“Incoming data from many countries is worse than our already pessimistic projections,” Georgieva said during a webcast conference sponsored by the Financial Times.
The question for policymakers is, what can be done to alleviate some of the pain? Governments in rich countries have mustered trillions of dollars in stimulus spending, bolstering their own welfare states, bailing out some businesses and getting cash directly to those in need. But even there, critics fear such relief is only a temporary salve.
The situation facing dozens of poorer countries is all the more dire. They don’t have the same capacity to borrow money at low rates or print their own. And now many face the prospect of defaulting on debts as vital cogs of their economies sputter to a halt.
But some politicians around the world want more sweeping action. Sen. Bernie Sanders (I-Vt.) and Rep. Ilhan Omar (D-Minn.) in a Wednesday letter addressed to Georgieva and David Malpass, president of the World Bank, called on international financial organizations to consider “extensive debt forgiveness” for more than 70 of the world’s poorest countries. The letter, which also called for significant fiscal stimulus to help stabilize the global economy, was signed by more than 300 lawmakers from over two dozen countries, including former Argentine president Carlos Menem, former Greek finance minister Yanis Varoufakis and Sen. Richard J. Durbin (D-Ill.), one of the most senior members in the U.S. chamber.
“The vulnerable communities that lack the resources and privileges to adopt adequate public health measures will ultimately face the disproportionate burden of coronavirus,” read the letter, a draft of which was shared with Today’s WorldView. “Such harm means that global supply chains, financial markets, and other interconnected exchanges will continue to be disrupted and destabilized.”
The two U.S. lawmakers called for a technocratic instrument in the IMF’s tool kit known as special drawing rights, or SDRs, that could bring hundreds of billions, even trillions, of dollars of new liquidity into the global economy. The last time the IMF allowed for a major infusion of additional SDRs was in 2009 as part of a $1 trillion injection into the global economy that followed the financial crisis.
Sanders and Omar, widely seen as occupying the left flank of Democratic Party politics, are pushing ideas about debt relief and crisis spending that are becoming increasingly mainstream. Economists and policymakers to their right have already made similar calls for a new round of SDRs, which would not make much of a difference for taxpayers in wealthy nations. Boosters of the idea say that rich countries could voluntarily transfer some of the funds generated by the SDRs — which are allocated on the basis of IMF quotas that give richer nations much larger shares — to poorer ones.
“Taking commonsense measures to cancel debts and provide financial stability — steps which do not cost U.S. taxpayers a penny — is the very least we can do to prevent an unimaginable amount of poverty, hunger, and disease that could harm hundreds and hundreds of millions of people,” Sanders said in an email to Today’s WorldView.
So far, the Trump administration, whose Treasury Department carries enormous influence over the IMF, has balked at the idea. One reason for its opposition is an unwillingness to create a mechanism that boosts the foreign reserves of adversarial countries such as China, Iran or Venezuela without forcing them to make any concessions.
But critics say such thinking is shortsighted. “When the house is on fire, you don’t hold the fireman back while you figure out who’s going to pay for the water damage,” said Masood Ahmed, president of the Center for Global Development and a former senior IMF and World Bank official. “There is no magic wand, but this is the closest we have as a tool that would help the largest number of countries which have problems today.”
Other experts argue that the Trump administration could leverage its IMF clout in its geopolitical clash which China, which now holds a vast tranche of public debt in the developing world, including a third of Africa’s sovereign debt, and has been noncommittal about extending significant relief.
“Championing an expansion in IMF resources could have been a way for the United States to regain ground lost to China over the handling of the COVID-19 crisis,” wrote economic historian Adam Tooze. “But the Trump administration either lacks the vision or judges the political price too high.”
For the letter’s signatories, debt forgiveness is an essential plank of a broader global recovery. “What this crisis shows us is that we are all in this together, as a global community,” said Sanders. “We have got to show unprecedented compassion, solidarity, and cooperation right now, because this pandemic has revealed for everybody that we are only as safe and healthy as the most vulnerable among us.”