By Alfonso Fernandez
Washington, Apr 16 (efe-epa).- More than half the 189 members of the International Monetary Fund have turned to the institution for financial support to cope with the economic fallout from the Covid-19 coronavirus pandemic, the IMF’s managing director said Thursday.
“We meet during exceptional times. And exceptional times call for exceptional action,” Kristalina Georgieva said following a virtual edition of the Fund’s annual spring meeting.
“More than ever, we must work together to respond to this unprecedented crisis and prepare for recovery,” she said.
Of the 102 nations that have approached the IMF for help, 15 – including El Salvador, Ecuador, Madagascar, Rwanda and Togo – have already seen their applications approved, while Fund officials are expected to decide on dozens more applications by the end of April.
Georgieva, a Bulgarian economist who took charge of the IMF just six months ago, is departing from the Fund’s traditional prescriptions of austerity and “structural adjustment” as she tries to rescue a global economy battered by the worst crisis since the Great Depression.
The Fund’s latest economic forecast, released this week, forecasts a global contraction of 3 percent in 2020, compared with a 0.1 percent decline in 2009 as a result of the financial meltdown.
And the IMF’s predictions for individual countries are even more alarming. The United States is set to see its GDP shrink 5.9 percent, while Euro-zone GDP will shrink 7.5 percent and Japan’s economy will retreat 5.2 percent.
“With the peak of the outbreak still ahead, many economies will require significant fiscal outlays to tackle the health crisis and minimize bankruptcies and job losses, while facing mounting external financing needs,” the IMF chief said Thursday.
Despite the new approach, the IMF stresses the need for prudence and oversight.
“In times of pandemic, fiscal policy is key to save lives and protect people,” IMF Fiscal Affairs Department head Vitor Gaspar said this week. “Governments have to do whatever it takes. But they must make sure to keep the receipts.
While the IMF foresees a “partial recovery” in 2021, the just-concluded virtual assembly was dominated by discussions about the shape of the economic trajectory under the influence of Covid-19.
The pessimistic scenario is described as “L,” denoting a sharp decline followed by persistent recession. Optimists, meanwhile, suggest the economy’s steep fall will quickly give way to a strong rebound, represented by a “V” shape.
The in-between case, “U,” would include a significant trough before the recovery begins.
Indermit Gill, a former World Bank official now with the Brookings Institution, a Washington think-tank, said in an article this week that some economists were being unduly pessimistic.
“We know now that most governments tend to respond reasonably well, so economic crises tend to have a V shape. That is, policy responses quickly bring many countries back to the economic output and living standards they had before the crisis,” he wrote.
“Just as a good medical response will return a country only to its pre-Covid-19 levels of health, a capable economic response can return it only to its pre-crisis economic vitality. The US and Chinese economies were doing better than the euro area last year; it will probably be much the same in 2021,” Gill added.
Georgieva pointed Thursday to the outsized impact the coronavirus slump is having on developing countries.
“I am particularly concerned about emerging markets and developing countries. They have experienced the sharpest portfolio flow reversal on record of about $100 billion,” she said, while hailing the G20 “for reaching an agreement on official bilateral creditors to suspend debt service obligations” for the poorest countries.
The managing director likewise noted that the IMF’s current lending capacity, $1 trillion, is four times the level at the start of the 2008 financial crisis.