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Above Kristalina Georgieva and European Commission President Ursula von der Leyen Left Georgieva and World Bank President David Malpass
consider taxing carbon to raise revenue for their recovery and incentivise the private sector to cut emissions. “We are about to deploy enormous, gigantic fiscal stimulus and we can do it in a way that we tackle both crises at the same time,” she said. “If our world is to come out of this crisis more resilient, we must do everything in our power to make it a green recovery.” Despite her efforts, Georgieva has found herself having to defend her strategy to protect the world’s poorest economies in the aftermath of COVID-19. Some think the IMF’s attempts to help these countries don’t go far enough. In May, more than 300 lawmakers from around the world urged the IMF to cancel poor countries’ debt, rather than simply suspending it, to free funds up to fight the virus. These lawmakers also encouraged the IMF to create trillions of dollars of new special drawing rights (SDR), the currency of the IMF. An SDR
allocation can be compared to a central bank printing new money. So far, the proposal has been opposed by the US, which voiced concerns that the funds created through an SDR allocation would mainly benefit countries like China, and not the low-income countries they were intended for. This is because new reserves are allocated according to members’ shares in the IMF. Although the institution’s lending capacity has quadrupled since 2008, its power can still be easily limited by the US, its largest shareholder. Georgieva must win US support if she is to support the most vulnerable economies with an SDR allocation. The coronavirus crisis puts the IMF in a uniquely difficult position. In a crisis, the IMF is an important safety net for all struggling economies – but the current crisis is unlike others. Ordinarily, when the IMF lends to a country, it insists the nation tightens its spending to ensure the loan isn’t wasted and the IMF can be repaid. But now, Georgieva is urging countries to spend whatever is necessary. While such measures are essential to limiting the virus’ impact, lending with no strings attached could erode the quality of the IMF’s loan portfolio. David Lubin, Head of Emerging Markets Economics at Citigroup, wrote in the Financial Times: “The IMF and its shareholders face a huge problem. It either lends more money on easy terms without the ‘collateral’ of conditionality, at the expense of undermining its own balance sheet; or it remains, in systemic terms, on the sidelines of this crisis.” The sheer scale of the economic fallout of coronavirus will push the IMF’s ability to lend to the limit. While ensuring the lender can come to the aid of struggling nations, Georgieva also needs to keep one eye on the post-pandemic future. If all goes to plan, wealthier nations will come to the rescue of poorer ones, and emergency loans could help fuel a global green recovery. This is certainly a tall order – however, Georgieva’s track record shows she is more than capable of meeting that challenge head-on. n
Summer 2020 |
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