IMF Right to Spend Liberally

Debt moratorium a critical step forward

A week of virtual international meetings – G7 and G20 finance ministers and the International Monetary Fund’s international monetary and financial committee – has just wrapped up. The official bilateral debt standstill for low-income countries is highly positive. The IMF has responded rapidly to the coronavirus hit on these countries and emerging markets. On balance, it was a decent week, though not uniformly so.

The IMF’s world economic outlook and global financial stability review underscored the economic and financial severity of the ‘great lockdown’. But despite lofty principles, G20 health and macroeconomic discussions failed the test of multilateral co-operation.

Coronavirus respects no borders. It requires global co-operation. There have been many excellent responses. The Federal Reserve and Treasury deserve credit for their rapid, large-scale action, though implementation challenges remain. Germany abandoned the ‘schwartze Null’. The European Central Bank acted boldly.

However, responses have been largely national, especially in advanced economies. Governments are reacting domestically to a common global shock, not multilaterally. European nations continue to lean excessively on the ECB. Regardless of floury G20 trade language, contrary to the post-2008 financial crisis protectionist refrain, countries are erecting barriers to medical exports. Despite the need for health co-operation, a lack of Chinese transparency and US President Donald Trump’s funding cuts for the World Health Organisation stand in the way.