The current condition of the world is not good. Starting from the impact of Covid-19 three years ago to the Russia-Ukraine war that happened one year ago.
During the Covid-19 outbreak, the United States government needed a large amount of funds, so the US central bank printed a significant amount of US dollars. As a result, inflation increased.
However, the inflation that occurred in all countries is not just a matter of currency devaluation that causes an increase in import costs, but also economic recovery.
During Covid, demand for goods decreased, causing many products to experience a decrease in price. Then after Covid ended, demand increased. The increased demand caused many goods to increase in price.
In addition, currency devaluation is also a problem. To overcome it, many central banks raise interest rates. With the increase in interest rates, production costs also increase to reach breakeven. The problem that can be solved by raising interest rates is to withdraw the circulated money that was printed during the Covid outbreak.
Essentials Sector
The current condition of the world is not good. Starting from the impact of Covid-19 three years ago to the Russia-Ukraine war that happened one year ago.
During the Covid-19 outbreak, the United States government needed a large amount of funds, so the US central bank printed a significant amount of US dollars. As a result, inflation increased.
However, the inflation that occurred in all countries is not just a matter of currency devaluation that causes an increase in import costs, but also economic recovery.
During Covid, demand for goods decreased, causing many products to experience a decrease in price. Then after Covid ended, demand increased. The increased demand caused many goods to increase in price.
In addition, currency devaluation is also a problem. To overcome it, many central banks raise interest rates. With the increase in interest rates, production costs also increase to reach breakeven. The problem that can be solved by raising interest rates is to withdraw the circulated money that was printed during the Covid outbreak.
Special Low Interest Loan
To tame inflation, several central banks take steps by raising interest rates. This means that to obtain liquidity, it is necessary to incur more costs.
This is because during Covid, central banks printed a significant amount of money. By raising interest rates, the central bank can withdraw the circulated money.
The problem is, if interest rates rise, producers have higher production costs to reach the breakeven point. Because to obtain capital to recover from Covid, it requires more costs than the interest rate. In addition, company stocks tend to decline because investors will turn to the bond market.
However, it turns out that to tame inflation, steps can also be taken to provide debt. Debt here is a debt specifically for some producers in the essential sector, where this debt is lower than the market.
This is so that producers do not have to incur more costs to reach the breakeven point. Although to do this, the government and central bank must have sufficient capital to provide low-interest loans to essential sector producers.
Zombie Corporation
The unique phenomenon happening currently is the phenomenon of zombie companies, which is further exacerbated by the continuously rising interest rates.
Zombie companies are companies that cannot operate without debt or have yet to record profits but have high valuations.
With the rising interest rates, zombie companies are in great danger. In addition to having to increase their costs to break even, the valuation of the company will decrease.
Some companies have anticipated this by conducting an initial public offering (IPO) before the central bank continues to raise interest rates. However, most of these zombie companies do not operate in the essential sector.
To tame inflation, it is sufficient to help essential sector companies with special low-interest loans. Meanwhile, the zombie companies that collapse will surely be replaced with new ones a few years later, but with better management.
Loan As Weapon
During the COVID-19 pandemic, demand decreased, and companies had to reduce their production capacity to maintain prices. As the economy began to recover, companies increased their production capacity as demand picked up again.
They did this to make up for losses incurred during the pandemic and to keep their financial status healthy. COVID-19 has caused many companies to experience a decline in revenue, which has affected their valuation and access to capital.
The problem is that many companies have run out of liquidity to recover from the pandemic, especially as central banks increase interest rates, which raises production costs and shifts investor focus to debt securities.
As a result, many companies that want to recover end up losing out to those that managed to survive the pandemic. This is a problem, especially if these companies operate in the essential sector, as it can slow down the government's efforts to control inflation.
To address this issue, special low-interest loans are needed for essential sectors instead of subsidies. This is more effective because it has several benefits, such as strengthening the currency, reaching more people, and helping to control inflation.
