A New Bretton Woods Moment
IMF News, October 15, 2020
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- Authors: Kristalina Georgieva
- Published: October 15, 2020
Introduction: ‘A sisterhood and brotherhood of humanity’
- Pandemic has already cost "more than a million lives."
- The world economy will be "4.4 % smaller this year" and the crisis will "strip an estimated $11 trillion of output by next year."
- The crisis has produced "untold human desperation" and rising poverty "for the first time in decades."
- Immediate priority: "beat the pandemic" — health measures, production and distribution of effective therapies and vaccines, and ensuring that "all countries have access."
- Continue support for workers and businesses "until a durable exit from the health crisis."
- The global response so far:
- "Global fiscal actions of $12 trillion."
- "Major central banks have expanded balance sheets by $7.5 trillion."
- These synchronized measures have prevented destructive macro-financial feedback seen in previous crises.
- Warning: many countries remain hurt, especially emerging market and developing economies; there is "a weak tail of banks in many in emerging markets."
- Characterization of recovery: a "Long Ascent" — "difficult, uneven, uncertain—and prone to setbacks" but "a climb up."
- Opportunity: address persistent problems—low productivity, slow growth, high inequalities, and climate crisis—and "build forward" to a world "more resilient, sustainable, and inclusive."
Building Forward: Three Imperatives
- Imperative 1 — The right economic policies:
- "Prudent macroeconomic policies and strong institutions" are critical for growth, jobs, and improved living standards.
- "One size does not fit all—policies must be tailored to individual country needs."
- Support should remain essential for some time; withdrawing too early "risks grave and unwarranted economic harm."
- Support should be "broader early on and more targeted as countries begin to recover."
- Strong medium-term frameworks for monetary, fiscal and financial policies, and reforms to boost trade, competitiveness and productivity, are necessary.
- Monitor elevated public debt: expected 2021 debt levels "to go up significantly – to around 125 percent of GDP in advanced economies, 65 percent of GDP in emerging markets; and 50 percent of GDP in low-income countries."
- Debt policy actions:
- IMF providing debt relief to its poorest members.
- With the World Bank, support extension by the G20 of the Debt Service Suspension Initiative.
- Where debt is unsustainable, it "should be restructured without delay."
- Advocate for "greater debt transparency and enhanced creditor coordination."
- Encouraged by G20 discussions on a "Common framework for Sovereign Debt Resolution" and calls for improving the architecture for sovereign debt resolution, including private sector participation.
- Imperative 2 — Policies must be for people:
- Invest more in people: "protecting the vulnerable" and boosting human and physical capital.
- COVID19 underscores importance of strong health systems.
- Rising inequality and rapid technological change require strong education and training systems to "increase opportunity and reduce disparities."
- "Accelerating gender equality can be a global game-changer." For the most unequal countries, "closing the gender gap could increase GDP by an average of 35 percent."
- Investing in young people: access to health, education, and the internet to enable participation in the digital economy.
- Digital inclusion example: "Expanding internet access in Sub Saharan Africa by 10 percent of the population could increase real per capita GDP growth by as much as 4 percentage points."
- Digitalization aids financial inclusion as a tool to alleviate poverty.
- Imperative 3 — Address climate change:
- Climate change is "macro-critical, people-critical and planet-critical" and poses "profound threats to growth and prosperity."
- In the last decade, direct damage from climate-related disasters "adds up to around $1.3 trillion."
- With the right mix of green investment and higher carbon prices, it is possible to "steer toward zero emissions by 2050" and "help create millions of new jobs."
- Low interest rates make the case for investments today that can yield a "quadruple dividend tomorrow": avert future losses, spur economic gains, save lives and deliver social and environmental benefits.
The IMF’s Role
- IMF actions since the pandemic began:
- "Committed over $100 billion."
- IMF has "substantial resources from our $1 trillion in lending capacity."
- Continued focus: urgent needs of emerging markets and low-income countries, especially small and fragile states — helping them "to pay doctors and nurses and protect the most vulnerable people and parts of their economies."
- Financial firepower preserved by members' support:
- "Doubling of the New Arrangements to Borrow and a new round of bilateral borrowing arrangements" preserves financial firepower.
- Members contributed to the Catastrophe Containment – and Relief and Poverty Reduction and Growth—Trusts.
- Support outcomes and adjustments:
- Supported low-income members with debt relief and "to triple our concessional lending."
- IMF is engaging with members to "further boost our concessional lending capacity," "adapt our lending toolkit" and "increase support for capacity development."
- Acknowledgements:
- IMF staff working "day and night" and Management team praised.
- Deep appreciation to Executive Directors for engagement "every step of the way over the past six months."
Conclusion: Seize the Moment
- Goal: build "a more sustainable and equitable world" as the best memorial to those who lost their lives in this crisis.
- Call to action: "Our founders did it. It is now our turn. This is our moment!"
Source: A New Bretton Woods Moment — Speech by Kristalina Georgieva, IMF Managing Director, October 15, 2020.