An IMF Official Describes the "Long Ascent" Ahead
The ascent refers to the difficult climb nations face as they “come back from the depths of crisis.” It promises to be “long, uneven and uncertain,” as explained by the International Monetary Fund (IMF) Managing Director Kristalina Georgieva, at an event hosted by the London School of Economics (LSE). This “path forward” for the 189 member countries serves as a precursor to the IMF’s 2020 Annual Meetings which commenced this week. A great deal of effort has gone into these economic plans, yet the question remains: Is this actually economics?
According to the director, the “whatever it takes” approach by advanced economies greatly helped the situation and “put a floor under the world economy.” As she tells it :
We have reached this point, largely because of extraordinary policy measures that put a floor under the world economy. Governments have provided around $12 trillion in fiscal support to households and firms.
A $12 trillion “floor” laid by government cannot be substantiated. We don’t know whether the floor would have been there if the government support did not take place. Nor can the various pernicious effects, such as loss in purchasing power, increase in cost of living, and greater world reliance on debt can be factored into the cost of said floor.
Even though she praises the increase to the money supply, she notes that risk remains high due to rising bankruptcies and stretched valuations in financial markets. She goes on to say many countries have become vulnerable and:
We estimate that global public debt will reach a record-high of about 100 percent of GDP in 2020.
While implied world debt levels are concerning, debt levels have long taken a back seat to central planners, especially in times of crisis. This is fortunate because heavy debt-laden/ inflationist policies underline the IMF’s four priorities:
First, defend people’s health.
This includes coordinated vaccine efforts, distribution and contact tracing. It seems out of scope for the IMF considering it’s an economic, not a health organization. This would be akin to the World Health Organization discussing the need for central banks to reign in their balance sheet!
Second, avoid premature withdrawal.
They agree “tax deferrals, credit guarantees, cash transfers, and wage subsidies,” should be given to firms and workers. This may sound promising but the sheer allocation of resources is beyond comprehension. These interventions could initially help, yet the government would never know if the positive effects of the program outweighs the negatives. If a wage subsidy, for example, leads to higher consumer prices and a higher national debt level, the government would have no basis to know if the effort and various trade-offs were worthwhile.
But it doesn’t stop on the fiscal side as the IMF notes the equal importance of “continued monetary accommodation and liquidity measures to ensure the flow of credit, especially to small and medium-sized firms.” Unfortunately, this too is problematic. Any notion of the optimal level of liquidity cannot be measured and immeasurable goals are normally difficult to achieve.
Third, flexible and forward-leaning fiscal policy.
This explicitly calls for governments to reallocate capital and labor to support the transition, requiring both “stimuli for job creation, especially in green investment,” as well as measures such as expanded unemployment insurance. This follows the pattern of governments using money to take action which cannot be reasonably calculated or justified, but acceptable since it’s perceived preferable than to “do nothing.”
Fourth, deal with debt.
For low-income countries especially, the goal is to create “more grants, concessional credit and debt relief, combined with better debt management and transparency.” This includes restructuring of sovereign debt. As many countries continually struggle with national bankruptcy because of debt, it’s ironic more debt would be a solution.
Piecing it together, we find there may be a long ascent after all; not the struggle of having the IMF corral the world to embrace more anti-capitalist policies, but the struggle required to build a future where the IMF ceases to exist. While a tall order, it seems justified considering the economic methods employed by the IMF appear devoid of economic explanation.