On May 26, 2020, Latam Airlines became the largest airline in the world to be driven to bankruptcy by COVID-19. With a complex debt structure and international investor composition, the company decided to file for bankruptcy protection in the United States, which offered a more flexible reorganization procedure than the local bankruptcy process. After the filing announcement, the company reached an all-time-low stock market valuation. Some experts questioned whether the bankruptcy filing of Latam Airlines in the United States could be detrimental for the development of the Chilean capital market. Even if the company succeeded financially, would it be able to adapt to a different way of flying post-COVID?
In the first months of 2020, a pandemic overwhelmed the world. COVID-19, commonly known as the coronavirus, spread from China and created a severe public health emergency across countries. While an immediate fear of the disease's impact on human life permeated society, the world battled another concern for the severe economic downturn that was brought about by attempts to suppress the virus. World trade, tourism, capital flows, remittances, and commodity prices collapsed. Prior to the coronavirus outbreak, the global GDP growth rate for 2020 was expected to be close to 2.3%. As of April 2020, multilateral organizations estimated that GDP would contract by 3% - way worse than the 0.1% contraction of 2009, and the deepest dive since the Great Depression. What policy options existed to mitigate the financial and economic distress of containment, and what factors did different countries weigh in deciding which paths to choose? Was there a terrible choice - either damage livelihoods through extended lockdowns, or sacrifice thousands or even millions of lives to the virus - or were policies reinforcing? What was the role of government, businesses, communities and individuals? After the worst of the health crisis was mitigated, what kind of shape would world economies take?
Supplement to 717028. The UK was due to leave the EU in March 2019 after a referendum vote in June 2016. Following additional extensions and multiple failed attempts to reach an agreement with Parliament, Theresa May stepped down as Conservative Party leader and was replaced by Boris Johnson. Johnson claimed that Brexit would happen "come what may". This case outlines the major controversial issues and compares Theresa May's agreement to Boris Johnson's.
In the decades following 2005, China faced significant financial challenges. Inflation spiraled upwards and China's economy stagnated in the wake of the Global Financial Crisis. The country's leaders took an interventionist approach to weather the storm, controlling capital and exchange rates. These actions raised criticism from other nations, and in 2017 the U.S. initiated the U.S.-China Trade Wars, which enforced tariffs and requirements for increased transparency. As implications of the trade wars remained uncertain, many wondered whether the central bank would introduce further discreet steps to change the yuan. Would China's currency appreciate as substantially against the U.S. dollar as predicted by economists? And when would further change occur? The stakes were high; a freer yuan float would impact groups within and outside of China very differently. Would China's currency then be allowed to depreciate or appreciate if fundamentals required it?
For decades, Chile enjoyed the stability of being the world's largest producer of copper. Keynes would have advised that this period of growth would have been the time for the government to save, that "the boom, not the slump, is the right time for austerity at the Treasury." If this wisdom has proven true on multiple occasions since Keynes's statement in 1937, why do countries continue to conduct procyclical fiscal and monetary policies? Economists have documented this phenomenon across countries and found that particularly for emerging markets, capital inflows tend to coincide with expansionary macroeconomic policies while periods of capital outflows correspond with contractionary policies. Why is it so difficult for governments of emerging market countries to save during economic booms? By analyzing economic and social factors that contributed to unrest in Chile, students will wrestle with economic and ethical questions about balancing the needs of current and future generations.
In the early 21st century, there was a noticeable trend of declining productivity growth. Despite the persistent decline in productivity growth, a consensus on its explanation had not been reached. Some of the debate focused on the technicalities of productivity measurement, and the structural shift involved with the increased usage and introduction of robots in place of workers, garnering the interest of academic economists, businesses and policymakers. Another contention was whether declining productivity was the result of secular stagnation, a more permanent economic state of low growth and lack of economic progress, or whether it was the result of deleveraging and the post-Global Financial Crisis period, a mere cyclical phase. Distilling the sources and drivers of productivity decline was further complicated by the rise in economic integration across countries, and even more so considering research findings that research and innovation was becoming less productive and more difficult. What, if anything, was the role of government? Should businesses play a role? If so what should they do?
Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.