Washington DC: Inside the IMF/World Bank Annual Meetings

Right across from each other in the center of Washington DC are located two key institutions of the global financial system: the International Monetary Fund and the World Bank. They recently held their flagship event, the joint Annual Meetings, which take place twice a year. It is a place where the top of the financial world gathers, including bank CEO’s, Ministers of Finance and Central Bank Governors. They meet formally and informally to discuss and give speeches about the global economy. The Annual Meetings are accompanied by side events, such as luxurious dinners. Although the place is the sweet spot for finance for a week, the general message that was delivered was less shiny. What’s more, the global elite seemed quite worried.

The place is the sweet spot for finance for a week.

Dangerous debt levels

The IMF is very concerned about global debt levels. In absolute terms, they have reached all-time highs. An external shock combined with tightening financial conditions might well be the cause of a new debt crisis. You might think that after the financial crisis of 2008, the world is well-prepared to deal with a crisis of the same sort. However, nothing could be further from the truth. The IMF warned that the creditor base is now way more diverse than a decade ago. This makes debt restructuring very difficult because you have to deal with many players with many different interests. Additionally, standard debt resolutions are just lacking. So far, resolution has always been done on an ad hoc, case by case basis. Examples of this are the European debt crisis and, more recently, the Argentine debt crisis. With debt levels again at dangerous levels, global growth slowing down and a lack of mechanisms to deal firmly with arising debt crises, we can see why the IMF is so concerned. This is also apparent from its latest Global Financial Stability Report. The title of the report was “Lower for Longer”, but according to one commentator, the title should have been: “Be Afraid”. You get the idea. Besides these issues, another problem is that debt is increasingly held by foreign creditors.

Be Afraid.

This complicates matters even further, because international politics start to play a role. We saw how difficult this can be with the Greek debt crisis. Also, currency risk comes to the table as business often borrow in foreign currencies. Especially in emerging markets, businesses borrow in US dollars but sell their products in local currency. If the value of local currency falls, the real debt burden increases. This poses additional risks to the world economy.

The new queen: Kristalina Georgieva

This year, a new Managing Director has risen to the monetary thrown of the IMF. Her name is Kristalina Georgieva. She shared the concerns of the institution's economists, but went beyond the risks posed by the global debt burden. Georgieva argues that the ongoing trade war between the United States and China is really taking its toll. The 0,8% of forgone GDP growth globally encompasses hundreds of billions of dollars in economic damage. She wants this obstacle to growth removed. In order to stimulate the economy, she urges central banks worldwide to be more accommodative and make use of the little room there still is to lower interest rates. Furthermore, fiscal policy must be expanded. She wants national governments to invest heavily in their economies. On top of that, structural reforms must be implemented. An example would be the elimination of red tape, preferably as much as possible. Georgieva also offered a glimpse into the future of the IMF under her leadership.

Georgieva wants national governments to invest heavily in their economies.

The fund will focus on “issues that are macro critical, such as inequality”. As it erodes the foundation for higher productivity, inequality is a key issue to be addressed. Besides that, the fund will focus on fighting climate change.


After a decade of high economic growth, the IMF is worried that the party may be coming to an end. Debt levels are too high, room for monetary stimulus is hardly there. Structural reforms, such as debt resolution schemes are highly overdue. Therefore, the Annual Meetings can be seen as a call for action for policy makers. For now, we’ve got to keep on dancing.