In today’s edition we focus on rising debt levels around the world, income and gender inequality, cracking down on corruption amidst the pandemic, the importance of central bank transparency, why an undergraduate education among Americans is a matter of life and death, how conflict and political instability impacts the banking sector, and the incredible 30-year transformation of Medellín, Colombia’s second-largest urban area. On that note, let’s dive right in.
📢 Given the upcoming IMF board recess, we too will take a breath, so we’ll be back in touch at the end of August with your next Weekend Read. In the meantime, be well and be safe.
STATE OF THE GLOBAL ECONOMY
Yesterday we launched The Exchange – Conversations for a Better Future, a new video series with IMF Managing Director Kristalina Georgieva and other thought leaders. In our first episode, moderated by Foreign Policy’s Ravi Agrawal, MD Georgieva spoke with President and Founder of Eurasia Group Ian Bremmer.
Against the backdrop of the global economy projected to lose over $12 trillion, the energizing discussion focused on rising debt levels in emerging markets and low-income countries, how best to avoid worsening income inequality, how countries can lay the groundwork for a more resilient economy, and much more. Watch the video here and let me know what you thought of the exchange. And if you would like advance alerts for events like this moving forward, click here and press send.
If you’re looking for an in-depth read on the latest global economic outlook, how the IMF is responding to the crisis, international trade tensions amidst the pandemic, dealing with rising debt, recovery in the Eurozone and more, read MD Georgieva’s recent 2700-word interview with Greek newspaper Ekathimerini.
Speaking of which, what is debt sustainability and why is it important? Watch our latest 3-minute explainer video.
IN HER OWN WORDS: KRISTALINA GEORGIEVA
“The economics of gender equality is a book already written,” said Managing Director Kristalina Georgieva earlier this week in an interview with New York Times Gender Director Francesca Donner. “If you were to wake up tomorrow, with men and women being equal, the world’s wealth would be $172 trillion dollars bigger. But gender equality doesn’t fall from the sky. It needs to be written into policies and fought for.” For more on these issues, particularly in the context of the pandemic, leadership and how best to emerge from the crisis, I would highly recommend you watch this 30-minute interview.
CRACKING DOWN ON CORRUPTION
“Corruption was a problem before the crisis, but the COVID-19 pandemic has heightened the importance of stronger governance,” write Vitor Gaspar, Martin Mühleisen, and Rhoda Weeks-Brown in a new blog. The authors focus on three reasons why this is the case.
First, governments around the world are playing a bigger role in the economy to combat the pandemic and provide economic lifelines to people and firms. This expanded role is crucial but it also increases opportunities for corruption. Second, as public finances worsen, countries need to prevent tax evasion and the waste and loss of funds caused by corruption in public spending. And third, crises test people’s trust in government and institutions, and ethical behavior becomes more salient when medical services are in such high demand. Evidence of corruption could undermine a country’s ability to respond effectively to the crisis, deepening the economic impact, and threatening a loss of political and social cohesion.
During this crisis the IMF hasn’t taken its eye off the ball of our governance and anti-corruption work. Our message to all governments has been clear: spend whatever you need but keep the receipts, because we don’t want accountability to be lost in the process.
Borrowing countries have committed to (i) undertake and publish independent ex-post audits of crisis-related spending and (ii) publish crisis-related procurement contracts on the government’s website, including identifying the companies awarded the contract and their beneficial owners. Read the full blog here.
TRANSPARENCY AND CENTRAL BANKS
The role and mandates of central banks have become broader and more complex since the 2008 global financial crisis. The unconventional nature and growing scale of interventions (as seen again during the COVID-19 pandemic) have brought on much higher scrutiny. More transparency and accountability are required to maintain public support, safeguard independence, and enhance policy effectiveness.
In response, the IMF has developed a Central Bank Transparency Code to help member countries answer these demands and increase trust and support. It aims to facilitate more effective communication between central banks and their various stakeholders, reducing uncertainty and contributing to better policy choices.
A voluntary code, it allows central banks to measure transparency in five key areas: governance, policies, operations, outcomes, and official relations. Under each pillar, the code provides a list of best practices for key functions such as monetary or macroprudential policy. Read the full blog by Tobias Adrian, Ghiath Shabsigh, and Ashraf Khan.
WITH AND WITHOUT A BACHELOR’S DEGREE
After a century-long decline, mortality rates in the U.S. have flattened—even increased for non-Hispanic whites in middle age. In this new 24-min podcast, Nobel laureate Angus Deaton describes how people are dying at an alarming rate from suicides, drug overdoses and alcohol-related diseases, and how the largest increases in mortality are happening among those without a bachelor’s degree.
In their latest book titled Deaths of Despair (read Ken Rogoff’s recent review for F&D), Deaton and Princeton economist Anne Case look at how approaches to healthcare and inequality relate to the rising mortality rates. Professor Deaton was invited by the IMF Institute for Capacity Development to present their research to staff economists. He joined podcast host Bruce Edwards afterward to talk about these issues in the United States.
CONFLICT AND (BANKING) CRISES
While the economic effects of conflict and political instability have been analyzed extensively, much less attention has been paid to how banks are affected. In a new blog by Montfort Mlachila and Rasmane Ouedraogo, they highlight new research that addresses this gap by investigating the potential impact of conflict and political instability on systemic banking crisis in 92 developing countries over the period 1970-2016.
They find that the odds of a banking crisis are 2.5 times greater when a country is affected by a conflict. Conflicts and political instability in neighboring countries increase the likelihood of banking crises in a given country. And the probability of experiencing a banking crisis is 25 percent when the conflict lasts 10 years, against 16.4 percent when it lasts two years.
For instance, during the Sierra Leone civil war (1991-2002), more than 40 percent of banking system loans were nonperforming and the license of one bank was suspended in 1994. In Central African Republic, bank nonperforming loans increased to more than one-third of total loans and some banks became undercapitalized following the outbreak of the conflict in 2013. Read the full blog here.
THE MEDELLÍN MIRACLE
In 1991, Medellín, Colombia’s second-largest urban area, was the world’s most violent city. Today, the “City of Eternal Spring” is internationally recognized as one of the most innovative, inclusive, and sustainable cities in the world.
Federico Gutiérrez, born in Medellín in 1974 at the advent of Colombia’s violent period of armed conflict, was the city’s mayor from January 2016 until January 2020—helping spearhead many efforts to cement the city’s future as one of peace and prosperity. He credits the determination and unity shown by the people of Medellín for their commitment to overcoming violence and conflict, which has won their city accolades and admiration.
Speaking with F&D’s Marjorie Henríquez for our latest issue of F&D, Gutiérrez shares his thoughts on the city’s remarkable transformation over the past three decades. Read the 1100-word interview here. Prefer the PDF? Download it here.
One of my favorite quotes from the interview is when Mayor Gutiérrez discusses all the ways in which he focused on greening Medellín in an attempt to make the city Latin America’s capital of sustainable mobility: “Few things are more democratic than a good public space and a good system of mass public transport.”
IMF AND COVID-19
We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.
To date, 75 countries will have been approved for emergency financing, totaling nearly US$30 billion. Recent approvals include The Kingdom of Eswatini, Lesotho, and South Africa. In addition, the Executive Board recently approved a temporary increase in annual access limits to financial support.
Looking for our latest Q&A about the IMF’s response to COVID-19? Click here. We are also continually producing a special series of notes—more than 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more.
Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note.