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A year into Kristalina Georgieva’s stint as managing director of the International Monetary Fund (IMF), the world was pitched into the most devastating health crisis in a century. Jobs and output were eviscerated as the economic effects of Covid-19 passed from country to country like another contagion.
A pandemic is the ultimate test for an institution Georgieva describes as the “first responder” when it comes to financial mayhem. The early signs were ominous. Multilateral institutions were retreating in the face of galloping nationalism and populism. Some politicians and banks were in denial. For them, the pandemic was a hoax or a financial blip.
There seemed little prospect of a repeat of the joined-up international response to the financial crisis of 2008. Without the consent of its richest shareholders, the IMF can do little. As managing director, Georgieva’s task was more political cajoler-in-chief than stern financial supremo. She had to persuade rich countries to help poorer ones; and the poorer ones to trust the IMF.
Drawing on a career of navigating bureaucracies in the European Commission and the World Bank, she led her team in putting together “emergency financing on a scale [and at a speed] never seen before”. Within a year, the IMF has lent $290bn of its $1trn firepower. Georgieva’s mantra was turbo-charged Keynsian economics: “Spend, spend, spend […] but keep the receipts.”
It is tribute to her energetic diplomacy that most of the usual critics of the fund, whether conservative or radical, grudgingly applaud her strategy. But now is not the time for clapping, she suggests in this interview with The Africa Report. This is the end of the first act of this crisis; it is not even the intermission.
The pandemic has wrought huge damage on developing economies.
About half of those economies that were getting richer in per capita terms are now drifting dangerously behind, opening up new social and geopolitical schisms. Georgieva’s priority is to ensure there is enough concessional finance for the hardest-hit countries and for those economies where policymakers are boosting health and education spending as state revenue shrinks and budget deficits balloon.
TAR: How important are vaccines in terms of economics?
Kristalina Georgieva: In 2021, and probably in 2022, vaccine policy is going to be the most important economic policy. We have seen how the arrival of vaccines late in 2020 has improved the outlook for the global economy. We have upgraded our projections for 2021 to growth of up to 5.5% because of vaccination. Between now and 2025, we will get $9trn more [in global production] if vaccinations accelerate around the world. Our number one objective is to make the case for vaccinations everywhere as quickly as possible.
What can the IMF do to speed up vaccine distribution?
We have Covax [the Covid-19 Vaccines Global Access initative], and we have been advocating for more funding for Covax. Money is not the only constraint. Production, availability of vaccines – it is about deploying production capacity everywhere.
And a more thoughtful assessment of licensing opportunities is necessary. There could be innovative ways to insure producers against the risk of excessive production. It is so much cheaper to produce more than necessary than not to produce enough.
Should the big pharmaceutical companies suspend intellectual property rights, as South Africa and India are demanding they do?
It is important to protect intellectual property rights. This is not going to be the only crisis. We want companies to innovate and to feel that innovation is protected against the breach of intellectual property rights. At the same time, in this unique crisis, there has to be space for some less orthodox decisions. In this discussion, we participate from the perspective of economic policy. What is the right economic policy? Our position is that anything that can accelerate vaccination globally is a great policy.
You have spoken of the need for more coordination and cooperation to fend off the pandemic and boost the recovery. What’s on your priority list?
We are in a faster-changing and more shock-prone world, and the capacity of the fund to act swiftly is very, very important. We are the world’s first responder at the time of crisis. We have worked on a much more significant capacity, $1trn. We have used approximately $280bn so far. We still have significant space. On pandemic preparedness and response, what we can contribute to is the analytics – what works, what doesn’t work, how to do it faster and more effectively.
There is one area where the fund has to do more: it is the capacity to provide concessional finance to our weaker, poorer members. We tripled our concessional funding capacity. It was about a year ago during the spring meetings [in April 2020]. I called on the members for additional funding on concessional terms. We are looking into this as a systemic issue for the fund to have that concessional lending capacity.
At the start of this pandemic we put forward a new instrument of surveillance, our policy tracker. What it did was to show what steps countries are taking to respond to the pandemic and to allow countries to learn fast from each other. It helped this synchronised policy response of central banks and finance authorities. So the world put a floor under the economy faster.
Is the IMF in danger of running out of money?
We had a very encouraging G20 finance ministers’ discussion on this topic: the support for new allocation of Special Drawing Rights (SDRs) [the IMF’s reserve currency] was across the board.
We are working on two questions. Firstly, what is the medium-term need of additional reserves? We will answer this question within weeks. Secondly, how to address some of the shortcomings of SDRs? They go to everybody proportionate to their quotas – so countries that need it and countries that don’t need it all get it. Can we make the use of SDRs more transparent, so it can be demonstrably traceable how an increase of reserves is being utilised by policymakers and countries?
You are sounding more optimistic about global prospects in 2021 and onwards. What are the implications for Africa?
I do not want us to lose sight [of the fact] that in this brighter picture there is a very heavy cloud of divergence. There is also divergence between markets and the real economy, so [that’s] another aspect we have to watch. There is still a great deal of uncertainty because of the new variants and the likely issues that may come up once governments start withdrawing support.
Good news for the economy as a whole can turn into bad news for individual companies that find themselves in a weaker position once the support is withdrawn. The recovery is uneven; it is uneven within countries. We see some sectors of the economy doing incredibly well, actually better than before the crisis.
If you are in the digital economy, we see [that] doing well. Those of us who can work from home have not been affected economically. Those that are contact-dependent or are in the sunset part of the economy, where the climate transition is going to affect you negatively, that is something we have to be concerned about.
I have been talking about a great divergence across countries, with advanced economies and strong emerging markets stepping up and low-income countries falling behind. We saw something very, very worrisome. About half of the developing countries that were catching up in income per capita before this crisis are now drifting further behind.
That cannot be left to continue. It would be devastating for people in these countries, it is also very damaging for global security. They are either contact-industry-dependent, tourism-dependent countries, or they lost a lot of speed with the collapse of commodity and oil prices.
I want to focus on divergence among countries and the danger of poverty and inequality growing as a result of this crisis. What does this mean in terms of the future? One, digitalisation. Will the developing world catch up or fall further behind? That, of course, is also a matter of investment in the infrastructure needed for the digital economy. About half of Africa is not connected to the internet. For the part that is connected, a big chunk of it is low-speed, low-quality. Africa cannot succeed in the future without closing this gap.
Africa has to raise another $300bn over the next three years to pay for new infrastructure. How can it raise these funds? How important is it to get back flight capital and illicit financial flows?
We need African countries to be able to trade with each other […], to be connected, and it goes into health and education infrastructure. This is absolutely essential. How can this financing gap can be closed? I would put as number one priority strong macroeconomic fundamentals and investment climates conducive to local businesses and foreign investors. What we saw in this crisis was that countries that had stronger fundamentals fared better.
We also want to see more concessional finance. The other aspect of infrastructure in the new climate economy, making countries resilient to climate shocks, agriculture’s resilience to droughts and floods in the future, all of these are productive investments. When they’re done, they create jobs, opportunities.
There is a particularly interesting initiative in Africa. This is the greenbelt of Africa [the African Union’s ‘Great Green Wall’] – reforestation, pushing back the desert – this is fantastic. It is labour-intensive, it is great for agricultural productivity, for urban development, for the world. We have to figure it out – how to find the money. It is important to tap into the climate as a source of revenue.
If countries take measures to reduce the risks of climate change – especially through reforestation, mangrove restoration, all the things that are actually very promising for Africa – they have to be able to reap benefits. Carbon trade ought to benefit Africa.
I see a huge untapped potential in deploying digital technology to protect against illicit financial flows, tax evasion, or the poor spending of public money. So e-government in Africa may be a very good way to raise more financing for the future of Africa.
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