On May 15, 2020, the Bretton Woods Committee hosted a virtual conference, In Conversation: FDMDs on IMF Response to COVID19, which outlined the International Monetary Fund’s (IMF) response to the coronavirus pandemic. Featured speakers Geoffrey Okamoto, First Deputy Managing Director of the IMF, and John Lipsky, former First Deputy Managing Director of the IMF, discussed the IMF’s response to the crisis to-date and looked ahead to future challenges and opportunities.
The economic shock from the pandemic has resulted in the worst global recession since the Great Depression. Near-term economic prospects are grim and longer-term prospects remain uncertain as the virus continues to spread worldwide. Within this context, the IMF is playing a crucial role in providing emergency relief and leveraging their firepower to assist countries in recovery efforts.
- IMF Emergency Assistance Efforts and Revamped Toolkit: The IMF has sought to rapidly identify and arrest liquidity problems throughout the globe. Over 100 countries have approached the IMF for emergency assistance. The IMF has approved more than 60 of these 100 requests, facilitating $18 billion in emergency relief. The funds granted for these emergency programs are fast dispersing, without attached conditionalities. In addition, the IMF has increased concessional funding to vulnerable countries, and raised almost $17 billion in new resources for the world’s poorest nations. Finally, the IMF has introduced a new instrument in their toolkit, the Short-Term Liquidity Line (SLL). The SLL serves as a liquidity backstop for short-term balance of payment needs, minimizes the risk of shocks developing into deeper crises, and constitutes an important component of the IMF’s long-term coronavirus strategy.
- Debt Moratorium: The IMF is assisting countries with debt distress in two ways. First, the IMF has suspended debt servicing payments to the Fund for a period of two years. To cover this debt service, the IMF is working with donor members to fundraise $1.4 billion. Second, the IMF is coordinating with G20 members to facilitate a debt moratorium for low-income borrowers. This will provide debt relief in hard-hit countries and create the fiscal space necessary for governments to react swiftly to the pandemic. While the implementation of the debt moratorium lies in the hands of G20 creditors, the IMF has provided members with a term sheet and described types of credit and criteria for country eligibility. In addition, the IMF has played a critical role in fostering cooperation between the Paris Club and newer creditors. Major lenders, including China, which has typically engaged in more bilateral negotiations, have agreed to the same debt rescheduling terms and transparency commitments. Additionally, the Fund is working with the IIF to encourage private creditors to participate in the debt moratorium on comparable terms. In Argentina, the IMF is encouraging the country and creditors to work constructively together to create a mutually beneficial arrangement.
- International Collaboration: The coronavirus pandemic has spurred widespread collaboration between institutions and across fields. The IMF has been working with experts on epidemiology and public health as inputs into IMF economic forecasts. In the realm of international finance, the IMF, World Bank, and Regional Development Banks have been engaging in close-knit coordination at all levels. G20 members and the IMF have been working together on policy responses. As FDMD Okamoto notes, the pandemic has allowed institutions to witness the benefits of working “hand-in-hand” with each other, as collaboration has yielded better program design and economic initiatives. Okamoto highlighted the G20 debt agreement as a key example of the advantages of cooperation among countries and institutions.
- Re-building in the Post-Coronavirus World: As countries emerge from the coronavirus pandemic, they will face unprecedented amounts of debt and economic uncertainty. The IMF plans to continue heightened tracking and surveillance of debt. Currently, the IMF views its $1 trillion firepower as sufficient to meet demand but the Fund is examining both the option of a general SDR allocation and mobilizing existing SDR stock for members with acute liquidity needs. Within this context, the extended deadline for the IMF quota review will allow the Fund to develop a more clear and informed view of worldwide debt needs before making decisions by the end of 2020. Finally, the IMF hopes to bring issues like gender and climate change back into focus in the fund’s rebuilding in the post-coronavirus world.