As 2020 begins, the IMF is warning that failure to act on widening global inequality could risk repeating the boom-bust cycle of a century earlier in the 1920’s, Managing Director Kristalina Georgieva said Friday (January 17) in Washington.
Speaking at the Petersen Institute of International Economics, Georgieva highlighted the parallels between the decades marked by rising protectionism, soaring markets and the emergence of tycoons with incomes dwarfing that of regular workers.
“We can be complacent and not dig too deeper into the interface between financial sector and inequality. Or we can be smart and identify risks and opportunities and actively work on those.”
She pointed to new research by the IMF that showed that regulation, technology and efforts to increase financial inclusion can bring stability. But also that deepening can be counterproductive and lead to complex systems that baffle small investors and lock out budding entrepreneurs.
“And if we do these things, I think we would make a huge contribution to our society to avoid the risk of these 2020’s being a repeat of those 100 years ago,” said Georgieva.
For that reason, it is important for societies to lower barriers to credit and to boost financial literacy said Georgieva.
She also took questions from reporters on the so-called ‘Phase One’ trade deal signed this week between the US and China.
She welcomed the de-escalation of trade tensions between Washington and Beijing.
“We had a signing of a trade agreement that is certainly good news, but is not sorting out all the complexities of issues between these two larger economies. And for sure is not resolving the fundamental questions that need addressing in the trade system so it can succeed in the future,” said the Bulgarian economist who took over the Managing Director role last October.
The deal removes uncertainty and should boost China’s growth.
“I can tell you that it brings China in the parameters of around 6 percent growth for for 2020 rather than below. We also discussed the necessity to relentlessly continue work on trade, both to reform the global system, reform WTO to a point that it can function,” she said.
The removal of uncertainty is a good first step, said Georgieva but further measures need to be taken to ensure the rebuilding of trust and investment.
“What we are seeing now is that we have some reduction of this uncertainty. But it is not eliminated. Trade truce is not the same as trade peace. Therefore, we would see shrinkage of this negative impact, but not the eradication of this impact.”