The International Monetary Fund is facing one of its biggest tests since the body’s creation at the close of World War II, with new leaders charged with keeping the global economy from the abyss.
Since the coronavirus outbreak closed the Washington headquarters, Managing Director Kristalina Georgieva works at home in suburban Maryland. Calls with leaders – from People’s Bank of China Governor Yi Gang to President Alberto Fernández, as well as the fund’s top staff – fill days that can stretch from 6am to midnight, according to a person familiar with her routine.
Georgieva, who held the number two World Bank post before succeeding Christine Lagarde as IMF chief in October, is now joined by Geoffrey Okamoto, a 35-year-old former deputy to US Treasury Secretary Steven Mnuchin. He joined March 19, succeeding David Lipton, who recently departed as the longest-serving first deputy managing director.
He joins as nearly 80 countries seek emergency financing and the fund pledges to deploy its US$1-trillion lending capacity to aid the global economy, which it now sees as entering a recession at least as severe as the downturn during the 2008-2009 global financial crisis. The sense within the IMF is that the economic fallout is just beginning, and that the fund depends, as ever, on its technical experts and career veterans, according to interviews with current and former officials.
Georgieva comes to the IMF with different experience than past chiefs, but that won’t necessarily hurt her chance of success, said Edwin Truman, a former Federal Reserve and Treasury official who’s now a senior fellow at the Peterson Institute for International Economics in Washington.
“People raised questions about Christine Lagarde when she became head of the IMF, that she wasn’t an economist and was only a lawyer,” he said. “She left the IMF considered a heroine.”
As the world’s financial firefighter, the Fund’s main goal is ensuring the stability of the international monetary system. While not a humanitarian organisation like the World Bank, it’s often the lender of last resort for developing nations. The IMF deals with the balance of payment problems that could arise from trade interruptions and tumbling currencies as the virus shuts down economic output and investors lose confidence.
With nearly all nations now in the grip of the deadly pathogen, “all hands are on deck until we deal with Covid-19 and the crisis around it,” IMF Chief Economist Gita Gopinath said in a Bloomberg Television interview Tuesday.
Speaking from home in Boston, she added the challenge is made even greater with staff all working remotely.
That distance will be in even sharper relief next month when the IMF for the first time convenes virtual joint spring meetings with the World Bank and updates its economic projections.
Georgieva, 66, is a Bulgarian economist. She doesn’t have the same government experience as Lagarde – France’s finance minister during the last crisis – or her other predecessors, who typically were finance ministers or central bankers of large European economies. Her career was built in the World Bank and European Commission – where her responsibilities included crisis management – and she earned a reputation for pragmatism, consensus-building and collaboration.
In choosing Georgieva and Lipton, the Fund maintained a tradition of the chief coming from Europe and the deputy from the US. But the IMF has faced growing calls in recent years to give developing nations a greater role. Under Lagarde, the fund was criticised for a perceived bias toward Europe during the euro crisis and seeking too much austerity in exchange for a record US$56-billion loan to Argentina that the nation is struggling to repay.
Losing Lipton, who was pushed out in February, deprived the Fund of a proven crisis veteran, said Olivier Blanchard, IMF’s chief economist from 2008 to 2015. Lipton was responsible for much of the strategy and policy development over the past decade under Lagarde.
“You need someone at the top coordinating all the information and taking the right decisions,” Blanchard said. “It’s like a library. You may have 200 books, but you need to know which information is the most relevant and important.”
Okamoto has worked for Mnuchin since early 2017 as part of the team for China trade talks. He previously was staff director on the Senate subcommittee on financial institutions and consumer protection, which was chaired by Pennsylvania Republican Pat Toomey. Unlike predecessors Stanley Fischer, Anne Krueger, and John Lipsky, Okamoto doesn’t have an economics PhD or decades of experience in academia, multilateral institutions and Wall Street.
He does have an existing relationship with Georgieva from their work when she was World Bank chief executive officer and the pair helped negotiate a US$13-billion capital increase for the lender.
He’s also likely to be a valuable conduit with Treasury and the US, the fund’s biggest shareholder and a de facto veto on big decision, according to Scott Morris, a senior fellow at the Center for Global Development, a Washington-based think tank, and former deputy assistant Treasury secretary for development finance and debt. He also notes Georgieva’s strong reputation at senior levels within Europe and across the multilateral system.
“The current IMF leadership doesn’t have the same profile and depth of experience on these issue as their predecessors,” he said. “It doesn’t mean that they don’t know how to talk to people who have that experience.”