Speech to US Chamber of Commerce
It is wonderful to have the chance to talk to your global audience, because we know U.S. companies play a huge role all over the world.
The IMF and the U.S. Chamber of Commerce have been partners for decades, and we are united in our support for the simple concept that private sector-led growth improves opportunities for people everywhere.
At the Fund, our focus has been on the macroeconomic policies that underpin this. And we have stepped up several times during crises to help steer the recovery so countries can return to growth and create jobs.
As you may know, I spent a big chunk of my life living in a non-market economy—I was born and educated in Bulgaria during the time of communism.
I can tell you—there is no stronger advocate for markets than a person who has lived in the highly distorted environment of a non-market system. I learned firsthand the cost of bad policies, and the benefits of good policies. In fact, it was partly due to the IMF that Bulgaria turned a corner in the 1990s and was able to participate in both the European Union and the world economy.
What does it tell us that somebody who came from a Communist system now leads the IMF and is invited to address the U.S. Chamber of Commerce? Put simply, it tells us that change for the better is unstoppable.
So, let me concentrate my opening remarks on three points. First, what we have learned about this highly unusual crisis? Second, how do we envisage the pathway to recovery? And third, what is the role of the IMF in this crisis?
Starting with the crisis, let us look at some simple facts.
By the end of 2020, 170 countries—almost 90 percent of the world—will be worse off with lower per capita income.
This is a reversal of the IMF forecast that we made in January, when we predicted that 160 countries would finish the year with larger economies, and positive per capita income growth.
Never in our history have we seen such a tremendous reversal of fortunes for so many. And we have never had such a truly global crisis as the one we face now.
We call the current period ‘the Great Lockdown’ because we are fighting a health emergency by bringing production and consumption to a standstill. Again, this has never been done before.
We also saw massive fiscal measures—totaling nine trillion dollars, globally.
This has provided a lifeline to many businesses, and we believe these measures to be well-targeted and well-thought through. They are temporary and—as such—they are a bridge to the recovery, but not a risk to the recovery as it arrives.
This shows us that governments can—in a synchronized manner—take decisive action at a time of crisis.
And major central banks have also acted in a forceful manner. In the United States, the Federal Reserve has provided liquidity and helped bring down the temperature in markets.
What has been done—to put a floor under national economies and the world economy—is remarkable. And by taking decisive action domestically, major central banks and governments have eased the pressure on emerging markets with good fundamentals.
In March, around one hundred billion dollars left emerging markets and developing countries—three times more than during the global financial crisis.
But in April and May—thanks to this massive injection of liquidity in advanced economies—some emerging markets were able to go back to the markets and issue bonds with competitive yields, with total issuance of around seventy-seven billion dollars. This is almost three and a half times as much as in the same two months last year.
We can draw an important lesson from the fact that countries that have built buffers and sound macroeconomic policies have weathered the crisis much better than those who have not.
Unfortunately, for countries in debt distress, affected by fragility and conflict or with bad underlying conditions, the crisis is terrible. The same way people with weaker immune systems are more at risk from the coronavirus, so weaker economies are at more at risk from the economic shock.
We are also seeing that health systems are being built to cope with the increased number of people seeking assistance. And people are learning how to function at the time of a pandemic, with more social distancing and more micro-measures such as wearing masks.
This brings me to my second point. The pathway to the recovery.
The process of reopening is now starting across the globe—some 75 percent of countries are now reopening—and so now is the moment to think carefully about what comes next.
We must choose what kind of recovery we want. There are those who talk about building back better. But I believe we should think about building forward—not back—and building a recovery that is focused on a great transformation as we emerge from this exceptional crisis.
At the IMF, we are concentrating our attention on the risks and opportunities that the recovery will present.
On the risk side, we will emerge from this crisis with more debt, higher deficits and—in all likelihood—higher structural unemployment and higher levels of poverty.
We must think carefully how to mitigate these risks with the right economic policies, based on lessons we have learned in the past in dealing with debt, deficits, unemployment and poverty.
This time, we need to do it at scale. Take the example of debt—interest rates are low so governments and firms can carry more debt. But we must consider their capacity to carry this debt over time and put measures in place to ensure debt levels are sustainable.
Let me turn to the opportunities we see, starting with the digital transformation—a big winner from this crisis.
Clearly, many organizations are not going back to the old ways of working we knew before the pandemic.
We have seen that we can telecommute effectively. We know that we can organize work more flexibly and accommodate our staff’s conditions and preferences. So, we are going to see a rapid modernization in how we operate.
And we will also see a tremendous expansion of e-commerce, e-learning, e-transfers, e-payments, and e-governance. E-governance is particularly important, and at the IMF we would like to see more transparency and accountability in governance as well as in the way the economy functions.
So, it is critical to make sure that we avoid a great divide in which access to digital skills and infrastructure is limited for some and unlimited for others.
For example, currently only 50 percent of African businesses and citizens have access to the Internet. If this doesn’t change, we will miss a big opportunity and deepen inequality within countries and across countries, including here in the United States.
The second huge opportunity is going green.
I have been telling people that if you don’t like the pandemic, you’re not going to like the way climate change will hit us with increasing strength in the future.
The great thing about the green economy is that it can offer job opportunities. For example, in insulating buildings, in reforestation, or in planting mangroves. Low carbon energy and infrastructure can also be a big booster for jobs.
At the Fund, we are very interested in providing incentives for countries and companies to move faster in this direction, including by being clear around the risks to businesses during the transition to a low carbon economy.
The third opportunity is building fairer societies.
The good thing is that there are policies that are both good for growth and good for addressing inequality.
For example, combining social safety nets with social safety ropes that give people a chance to succeed and pull themselves up. And that applies particularly to small and medium-sized businesses.
The bad news is that inequality tends to go up after a pandemic. So, we must put this squarely on our radar screen and recognize the importance of global trade in contributing to lower costs, higher incomes and lower levels of poverty.
There would be a natural tendency after this pandemic for countries to turn inwards to build health security and build more independent operations. But we must guard against a dramatic retreat from globalization.
Let me finish by speaking about the Fund’s role in managing the crisis.
We have stepped up massively.
After the Global Financial Crisis, our shareholders boosted the financial strength of the IMF. So, our resources increased from $250 billion to $1 trillion – four times as strong.
We are deploying these resources with speed and impact—providing emergency financing for the countries that need our support the most.
We are also providing flexible credit lines to countries with strong fundamentals.
We have done a lot and obviously we are poised to do more.
And today, I very much look forward to hearing from you about how you see the priorities for the Fund and its contribution to the recovery.