IMF update

 

Dear maria, In today's edition, we highlight: Paris summit Caroline Freund on trade and technology Noah Kaufman on green trade tensions Crypto in Latin America Cycles of boom and bust

PARIS SUMMIT IMF Calls For More Support For Vulnerable Nations (Credit: @KGeorgieva/Twitter) Kristalina Georgieva has called on world leaders to close a $1.2-billion funding gap facing the IMF’s main instrument for interest-free lending to poor countries amid deepening global disparities. Speaking on Thursday at a summit of some 40 leaders in Paris, the IMF’s managing director said more subsidy resources were needed to make up the difference between the market interest rates received by lenders and the below-market rates the Fund is committed to offering the most vulnerable borrowers through the Poverty Reduction and Growth Trust. “My appeal at this summit is to close this gap.” The world was marked by increasing disparities over capital access, climate change and financial capacity, Georgieva said. The way the IMF implements its mandate must become more comprehensive to take account of the resilience of people, society and the planet. The managing director said the IMF has reached a target to re-channel the equivalent of $100 billion of Special Drawing Rights, the Fund’s international reserve asset, from richer nations to poorer ones. But Georgieva said she wanted re-channeling to go further. “Now, we must lift our ambition.”

FINANCE & DEVELOPMENT Trade and Technology's Intersecting Paths (Credit: SeongJoon Cho/Getty Images) The combination of technological change and international trade accelerates innovation, technology adoption, and economic growth, but it can also become a polarizing force, both within and between countries, writes University of California professor Caroline Freund in Finance & Development Magazine. The effects on workers from trade and technology have historically led to calls for protection, though strengthening the social safety net and helping workers find new jobs are a better long-term strategy than trade barriers. International security threats are being met with calls for industrial policies and export controls, though these may backfire if they distort domestic resource allocation while stimulating investment in strategic products abroad, Freund writes. “A world where protectionism and subsidies spiral out of control would be a huge step backward on the path to raising global incomes and solving pressing challenges.” This article features in the June edition of F&D. Focusing on Trade, Disrupted, leading thinkers discuss economic security, geoeconomic fragmentation, industrial policy, export controls, regional trade agreements, tech’s effect on trade, green trade tensions, trade’s impact on women, and much more.

The United States’ Inflation Reduction Act unleashed the largest investment in climate and energy ever. But it also left many countries questioning some of its protectionist provisions, accusing the US of bending, if not breaking, international trade rules. So how do we move forward on climate without going backward on trade? In this podcast, Columbia University’s Noah Kaufman says international trade rules need to be redesigned if protectionism is not to become an unintended consequence of green industrial policy. Read the article in the IMF’s Finance and Development Magazine.

LATIN AMERICA AND CARIBBEAN Growing Crypto Use Calls For Stronger Rules (Credit: Magnifical/Adobe Stock) Central Bank Digital Currencies can lower financial costs and improve inclusion, but crypto assets must be regulated to safely remain part of the payment system, three economists from the IMF’s Western Hemisphere Department write in a Country Focus article. Latin America and the Caribbean are at the forefront of digital money adoption, offering valuable lessons for the rest of the world. El Salvador made headlines by granting legal tender status to Bitcoin and other countries have made significant strides in the introduction of CBDCs. The Bahamas pioneered the introduction of a CBDC with the Sand Dollar in 2020 and the Eastern Caribbean Currency Union and Jamaica have followed suit. Brazil’s CBDC project is at an advanced stage. Yet crypto assets also pose risks, particularly for vulnerable countries with a history of macroeconomic instability, weak institutions, substantial capital flows, and sprawling informal sectors, write Rina Bhattacharya, Dmitry Vasilyev and Mauricio Villafuerte. Some countries have banned crypto altogether but this approach is unlikely to be effective in the long run, they say. “The region should instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”

DIGITAL MONEY Payment Platforms Are Ripe For Renewal (Credit: shulz/iStock by Getty Images) The global payments infrastructure is ripe for renewal as countries around the world explore cryptography, tokenization and other technology to improve money, the head of the IMF’s Monetary and Capital Markets Department said in a speech on Monday. “Today’s new technologies allow the public sector to renew the infrastructure supporting cross-border payments and possibly domestic ones as well,” Tobais Adrian told a conference on central bank digital currencies in the Moroccan capital, Rabat. “This will bring people together through faster and cheaper payments, and countries together through a more stable and cohesive international monetary system.” Setting the “rules of the game” through global governance arrangements would be challenging but it could be done, Adrian said in the speech, which drew on the findings of an IMF paper on payment and contracting platforms. “Our blueprint for a new class of platforms would enhance and ensure greater interoperability, efficiency, and safety in cross-border payments, as well as in domestic financial markets.”

BACK TO BASICS What are subsidies?

Our latest Back to Basics video is about the different type of subsidies, how they can help people, and the downsides.

Weekly Roundup ZAMBIA Managing Director Welcomes Debt Milestone IMF Managing Director Kristalina Georgieva on Thursday welcomed an agreement between Zambia and its official creditors under the Common Framework for debt treatment. “This is a significant milestone for the Group of 20 Common Framework under which China, India, Saudi Arabia and Paris Club creditors joined forces to agree deep debt relief for Zambia,” she said in a statement. DATA GAPS Data Collaboration The Data Gaps Initiative “has the potential to deliver better data, leading to stronger insights and ultimately more effective policies across climate change, economic inclusion, and financial innovation,” IMF Managing Director Kristalina Georgieva told a G20 conference. She encouraged countries to go beyond GDP in their national statistics, invest in the infrastructure and capacity of collection agencies, and collaborate in filling data gaps. IMF Deputy Managing Director Bo Li gave remarks on digitally driven financial innovation. STAFF PAPER Booms and Busts A rise in credit to firms is associated with an increase in employment growth in the short term, but employment growth declines in the medium term, according to a recent IMF staff paper looking at 24 European economies between 2000 and 2018. Boom-bust growth cycles in the aftermath of a sharp rise in corporate debt are not limited to employment growth but also extend to investment. STAFF PAPER Zombie Firms The share of zombie firms—businesses that are failing but manage to avoid immediate default—has been rising worldwide over the past two decades, especially since the global financial crisis and the pandemic, says a recent IMF staff paper. The incidence of zombification is lower among private firms, possibly due to their lower average survival rates. The financial performance of non-zombie firms is worse in industries populated with a greater number of zombies. Countries with stronger banks and tighter macroprudential policies tend to have fewer zombies. CAPACITY DEVELOPMENT Improving Economic Governance The European Union and IMF have launched a new phase in their capacity development partnership that will benefit all 46 sub-Saharan countries through the IMF’s six centers in the region. Sub-Saharan African is confronted with a financing squeeze that compounds shocks and elevates economic imbalances. An additional EU contribution of 25 million euros to IMF capacity development efforts in Africa will help countries navigate through uncertainty and a rocky recovery. IMF LEARNING Public Debt Management The IMF recently released two new microlearning playlists on public debt management: the first one explores some fundamental concepts of public debt management, including why public debt management is important, what debt managers do, and what environments and frameworks they operate in. The second playlist covers fundamental public debt management acronyms and definitions.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Nick Owen Editor IMF Weekend Read nowen@IMF.org