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Flu pandemic would pose bankrupcty risk -World Bank

Written by: Staff
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PARIS, June 29 (Reuters) A human bird flu pandemic could send firms with weak balance sheets spiralling into bankruptcy, particularly in exposed sectors such as airlines, a senior World Bank official said today.

''It seems clear that businesses that are the most resilient to extreme volatility are the ones more likely to survive a pandemic, or to survive it with relatively less financial damage,'' World Bank economist Milan Brahmbhatt told a conference on avian influenza in humans at the Institut Pasteur in Paris.

''Bankruptcies would likely surge among highly leveraged firms, and in particularly exposed sectors, such as airlines.'' ''It would be firms with strong balance sheets and capitalisation that are more likely to survive downturns in demand and cash flow that could last from 6 months up to 2 years,'' Brahmbhatt said.

A World Bank study released last year predicted a 20 per cent decline in demand for tourism, transportation and other key services and estimated a loss to the economy of 2 percent of world Gross Domestic Product (GDP), or 800 billion dollars a year.

Some economic studies using more severe pandemic scenarios have predicted losses of up to five percent of GDP, he noted.

Brahmbhatt said governments needed to plan for policies to facilitate corporate restructuring and getting industries relaunched promptly after the crisis.

He said firms needed to plan for all kinds of unexpected disruptions in supply chains, logistics and the availability of key domestic business services such as travel.

Companies should also build up buffer stocks of key inputs.

''That may eat into short-term profit margins and runs against current ''just-in-time'' management philosophy, but could help ensure the very survival of the firm,'' he said.

The current spread of avian flu in the poultry population is also having a varying impact on countries' economies, he said.

''In low income economies like Vietnam, where the bulk of poultry production is still by backyard producers, the impact has fallen mostly on individual rural households, and has only partly been offset by government compensation to farmers.'' ''On the other hand, economies like Thailand, where more of production is undertaken by industrial and large commercial producers...impacts would be felt not on rural farmers' incomes but through greater unemployment of wage labourers, lost profits and corporate bankruptcies,'' he said.

REUTERS SHR RS2245

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