by heavy-handed central government agencies.”

Thailand, in other words, is heavy on economic hardware but lacking in the software needed to compete in the 2020s. To address the problem, says economist Upalat Korwatanasakul at Waseda University, the government should “consider policies that can deal with the issues of insufficient knowledge and technology transfer and a lack of local firms’ capacities as they are the primary causes of the limited upgrading.”

The trouble, of course, is that the last several Thai governments have been so busy struggling to keep their jobs that they failed to do their jobs.

Gavekal’s Tsui adds that “Thailand had been an important exporter of electronics products but its global share has shrunk to about 1.7% from 2.2% a decade ago. In the same period, Vietnam has registered fivefold gains to account for 5% of this market.”

Automobiles are a bright spot for Thailand, which remains Southeast Asia’s largest vehicle exporter and the world’s 10th largest with a 2.1% global export share over the last five years. Here, though, there are two big problems.

One, as Tsui explains, the real challenge is that this position is built around the internal combustion engine, and as for many car-producing nations the risk is that China, in particular, steals a march as it comes to dominate production of electric vehicles.

The other: neighbors like the Philippines are lobbying automakers to migrate to the greater Manila area. Indonesia, too, is positioning itself for EV manufacturing in a big way.

True, Thailand has managed to secure investments from Chinese automakers like BYD, Great Wall Motor and SAIC Motor, which are looking to build some offshore production capacity.

“Still,” Tsui says, “Chinese automakers have well-developed onshore supply chains and are less likely to outsource material amounts of production as Thailand does not offer much of a cost advantage. In reality, Thailand’s auto sector is in a defensive crouch and is at risk of losing its existing share and seeing a further wave of deindustrialization.”

An employee works at an assembly line at the new Ford Thailand manufacturing plant located in Rayong province, East of Bangkok May 3, 2012. Ford Motor Corp is eyeing Indonesia as a production centre to help meet strong demand for cars in Southeast Asia but supply problems mean Thailand will remain its regional hub for the foreseeable future, company executives said. REUTERS/Chaiwat Subprasom (THAILAND - Tags: TRANSPORT BUSINESS) - RTR31JKS
A worker at Ford Thailand’s plant in Rayong province, East of Bangkok. Photo: Facebook

Thailand’s waning competitiveness has voters wondering what Prayut was thinking when he commandeered power in 2014. On his watch, critics argue, inequality rose while many freedoms disappeared. The fruits of Thailand’s gross domestic product (GDP) are being shared by an increasingly narrow elite.

As young Thais fret about their future, past empires are trying to stage comebacks. Exhibit A: the Shinawatra family.

Since his coup ouster in 2006 and later criminal convictions, Thaksin Shinawatra has lived in self-exile. So does his sister, Yingluck, also a former prime minister, who was removed in 2014 by the nation’s Constitutional Court.

Now, Thaksin’s daughter, Paetongtarn Shinawatra, has her own date with destiny. On May 14, she hopes to carry her father’s opposition Peua Thai party to power. And with her, repair the tarnished legacy of her billionaire father who played an outsized role in Thailand’s current chaos.

Thaksin first came to power making a claim Donald Trump would later make to win the US presidency: as a wildly successful CEO, I know how to fix the nation’s problems.

This was back in 2001, as the shadow of the 1997-98 Asian financial crisis hung over Thai politics. Amid great upheaval and economic pain, uber-wealthy Thaksin embraced first nationalistic then populist rhetoric to gain an unlikely, pro-poor folk-hero status.

After five years, voters realized they had elected Thailand’s Silvio Berlusconi. Like the Italian billionaire-turned-prime-minister, Thaksin also weakened government institutions in the service of his telecom empire. He, Berlusconi-style, channeled massive amounts of stimulus money to rural areas to counter the skepticism of urban elites.

But the urban-rural divide that Thaksin exacerbated blew up on him in 2006. Since that coup, a revolving door of governments simply papered over the cracks.

Former premier Thaksin Shinawatra initiated the kingdom’s populist death spiral. Image: Agencies

Rather than revive institutions, increase transparency and invest in innovation, government after government juiced up GDP with short-term plans. This sugar high after sugar high did little to prepare Thailand for the digital age now reordering Asia’s economic hierarchy.

When it was Prayut’s turn to give government-ing a try, he forgot what US political guru James Carville said two decades earlier: “It’s the economy, stupid.”

Carville was an advisor to then-US president Bill Clinton, on whose watch the Asian crisis occurred. But nine years on, Prayut is giving coup leaders a bad name for a whole new reason. When generals grab power, they tend to argue the motive is to restore order and get big things done.

Scarcely little reform has taken place since the early 2000s. All the while, troubles are bubbling under the surface that the government is too distracted, or economically inept, to address. Prayut’s Eastern Economic Corridor (EEC) project, which has aimed to lure multinational investment in “4.0” industries has by most assessments been a flop due to a lack of local talent.

Household debt, meanwhile, hit 90% of GDP in 2021, among the highest levels in Asia. All too many past governments promoted household borrowing to consume as a short-term fix to economic headwinds. Now, the hangover.

Economist Bert Burger at Atradius calls the “high level of household debt” a “lingering risk for Thailand’s economy.” He adds that “in the long run,” the “high household debt might affect private consumption and derail the financial sector in the event of rising interest rates or falling income.”

It’s no wonder then that nearly all political parties, Prayut and Paetongtan’s included, are campaigning on populist promises, including de facto cash handouts, they won’t likely be able to implement, legally or fiscally.

Constant electioneering also has been hazardous to Bangkok’s fiscal health, warns Bank of Thailand officials. With inflation near 14-year highs, the government continues to prioritize subsidies to ease the pain of rising living costs over supply-side reforms to increase productivity and economic efficiency.

“We should avoid policies promoting bad incentives,” says economist Somchai Jitsuchon, a member of the BOT’s rate panel.

A mournful Thai holds a Thai baht note. Photo: NurPhoto via AFP Forum/Anusak Laowilas
A mournful Thai holds a Thai baht note. Photo: NurPhoto via AFP Forum / Anusak Laowilas

The bigger-picture problem, though, is that none of the 10 governments that have managed the economy since 2001 tackled the middle-income trap risk that can no longer be ignored. This trap is defined by gains in per capita income stalling out around $10,000. Thailand is now at $8,100, by International Monetary Fund’s numbers.

Another problem: Thailand’s Southeast Asian neighbors are accelerating efforts to increase competitiveness as Thailand walks in place. Raising the temperature further, Indonesia, Malaysia, the Philippines, Vietnam and others are lobbying multinational companies to pivot their way, some of which are major employers in Thailand.

This Thai election should be a moment to plot a new course for the one-time Asian tiger economy. Sadly, it seems the vicious cycle that Bangkok fell into two decades back will continue to dim prospects for the next two.

Shawn W Crispin contributed reporting from Bangkok.

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Freeport digging deep for new Grasberg mine deal

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Freeport McMoRan Copper & Gold (FCX) chairman Richard Adkerson has twice flown to Jakarta this year as he tries to persuade President Joko Widodo’s administration to make an early decision on extending the American mining company’s contract over the fabled Grasberg mine beyond 2041.

Adkerson wants a guarantee of a 20-year extension in planning the future development of the four rich ore bodies comprising one of the world’s most lucrative mines lying 3,500 meters up in Papua’s rain-swept Central Highlands.  

Under production since 1988, the bottomless Grasberg still has proven and probable reserves of 15.1 million tonnes of copper and 28.3 million ounces of gold, making it the world’s third-largest copper reserve and biggest gold deposit.

Consolidated sales from the mine amounted to 4.2 billion pounds of copper and 1.7 million ounces of gold in 2022, the first year it returned to full production after converting from a vast open pit to a fully underground, rail-fed operation.

Adkerson and president and treasurer Kathleen Quirk met personally with Widodo on one of their two trips to Jakarta, an indication of the importance FCX attaches to retaining the glittering jewel in the Phoenix-based company’s crown.

Insiders describe the discussions as “fluid” and say they revolve around three conditions, which include boosting the government’s stake in PT Freeport Indonesia (PTFI) subsidiary from 51.2% to 61.2%, the completion of a long-delayed US$3 billion smelter at Gresik, East Java, and adding a second Papuan to the PTFI board.

FILE PHOTO: Freeport McMoRan Chief Executive Officer Richard Adkerson gestures during a press conference with Indonesia's Finance Minister Sri Mulyani Indrawati and Mineral Resources Minister Ignasius Jonan (not pictured) at the Ministry of Energy and Mineral Resources in Jakarta, Indonesia August 29, 2017. REUTERS/Darren Whiteside
Freeport McMoRan chairman Richard Adkerson gestures during a press conference in a 2017 file photo. Image: Agencies

Investment Minister has indicated progress is being made. “The discussions are nearly complete, and the focus is on ensuring that the state acquires the additional shares at the lowest possible cost,” he said earlier this month.

Lahadalia expects state-owned mining holding company PT Mineral Industry Indonesia (MIND-ID) to make the final payment of the $3.8 billion it laid out for its 51.2% stake in PTFI in 2024, five years after sealing the deal.

“It is personally gratifying to experience the markedly more positive attitudes there (in Indonesia) about Freeport than in the past,” Adkerson said in an upbeat presentation to a first-quarter earnings conference call last month.

Apart from the growth of the electric car industry driving a positive outlook for copper, he said FCX’s relationship with Indonesia had improved greatly since the government took the majority interest in PTFI in 2018.

Up until then, Freeport had been treated as public enemy No 1, under attack from environmental groups for its in-river tailings (rock waste) disposal system and often blamed for past human rights abuses committed by the Indonesian military in the mine’s vicinity.

It was also criticized for the cozy relationship between legendary Freeport CEO Jim-Bob Moffett, who died in 2021, and president Suharto, the authoritarian leader who was always grateful for the gamble Freeport took on Papua in the late 1960s.

In previous years as well, traffic on the steep 100-kilometer road between the lowland logistics center of Timika and Freeport’s high-altitude Tembagapura mining camp had been the target of sniper fire from Papuan rebels.

S&P Global estimates that Grasberg represents an earnings concentration for FCX of 35-40%, but the firm also owns more than 50% of each of its two less profitable copper assets in Peru and Chile and 72% of the Morenci copper mine in Arizona.

“As resource nationalism appears to be rising around the world, we believe the globally important Grasberg mine could be exposed to further changes in economics (for FCX), particularly as permits are reconsidered for extension in the next decade or two,” the ratings agency said in a note last month.

Although MIND-ID posted a $1.45 billion profit last year, Center for Energy and Mining Law executive director Bisman Bakhtiar feels the company will be taking on an unnecessary burden by buying a further 10% stake in PTFI.

Papuan students display placards during an anti-Freeport rally in front of the US giant Freeport-McMoRan office in Jakarta on April 7, 2017.The students demanded an end to mining by Freeport in Papua and the freedom of Papua from Indonesia. / AFP PHOTO / Bay ISMOYO
Whipping boy: Papuan students display placards during an anti-Freeport rally in front of the US giant Freeport-McMoRan office in Jakarta on April 7, 2017. Photo: AFP / Bay Ismoyo

FCX will continue to retain operational control of the world’s biggest underground hard-rock operation, and along with it the lucrative supply contracts that make it an enticing prize for political interests in Jakarta.

Sources familiar with the way the mine is operated say the government has no practical mining expertise at all to replace the existing Freeport team, despite an obvious divergence of objectives between Phoenix and the state.

Analysts say if FCX is not granted an early extension, considered unlikely at this stage, planners may be tempted to “high grade” the mine, giving priority to exploiting the more profitable ore deposits over the next 18 years.

Freeport’s new $3.4 billion smelter at the Java Integrated Industrial Park Estate (JIPE), north of Surabaya, was originally planned to be commissioned by mid-2024 but construction is reportedly running behind schedule.

When complete, the facility and Mitsubishi’s existing Gresik smelter, PT Smelting, which began commercial operations in 1999, will process the bulk of the three million tonnes of copper concentrate the Grasberg produces each year.

About 60% of PT Smelting’s output currently goes to overseas markets, but the Widodo government plans to impose a ban on all copper exports next year in line with its strict policy of adding value to its vast mineral wealth.

Nickel ore exports were banned in 2020 with official data showing that the three new Chinese-funded processing facilities in Sulawesi and Maluku had increased the commodity’s value from $1.1 billion to $20.8 billion in 2021 alone.

The Energy and Resources Ministry was forced to delay its plan to ban copper concentrate exports in June after Freeport warned it would have to cut back production until the new 1.7 million-tonne smelter is in operation.

Amman Mineral, a subsidiary of Indonesian-owned conglomerate Medco Energy, may be in worse shape because it exports all its concentrate from Sumbawa’s Batu Hijau copper and gold mine.

Executives said in an October 2022 presentation that Amman’s $1.4 billion smelter, with a production capacity of 220,000 tonnes of copper cathode, would not be operational until the end of 2024.

Bauxite is on the export ban list next month, with mining officials confident the country’s four existing bauxite smelters are sufficient to absorb 12.5 million tonnes of bauxite and produce 3.9 million tonnes of alumina.

Eleven new plants are also under construction. They will eventually churn out a combined 12.6 million tonnes of chemical and smelter-grade alumina, the precursor for the manufacturing of aluminum.

The ministry puts total bauxite reserves at 1.27 billion tonnes, or about 4% of the world’s total, mostly concentrated in West Kalimantan. That places Indonesia in sixth place among the countries with the largest reserves.  

China’s state-owned ENFI Engineering Corp and PT Rasamala Metallurgy Indonesia (RMI) have signed a preliminary deal to build a fourth, $2.3 billion copper smelter at Fakak in Papua’s western Bird’s Head region.

Trucks haul raw earth materials from copper mine site. Photo: AFP, PT Newmont Nusa Tenggara
Trucks haul raw earth materials from a copper mine site in Indonesia. Photo: AFP

PTFI and MIND-ID have been cited as strategic partners, but PTFI president-director Tony Wenas told Asia Times that the company had yet to talk to ENFI about where it would source its concentrate from.

Fakfak lies 550 kilometers west of Timika and only a short distance overland from BP’s Tangguh LNG complex in Bintuni Bay, a potential source of power for both the new plant and to replace Freeport’s current coal-fired generators.

Only known up to now for its auto-cleaning and courier services, PT RMI is making its first venture into minerals. It is headed by Hence Carlos Kaparang, a member of the Suharto family’s Berkaya Party which failed to gain a seat in the 2019 legislative elections.

State power utility Perusahaan Listrik Negara (PLN) recently signed an MOU with a French technology company to build a hydrogen manufacturing plant in Fakfak as part of the proposed industrial complex. 

Bintuni Bay is also the site of Genting Oil and Gas Ltd’s Kasuri block, which will supply 230 million cubic feet (MCF) of gas a day to a floating LNG terminal, the first time the process will be used in Indonesian waters.

A further 101 MCF will go to a $1.5 billion ammonia and urea plant to be built by state-owned fertilizer company PT Pupuk Kalimantan Timur on the south coast of Bintuni Bay in Papua’s Bird’s Head region.

Discovered in 2011, Kasuri contains proven reserves of 2-3 trillion cubic feet (TCF) and is expected to come on stream in 2025, adding to Indonesia’s existing LNG production of 32.2 million tonnes a year and giving West Papua another economic anchor.

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India surging up the industrial robot ranks

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After a slow start, India is beginning to realize its potential as a promising market for industrial robots and as a developer of robot technology.

According to International Federation of Robotics (IFR) data, industrial robot installations in India increased by 54% in 2021 to 4,945 units. This put India in 10th place worldwide, behind Mexico but ahead of Canada, Thailand, Singapore and Spain. Data for 2022 is not yet available.

The auto industry is the largest buyer of industrial robots in India, accounting for 31% of total installations in 2021. Other large user industries include metals and machinery, plastics and chemicals, electrical and electronic equipment, and pharmaceuticals and food.

In a May 3 statement, IFR President Marina Bill noted that “India is one of the world’s fastest-growing industrial economies. Within five years, the operational stock of industrial robots has more than doubled to reach 33,220 units in 2021. This corresponds to an average annual growth rate of 16% since 2016.” 

Since the “Make in India” program was launched by Prime Minister Modi in 2014, the operational stock of industrial robots in India has tripled. But it is still a drop in the bucket compared with the 1.2 million units installed in China and nearly 400,000 units in Japan.

China, long known as the “world’s factory” as Western economies shipped manufacturing off-shore, is so far ahead of other countries in the deployment of industrial robots that comparisons are almost meaningless. In 2021, more industrial robots were installed in China (268,000) than in the rest of the world combined (249,000).

Japan ranked second (47,000), followed by the US in third (35,000), South Korea (31,000), Germany (24,000) and Italy (14,000). Realistically speaking, India should be able to triple its annual installations and catch up with Italy and then Germany in the near-term future.

China also ranks high in industrial robot density as measured by the number of robots per 10,000 employees in manufacturing. In 2021, mainland China ranked fifth after South Korea, Singapore, Japan and Germany. Hong Kong and Taiwan ranked seventh and eighth Sweden was sixth. The US ranked ninth, down from seventh the previous year.

The robot density in India’s auto industry was 148 robots per 10,000 employees in 2021. The figure for China’s auto industry was 772, compared with 332 for all Chinese manufacturing. The scope of the challenge and the opportunity for India are both evident.

South Korea set a record high of 1,000 robots per 10,000 manufacturing employees in 2021. This was a function of the country’s large and technologically advanced electronics and auto industries.

The figure for Singapore, which has a concentration of advanced industries, was 670. The figures for Japan and Germany, which have much broader industrial bases, were 399 and 397. In the US, the figure was 274.

As is the case in China, the largest industrial robot vendors in India today are the world leaders: Fanuc, Yaskawa and other Japanese companies as well as Universal Robots, ABB and Kuka. Universal Robots is a Danish company owned by Teradyne of the US. ABB is headquartered in Switzerland. Kuka is a German company owned by China’s Midea Group.

But there are numerous Indian robot companies – so many with outstanding characteristics that the top ten and other leading company lists published by various market research companies overlap but are not the same. Among those that appear on these lists and that illustrate the range of Indian robot manufacturing and technologies are:

  • Precision Automation & Robotics India (Wipro PARI), a large integrated industrial robot and factory automation systems supplier headquartered in Pune, Maharashtra, with operations in India, Europe and the US.
  • Hi-Tech Robotic Systemz, a supplier of autonomous mobile robots used in factories and warehouses headquartered in Gurgaon, Haryana. It also supplies autonomous and driver assist systems to rationalize and improve safety in industrial vehicle fleet management on public roads.
  • Gridbots, a manufacturer of industrial, military, space and nuclear power plant robotics, driverless military vehicles and machine vision inspection systems headquartered in Ahmedabad, Gujarat.
  • Asimov Robotics, a provider of robotics hardware, software and robotics consulting services headquartered in Kochi, Kerala. Focused on medical and healthcare with particular expertise in autonomous transport between patients in intensive care/isolation and clinical labs. It also serves R&D and implementation projects in surgery, space and defense, and makes service robots used in hazardous and other challenging environments.
  • DiFACTO Robotics, a worldwide supplier of industrial robots and other factory automation equipment and services headquartered in Bengaluru (Bangalore), Karnataka.
  • Systematics, headquartered in Bengaluru, the first company to completely design and produce collaborative robots (cobots) in India. Products include 6-axis robotic arms that can share workspace with humans without a safety fence.
  • Invento Robotics, a producer of humanoid service robots for retail, bank office, healthcare, events and other applications using speech recognition, face recognition, indoor navigation and fleet management algorithms.
  • MCI Robotics, a designer and producer of materials handling, assembly, welding, grinding, milling, polishing, painting, sealing and dispensing robots headquartered in Chennai, Tamil Nadu.
  • CynLr (Cybernetics Laboratory), a provider of machine-vision technology based on machine learning that enables assembly, logistics and other robots to identify and handle objects without training.

Tracxn Technologies Limited, a global start-up data platform headquartered in Bengaluru that works with venture capital and other finance companies worldwide, has identified 47 industrial robotics start-ups in India. Given the country’s high educational standard, industrial momentum and entrepreneurial bent, there are bound to be a lot more in the future.

The All India Council for Robotics & Automation (AICRA) is a not-for-profit organization dedicated to making India a leader in robotics, the internet of things (IoT), and artificial intelligence (AI). It provides technical and other assistance to its more than 3,500 member organizations and professionals. AICRA’s mission statement is:

  • Upgrade Robotics, IOT and AI skills to international standards through significant industry involvement and develop necessary frameworks for standards, curriculum and quality assurance.
  • Enhance, support and coordinate private sector initiatives for technical skill development through appropriate engagement models; strive for significant operational and marketing involvement.
  • Play the role of a “market-maker” by bringing financing, particularly in sectors where market mechanisms are ineffective or missing.
  • Establish India as a hub for innovation, products and technology start-ups.
  • Be an industry platform for sharing and building best practices and collaborative engagement.

AICRA has established Technology Governance Steering Committees (TGSCs) for defense, healthcare, agriculture, startup, education and aerospace. It has also signed an MoU with the Chandigarh Group of Colleges (CGC) in Punjab to establish an Industry 4.0 Center of Excellence to provide students with ideas, learning materials, training and hands-on experience in robotic process automation, robot operating system (ROS) open-source software and other technology.

The All India Robotics Association (AIRA) is a not-for-profit organization established to develop and support robotics ventures in areas including regulatory approvals, funding, imports of electronic components, production technologies and skill development.

AIRA aims to create the ecosystem required to make India a global hub for robotic production and technology.

That is a project for the next two decades years, one that is likely to change India and the world economy beyond recognition.

Follow this writer on Twitter: @ScottFo83517667

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EU carbon limits to pinprick Vietnam export boom

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Beginning in October 2023, the EU intends to implement the first carbon border adjustment mechanism( CBAM ).

The program will mandate that buyers disclose the amount of embedded coal in their imported goods during the transition period. To close the gap between the EU’s coal price and the price in exporting nations, extra fees will be imposed on imported goods starting in 2026.

Iron and steel, concrete, metals, manure, electricity, and hydrogen will be the initial targets of the CBAM. The CBAM is anticipated to have a significant effect on emission-intensive markets like Vietnam, which export goods to the EU. It has the potential to reduce trade attrition from the government’s affected sectors by about US$ 100 million.

According to estimates, the EU’s CBAM in its present form has had the greatest impact on the Vietnamese metal industry. An extra cost of about US$ 80, or 10 % of the trade price, could apply to a tonne of metal that is exported to the EU.

Steel’s import value could drop by up to 3.7 %. Some industries that are impacted include cement and aluminum. Additionally administrative costs associated with testing, monitoring, and verifying the embedded emissions in their exported products may be incurred by exporting businesses.

As a result, the CBAM may hinder Vietnam’s trade profitability. Risks are present in the EU’s CBAM as it evolves. If embedded emissions boundaries are extended to include the entire value chain of production inputs, its effects may increase quickly. The effects may also increase if some nations, like the United Kingdom, Canada, and Japan, follow the EU’s lead and implement their own CBAMs.

Therefore, it’s crucial to prepare for the CBAM later. The eleventh-largest producer to the EU is Vietnam. Vietnam will need to lessen the effects of the CBAM in order to increase its exports and wholly reap the significant advantages of its trade, agreements, andnbsp with the EU. This can be partly accomplished by lowering the emissions levels of Vietnam’s exported goods.

This picture taken on December 3, 2015 shows Vietnamese workers riding motorcycles as they leave the site of the Taiwain-owned steel plant Formosa in the central province of Ha Tinh.This picture taken on December 3, 2015 shows a couple riding a motorcycle pulling a cart on a road past a newly developped residential area for resettled families who were displaced from the site of the Taiwain-owned steel plant Formosa in the central province of Ha Tinh. / AFP PHOTO / HOANG DINH NAM
Workers from Vietnam leave the location of the Taiwain-owned steel plant Formosa in the Ha Tinh western province on motorcycles. AFP / Hoang Dinh Nam image

Decarbonizing the light field will significantly contribute to emission reductions in the CBAM sectors because they use a lot of electricity. Luckily, Vietnam has a lot of ability to harness solar and wind energy and nbsp to speed up the renewables of electricity. Nearly 46 times greater than the nation’s installed capacity in 2022 is the combined future of solar and wind energy.

Vietnam may concentrate on increasing its penetration of solar and wind energy. To remove current barriers to the adoption of renewable energy, such as the reduction of solar and wind outputs due to & nbsp, the constrained grid capacity, it is crucial to track the upgrading of grid systems quickly.

If constructed, a South-North home high-voltage clear present subsea cable could help with grid management and make sure that the most affordable electricity generation opportunities are taken advantage of.

Industries would be able to purchase solar and wind power directly from independent renewable producers if the electricity market were to be reformatted, including allowing & nbsp and direct power purchase agreements. The public would then have less to worry about maintaining energy security because the competition would be more active in promoting renewables.

In the upcoming seventh National Power Development Master Plan, ambitious goals for solar and wind power could be set as additional steps to encourage the adoption of renewable energy sources.

This enormous potential source of renewable power, of which Vietnam has the largest possible in Southeast Asia, may be unleashed by enacting regulations to force and lease onshore wind power projects andnbsp. Increasing energy efficiency through industrial best practices and technical advancements could also aid in achieving this objective.

Phasing out unabated coal power would also contribute to reducing emissions. Imposing a carbon price would reduce CBAM certificate payments. Carbon pricing could enable the revenues to be recycled in the Vietnamese economy and used to support initiatives like technological renovation to improve energy efficiency and promote the uptake of renewables.

Asian businesses covered by CBAM will gain from using coal capture, utilization, and storage technologies as well as later switching production inputs from fossil fuels to renewable sources like natural hydrogen. However, these systems are still in their infancy and are not yet price-competitive.

In the short term, Vietnam will need to improve its capacity for testing, monitoring, and identification as well as participate in constructive dialog with the EU to find CBAM-favorable problems.

At the Phu Lac weather land in the Binh Thuan state of southern Vietnam, there are solar panel deployments and a wind turbine. AFP / Manan Vatsayana, a portrait

In addition to lessening the effects of the CBAM, accelerating the switch to solar power would make Vietnam achieve its ambitious goal of peaking its energy emissions by 2030, which it pledged in December 2022 under the Just Energy Transition Partnership.

Contributing to Vietnam’s climate and national emissions goals, such as achieving net zero emissions by 2050, lowering local air and pollution levels, and creating a & nbsp, domestic renewable energy industries, are additional advantages of the energy transition.

Vietnam can lay a solid foundation for pursuing natural and green growth by increasing its uptake of renewable energy.

At the Crawford School of Public Policy and the Institute for Climate, Energy, and Disaster Solutions, The Australian National University, Thang Nam Do is a Fellow in the Zero-Carbon Energy for the Asia-Pacific Grand Challenge Program.

This andnbsp, post, and was originally published by East Asia Forum and are being reprinted with permission from Creative Commons.

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New Qantas chief can’t charge sky-high prices forever

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After the epidemic and border closures shuttered much of the regional aviation industry in 2020, Vanessa Hudson will take over as CEO of Qantas Airlines in November. She inherits a company that is still having trouble getting back to operations.

The good news for Qantas is that it can impose higher tickets because of the airline’s increased demand for air travel. In the second half of 2022, it even managed to report a profit ofA$ 1.43 billion( US$ 963 million ).

But these circumstances didn’t persist. As Hudson, an officer who joined Qantas in 1994 and has been the company’s general business officer since 2018, deals with the extremely different short-term difficulties that come with recovery, she did increasingly need to focus on all the long-standing problems that existed for the Australian flagship airline prior to 2020.

Demand for air travel is recovering more quickly than provide for two main reasons.

The first is the time and effort required to return to service the plane that were parked at nearby interior airports and aircraft storage facilities during the pandemic. About 100 of Qantas’ 126 aircraft were put into storage, six aging Boeing 747s were retired, and the delivery of the new Airbus A321neo and Boeing 77 – 9 aircraft was postponed.

Airlines have never had to hold this numerous aircraft in the history of civil aircraft. Restoring them to support necessitates thorough construction inspections and tests. Just a small number of skilled protection personnel can prepare so many aircraft to resume flight.

Which brings up the second, more crucial problem: the need to replace positions.

The economy was dealing with a global lack of skilled aircraft even before the pandemic. Since borders were closed in 2020, it has been struggling to replace every employee, including the air and ground crowd.

Nearly a third of Qantas’ 30, 000 individuals were fired, including nearly 2, 000 ground crew members who were forced to retrench illegally. By the end of 2024, it hopes to hire almost 2,000 people, with a number of 8,500 by the year’s side.

A Qantas plane parked at Southern California Logistics Airport in Victorville, California, in December 2022.
In December 2022, a Qantas aircraft was parked at Victorville, California’s Southern California Logistics Airport. a flickr

Most people who have found work in various fields are never coming back. Some in the field worry that air is no longer a desirable profession. Additionally, all of the aircraft, flight technicians, and technicians who are being re-employed need refresher training before being allowed to work.

The whole air offer chain, including producers, is being impacted by labor shortages. On different aircraft shipments, Qantas is currently experiencing difficulties of around six months.

vying for clients

As Qantas struggles to keep up with demand, competition for clients will be a fairly small issue. However, this won’t take as airlines expand their ships and the current high cost of air travel starts to drop. For instance, at the end of 2022, tickets in the US market returned to their pre-pandemic quantities( in inflation-adjusted terms ).

I anticipate that Qantas may be dealing with many of the same competitive pressures that motivated its pre-pandemic cost-cutting and outsourcing by the end of 2023 or original 2024. It is partially attribute this to the service provided by the global government to airlines, which had the unfortunate side effect of fewer flight falls in 2020 than in 2018 or 2019.

While Qantas made a return for every year between 2015 and 2019, profit margins were very slim.

There is a lot of discussion about how the crisis permanently altered the air travel industry. For instance, company journey might never return. In February 2021, consulting company McKinsey predicted that the post-pandemic competition for business travel may be 20 % smaller.

The problem for Qantas and some airlines will be to arrange and adapt services appropriately while the jury is still deliberating on this issue and others.

In the long run, Qantas needs to lessen its economic impact.

The Carbon Offsetting and Reduction Scheme for International Aviation of the International Civil Aviation Organization has established a requirement that all foreign steam ships must set off the carbon emissions associated with airlines starting in 2027.

More often, stricter domestic economic requirements are very good as a result of the drive to decarbonize financial aviation.

Due to the airline’s comprehensive network of moderate and long-haul flights( which use more gasoline ) and aging, less fuel-efficient fleet, this will be more difficult for Qantas than rivals.

Even over 15 years old on average, more than twice as old as competitors like Singapore Airlines. Ships replacement will be a difficult task.

Volodymyr Bilotkach is Associate Professor, Purdue University

Under a Creative Commons license, this story has been republished from The Conversation. Read the original publication.

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How Twitter brought down Silicon Valley Bank

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Due to Silicon Valley Bank’s March 10, 2023, crash, investor discussions about the institution spiked on Twitter, which fueled the SVB banks run. These tweets also caused some financial institutions with poor balance sheets to collapse, as we explain in our latest working paper,” Public media as a lender run catalyst.”

The bank’s stock ticker,” SIVB ,” was mentioned in a significant number of tweets on March 9 around 9 am EST. Before posts mentioning” SVB” or” Silicon Valley Bank,” which were aspect of a more general-interest word, started, it had been about 2.5 years.

The rapid decline in the company’s share price on March 9 coincided with that spike in trader tweets, which persisted in after-hours trading and before the market opened the following morning. On March 10, the day the bank failed, trading in SVB’s property was halted.

We categorized US businesses, along with a number of other acquaintances, based on the volume of tweets that were sent about them and their susceptibility to potential bank runs.

We multiplied loses the bankers incurred as a result of the series of interest rate increases that started in March 2022 by the percentage of their payments that were below the Federal Deposit Insurance Corp. ‘ s security cap of US$ 250, 000 per account to determine risk.

We discovered that in March, stock of banks with significant Twitter engagement in January and February experienced significantly greater declines. The collection of institutions that were most vulnerable experienced a stronger impact. First Republic Bank was one of them, but it failed on May 1.

The one-third of businesses with the most posts saw drops in their share prices that were, on average, around twice as large as those of the other businesses when we examined what happened to the assets of all those with susceptible balance sheets between March 6 and March 13.

Why is it important?

Social marketing may have contributed to Silicon Valley Bank’s death, according to US politicians.

The Great Depression-era bank crisis is primarily responsible for the current understanding of bank functions. Back again, panic among banks customers was spread by word-of-mouth, media coverage, and social signals like lengthy lines outside of banks.

For US businesses, Silicon Valley Bank’s problems may be the tip of the iceberg. Screengrab, Twitter, and TechCrunch images

Since traditional media outlets primarily rely on one-way transmission from legal resources to the general public, the size of the reader and the quick spread of ideas set social media apart from newspapers and broadcast message.

Banks will undoubtedly continue to be concerned about this, especially in light of the problems that some financial institutions are currently experiencing.

What additional research is being conducted

Many of the ideas we raised in our documents were emphasized in a statement on SVB’s loss that the Federal Reserve released on April 28. It highlights SVB’s poor risk management and a sizable portion of Silicon Valley startup neighborhood savers, who are frequently very energetic and well-connected on social media.

Another group of academics, under the direction of Itamar Drechsler, a finance professor at the University of Pennsylvania, found that the subsequent rise in insured deposit accounts may weaken banks.

The development of perfectly modern businesses and mobile banking apps may increase this risk even more, according to ongoing research from a team of researchers at Columbia University and the University of Chicago.

What is unknown

According to reports, lenders who quickly withdrew money from SVB already used telephone calls, group email messages, Slack, and WhatsApp to express their worries.

However, since there is no content that is readily available to the public, it is difficult to determine what part those some, less formal dialogues played in causing the SVB bank run.

Tony Cookson is Associate Professor of Finance, University of Colorado Boulder and Christoph Schiller is Assistant Professor of Finance, Arizona State University

Under a Creative Commons license, this story has been republished from The Conversation. read the article in its entirety.

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