Yahoo Finance’s Alexis Christoforous, Kristin Myers and Brian Cheung discuss the latest global implications of Biden’s infrastructure plan with Ceyla Pazarbasioglu, Director of the Strategy, Policy, and Review Department of the IMF.
This is a video transcript.
ALEXIS CHRISTOFOROUS: Welcome back. The International Monetary Fund is advocating for more international cooperation as the vaccine rollout continues globally. Here to walk us through the global outlook and how the world’s nations should be working together is Ceyla Pazarbasioglu, an IMF Director who oversees the fund’s work with the G20 and the United Nations. We’re also joined by Yahoo Finance’s Brian Cheung.
Ceyla, thanks so much for being with us. First, I’d like to get your thoughts on the news of the day, which was President Biden releasing the blueprint for his budget, which we know is on top of the $1.9 trillion COVID relief package, which is on top of a $2 trillion-plus infrastructure package. Is this prudent to be spending this kind of money right now when our nation’s debt is more than the American economy combined?
CEYLA PAZARBASIOGLU: So very nice to be with all of you. In our surveillance work, which is IMF’s key mandate, it’s basically the annual check up of countries, we have long been saying that the US needs increase in infrastructure spending. You were talking just a little while ago about the shortcomings of the quality and size of public investments in– in the US.
So this is very much going to increase the long-run productivity of the US economy, and also transition to a less carbon-intensive economic model. So I think this is good news. They also have the tax plan, which should help finance part of the costs.
BRIAN CHEUNG: Hey, Ceyla, it’s Brian Cheung here. Great to have you on the show. I wanted to ask just about the global picture on the inequal recovery, if you will. We know that was the case with the vaccine distribution, because most of the wealthy countries are the ones that have the most access to the vaccines, which is going to be the quickest way to get out of the economic rut that we experienced last year. So from the IMF’s perspective, what is the situation for those lower-income emerging developing countries? And how is that gap going to even widen through the vaccine rollout globally?
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CEYLA PAZARBASIOGLU: Yeah. So Brian, we did just came up this– this week with our global growth forecast. We did upgrade from 5.5% to 6% for 2021. But as you said, we also warned about the increasing divergences across countries. And this is really related very much to the– the response that countries were able to take, the policy response, which has been very divergent as well.
If you look at advanced economies, for example, they were able to put in policy packages of 23% of GDP. For emerging market economies, this was 6% of GDP. And for low-income countries, 2% of GDP. So the response to deal with this tragic pandemic has been very different across countries.
And also, if you take, for example, the vaccine administration, this also has been very different across countries. When you really look at 100 doses– the doses administered per 100 people, the amounts are very starkly different. Take the case of US, it’s 43 doses for 100 people. For emerging markets, it’s 8. For low-income countries, it’s 2.
So really stark differences, and this is what we have been worrying about, that this will create inequalities within countries, with, of course, the low-skilled women and youth impacted much more in this crisis, as well as across countries with the advanced economies and emerging markets, and especially low-income countries very different prospects for recovery are very much of a multi-speed and diverging recovery.
BRIAN CHEUNG: And Ceyla, this week, which is the annual spring meeting at the IMF, was a big forum to discuss the idea of a new special allocation of what they call special drawing rights. For viewers that might not understand, it’s a pool of money that the IMF can award based on certain quotas to member nations. And this has been something that the managing director has said might help a lot of those countries that you were just saying that might be struggling out of the other side of this recovery.
But of course, this is a bit of a politically thorny issue, because a lot of the advanced nations would also benefit from the SDR allocation. So you liaise with the G20 and the United Nations. What have those discussions been like in terms of this aspirational $650 billion in new allocations? And how might you communicate what the purpose of this and how it works to our viewers?
CEYLA PAZARBASIOGLU: Yeah, thanks. Thanks, Brian, for that question. It is really historic. It’s historic general allocation, $650 billion proposed, as you said, the special drawing rights. And to me, it signals international cooperation. And in the context of the uncertain and multi-speed recovery, with divergences across the advanced and low-income world, this is particularly important.
It’s basically an increase in global reserves across the world. So everyone– every country, depending on their quota, will get an increase in their reserves. And 42% will go to emerging markets and developing countries. That’s about $275 billion US dollars.
We will go to the board by June. The managing director will send the proposal. And then if that’s approved, hopefully by August we should be able to have this SDR allocation effective. It will help in these uncertain times to provide buffer for all countries, but it’s particularly important for that are most vulnerable.
And also, as you have seen in the G20, many countries have said that, voluntarily, that they would be willing to unlend or channel some of their SDRs to those countries that are most in need. So we are also working on options and proposals for a voluntary unlending or channeling of SDRs by countries that do not need them.
KRISTIN MYERS: Ceyla, you know, we’ve seen over the last couple of decades, actually, governments not getting all the money that is really owed to them as a lot of corporations have been able to skirt and avoid paying tax by moving their companies around to the country with the lowest tax rate. And obviously, Treasury Secretary Janet Yellen has now proposed this global minimum tax rate. I know it’s a measure and a move that the IMF does support. I do want to ask you, however, the likelihood that you think a measure like this could be enacted, could be passed by a consortium of countries? Is there anything that the IMF can do to push some of those countries along to adopt this measure?
CEYLA PAZARBASIOGLU: So yes, this is very much discussed at the G20 level as well. The idea is to come up with an agreement by the end of the– by the mid-year, actually, by June, so there is a big momentum. It’s very important that there is discussion across the countries, especially the G20. And I am optimistic. We are optimistic that this is going to be– we are going to see progress on this.
BRIAN CHEUNG: And Ceyla, I wanted to ask about the– just China’s role in all of this. Obviously, there were a lot of questions in Janet Yellen’s testimony to Congress about how China might benefit from the SDR, but then just broadly also their role in global cooperation during this really important period of time where everyone’s trying to get on board with a global recovery. What are those conversations like with China? Janet Yellen was saying that she can be adversarial where they might need to be from the US part. How does the IMF approach their participation in the global order?
CEYLA PAZARBASIOGLU: So China is very important, as you said. It’s one of the largest creditors to many of the low-income countries, which have seen an increase in debt levels. And China has been participating in the G20 Debt Service Suspension Initiative. They have been participating also in the common framework debt treatments. This is to bring all creditor countries to agree on either debt reprofiling or debt restructuring for countries that really need them.
And China has also contributed to our Catastrophe Containment and Relief Trust fund, which is for us to be able to provide grants to countries for the debt service payments to the IMF. So China has been very much working on all of these different initiatives. Of course, much is expected of China going forward. And it will remain to be seen how the common framework works, as well as in the context of many of our programs how we can support developing countries, which really need collaboration from China in terms of dealing with some of the debt problems.
More generally, more broadly on the climate change agenda, China has been also a very important force. The Chinese and– authorities and the US authorities are co-chairing the Sustainable Finance Group under the G20 Climate Initiative. This is really remarkable. This study group was dormant for a while. And it shows that there are these collaborative efforts to really make progress and– on important areas as debt sustainability and transparency, as well as on climate change.
ALEXIS CHRISTOFOROUS: All right, we’re going to leave it there. Ceyla Pazarbasioglu, IMF Director. Thanks for your time today. Still ahead, we’re going to break down President Biden’s budget
Originally Appeared On: https://finance.yahoo.com/video/biden-infrastructure-plan-increase-long-193001137.html