75
Kristalina GeorGieva, an
environmental economist by
training, took office as the
managing director of the International
Monetary Fund in October 2019,
intent on greening the financial
system. A year on, the COVID-19
pandemic has created a whole new
set of challenges for her—and what
the Bulgarian-born economist calls
a “once-in-a-lifetime opportunity” to
rebuild the economy sustainably.
The IMF said on Oct. 13 that the
world economy will shrink by 4.4%
this year. What needs to be done to
drive a return to growth quickly?
What we have reported is less dire
than just a couple of months ago, but
this is still the worst recession since
the Great Depression. The road ahead
is going to be steep. There are three
actions we recommend. The first one
is recognizing that we cannot have a
durable exit from the economic cri-
sis until we exit the health crisis.
Therefore, [we need to] focus on the health of people, the capac-
ity of the medical system to cope with increasing infections, and
above all work together to get the most durable solutions: vaccines
and treatment. Secondly, we strongly recommend that what has
worked to put the floor under the world economy is sustained for
as long as necessary. In other words, do not withdraw policy sup-
port prematurely. And, three, we know that to get out of this crisis,
there is a need for fiscal stimulus. Use this money wisely. This is a
once-in-a-century opportunity.
In that vein, you’ve said climate change should be a key focus of
stimulus. How can the recovery help address climate change?
Millions of jobs have been destroyed, and many of them may not
come back, especially those held by low-skilled workers. If you have
to rapidly create jobs, public infrastructure with green criteria can be
a great place to invest. Renewable energy creates more jobs in com-
parison to fossil-fuel-based energy. So the goal should be to marry
these two objectives: create jobs and bring emissions down.
It doesn’t seem countries have followed that guidance thus far.
The very first round of response to the crisis was indiscriminately
support for the economy as it was. We have occasionally seen steps
toward greening, but they were more the exception than the rule. By
some estimates, 5% of the first round of fiscal support went green.
But in the second round, we are in a different place. We are going to
be more focused on what exactly the money would buy and orient the
recovery toward this new objective: job-rich and climate-resilient.
Beyond the opportunities you mention, the IMF has also warned
about the risks climate change poses to the global economy. How
can the IMF make sure these risks are considered?
Early on, we talked about how we can better inform decisions on the
basis of assessing risk to financial stability related to climate. The
fund invented stress tests which are now universally adopted to judge
the health of the banking system. We want to build one more layer of
stress testing for climate-related financial- stability risks.
There has been a lot of talk about the possibility that the recov-
ery might be K-shaped, with the rich getting richer and the poor
getting poorer. Does capitalism need to be reformed?
Having lived in a centrally planned economy [in Soviet Bulgaria],
I look at capitalism as an economic system that is effective, efficient
and rational. However, markets are not perfect. Markets on their own
are not going to move us to a low-carbon, climate- resilient path. We
have to bring policies that correct these market imperfections, and
we have to be very clear that without policy intervention we may
cause a lot of damage to our standard of living, to our well-being.
And another aspect of capitalism that will not fix itself without pol-
icy intervention is access to opportunity and inequality.
How can countries address inequality amid all of these crises?
The first and most important piece of this is access to opportunity—
to quality education, health care and social protection. And that re-
quires raising revenues. The fund has come up with a very clear
message: more proportionality in taxation at this time can support
growth, not harm it. It would expand the ability to build the produc-
tive capacity of everyone.
A GROWTH
CLIMATE
IMF chief Kristalina Georgieva
on what markets can’t do alone
By Justin Worland
‘USE FISCAL
STIMULUS
WISELY. THIS IS
A ONCE-IN-A-
CENTURY
OPPORTUNITY’
CHESNOT—GETTY IMAGES
