World Risks Uneven Rebound on Vaccine Deficit, IMF Head Says

(Bloomberg) -- Rich countries are poised to recover from the global pandemic much faster than poor ones based on better vaccine access -- and policy makers need to act to avoid deepening inequality between nations, the head of the International Monetary Fund said.

Governments and multilateral organizations must help developing nations accompany advanced ones in transitioning to a more inclusive, digitalized, green economy, IMF Managing Director Kristalina Georgieva said in a round-table with reporters on Friday. Countries need to revitalize international cooperation, Georgieva said -- a goal that President Joe Biden’s administration also has identified for the U.S., the fund’s largest shareholder.

Failing to address unequal vaccine access could leave many countries in the world with social unrest or a decade of lost growth and advancement, Georgieva said. About half of developing nations will see their per-capita income levels relative to advanced economies fall as a result of the pandemic, marking a reversal from recent decades, she said.

“This year we face the risk of great divergence,” Georgieva said. “The path to recoveries is uneven, and that unevenness can translate with substantial problems for the world in the years to come.”

In a wide-ranging, hour-long conversation, Georgieva highlighted the need to provide debt relief for developing economies struggling with unbearable burdens and for policy makers to continue to provide support for vulnerable populations until the crisis is over.

Some highlights of her comments follow.

On the U.S.

• Asked about President Joe Biden’s proposed $1.9 trillion relief and stimulus plan, Georgieva said that the U.S. does have fiscal space for additional relief and support measures
• The IMF supports Biden’s determination to focus relief on vaccines, testing, health care, support for the unemployed and food assistance, among other priorities
• Treasury Secretary Janet Yellen is “the best possible” person to manage potential risks to financial stability if the economy overheats as a result of the stimulus
• U.S. support would have positive spillover effects for the rest of the world, especially Latin America
• There’s a risk that if U.S. fiscal support isn’t maintained until there’s a durable exit from the health crisis, there could be “a dangerous wave of bankruptcies and unemployment”

On Latin America

• In Argentina, the IMF is aiming for a good balance between stability, focused support for the most vulnerable people, and creating conditions for stronger private sector-led growth
• In Argentina, “We are working in a very constructive way to reach an agreement, but you know what the saying is in Argentina: It takes two to tango.”
• Latin America is poised to lag behind global rebound, needs reforms to spur faster growth

China, Africa

• China’s continued process of opening up its financial services sector should help achieve more balanced growth that’s less reliant on public spending and more geared toward domestic consumption
• The world needs to come together to make sure vaccines are available in Africa, where only Morocco so far has started giving shots
• The IMF is providing analysis and working to bring together Zambia, Chad, Ethiopia with their creditors as the countries pursue debt relief

IMF Policy

• The IMF is continuing to discuss with its members the possibility of a new issuance of special drawing rights, like the one in 2009, and will talk about the option as part of a review of long-term liquidity needs that takes place every five years and is due now
• Any SDR creation needs to be part of a comprehensive plan and accompanied by other steps including debt relief for countries with unsustainable burdens, so that the reserve assets don’t just go to paying past debts
• Emerging and developing markets that will need debt restructuring can reduce the pain by taking action early
• The IMF and World Bank are in “very early conversations” to see if debt relief can be done in a way that prioritizes health and climate spending and rewards creditors by being considered as part of their environmental, social and corporate-governance commitments
• While there were fewer bankruptcies in 2020 than the average year, policy makers need to be prepared for the moment when the withdrawal of support shows that some businesses are no longer viable, in order to prevent scarring

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