WASHINGTON – The International Monetary Fund (IMF) may need to step outside its comfort zone and consider “exceptional measures” to help countries deal with the coronavirus pandemic and mitigate its economic impact, Managing Director Kristalina Georgieva said.
Georgieva, in a blog published on the IMF website, said the fund had already taken extraordinary steps to free up resources, especially for emerging markets and developing economies that have seen an outflow of $100 billion in recent months – the highest on record.
Georgieva said developing countries may be the hardest hit economically by the coronavirus.
The IMF, with $1 trillion in lending capacity, has already approved emergency funding for 21 of 103 countries which have asked to for it and prepared different instruments to help its members, she said.
“The countries that are now worst hit by the pandemic are not necessarily the ones that will be worst hit economically. I am most worried about the developing and emerging countries,” she told a videoconference press briefing for the Bulgarian media.
“What worries me very much is the large capital outflows from the developing markets. Some $100 billion flew away because of fears linked to the uncertainty of this crisis and went where it is safer. We want to see this process reversed,” she said.
She said that the fiscal response to the pandemic in 193 countries had amounted to $8 trillion, while central banks had supported liquidity by another $6 trillion.
These measures should be enough if the crisis continues for months, but more will be needed if it goes on longer, she said.
Georgieva, who is Bulgarian, said the pandemic had triggered a global crisis that had forced 170 economies to contract.
“During the financial crisis ten years ago, part of the world managed to grow and pulled others up. Now, we all are in a situation of recession, almost with no exception, the growth is downwards,” she said.
Georgieva stressed that governments’ first goal should be to enhance their health systems to protect lives and take steps to prevent massive bankruptcies and long dole queues, but should not resort to protectionism in the recovery phase.
“It will be very, very important to try to avoid a full course towards protectionism and self-isolation, because this, without a doubt, will make us as a world poorer,” she said.
But more resources may be needed if market pressures continue to mount, and lending – even on easy terms – is not always the best solution, given already high debt burdens faced by many countries, she said.
“The IMF, like our member countries, may need to venture even further outside our comfort zone to consider whether exceptional measures might be needed in this exceptional crisis,” she said, suggesting increased collaboration with other international institutions and the private sector.
Georgieva gave no details, but her remarks came after a joint IMF-World Bank paper published on Friday said a broader group of countries – beyond the 77 poorest countries that have already been promised a suspension in debt payments on official bilateral loans – may need debt relief.
Georgieva also revived her call for a possible allocation of Special Drawing Rights (SDRs), the IMF’s official unit of exchange, that would be akin to a central bank “printing” new money. The United States has opposed such a move.
The IMF last forecast the global economy would contract by 3 percent in 2020 due to the pandemic, marking the steepest downturn since the Great Depression of the 1930s.
“We stand ready to deploy our full lending capacity and to mobilize all layers of the global financial safety net, including whether the use of SDRs could be more helpful, Georgieva wrote in the blog.
US Treasury Secretary Steven Mnuchin last week rejected an SDR allocation, arguing that 70 percent of the funds created through that would go to G20 countries, most of which did not need it, while only 3 percent would go to low-income countries.
SDRs are based on dollars, euro, yen, sterling and yuan. Member countries hold them at the fund in proportion to their shareholdings.
Reuters last week reported that the United States, the IMF’s dominant shareholder, is blocking an allocation because it would give new avenues of funding for Iran and China.
Mnuchin urged advanced economies to contribute instead to two IMF facilities that provide funds to the poorest countries, and said the US government was exploring such a contribution. A Treasury official said a US contribution to one or both of the funds would require congressional approval, and potentially new funds. No further details were immediately available.
In her blog, Georgieva lauded the generosity of Britain, Japan, Germany, the Netherlands, Singapore and China in boosting the resources available in the Catastrophe Containment and Relief Trust, which helps the IMF’s poorest members by providing grants to cover their debt service payments to the IMF.
She also recognized Japan, France, Britain, Canada and Australia for pledges to expand the IMF’s Poverty Reduction and Growth Trust to $11.7 billion, taking the fund to about 70 percent of its $17 billion goal.
