Kristalina Georgieva, an environmental economist by training, took office as the managing director of the International Monetary Fund in October 2019, intent on greening the financial system. A year on, the COVID-19 pandemic has created a whole new set of challenges for her—and what the Bulgarian-born economist calls a “once-in-a-lifetime opportunity” to rebuild the economy sustainably.
The IMF said on Oct. 13 that the world economy will shrink by 4.4% this year. What needs to be done to drive a return to growth quickly?
What we have reported is less dire than just a couple of months ago, but this is still the worst recession since the Great Depression. The road ahead is going to be steep. There are three actions we recommend. The first one is recognizing that we cannot have a durable exit from the economic crisis until we exit the health crisis.
Therefore, [we need to] focus on the health of people, the capacity of the medical system to cope with increasing infections, and above all work together to get the most durable solutions: vaccines and treatment. Secondly, we strongly recommend that what has worked to put the floor under the world economy is sustained for as long as necessary. In other words, do not withdraw policy support prematurely. And, three, we know that to get out of this crisis, there is a need for fiscal stimulus. Use this money wisely. This is a once-in-a-century opportunity.
Millions of jobs have been destroyed, and many of them may not come back, especially those held by low-skilled workers. If you have to rapidly create jobs, public infrastructure with green criteria can be a great place to invest. Renewable energy creates more jobs in comparison to fossil-fuel-based energy. So the goal should be to marry these two objectives: create jobs and bring emissions down.
It doesn’t seem countries have followed that guidance thus far.
The very first round of response to the crisis was indiscriminately support for the economy as it was. We have occasionally seen steps toward greening, but they were more the exception than the rule. By some estimates, 5% of the first round of fiscal support went green. But in the second round, we are in a different place. We are going to be more focused on what exactly the money would buy and orient the recovery toward this new objective: job-rich and climate-resilient.
Beyond the opportunities you mention, the IMF has also warned about the risks climate change poses to the global economy. How can the IMF make sure these risks are considered?
Early on, we talked about how we can better inform decisions on the basis of assessing risk to financial stability related to climate. The fund invented stress tests which are now universally adopted to judge the health of the banking system. We want to build one more layer of stress testing for climate-related financial-stability risks.
There has been a lot of talk about the possibility that the recovery might be K-shaped, with the rich getting richer and the poor getting poorer. Does capitalism need to be reformed?
Having lived in a centrally planned economy [in Soviet Bulgaria], I look at capitalism as an economic system that is effective, efficient and rational. However, markets are not perfect. Markets on their own are not going to move us to a low-carbon, climate-resilient path. We have to bring policies that correct these market imperfections, and we have to be very clear that without policy intervention we may cause a lot of damage to our standard of living, to our well-being. And another aspect of capitalism that will not fix itself without policy intervention is access to opportunity and inequality.
How can countries address inequality amid all of these crises?
The first and most important piece of this is access to opportunity— to quality education, health care and social protection. And that requires raising revenues. The fund has come up with a very clear message: more proportionality in taxation at this time can support growth, not harm it. It would expand the ability to build the productive capacity of everyone.
Correction, Oct. 22
Due to a production error, the original version of this story misstated Kristalina Georgieva’s first name. It is Kristalina, not Kristina.