The Path Forward: The Global Economy

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 career.

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 world.

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 society.

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 world.

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 crisis.

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 economies.

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.

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 restructured.

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 overhang.

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 economies.

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 back.

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?

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 difficulties.

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.

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 yesterday.

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 pandemic?

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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