FT Global Boardroom - What can the IMF do to support distressed economies?

Sarayu Bacchu

As part of the Financial Times Global Boardroom series, I was able to tune into an interview with Kristalina Georgieva (Managing Director of the International Monetary Fund).

“With the crisis still spreading, the outlook is worse than our already pessimistic projection.”

 Georgieva stressed that the global economy has deteriorated, and will continue this way, past the earlier predictions of a 3% contraction. This is mainly due to the fact that there are no medical solutions on scale, leading to adverse development.

Despite this worrying news, Georgieva highlighted the fruits of the decisive actions taken by world governments and the IMF, which have successfully stabilised the world economy. These include $9.7 trillion in injections into economies as well as synchronised action by central banks.

She also spoke of the swift actions taken by the IMF to create a bridge of support in this dire environment. They have doubled their emergency fund and have 4 times more resources than in 2008. In addition to this, the IMF has also tripled their concessional financing capacity to weaker economic countries at a higher risk from this pandemic. They are transferring existing SDRs from wealthier countries to poorer ones, and have a debt standstill – freeing up $12 billion more for policy makers to use. There is also a fund for the poorest members, meaning they will not need to pay over the next 6 months. Georgieva said it was imperative to deliver more for members whilst maintaining unity.

When asked about Argentina’s bad sustainability and if the IMF would be able to help, Georgieva responded saying it is IMF tradition not to get involved, this is between Argentina and its private creditors. The IMF is a lender of last resort and is much riskier. She stated, Argentina needs a government which looks into the future of the country.

Another question was on the future of the EU, and if the crisis was creating more fragmentation than collaboration. To this, the reply was that the prevailing opinion in the IMF is to try and bring the world and the EU together.

In summary, the IMF is committed to trying to keep providing aid to those in the emerging markets who need it, but it faces the difficult challenge of keeping IMF members on board.