The recommendations for policymakers include:

• a set of ten core principles to guide the design of the policy response
• a set of policy tools with which to respond
  
• a decision framework to determine appropriate policy responses for a specific jurisdiction

1.1 THE SITUATION
The coronavirus pandemic, by dramatically changing consumption patterns and business operations, is triggering a major corporate solvency crisis in many countries. Apart from policies directly supporting employment, initial policy responses to support businesses focused heavily on liquidity issues. Some liquidity support is still needed, but the crucial issue now is solvency.

Policymakers need to act urgently, as the solvency crisis is already eroding the underlying strength of the business sector in many countries. The problem is worse than it appears on the surface, as massive liquidity support, and the confusion caused by the unprecedented nature of this crisis, are masking the full extent of the problem, with a “cliff edge” of insolvencies coming in many sectors and jurisdictions as support programs lose funding and existing net worth is eaten up by losses. However, the difficulty of predicting the duration and recovery path after the pandemic, and of differentiating between structural versus temporary changes in demand, makes it hard to determine the long-term viability of enterprises during the pandemic.

This complicates the targeting and design of measures to support the corporate sector. This solvency crisis differs sharply from the global financial crisis, which centered on the financial system and on liquidity problems. Some of the answers from that previous crisis are valid now, but new approaches are also needed.

1.2 THE RESPONSE
The first wave of liquidity-focused policy measures has prevented much more severe consequences for the corporate sector, jobs, and for the economy more broadly. As the crisis progresses, jurisdictions now need to develop policy responses that accommodate structural changes in the economy triggered by the pandemic, and address the following  problems that make the initial response unsustainable:
• Inadequate targeting of support, which fails to sufficiently tailor the policy response to the situations of
different firms
• An excessive focus on credit provision, which risks overburdening firms with debt, promoting inefficient use of resources, and engendering future problems
• Excessive direct government decision-making and suboptimal use of private sector expertise that could be
used to better direct support
• A level of public spending that would be unsustainable over the potential duration of the ongoing economic
crisis.