Bankruptcy policy- An instrument for the economic recovery from the covid crises

Governments and emergency services were focusing on immediate needs as the coronavirus (COVID-19) epidemic continues: increasing hospital capacity, managing hunger, and protecting businesses and families from eviction and bankruptcy. The vast majority of funds received thus far from the World Bank, the IMF, other regional development banks, or central banks have been used to provide funds for protective equipment at hospitals, to stabilise financial institutions, to pay companies to provide goods and services to essential workers, or to provide direct cash assistance to households. 

The “state of the art” behind the options proposed by the three principal recommendations for bankruptcy policy design — the World Bank, the United Nations, and the European Union — allowing for the development of a bankruptcy policy that aids in economic recovery and competitiveness among countries. After monitoring the impact of this policy on a company’s life cycle and, as a result, on the economy, it was discovered that, due to institutionalalism and varied phases of development in each country, it was impossible to establish one ideal bankruptcy policy till today. In the absence of this “magic formula,” a “sure formula” for the creation of a bankruptcy policy was discovered. This “sure formula” simply serves as a tool for deciphering the arguments that support the above-mentioned principles.


In several nations, early work on the next phase of recovery and the role of strong governmental action in raising demand, providing replacement income, and facilitating new investments has begun. In a previous post, we discussed how the recovery phase can assist promote prosperity and resilience by adding to a country’s long-term growth potential and sustainability. Some countries, such as China, Germany, and South Korea, are showing signs of progress by including green components into their recovery plans.


The decisions governments make to restart their economy, particularly the long-term social, economic, and environmental co-benefits they want to accomplish through stimulus measures, will have a huge impact on their ability to rebuild stronger and better.

 A Sustainability Checklist

 When putting together a stimulus package, governments must consider a number of issues, including current demands, local institutional capability, market conditions, borrowing headroom, and the legacy of previous infrastructure investment decisions. Other factors to consider when evaluating stimulus actions or investments are the potential for job creation, the time it takes to break ground on a project, whether government funding can help mobilise private capital, and the impact on the country’s long-term carbon trajectory.

 It can be used to existing project lists – such as those from national development plans, transportation or water master plans, or the Paris Agreement’s Nationally Determined Contributions – or to new ideas generated particularly for the post-COVID stimulus. It addresses two timescales: the immediate need to create as many jobs, money, and economic demand as feasible, as well as the longer-term necessity to ensure long-term growth and prosperity.

 There are three primary factors in the short term: 

 Job creation is measured not just in terms of the number of jobs produced per dollar invested, but also in terms of the types of jobs created and who benefits from them, as well as the match between required skills and those available in the local workforce. 

Economic activity boost, concentrating on the economic multiplier each intervention can provide, a project’s ability to immediately replace missing demand, and its impact on import levels or the national trade balance.

 Timeliness and risk, examining whether the project creates stimulus and employment benefits in the immediate term and whether they are long-term, even if local quarantine measures are re-imposed.

 A project must also benefit countries on three different dimensions in the long run: 

 Long-term growth potential as measured by human, natural, and physical capital. Some initiatives, for example, do a better job of boosting human capital by developing future skills and improving population health, especially if air and water pollution can be minimised or access to cleaner drinking water can be enhanced. Others may encourage the adoption of more efficient technology, provide essential public amenities such as modern energy or sanitation, or remedy market flaws such as distortive subsidies that stymie long-term progress.

 Resilience to future shocks, including initiatives to help society and economy cope with and recover from external shocks such as COVID-19, as well as other natural catastrophes and future climate change consequences. 

Actions to support and disseminate green technologies, such as grid investments that facilitate the use of renewable energy and electric vehicles, or low-tech options like afforestation and landscape and watershed restoration and management, will help to achieve a decarbonization and sustainable growth trajectory. It will be critical to ensure that stimulus-related investments do not impose substantial stranded asset costs on the economy in the coming decades, for example, by betting on failing technology or locating projects in high-risk flood zones.

 Guiding Policymakers for the Recovery:

 Governments that want to employ this framework may want to do so in two stages. 

 It can first be used as a short “yes-no-maybe” assessment to identify the “worst offenders.” The idea is to ensure that governments do not invest in initiatives that are appealing because of their stimulative qualities but are harmful in the long run. 

 In a second phase, the proposed indicators can be used to help decision makers prioritise among any surviving projects, identifying “best in class” projects that benefit society in various ways.

 Policymakers have a lot on their plate right now, and economic recovery plans cannot move quicker than efforts resolving the current health crisis. However, when governments move their focus to recovery, the decisions that countries make will determine how tomorrow will unfold and whether we will be better prepared to deal with future global crises. Hopefully, this checklist will make these selections a little easier. To have, is adverse to the faith of bankruptcy actors, and so the procedure should be given to independent institutions, such as the judicial institution, which are not subject to political pressures. That all actors in the bankruptcy procedure should have a multidisciplinary education — legal and economic — and that they should be properly motivated to extract the most value from the bankrupt. The fact that the bankruptcy process has numerous costs, some of which are difficult to measure due to their nature. That direct charges may become unsustainable for small businesses and creditors, while giant corporations may prove to be unprofitable despite their enormous monetary value.

Last but not least, there’s the matter of time. The duration of all bankrupt procedures, from the debtor’s default to the creditor’s repayment, is critical in bankruptcy policy because it demonstrates how long those resources have been without suitable employment, allowing for the squandering of chances and impeding economic growth. In conclusion, there are so many variables in bankruptcy policy, and some of them have the ambivalent power to help on one hand and destroy on the other, that finding the delicate balance in bankruptcy policy is extremely difficult, and only understanding how all variables work and combining them with the institutionalism and stage of development of each country allows for an evaluation of the current bankruptcy policy and the redrawing of one that is successful: one that will help in the economic recovery of COVID crises , and that strands for the future, allowing the country to have greater economic growth , by winning the international economic competition between countries .

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.


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In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

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