Point of View: No Time for Half Measures

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The decision to launch the International Monetary Fund was made "eight decades" ago at Bretton Woods, New Hampshire, to create a postwar world different from the one that preceded World War II.
The world has enjoyed "remarkable progress over the past 80 years," with the IMF playing a valuable part.
The author references eight crucial features of a changing world identified in a 2019 piece marking the IMF’s "75th anniversary": a huge shift in relative economic and political power toward emerging market economies (especially China); growing rivalry between the US and China; rising populist politics; a backlash against globalization; transformative technologies including the internet and artificial intelligence; pervasive financial fragility including rising public debt to GDP; a lengthy period of secular stagnation characterized by ultra-easy monetary policies and low inflation; and the rising salience of climate change.

In the five years since the 2019 article the world has faced a series of shocks: the pandemic, Russia’s war in Ukraine, and the Israel-Hamas war.
"Secular stagnation is the only trend that seems to have improved—in part thanks to those shocks. But sudden jumps in inflation and higher interest rates have taken its place."
According to Kristalina Georgieva, managing director, "Just since the pandemic, we have provided about $1 trillion in liquidity and financing to our 190 member countries."
New IMF lending facilities include the Resilience and Sustainability Trust, operational since "October 2022", funded by voluntary long-term loans and special drawing rights rechanneling for low-income and vulnerable middle-income members.
The IMF’s surveillance highlighted proposals and warnings such as Ruchir Agarwal and Gita Gopinath’s May 2021 proposal to end the COVID-19 pandemic, the economic costs of the backlash against globalization, skepticism about active industrial policies, and warnings on the dangers of excessively loose fiscal policies.

The post–Cold War path toward cooperation and economic integration has faltered; the fault is attributed to the "masters" of IFIs, especially long-dominant high-income countries.
Summers and N. K. Singh (April 2024) are cited: "Higher interest rates have left developing countries crushed by debt, and half the poorest economies haven’t recovered to where they were before the pandemic. Growth is weak across large swaths of the world, and inflation remains persistently high. And behind it all, the thermometer keeps inching up."
The author argues that existing IMF and IFI efforts, while sensible, are insufficient to renew hope for a better world.

The agenda for making the IMF and IFIs work better has "four vital elements." They are presented as necessary and difficult to achieve; "the time for half measures is over."

1. Dealing with unserviceable debt overhangs must be radically improved

Coordination is required among traditional official lenders (Paris Club), Chinese institutions, and private lenders—presenting "novel difficulties."
The Group of Twenty common framework for debt relief is judged "not doing enough to help poor countries."
Summers and Singh note: "rising interest rates and bond and loan repayments meant that nearly $200 billion flowed out of developing countries to private creditors in 2023, completely dwarfing the increased financing from IFIs."
The world needs a sovereign debt restructuring mechanism—an argument first made by Anne O. Krueger in 2002 and said to be even more necessary today.

2. Far more resources are needed for the IMF and other IFIs

Only with substantially more resources can IFIs provide insurance against shocks, play a catalytic role in financing development, and provide essential global public goods, "especially a stable climate."
The IMF’s role is framed "above all" as providing backup funding, but it "needs substantially more resources" to fulfill that role.

3. Voting shares must reflect the scale of changes in global economic influence

Current quota imbalances are highlighted: "Japan’s quota share in the IMF is bigger than China’s, and that of the UK is bigger than India’s."
While possession of a convertible currency could justify some overweighting of high-income countries, the present degree of imbalance is said to "destroy the institution’s legitimacy."

4. Leadership selection norms must change

The "long-standing custom of a European IMF managing director and a US World Bank president must yield to the search for the best possible candidate from anywhere in the world."

The author warns that "maintaining effective global institutions is going to be immensely hard" amid worsening global tensions and deeper cracks in global cooperation.
Reviving necessary cooperation is presented as the only way "to prevent the world from looking even worse five years from now."

Source: Point of View: No Time for Half Measures, F&D Magazine, No Time for Half Measures, MARTIN WOLF, June 2024.

Point of View : No Time for Half Measures
- Point of View : No Time for Half Measures (Markdown version)
- Point of View : No Time for Half Measures (PDF)
A New Approach to Sovereign Debt Restructuring, April 2002
- A New Approach to Sovereign Debt Restructuring, April 2002 (Markdown version)
- A New Approach to Sovereign Debt Restructuring, April 2002 (PDF)