Role of Advanced Economies in Tackling Global Financial Issues
In the 2022 World Bank Annual Meetings opening statement, IMF Managing Director Kristalina Georgieva and the World Bank’s President David Malpass discussed the current global challenges. The two directors focused on how their organizations are working to support countries addressing multiple crises. To tackle global issues at scale, success relies on large economies achieving three main factors: control of inflation, targeted support actions, and collaborations.
The world cannot afford uncontrolled inflation, especially with the pandemic's fallout and the effects of conflicts worldwide. However, the solution is challenging to navigate—doing too little to control inflation burdens many people, especially the poor, but doing too much can cause a recession. Policymakers must find the sweet spot that balances a contractionary force with an expansionary incentive for economies to thrive.
Some people need immediate help, but inflation and recession will only worsen if they are hard to spot. For instance, if the World Bank provided subsidies, it would do so only to targeted organizations, as there was limited fiscal availability in the system. David Malpass added that "there can't be a subsidy for everybody because then you quickly run out of money.”
Every party and sector must join forces to help emerging markets in developing economies that are particularly hard-hit by tightening financial situations. It will definitely be a global community effort needed to get through the crisis and prepare for a better 2023.
The key to achieving all these lies with advanced economies, which have more capital and the means to apply it to various sectors. There needs to be a rethinking about some of the basics of advanced economies: one would be to have debt limits. When certain groups of countries have unlimited amounts of debt they can issue during a crisis, the governments take up the available capital that could otherwise be used to help those in need. Moreover, we see many cases of central banks buying only bonds that originated from advanced or developed economies. This creates a regulatory and capital bias that discriminates and works against developing countries. When policymakers realize the necessary steps to take and mobilize these efforts, we will start to see a transition toward a more resilient global collaboration.
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