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The Failure of Pandemic Bonds

By Kristin Peterson

In 2017, the World Bank created $500 million worth of the first-ever pandemic bonds. The Bank declared that these bonds would prevent high-severity infectious disease outbreaks from becoming pandemics. But using financial instruments to manage widespread diseases is more fantasy than reality.

A pandemic bond is a financial product that is part insurance, bond, swap, and cash grant. The World Bank sells bonds to private sector investors. Investors get a phenomenal yearly return, partly underwritten by donor countries that back the bonds. Technically, if a pandemic occurs, the investors lose their investments; their losses are then transferred to lowest-income countries that use those funds to manage a disease outbreak.

Between 2006-2013, the World Bank financed much of the Avian flu response. At that time, it was clear to the Bank and health officials that most countries (if any) are not prepared to handle pandemic emergencies. Then between 2014-2016, the Ebola outbreak devastated West African countries. That outbreak renewed the Bank’s motivation to figure out what better global preparedness could look like. The obvious solution is to build up public health care systems that enable countries to actually have the capacity to manage outbreaks. This means creating sustainable medical and clinical infrastructure, emergency response capacity, and extensive worker recruitment and training.

Yet the obvious thing to do requires capital. Lower income countries don’t often have funding resources because big chunks of their national incomes are diverted to higher income countries in the form of debt and raw material extractions. Knowing that you can’t have robust health systems alongside imperial debt and extraction, Bill Gates created the idea of a financial return on philanthropy. The logic was that traditional development aid was passé. The new way to help poor countries was through financial forms.

A World Bank Pandemic Emergency Facility account was set up to manage the bonds. They were touted as completely delinked from market activity, and therefore, a “sure thing” – an idea whose falsehoods have been revealed by the coronavirus pandemic. This abstract and racialized separation between capital and people is at least one reason why the World Bank’s announcement of new pandemic bonds received an overwhelmingly positive response from investors.

For investors, the incentives include much higher rates of return compared to what normal bonds allow. There are two instruments an investor can pick based upon risk levels – the lower risk instrument delivers a 6.9% return, while the higher risk returns 11.5% to investors. Whether or not a pandemic triggers a release of money, investors still make 6.9-11.5% interest on the bonds.

But the criteria for triggers to release the bonds are difficult to achieve. Before the money can get to countries in need, there must be a certain number of deaths (2500 for the low risk investment; 250 for the high risk one) and a minimum number of deaths beyond the original country (20) where the outbreak took place. Moreover, the infection must also grow at an exponential rate, which is calculated by a third party; these calculations will not count unless the disease outbreak has lasted at least 12 weeks.

Let’s pause and take this all in. The release of bond money to affected countries requires, first and foremost, that many people die. That people must first die before funding becomes available to manage an outbreak is a dangerous precedent to set in the world of humanitarian emergency response. As health officials know, especially throughout Africa, it is essential to act very early with a strong response to a disease outbreak. In Nigeria, for example, when the first Ebola patient was diagnosed during the 2014 outbreak, a national state of emergency immediately kicked in. Nearly three thousand volunteers were recruited to coordinate one of the world’s most successful emergency responses to Ebola because of an early, coordinated response. Waiting twelve weeks only invites high costs and difficulty in controlling the spread of infections.

Structuring pandemic bonds around in-progress deaths, differs from catastrophe bonds, which act more like insurance. With “cat” bonds, total damage is calculated and payout is made after a disaster takes place. Pandemic bonds are supposed to be paid out while a disaster is in progress, making it hard to assess what’s needed into the future. Moreover, there is often a lack of pandemic data available due to the lack of core public health functions (testing, contact tracing, disease surveillance, treatment). Dilapidated public health systems are a direct result of World Bank liberalizations placed on especially African countries since the 1980s. The financial institution that dispossesses a country’s ability to produce health data and monitoring is the very same that upholds that dispossession through financializing pandemic responses.

When the second worst Ebola outbreak took place in 2018-2020 in the Democratic Republic of Congo (DRC), the pandemic bond was useless. The main problem was that the outbreak never met all five of the trigger criteria. The death toll never surpassed 2500 and there were never more than a few cases just outside of the DRC’s borders. So while investors got their high interest payments, no bond money was released for the Ebola outbreak in the DRC.  There was however, a cash payment that did go out for about $60 million. This payment came late and was immediately used up because by then disease management became very costly.

While the finance media was wondering whether a bond payout to the DRC would ever happen, it was at the same time reporting on the World Bank’s highly touted pandemic bond 2.0, scheduled to be launched at the end of 2020. Those plans quickly died with the emergence of SARS-CoV-2. Just two months before the 2017 pandemic bond was to mature, the global coronavirus pandemic met all the trigger criteria. But was there much to celebrate? The available bond money must be divided among the 76 poorest countries (as all are affected), where 1.6 billion people reside. This is literally pennies and dwarfed by the large bailout packages seen around the world.

According to former World Bank economist and critic of the bonds Olga Jonas,  “the PEF has cost much more than it has brought in.” Indeed, what could the world of pandemics look like if resources were directed to build robust health care systems rather than turning epidemics into high stake financial casinos?

Kristin Peterson is an anthropologist at UC Irvine. She is the author of Speculative Markets: Drug Circuits and Derivative Life in Nigeria (Duke University Press, 2014). She currently researches how viral outbreaks are connected to geopolitics, finance regimes, ecology, and liberation struggles.

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