The Path Forward: The Global Economy

Via IMF (Den Internationale Valutafond)

The Path Forward: The Global Economy

Washington Post Live
IMF Managing Director Kristalina Georgieva
David Ignatius, Washington Post Columnist

June 3, 2020

MR. IGNATIUS: Good afternoon, everybody. I’m David Ignatius, a columnist
for The Washington Post.

Today, it’s my pleasure to welcome to Washington Post Live’s series on the
Path Forward one of the most powerful women in the world, the Managing
Director of the International Monetary Fund, Kristalina Georgieva.

Kristalina has been the Managing Director since October 2019; that’s quite
a nine-month startup, and we’re interested in hearing about her time at the
international financial dashboard.

Just a few words about Kristalina: She served for two years as the Chief
Executive Officer of the World Bank. Before that, she worked for the
European Union. She was an economist for the World Bank earlier in her

And as you may imagine, given her name, she is a citizen of Eastern Europe,
the new Europe. She was born in Sofia, Bulgaria, did her education there,
and has since risen to great responsibility in the international financial
system. So, it’s our pleasure to welcome her here to a conversation about
how the international dimension of this global crisis appears.

And Kristalina, I want to begin by asking you about something that’s very
much on our minds here in the United States, but I think increasingly on
the minds of people around the world, and that’s the wave of protests we’ve
seen across America in some foreign capitals about issues of police
brutality, about institutional racism, problems of the social dimension in
the United States.

And I want to ask you, as you watched all of this on television, what your
own personal reactions have been.

MS. GEORGIEVA: Well, it is very sad to see that inequality and exclusion
are still present in the United States and everywhere, actually, in the

We–if you remember last year, 2019, was a year of protests in so many
places. And when you look at the root causes of these protests, they’re
pretty much the same: It is a sense of growing inequality; it is a sense of
lack of opportunity; it is a sense of mistreatment of certain groups in

And for the IMF, we look into this and there are two very important points
to share with our audience.

The first one is that, unfortunately, inequality in the world has been
going up. Since the global financial crisis, it has become deeper.

And second, our research shows that inequality damages societies. It
actually damages their prospects for the future. And what is more troubling
is we have these protests in the midst of a pandemic.

I was quite shocked when I read IMF research of what happens after a
pandemic, after SARS, after H1N1, inequality goes up. So, it might be that
these protests are a great wakeup call for all of us to think about the
world after this pandemic. How can we prevent the world becoming more
unequal and less fair? We have to make the opposite. It has to be a fairer

MR. IGNATIUS: So, that’s a wonderful lead-off for our conversation.

I want to just drill down a little bit on what you’re hearing from your IMF
member countries as ministers around the world, economists, financial
markets look at this unusual situation of fires raging in many of America’s
large cities. Are you hearing expressions of concern about the underlying
issues here and the way that they may have economic effects?

MS. GEORGIEVA: Well, the story is one of, of course, grave concern for the
events here. But more broadly, what I hear from people is we need to really
pay attention. Why is this happening? Look at the root causes and then work
hard to address them.

MR. IGNATIUS: So, that’s a very helpful statement, a view from somebody
looking at our country and the whole world at once.

I want to ask you now to turn to your institutional IMF responsibilities.
Today was a newsy day for the international economic world. There was a
meeting of the G7 Finance Ministers preparing for the possibility–we don’t
know, yet, if the G7 meeting will take place, but the Finance Ministers
were doing important preparatory work.

And I would be grateful if you could share with our viewers a sense of what
happened today, what the big issues were, and what was resolved.

MS. GEORGIEVA: Well, the attention that is being paid on G7 Finance
Ministers coming together on regular intervals is right at this time of

Let us remember, this is a crisis like no other, the worst since the Great
Depression. And it is so very important that countries, as they take
decisive action, do it talking to each other.

What was very significant for this particular call was the focus on the
weakest–of the focus on the poor countries and the importance of making
sure that they can overcome the challenge of this crisis.

Very briefly for our viewers, advanced economies have put in place massive
injection of fiscal measures, $9 trillion; and also, massive monetary
easing. In other words, making more money available to protect their

This has benefitted some of the emerging markets that have strong
fundamentals so they can go to the markets and raise money. They raise some
$77 billion over the last two months so they can cushion their people and
their companies against the standstill of the economy.

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But how about the poor countries? And that is where we need the
conversation–and I was actually called to start it was what can we do for
them, and the answer is we can do debt relief. If the economy is standing
still, debt service also should stand still for poor countries.

Secondly, debt restructuring when the burden of debt is so high that in the
future countries can’t get their heads above water, debt needs to be

And three, us, the IMF, the World Bank providing lifelines to these
countries. At the meeting this morning we discussed progress in a very
important initiative of the G20. We often say the world is not coming
together. Well, on this issue, the world came together and adopted what is
called Debt Service Suspension Initiative. We took stock of it.
Seventy-three countries are eligible, half of them have already asked for
it. How can we work to make it possible for an injection of some $12
billion in these countries? For the rich countries, $12 billion doesn’t
sound like much; for the poor countries, it is incredibly important. And we
committed to pursue this relentlessly so everybody in this group eligible
for that debt suspension can benefit from it.

MR. IGNATIUS: So, Kristalina, just to make sure I understand, because this
is an important piece of news, there was agreement today among the G7
Finance Ministers to jointly support this debt suspension initiative. And
are those numbers aspirational numbers or is there a commitment from the G7
about a specific dollar amount that countries are prepared to extend?

MS. GEORGIEVA: The G7 reconfirmed their commitment. They have already,
through the so-called Paris Club–this is the place where official
bilateral creditors get together, they have committed to this initiative.
And what was done today is to take stock, how it is going, and then press
for more transparency.

And why is this important? Because if there is no transparency, some may do
their part and some may not. So, what the commitment was today is put the
data in the open, press the World Bank and the IMF together to provide that
information to the public as a way to make sure that we actually move
successfully on.

And as I said, there is a target. The target is $12 billion. We want to
move towards this target immediately. We set–we start on May 1st. Well,
let’s see who has done it and who might have yet not done it.

Transparency–transparency, keeping people’s feet to the fire, the best way
to get results done.

MR. IGNATIUS: So, that’s a significant commitment by your G7 colleagues to
a $12 billion program. But that, if I understand you, really is focused on
the neediest countries. And in today’s world in which countries have gone
massively into debt to support their fiscal programs, I think there’s
concern about the middle-income countries, and even some higher-income
countries–I think of Italy as a country with some significant debt

Speak for a moment, if you would, about how you see this issue of debt and
debt suspension playing with these larger–middle-size and larger

MS. GEORGIEVA: Let me first qualify that the debt suspension initiative is
for all so-called G20 countries. In other words, the G7 but also countries
like China, Saudi Arabia, the other Gulf countries, India. Everybody who
has given loans to poor countries commits to do the same and that broader
agenda is so very important that everybody participates.

For middle-income countries, let us be very clear: Debt suspension is not
the answer for countries that do not qualify if you are not in the 73, that
means nothing to you. And debt suspension is not going to be enough for
countries that are under high burden of debt.

So, what can be done? Well, this is when the IMF plays a very important
role to provide objective assessment of what would it take for debt to be
sustainable. And we offer this information so action can be taken through
debt restructuring in which private sector can participate, public sector
can participate.

Right now, there is an ongoing negotiation between Argentina and
Argentina’s creditors. I very much welcome the engagement of these two
sides. And the aim is to restructure debt in a way that it can be paid.
Nobody benefits if a country falls off the debt cliff, because the country
would then be excluded from access to markets. Growth would suffer, people
would suffer, but also the creditors, they’re not going to get their money

And this thoughtful restructuring, debt restructuring, something that
occasionally needs to be done so countries can return to growth and be able
to pay back to their creditors.

MR. IGNATIUS: So, I think our viewers who are active in financial markets
will be asking a very practical question as they listen to you, and that
is, are we entering a broad period of restructuring of debt? Argentina is
hardly the only country that has significant debt repayment problems.

What’s your judgment as IMF Managing Director about whether some broader
effort of debt restructuring lies ahead? And how’s that going to be managed
in a way that prevents anxiety in financial markets about instability?

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MS. GEORGIEVA: Well, the good news for everybody who is interested in this
topic is, after the global financial crisis, there has been much more
attention paid to building strong buffers and to creating a debt carrying
capacity that is well protected by the country’s own actions.

We now have central banks in developing countries, emerging markets,
holding vast amounts of reserves. We also have the private sector being
much more alerted to the necessity to act more prudently. But we are in a
crisis and, in this crisis, we are likely to see–hopefully not a large
number, but we are likely to see countries where debt levels have gone up
and where the crisis is particularly dramatic.

Countries in the emerging markets, developing world are hit by the
lockdowns they’re experiencing. But on top of it, some of them that are
commodity exporters are hit by low commodity prices.

Some that are with tourism being their main sector–think of the Caribbean
countries–they’re hit by the shrinkage of revenues. Some rely a lot on
remittances. These remittances have shrunk. So, they face more

But the good news–and that–I want to land on that point, is that because
of the decisive actions taken by advanced economies, there is plenty of
liquidity and interest rates are very low.

So, emerging markets that have been prudent during good times have no
problem to raise money during bad times. We really do need to concentrate
on a small universe and work with these countries as prudently as possible
to prevent what you said people may be worried about.

And for now, I think we are in a good place.

MR. IGNATIUS: So, Kristalina, our Federal Reserve Chairman, Jay Powell, has
said–going back to March in the early days of the financial crisis
surrounding the pandemic that the Federal Reserve will do whatever it takes
to maintain liquidity and the orderly functioning of markets.

The IMF is in a different situation. You can’t print money the way the Fed,
in effect, can. But I note that the IMF has announced that it has a $1
trillion war chest, essentially, that you’ve got more reserves to be able
to take action than people may expect.

And maybe you could just explain briefly what that trillion-dollar war
chest is comprised of and why you’re confident that you have the
ammunition, as it were, to take care of whatever arises.

MS. GEORGIEVA: The Fund–just before the global financial crisis had $250
billion. And the global financial crisis really shook up our membership to
recognize that, to be at the center of the global financial safety net
which is our role–in other words, where countries that don’t have Jay
Powell or Fed cannot pour liquidity in the same way can come to the Fund.

That these countries now can rely on quadrupled lending capacity. Now, we
have $1 trillion. How much of this has already been deployed? Interestingly
enough, just slightly over what we had before the global financial crisis,
260 billion. We have still three-quarters of this one trillion to go, and
we are prepared to deploy it to the fullest if that is necessary.

We have been very rapidly stepping up emergency financing, lifelines
already extended to 63 countries in 6 weeks. Never, ever, in the history of
the Fund we have done so much, so fast. It is truly–for us, it is truly
24/7 operation and we do it all from home. In other words, we had to adjust
in this new world and multiply our efforts.

MR. IGNATIUS: So, I just want to underline for our viewers the importance
of what the IMF Managing Director has been saying this afternoon.

A few days ago, we had former Treasury Secretary Larry Summers and former
British Prime Minister, Gordon Brown, saying that the essential requirement
next was for some international response to the pandemic, and you’re
hearing about one today from Madam Georgieva in a way that I think speaks
very much to the issues that Summers and Brown were raising.

Kristalina, I want to turn now to the question that we’re all beginning to
think about, thank goodness, which is the path back, to the reopening of
our economy in the U.S. and the reopening of the global economy.

And I’d like to ask you to give us a progress report of what you see
happening in Europe, in Asia. What does the path back to reopening look
like to you?

MS. GEORGIEVA: Yeah, well, I very much hope, David, that it would be the
path forward, because we want to come on the other side more resilient.

What is happening now is cautiously and gradually countries that are ahead
in this pandemic are reopening their economies on the basis of having
medical capacity to treat the sick and having testing and contact tracing
significantly expanded.

What we learn is that micro measures–in other words, thoughtfully
rearranging how businesses function to reduce exposure are as important as
the health system, per se, and that is happening.

What we know is that, when we come on the other side of this crisis, first,
we will finish this year with a smaller world economy than we started. One
hundred and seventy countries would be smaller in the end of the year. And
therefore, it is paramount to continue with fiscal stimulus to inject
growth. And this is what countries are now thinking about. As I mentioned,
interest rates are low. This is very fortunate to inject a fiscal stimulus
into the recovery.

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And one note we give to countries–we are extracting from experience, is
spend as much as you can but keep the receipts. Keep accountability to your
citizens. And we know that on the other side there will be more debt, there
will be more deficits, there is likely to be more unemployment. And
unfortunately, going to the start of our conversation, there is risk of
more poverty, more inequality.

So, we have to think of the opportunities ahead of us to overcome risks.
And what are the opportunities? Well, number one, everybody recognizes that
digital is the big winner of this crisis. Expanding the digital
transformation and making sure that people and countries are not left out,
that it is expanding as opportunities across the world.

Second, we have a chance to use our stimulus to invest in low-carbon,
climate-resilient future; the economy of tomorrow, not the economy of

And a lot of these investments can be job-rich investments, like
reforestation, building insulation.

And three, we can address social protection needs. We are a rich world,
David. Even with this crisis, even with the minus 3-percent growth, we are
over $80 trillion GDP world. We have to distribute the benefits of growth
in a more equitable manner so to have a better world on the other side.

And many countries are talking about it. How can we build for the future,
not slide back? We have a choice: Either we are in the great reversal or we
go for a great reset.

MR. IGNATIUS: So, let me ask you to look into your IMF Managing Director’s
crystal ball. As you said, at the end of this year, the world economy will
be smaller than it was at the beginning.

Would it be your expectation that a year from now, in June 2021, we’ll see
a significant rebound in economic growth and that the world economy will be
rising again and that we’ll be seeing positive numbers, not just in a few
leading countries, but generally, around the world.

What’s your prediction?

MS. GEORGIEVA: So, our prediction, my prediction, is for a partial recovery
in 2021. And because we went down so much, the numbers are going to be
quite big.

We are projecting, for the world, 5.8 percent next year growth vis-à-vis
minus 3, now. But we recognize that there is a great degree of uncertainty.
We don’t know whether this virus will make yet another round-the-world
trip. We don’t know that, yet.

We are very hopeful. I personally believe in our scientists. They will
deliver a vaccine; they will deliver treatment. How quickly would that
happen and how quickly we can share the benefits of these discoveries. It
would matter tremendously. Because we can’t beat this pandemic one country
at a time. We have to beat it everywhere. And that is where international
cooperation is so critically important. We are genuinely in this together.

MR. IGNATIUS: So, just briefly, in the minute that we have left, I take it
that you don’t foresee, as some analysts do, a period of de-globalization
that will follow the great lockdown and the pandemic. You sound more
optimistic than that.

MS. GEORGIEVA: It is only natural that when we experience such a tremendous
shock both individuals and countries tend to try to stay behind their walls
and borders, but I don’t believe this is going to be the determination of
our future. Because if you do that, costs would go up, incomes will go
down, and we will be poorer.

On top of it, I strongly believe that digital is going to be an open world.
Digital actually does not respect borders. So, yes, I am more optimistic
than many are.

And on top of it, I believe that it is a moment like this when we need to
stand up and be counted. We came as a better world from the Second World
War–from a war. Why not come as a better world, more united world, from a

MR. IGNATIUS: That’s well said. I think we’ve all really benefitted from
hearing the thoughts of Kristalina Georgieva, who is the Managing Director
of the International Monetary Fund, who is at the dashboard, if you will,
at the international financial organization that’s trying to keep us all
safe and sound in this very difficult period.

So, thank you very much, Madam Georgieva, for joining us today and having
many thoughtful comments.

So, we’ll be back tomorrow with an important discussion. My colleague,
Robert Costa, will be interviewing Senator Cory Booker tomorrow on
Washington Post Live, discussing the civil unrest in the country and
Senator Booker’s suggestions for reform.

And then, next week, I will be back for an interview with Mark Benioff, who
is the Chief Executive of Salesforce, a company that knows an awful lot
about what’s going on in the American economy, in the employment sector.

So, again, let me thank all of our viewers for joining us. We will back
with Washington Post Live again tomorrow, and through this crisis.

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