We didn’t know that production chains were so fragile, says IMF

The managing director of the IMF (International Monetary Fund), Kristalina Georgieva, drew the size of the surprise with the negative scenario for the world economy in the recovery after the peak of the Covid pandemic.

“We expected the economy to grow and inflation to drop. We got the exact opposite,” she said during the World Government Summit, an annual meeting held in Dubai, United Arab Emirates. “We didn’t know that the production chains were so fragile.”

The expectation for a longer cycle of low interest rates was abandoned when the IMF realized the size of the inflationary problem.

“Our policies are not set in stone. They reflect the conditions we see,” Georgieva said, adding that, in retrospect, the reaction could have been different last year.

Still, the economist praised the actions of central banks around the world at the beginning of the pandemic. “We predicted in early 2020 that the world economy would fall by 10%, which means depression,” she said. “And that didn’t happen, because central banks were supportive.”

For 2022, the fund’s forecast, announced before the war broke out in Ukraine, was that the world economy would grow by 4.4% this year, which represents a slowdown compared to last year.

The IMF’s focus now is on providing cheap money in long-term loans to low-income, high-indebted countries, particularly those heavily dependent on food imports, such as Egypt and Lebanon.

“I experienced high inflation in Bulgaria [seu país natal]. My mom’s savings evaporated in 48 hours. I know the pain that is being felt in countries where food is becoming scarce,” he said, saying he is committed to a solution that will dilute the tension after the military conflict. “I know how much a cold war reduces the world’s potential.”

She recalled that the IMF allocated US$ 650 billion last year to the so-called special drawing rights, an artificial reserve of currency created and maintained by the body to be used to help its members. The fund is now asking for additional contributions from its members in light of the war scenario. The contaminating effect of conflict, she said, “spreads far and wide.”

Georgieva also mentioned Bulgaria, a former Soviet satellite. “My home country is dependent on gas from Russia. Inflation is rising, people are anxious, and there is fear that the war will spread.”

When being interviewed on stage, Georgieva went through a situation common to other speakers at the event: she was asked by an American journalist to punish Russia according to the capacity of the body she represents. In her case, the author of the assertive question was Richard Quest, from CNN. She dodged it, saying that it depends on a decision by the fund members.

Journalist Roberto Dias traveled at the invitation of the United Arab Emirates News Agency