Tuesday, October 10, 2023

What to Watch as IMF and World Bank Hold Meetings in Morocco

Malcolm Scott, Souhail Karam and Eric Martin
Tue, October 10, 2023 



(Bloomberg) -- The annual meetings of the International Monetary Fund and World Bank kick off this week against a backdrop of escalating global conflict and debt distress.

A new outbreak of violence in Israel and the grinding war in Ukraine add a grim dynamic to the Washington-based lenders’ efforts to rally their members and keep the focus on reforms to bolster their financial firepower.

The gatherings in Marrakech, Morocco — which bring together the world’s finance ministers, central bank governors and top commercial banking executives — are taking place in Africa for the first time in 50 years. Kenya’s capital, Nairobi, was host in 1973, the same year as the Yom Kippur War in the Middle East. Like the current violence, that conflict caught Israel by surprise at a time of global economic fragility.

The confluence of issues, amid high interest rates and a cautious economic outlook, reminds the estimated 10,000 attendees “how quickly geopolitics can change their calculations,” said Josh Lipsky, senior director of the GeoEconomics Center at the Atlantic Council.

Here’s what to watch for this week:

Economic Clouds


The global economy has been buffeted by inflation, the steepest monetary tightening in a generation, China’s property crisis and Russia’s invasion of Ukraine, yet expansion keeps chugging along. That has markets rushing to price in a higher-for-longer interest-rate outlook, with 30-year US Treasury bond yields last week punching through 5% for the first time since 2007.

In its flagship World Economic Outlook on Tuesday, the IMF lifted its global inflation forecast for next year — 5.8% from 5.2% seen in July — while shaving 0.1% off its growth outlook for 2024, to 2.9%.

“Monetary policy needs to remain tight in most places until inflation is durably coming down towards targets,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said in a briefing. “We’re not quite there.”

While discussions over monetary policy often overshadow fiscal updates at such multilateral conferences, there may be more attention paid to the outlook for state treasuries this time with many of the world’s largest economies still deeply in the red.

Multilateral Dysfunction

One again, conflict risks muddying a coherent message from the Group of 20, which represents more than 80% of the global economy created after the global financial crisis to seek a shared path forward. After a consensus communique was reached at its leader summit in India last month, the upcoming finance ministers and central bank governors will be facing a new challenge of addressing the conflict in Israel while balancing several, often clashing, stances.

That was most visible this week in China, as a US congressional delegation headed by Senate Majority Leader Chuck Schumer criticized Beijing’s response to the fighting as being insufficiently supportive of Israel. At the same time, the US-China tension will be a common theme through the week, as the IMF warns about the economic costs of worsening political fragmentation.

Debt Help


The so-called Bretton Woods institutions, along with the G-20, are at the center of an effort to rewrite the global financial playbook around debt distress. Piles of loans in emerging markets taken out during the era of low rates and China’s surge of Belt and Road Initiative lending, have now fallen into distress. But nobody knows yet how to resolve that.

The effort, and its very slow progress, comes into focus Thursday during a session of the Global Sovereign Debt Roundtable, a novel effort to bring together debtor countries along with the so-called Paris Club group of lenders, China and other new lenders, as well as private creditors. Seeking a unified approach to restructuring debt held by such a diverse group has been difficult, and expectations are low for any breakthroughs. Some progress on individual cases may emerge, however, with progress on restructuring agreements expected on Sri Lanka and Zambia.

Bretton Woods Reforms


World Bank President Ajay Banga is expected to lay out his vision for the development lender, including efforts that could raise lending by more than $100 billion over the next decade. IMF Managing Director Kristalina Georgieva intends to raise the fund’s so-called quotas, seeking more money from members to help it reclaim its place at the center of the global financial safety net.

Both efforts find their biggest supporters, and obstacles, from the US. Treasury Secretary Janet Yellen spurred on the World Bank’s so-called evolution road map last year, asking the bank to take on a broader set of challenges and rally the private sector.

She’s also called on partners to pony up more guarantees or other types of funding to help strengthening its lending clout. The response as been muted, partly because of a realization that even Yellen’s efforts to bolster the bank must go through Congress, which has been embroiled in fierce disputes over spending. And the US House is leaderless at the moment.

The IMF leadership will discuss the December deadline for its 16th review of quota — the term for the resources that all members pay into the organization and finance its lending. The US favors increasing resources but opposes shifting voting weight, which would give more power to China. Georgieva said this month that she’s interested in expanding the role of emerging and developing countries, including adding a third seat on its executive board to represent Africa. She also supports giving China a bigger vote, but that’s not on the table until the next five-year review period.

Morocco Recovery


The “city of cheerfulness,” as Moroccans refer to Marrakech, is still recovering from a devastating earthquake centered in the nearby mountainous region that killed almost 3,000 people.

The meetings find the cash-strapped kingdom in need of $11.7 billion to pay for rebuilding and potentially billions of dollars more to prepare to co-host the FIFA soccer World Cup in 2030.

With about 60,000 people left homeless, concern is growing with the approach of winter over the living conditions faced by survivors. The Red Cross last week called for “urgent humanitarian needs as winter approaches,” including warm shelter, latrines and showers.

--With assistance from Swati Pandey and Volodymyr Verbyany.

 Bloomberg Businessweek

Yellen Resists Pressure for Reform of IMF Voting Shares


Christopher Condon
Tue, October 10, 2023 


(Bloomberg) -- US Treasury Secretary Janet Yellen showed little willingness to embrace reforms at the International Monetary Fund that would give China and other developing countries significantly more say in how the world’s go-to emergency lender is run.

The Biden administration would “support a quota formula that better reflects the global economy, but change on this can only happen within an agreed-on framework based on shared principles,” Yellen said in the text of remarks she delivered Tuesday as global finance officials gathered in Marrakesh, Morocco.

The outdated distribution of IMF quotas — which represent a country’s share of the institution’s resources and align closely with voting rights — is expected to be a source of major debate here this week at the annual gathering of the World Bank and IMF.

Global South


Countries like China, Brazil and India — whose economies have grown significantly faster than those of developed nations - have long clamored for a re-division of quotas to reflect their growing heft. China, for example, accounts for about 18% of global economic output, but holds just a 6% share at the IMF.

Tatiana Rosito, a senior official in Brazil’s Finance Ministry told Bloomberg News last week the lack of reform was pushing the so-called BRICS nations to fund development through institutions like the Beijing-based Asian Infrastructure Investment Bank.

The IMF’s Managing Director, Kristalina Georgieva, appeared to signal her support for reforms in an interview published in the Financial Times earlier this month.

“There is a need to constantly change to reflect how the world economy is changing,” she said.

Pro-Rata


In her remarks, Yellen reiterated US calls for an “equiproportional” increase of IMF quotas, highlighting Washington’s unwillingness to consider a reallocation of voting shares at this moment. In other words, the US proposes that all members should contribute more, but retaining the division of power that’s existed in the IMF since 2016.

Yellen’s remark on quota reform being dependent on “shared principles” among IMF members could be interpreted as a reference to China, which the US has criticized for, among other things, not participating readily in debt restructuring for low-income countries and for being non-transparent in foreign-exchange management.

In order to improve representation at the Fund by emerging and low-income economies, Yellen reiterated the US proposal to add another deputy managing director to represent these nations. She said the US was also engaging with peers on the potential of adding another Executive Board chair representing sub-Saharan Africa.

Development Finance


Yellen also spoke of US ambitions for the World Bank, where she has pushed for big changes and partly succeeded. At her urging in the last year the development lender has taken steps to stretch its balance sheet.

In her speech Yellen tried to rally support for further increasing resources for concessional loans —those with terms more favorable than markets would provide — to confront global threats like climate change and pandemics.

She noted the Biden administration has pledged an additional $2.25 billion that could “unlock” up to $27 billion in fresh lending. The US has been hoping other advanced economies will make similar pledges to increase the World Bank’s firepower, though few have so far made concrete promises.

“The G20 has committed to mobilizing more resources, and other countries are making announcements on how they will boost capacity as well,” Yellen told an audience at the Mohammed VI Polytechnic University in Ben Guerir, north of Marrakech.

Other countries, however, will also be watching the US Congress closely to see if lawmakers will approve the funding promised by President Joe Biden and Yellen. Ongoing partisan squabbles in the US capital are threatening not only support for the World Bank but aid for Ukraine.

Yellen also called on all the regional development banks to get moving on incorporating some callable capital — money that members have pledged to produce in an emergency, but which has never been tapped — in their capital adequacy frameworks, a step that could boost their lending power.

--With assistance from Eric Martin.


IMF outlook worsens for a 'limping' world economy. Mideast war poses new uncertainty


Tue, October 10, 2023 



WASHINGTON — The world economy has lost momentum from the impact of higher interest rates, the invasion of Ukraine and widening geopolitical rifts, and it now faces new uncertainty from the war between Israel and Hamas militants, International Monetary Fund warned Tuesday.

The IMF said it expects global economic growth to slow to 2.9% in 2024 from an expected 3% this year. The forecast for next year is down a notch from the 3% it predicted back in July.

The deceleration comes at a time when the world has yet to fully mend from a devastating but short-lived COVID-19 recession in 2020 and now could see fallout from the Middle East conflict — particularly to oil prices.

A series of previous shocks, including the pandemic and Russia’s war in Ukraine, has slashed worldwide economic output by about $3.7 trillion over the past three years compared with pre-COVID trends.

“The global economy is limping along, not sprinting," IMF chief economist Pierre-Olivier Gourinchas said at a news conference during the organization's annual meeting in Marrakech, Morocco.

The IMF expectation of 3% growth this year is down from 3.5% in 2022 but unchanged from its July projections.

It's “too early” to assess the impact on global economic growth from the days-old war between Israel and the militant Palestinian group Hamas in Gaza, Gourinchas said. He said the IMF was “monitoring the situation closely” and noted that oil prices have risen by about 4% in the past several days.

“We’ve seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region," he said.

If sustained, a 10% increase in oil prices would reduce global economic growth by 0.15% and increase global inflation by 0.4%, Gourinchas said.

"But again, I emphasize that it's really too early to jump to any conclusion here,” he added.

So far, the increase in oil prices has been “fairly muted,” said Commerzbank commodities analyst Carsten Fritsch. He noted the absence of declarations of support for Hamas from key oil producers Saudi Arabia, the United Arab Emirates, Kuwait and Iraq, which would make it unlikely that they would restrict supply in response to the war.

So far, the world economy has displayed “remarkable resiliency," Gourinchas said, at a time when the U.S. Federal Reserve and other central banks worldwide have aggressively raised interest rates to combat a resurgence in inflation.

The hikes have helped ease price pressures without putting many people out of work. That combination, he said, is “increasingly consistent" with a so-called soft landing — the idea that inflation can be contained without causing a recession.

The IMF sees global consumer price inflation dropping from 8.7% in 2022 to 6.9% this year and 5.8% in 2024.

The United States is a standout in the IMF’s latest World Economic Outlook, which was completed before the outbreak of war between Israel and Hamas. The IMF upgraded its forecast for U.S. growth this year to 2.1% (matching 2022) and 1.5% in 2024 (up sharply from the 1% it had predicted in July).

The U.S., an energy exporter, has not been hurt as much as countries in Europe and elsewhere by higher oil prices, which shot up after Russia invaded Ukraine last year and jumped more recently because of Saudi Arabia's production cuts. And American consumers have been more willing than most to spend the savings they accumulated during the pandemic.

Things are gloomier in the 20 countries that share the euro currency and are more exposed to rising energy prices. The IMF downgraded eurozone growth to 0.7% this year and 1.2% in 2024. It actually expects the German economy to shrink by 0.5% this year before recovering to 0.9% growth next year.

That's below even Russia's economy, which the IMF predicts will expand 2.2% this year before dropping to 1.1% growth next year.

The Chinese economy, the world’s second biggest, is forecast to grow 5% this year and 4.2% in 2024 — both downgrades from what the IMF expected in July.

China’s economy was expected to bounce back this year after the communist government ended draconian “zero-COVID" lockdowns that had crippled growth in 2022. But the country is struggling with troubles in its overbuilt housing market.

The IMF again expressed concern that the countries of the world were breaking into geopolitical blocs that could limit international trade and economic growth globally.

The United States and its allies have imposed unprecedented sanctions on Russia for its invasion of Ukraine and have sought to become less reliant on Chinese imports as tensions with Beijing grow.

The IMF noted that last year countries imposed nearly 3,000 new restrictions on trade, up from fewer than 1,000 in 2019. It sees international trade growing just 0.9% this year and 3.5% in 2024, down sharply from the 2000-2019 annual average of 4.9%.

Paul Wiseman And David Mchugh, The Associated Press

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