How to rebuild the global economy |
I mean, if we are to escape from the mess that we're in right now, she is going to play a major part in helping us do that. She's the head of the International Monetary Fund, a delight to welcome here Kristalina Georgieva.
Kristalina, welcome. Kristalina Georgieva: Great to be with you, Chris. Thank you for having me. CA: So you just took on this role late last year, and within four months, boom, COVID arrives. That is one heck of an introduction to a new job.
How are you doing? KG: Well, I find strength in action. And at the Fund, we have been, from day one on this crisis, leaning forward with everything we have to provide lifelines to countries, and that means to people and businesses. Already, we have received over 90 requests and we have offered, to 56 countries, critical financial packages. CA: You've described this pandemic as a crisis like no other.
In what way a crisis like no other? KG: Truly like no other. First, never before we will inflict on the economy consciously so much pain to fight a virus and save lives. We are asking businesses not to produce and consumers not to go out and consume.
At the Fund, we labeled this "the Great Lockdown." Second, never before there would be such a rapid change of fortunes practically for everybody around the world. In January, I was in Davos, talking about "anemic growth," growth of three percent. In April, during our spring meetings, it was already minus three percent. In January, we predicted 160 countries to have positive income per capita growth.
Now it is 170 countries with negative income per capita growth. Now this, we call "the Great Reversal." Very painful. And three, uncertainty. We always live with uncertainty, Chris, but this time, it is the uncertainty of a novel coronavirus that policymakers have to integrate. We at the Fund combine epidemiological projections with our traditional macroeconomic modeling to see through that uncertainty.
I must add to this, I very much hope that when we go on the other side in the recovery, we can use a new term and call it "the Great Transformation." Make the world a better place. CA: Well, I'll be excited to come on to that in a bit. But in this moment of responding to the crisis, the main tool that seems to have been executed, at least by the rich countries, has been this massive economic stimulus, to the tune of trillions of dollars. Is that a wise response?
KG: It is a necessity. And you don't hear the Fund often telling countries, "Please, spend. Spend as much as you can." And that is what we do now. We do add to that, "And keep the receipts. Don't lose accountability to the citizens, to the tax payers." The reason financial injection is necessary, these fiscal measures of almost nine trillion dollars are necessary, is because when the economy is standing still, unless there is help, unless there is monetary policy stimulus, firms are going to go massively bankrupt, people would be unemployed, the economy would be scarred.
When we go to the other side, this scarring is going to make the recovery much more difficult. So that is a wise thing to do, and it helps the fact that central banks in major economies have been acting in a synchronized manner and that fiscal stimulus came really, really fast. This is how we see people being able to go through this very, very tough time.
CA: But how far can it go? Because it's been described, in a sense, as "printing money" — governments are issuing more and more bonds that have to paid back at some point. There's this term, in economics, of the Minsky moment, where things can go very well for a while, as everyone believes that, you know, that the train can keep running, the cycle can keep turning, you know, that governments have all this money. At some point, though, doesn't that break down?
Do you worry that we may be nearing a Minsky moment, where, like Michael in Mary Poppins grabs his tuppence and starts a run on the bank. Is there stress in the international financial system now that concerns you, that makes you feel that we may be running out of headroom? KG: Of course, this cannot go on forever.
I, for one, have trust in our scientists, I think we will see breakthroughs, and we will see also people in businesses getting accustomed to social distancing, to micromeasures that protect from spreading the disease. We have seen very massive injection in health systems, so hospitals can actually treat people that are coming for help. Obviously, if it is to go for a very long time, we would be worried. For now, what we are projecting is that there would be a gradual reopening — we see it already happening in a number of countries.
And we project for next year, 2021, a partial recovery. Not a full recovery, unfortunately, but coming to a better place. Now, what helps us is something that I don't particularly love, but I see it as a positive feature — very low interest rates, in some cases, negative — that allows this injection of fiscal measures and liquidity to be sustained over a number of years. And for now, we do not see on the horizon any return to increase in interest rates. So low for longer, and that is, in that environment, a helpful feature.
CA: I mean, the financial crisis of 2008 came perilously close to breaking the entire financial system — arguably, it did that. By most people's calculation, this is a far worse impact to the economy overall. Did the world learn something from 2008 that has helped us so far be resilient this time? KG: What the world learned is that the financial system has to be tested and then strengthened to withstand shocks. And that is helping us tremendously today.
The banking system is resilient, and even in the nonbanking financial institutions, there is more attention paid to how far can you go without running into trouble. I would say, if you look around the world, the most important lesson then was "build resilience to shocks." Those who have done it cope now better. And those who have not done it are in a much tougher spot. And actually, for the Fund, what we are praying is that we will come out of this crisis with this lesson about resilience being spread beyond the banking system, so we actually have this crisis-management mindset for a world that is inevitably going to be more shock-prone, because of climate and also because of the sheer density of economic and social life on our planet.
CA: In your role, you're paying special attention to the situation in developing countries. And it does seem that they're facing a really terrible situation right now. Many of them have significant debt denominated in dollars.
In the current crisis, their currencies are depreciating against the dollar, making it nigh impossible for them to execute the kind of injection, stimulus injections, that the rich countries are doing and seems to be the only way out. So that seems like a really dangerous cycle. Is there any way to break that cycle? KG: Well, let me first separate countries that have built strong fundamentals.
And now in this crisis, as we are receiving incoming data, not very many, but there are still some positive surprises, and they come from countries that have built stronger buffers, stronger fundamentals, have been more disciplined during good times. But indeed, we do see quite a number of emerging markets, developing countries, faced with multiple pressures. They had the hit from the coronavirus, many of them with weak health systems.
Then, they have the high level of indebtedness, from before the crisis, which creates a much more difficult environment for them. Then, many of them are commodity exporters. Commodity prices, oil price, they went down very dramatically, that hits them again.
Many rely on remittances. Remittances shrunk some 20 to 30 percent. And then you have a number of countries that are highly dependent on tourism.
Tourism is the hardest hit sector, or one of the hardest hit. So, very tough for these countries, but this is why institutions like mine have been wisely created. The IMF, the World Bank, the regional development banks, we work very closely together in this crisis.
The IMF, fortunately, that was one of the lessons from the 2008-2009 crisis — make sure that in the center of the financial safety net is an IMF with financial strength.
We have four times more money to lend today than we had then. From 250 billion to one trillion dollars.
And of course, we are deploying these funds exactly for the countries that need us the most. And we did one more thing. With David Malpass, the president of the World Bank, we called for a debt moratorium for the poorest countries to their official bilateral creditors.
And people tend to say, "Oh, we don't work together, it's not good enough." But here is an area where we made this call in late March, and in mid-April, the G20 agreed on this moratorium. Amazing, we had the Paris Club, China, the Gulf countries, all agreeing that we should not suffocate the poorest countries by asking them to pay their debts when their economies are standing still.
CA: Is it possible that some developing countries are overdoing the lockdown policy? I mean, if large numbers of your citizens are already struggling to stay alive, isn't it almost like a death sentence to order them not to leave their homes? KG: Well, Chris, one of the most heartbreaking conversations I would have is with leaders of countries where they have to stare in the face a choice of people dying from the virus or dying from hunger. And it is a very dramatic situation for them. Where you have a very large part of your economy being informal, where people live hand-to-mouth every day, the lockdowns we have in advanced economies are not quite applicable, but even there, countries are doing really well in social distancing to the extent it is possible.
Many of the countries in Africa were very early to step up preventive measures. Why? They learned from the Ebola, they learned from prior crises that hygiene, taking any measure you can really helps.
So again, I cannot stress enough how important is solidarity with these countries. How important it is for my institution to be there for them in a timely manner. And we do it. CA: Whitney. Whitney Pennington Rogers: Hi there, thank you, this is a wonderful conversation, and we're starting to see some questions coming from the community.
The first one we have is from Bill Elkus, and it's a follow-up to something you were mentioning earlier, related to the stimulus, Kristalina. What are the prospects for inflation from such a large stimulus? KG: At this point, we are not worried about inflation in advanced economies and in the majority of emerging market economies. We do worry about inflation in countries that have weak fundamentals, no access to foreign exchange easily, where the only way to address the crisis is our help or their central banks printing more money. And sometimes it's a combination of those two.
Why I don't worry about inflation in advanced economies? Because countries that have their hard currency are putting liquidity in place, but at the same time, they're not seeing a big expansion of demand and prices being pushed up. So for these countries, at least for the observable future, we don't see a way of going, like after the Second World War, in inflation jumping up. The consumers are not consuming so aggressively, demand is not that strong, and these are societies where there is a lot of maturity in how they exercise their policy options.
But if you are a poor country, that out of desperation, with no access to markets, no access to hard currency, ought to somehow put money supply enough, then inflation is going to be there. A very extreme case is Zimbabwe, and I do worry there may be other countries. So this is why we are so determined to engage with these countries early. And also look at some of the high-debt countries.
Would it be necessary, on a country-by-country basis, to restructure debts to prevent that moving in a desperate direction? WPR: Thank you. And we have one more question that I wanted to share from our community. This is from Keith Yamashita, and it's about how we all can be involved in some of this change. "You are tasked with macro-economic and funding efforts.
What should we do as citizens to help renewal and recovery?" KG: Well, it is incredibly important for all of us citizens — and aside of being the head of the IMF, I am also a global citizen — that we are to bring that notion of solidarity in a moment of crisis. I loved the way this segment was musically backed, and it was "Lean on Me." It is very important that we do create that sense — "we are in this together, we will get through it together." And please, speak up on that. I was, for many years, crisis commissioner, and one thing I learned is that the majority of people are positive, good people.
You can lean on them. And there is a minority that is hateful and fearful and also very loud. So, good people, speak up. Spread that sense of "we are in this together, we'll get through it together." WPR: Thank you.
I'll come back later with other questions. CA: Kristalina, I'd love to expand on that and just ask you a bit more about leadership, actually. You know, when people think of the nations that have performed best, they often refer to — when I say best, best in response to the current pandemic — they often refer to Germany, New Zealand, South Korea, Taiwan, Denmark and Norway. When they think of those that have performed worst, they often think of Spain, Italy, the UK, Belgium, Sweden, Iran, Brazil, Russia and the United States.
All of that second group are run by men, all but one of the first group are run by women. Is that a coincidence? KG: Well, now, speaking a bit subjectively as a woman, I do believe that women are great to lead in a crisis. They are more likely to show empathy, to care about the most vulnerable people and to be able to speak about that.
They are decisive. I can say that for myself, we take energy from action. And we don't tend to, kind of, mourn and complain too much. So there is perhaps something to be said about the value of gender equality for the future.
Bring more women for this world of more crisis ahead of us. CA: It's obviously hard to make generalizations about gender of any kind, but I mean, is there also, almost, something about the embracing of nuance, that women might be better at that than men? Men are often, it's like, "let's win, let's conquer," and in a situation like this, where it's all probabilities, it's like, there are so many complex dials to turn on this dangerous pandemic machine that we're trying to wrestle. I mean, are women better at handling nuance? KG: Let me say something, Chris.
We need everybody, and we need this mixture of experience, knowledge and predisposition. Men and women coming together. I find it that it is great to have different perspectives when we make decisions. Then, the chances of making a good decision are higher.
So we need each other, but we also need to recognize is that yes, there are certain things, I have seen it time and again, women are more willing to find a pathway to compromise, they're more willing to be corrected if they're wrong. Say, "Oh, OK, that's a good point, let me integrate it in the way I think about it." And when you are in uncertainty, that is a huge advantage in decision-making.
CA: So perhaps talk a bit more about your own leadership in this moment.
I mentioned you've only recently come to this job. Before that, you were European Commissioner, you dealt with humanitarian crises in more than one part of the world. And in your own country, Bulgaria, you witnessed the wholesale transformation of the country, both politically and economically. What lessons can you bring from your past experience to this moment? KG: Well, there are many things I learned.
I was very fortunate to have these multiple experiences for the job I have now. But let me highlight three. First, how critically important it is to prepare for a crisis. Kind of, think of the unthinkable, and then act with some foresight when a shock hits you.
You have a title for this series called "Build Back Better." I actually would like to modify it, if I may, and I would talk about "Build Better Before." Preparedness, prevention, pay off big time. The second — and not necessarily in priority, it is as important — is collective action, working together. Seeking help, offering help. Makes a huge difference in an emergency.
And the third is something I learned time and again. We don't know our internal strength until we are hit. We are so resilient, we are so able to withstand shocks, especially when we come together, that this always gives me this sense of optimism that, as hard as it is, we can overcome it. From the days when my country collapsed, the economy collapsed, I would get up at four o'clock in the morning, queue to buy milk for my daughter, to the days when I would see Syrian refugees in terrible situations helping each other, to today, when I'm the head of the IMF, that internal strength, our power of resilience, the more we are together, the more it is amplified.
CA: Actually, could you talk a bit more about the role of the IMF, especially as we look forward to trying to recover from this? What specifically can your organization do to take us forward? KG: So there are three things that are quite unique for the IMF, and they're really so important in a time of crisis. The first one is to give a good diagnostic of what is happening and what is the way forward.
Let me just say, in this crisis, in the very first weeks, we put together, we call it policy action tracker, for 193 countries. What actions are countries taking, how they can learn from each other, so we can be more effective together. We are adding to it, now, actions for responsible reopening of the economies exactly with that purpose. What we are known best for, we are the financial first responder. We are coming in this incredible shock with very significant financial firepower.
And what people don't know is that the Fund has multiple instruments. Emergency financing is the one we doubled for this crisis. And it is no conditionalities. We are asking one thing, Chris. Pay your doctors and your nurses, your hospitals, protect your most vulnerable people and parts of the economy.
That's it, this is the condition. And the third thing we do at the Fund is to help countries have the capacity for good policies. After the financial crisis, we helped many countries to have good debt management, good fiscal management, transparency and accountability to improve the performance of public finance. So the Fund is not a very big organization by any standard, we are some 3,000 people. Highly professional, incredibly committed.
When you use the expression "all hands on deck," that's us. And it is a digital deck, it is a digital deck these days. CA: I mean, this is a global crisis.
A lot of people are worried that unlike perhaps even in 2008, where it really did seem there was a lot of global cooperation, there's actually, in some worrying ways, less this time? Are you worried about how crucial is that to getting us through this? KG: I mean, my preoccupation is, in our mandate, in my area of responsibility, bring the membership together. We have almost the whole world, 189 countries are our members, and so far, I am very impressed by how responsive the membership has been. I put in front of them in the spring a package, very strong package of measures to expand the role of the IMF in the crisis.
Everything that we ask for — we ask for doubling emergency financing, we got it. Very interesting. We ask for tripling concession of financing.
Exactly because, you know, like the virus hits people with a weak system the hardest, the crisis hits weak economies the hardest. So we wanted to triple concession of financing. Within one month, we got it. We asked for grants for debt relief, we got it. So what I'm trying to say here is that we need to focus on ways in which we bring the world together.
And then act on that.
Rather than complaining that maybe not everything is the way it should be, do your duty to the global community. CA: Well, indeed. And the IMF is dependent on the financing from its members, its key members.
KG: Yes. CA: I mean, you spoke of the trillion dollars that you are looking to make available to nations that need it. As I read it, that comes from — you've got these units called Special Drawing Rights. You basically draw a currency from members.
And hasn't there been pushback, though, from the US, to block that effort of raising all that money? KG: So the one trillion dollars is from our quotas and also from our ability to move money from well-to-do members from the advanced economies and lend it at very low or zero interest to the developing emerging markets. And we had this one trillion and what was very interesting, not everybody noticed that — the US, in their two trillion dollars stimulus package, included the support for the IMF.
The Special Drawing Rights is something that we, indeed, don't have yet consensus among the membership to do. It was done during the 2009 crisis, issuing liquidity, and it goes to everybody. And there are many voices, including mine — I spoke to the G20 about that — that are saying, well, that may be a good thing to do now. It is not being supported for reasons.
It is not just capriciously. The problem with Special Drawing Rights is that when we issue them, they go to all members, and the advanced economies get 62 percent of the new allocation, and there are some that are saying, "Can we think of something that is more directed, or exclusively directed to those who need it?" But, Chris, everything is on the table for us. As the crisis unfolds, we need to do more, we bring the membership to do more. CA: Whitney.
WPR: We actually have a question from the community that builds on what you're discussing right now. Yavnika Khanna asks, "Which countries will prove to be resilient in the Great Transformation: those with popular leaders or those with sound financial systems?" KG: You know, they both matter. Countries with strong fundamentals are clearly going through this crisis with less trauma than those that had weak fundamentals to begin with. And of course, leadership matters.
How you mobilize a country for action matters. In my view, what we would see on the other side, the winners would be those who think today of this crisis also as an opportunity. Clearly, digital transformation is a huge opportunity. Moving to e-learning, e-government, e-payments, e-commerce, linking small and medium-sized enterprises through digital to consumers, big winner. Secondly, I very much hope that we would come on the other side with a low carbon footprint and a more climate-resilient economy.
Those who move in this direction, they would reduce the risk for themselves and the world. From this other crisis, that we are not talking so much about these days, but it hasn't gone anywhere. And you know, if you don't like pandemic, you are not going to like the climate crisis at all. And also, countries that are thinking of how to make the economy in the future a fairer economy.
In other words, we have been seeing inequality building up before this crisis. My colleagues who have researched pandemics have a very bitter lesson for us. After pandemics, after H1N1, after SARS, after Zika, inequality goes up. Well, are we going to let inequality to go up, up, after this crisis? And if we do, we are damaging the fabric of our societies, and my sense is that hundreds of millions of people in this crisis would much prefer to have a simpler, fairer, more equitable world to live in, and definitely, a more sustainable world.
CA: Mm. KG: Those would be the winners. WPR: Definitely. And just one more question from our community, before turning it back to Chris for some final questions here. You know, this one is from Sarah Rugheimer.
And the question is, "What do you see as the main potential positive shifts / changes in this world from this pandemic, say, two to 10 years from now?" KG: Well, I touched upon it a little bit. First, I hope to see fiscal policy to help us recover to be geared towards green recovery and more equitable recovery. And that is something that is in the hands of policymakers.
It can be done. Secondly, I very much hope to see us integrating what we have learned from the crisis, in terms of virtual work. My organization, the IMF, well, we can shrink our carbon footprint dramatically just by sustaining the practices we are developing now, and we will. I certainly hope to see, in the future, much more attention to two things that we saw in this crisis are essential.
Universal access to health in some form, strong health systems, as well as strong social safety nets, built as automatic stabilizers in a time of shock. And by the way, it is cheaper if we do it in this way. The bill for everyone is going to be smaller. And also, I very much hope that this notion of investing in people, recognizing that now that we see this horrible tragedy, the loss of lives, that investing in people is the very best investment we can make.
CA: Mm. WPR: That's great. CA: So, see you again in a minute, Whitney. Kristalina, it's so — It's so inspiring, actually, hearing the energy and stuff, the energy that you're bringing to this.
I don't think many people coming into this would have expected to hear, from the head of the IMF, this emphasis on, you know, "Let's solve the climate crisis, let's tackle inequality and injustice." Do you really believe that this moment, this crisis could help lead us into a great transformation? People will feel it's your job to sound positive, you have to do that. Do you really see the path forward that we can get through this, and what sort of timescale are we talking about here, Kristalina?
KG: Well, you know, one thing I learned from the transition I lived through, the transition from central planning to markets, is it is tough, it is long, it is painful and it is a road that takes turns. So I don't have an expectation of miracle from here to there. But I genuinely believe that we are now in a point of our history when people demand from their leaders safety and security and a society that is not torn apart by conflicts. And that is actually not unusual to see.
So, I would turn the table a little bit on you, Chris. After a war, we see the world coming together and building a better world. Why not after a pandemic? And yes, we can make mistakes and not take the right road to travel.
But we certainly have an obligation to try to get on that road. CA: So if you could just inject — KG: And everybody matters for that. CA: So if you could inject one idea into the mind of everybody, or into to the world leaders who listen to you, what would that idea be at this moment?
KG: Optimism. Build a better world. Possible, desirable, we must do it. CA: That sounds like optimism as the stance, not just a naive belief that it will happen, but a determination to make it so. That's what you're calling for.
To use that as the motivation to pull us all forward together. KG: Chris, do I have one minute, or I'm done, I need to go? CA: If you want to say one last thing in one minute, alright, go. KG: I want to say one thing.
To recommend to the audience to watch the movie "Bridge of Spies." There is a part in the movie in which the two main actors, the lawyer and the Russian spy, talk to each other. The lawyer says, "Things are very bad, it looks like you may hang." The spy is very calm. Lawyer says, "Aren't you worried?" The spy answers, "Would it help?" So my message is, it is tough, but worries won't help. Positive action will.
Positive, stay positive, so that's my message. CA: Well, I have to say thank you. It's incredibly inspiring, actually, to see your energy and your determined optimism, let's call it that. I think we wish you the very best as you use your position to help get us out of this mess.
Thank you so much, Kristalina, for spending time here at TED. Thank you. WPR: Thank you, Kristalina.