The IMF and COVID-19—How to Relieve Emerging Economies

Thursday, May 7, 2020
Mike Segar/REUTERS

Chief Economist, International Monetary Fund

Senior Fellow for Economics, Council on Foreign Relations; Thomas D. Cabot Professor of Public Policy, Harvard University; Former Chief Economist, International Monetary Fund; @krogoff

Kathryn and Shelby Cullom Davis Professor of History, Columbia University; Author, Crashed: How a Decade of Financial Crises Changed the World


Chair of the Editorial Board and Editor-at-Large, Financial Times

TETT: Thank you very much, indeed, and I am delighted to welcome everyone to today’s Council on Foreign Relations’ virtual meeting of “The IMF and COVID-19: How to Relieve Emerging Economies.”

I’m the chair of the Financial Times editorial board in the U.S., and we have a truly fantastic panel to talk about this. We have Adam Tooze, who’s professor of history at Columbia University; Ken Rogoff, who is professor at Harvard, formerly chief economist at the International Monetary Fund; and Gita Gopinath, who is currently chief economist of the IMF and previously at Harvard as well. So nothing like having someone who did your job before sitting next to you and talking with you about how things are going.

But we are going to be discussing today a really fundamental question for the global economy, which is how bad is the situation in the emerging markets, what can be done to try and deal with it, do we have the governance in place internationally to provide the solutions, and if we don’t, just how serious are those implications.

These are big questions and I am particularly delighted to be discussing it because one consequence of the COVID crisis is that it has or made us quite myopic and it makes us all tend to focus very much on what’s happening in our immediate back yard, and for that reason I think partly the focus on the emerging markets has not been nearly as high as it should have been.

But let me start with you, Gita, and ask you just how bad is the situation for the emerging markets. Because we saw data from the International Institute of Finance suggesting there had been about 100 billion (dollars) outflows from the emerging markets in the first month, three times higher than in the 2008 crisis. Does that reflect the level of severity that’s going on there?

GOPINATH: Hi, Gillian, and glad to be joining you, Adam, and Ken on this—on this show.

The situation in emerging markets reflects a complex set of problems, of course. There is the health crisis, which is common to what other economies in the world are facing. In addition, there are commodity exporters who are experiencing this very large historical collapse in oil prices, but in addition they also have the turbulence that’s coming from international financial markets.

Now, when you—the number you mentioned about the 100 billion (dollars) reversal, that was in the month of March was the first initial—the initial shock, and that was remarkable. The speed at which that happened was remarkable. Now, of course, since then April has actually been a month of relative stability and that has—you know, that’s owed to what we’ve seen large central banks around the world do, including the U.S. Fed, and so you’ve actually seen some of the investment-grade emerging markets able to issue quite substantially on markets in the month of April and more recently.

Now, that said, of course, high yield issue was still under deep distress and yields are still very high. And, of course, we know that this is a crisis that’s not going to go away anytime soon. Things can get worse. The health crisis has not been solved, and so we could expect to see waves of these kinds of financial market turbulence, going forward.

Again, in March, when we had estimated what would be the external financing needs of emerging markets, we had said it would be about $2.5 trillion. Since then, I think things have taken a turn for the worse. This crisis is likely to last longer, and that 2.5 trillion (dollars) was for, basically, till the end of 2020, assuming that things sorted themselves out by then.

But that is looking less likely, and so the need—financing needs are going to go up quite substantially, even above that number. So we’re talking about very large external financing needs, and at the same time while having to deal with all the domestic challenges.

TETT: And I’m going to turn in a moment to ask what the IMF can do or should do and whether it has resources. But before I do, I’d like to turn to you, Professor Rogoff, and ask, you know, you have seen a lot of debt crisis, emerging market crisis, during your time both working with the IMF but also in academia. How bad does the current crisis look compared to, say, the Asian financial crisis or 2008?

ROGOFF: Obviously, it’s still unfolding. But the short answer is it looks worse. This looks like you have to go back to the Great Depression, the 1930s, to see commodity prices crash. Global trade is crashing. These countries depend on that. They have taken a lot of steps since the Asian crisis to insulate themselves from the pure financial part in the short run.

But if this goes on, and I think it will go on a lot longer, we’re going to see some of the countries that are borderline fall into deep distress, some of the countries that seem sound fall to be borderline. I think it’s—I think this is something that’s, unfortunately, just unfolding.

Let’s not forget that what we call the global financial crisis—we in the advanced countries do, 2008—wasn’t a global financial crisis. It was an advanced-country financial crisis. The emerging markets, by and large, had a Great Recession and they came out of it normally. China grew. China, really, is very short-lived. This is different. This is going to rock their economies both for the reasons it’s hit advanced countries and because of this collapse in many commodity prices and trade.

So it’s a very, very difficult situation, and when, lastly, if COVID gets worse—so far, it’s just unfolding—I think we could be looking at a humanitarian crisis, you know, at a scale the likes of which we haven’t seen for a hundred years.

TETT: Wow. Well, if you weren’t feeling alarmed already, you should be now.

But, Professor Tooze, I’m curious, because you’ve written a lot about the grand sweep of financial history, particularly looking at Europe but also globally, would you agree with Professor Rogoff that it is on a scale of severity that we’ve not seen before?

TOOZE: Yes, I do. I think the really remarkable thing about this moment is the simultaneity of the shock current. I mean, every single economy in the world has been hit. The ILO issued these truly remarkable numbers. I mean, it’s the organization which monitors the global labor situation, and the global labor force is not a category that we normally think in terms of for economic analysis, I think, and probably we should more.

But they documented that in the first week of April, 81 percent of the entire global labor force was under one or other form of restriction. That’s 2.7 billion people. And I don’t think we really know what happens when the entire global economy stops simultaneously.

Some people derive from that the kind of rather perverse optimism that then it all rebounds simultaneously, too, and that’s part of the sort of V curve, V-shaped, recovery logic. That seems highly unpersuasive to me. I would expect, as it were, an endless series of gridlocks moving forward from here where the recovery of one bit is obstructed by the recovery of the other, and what we don’t have are the effective locomotive dynamics which have helped to pull economies out of the recession.

Ken was referring to 2008, and I think he’s entirely right. I think probably the best short description for the financial crisis of 2008 is a North Atlantic financial crisis with the occasional sort of suburbs in South Korea, which was very badly affected, too. But what was crucial there was the scale of the Chinese stimulus, which was epic—the largest stimulus probably we’ve ever seen outside war time—and there’s no sign of that at all yet from Beijing.

So that, I think, is very bad news to the commodity exporters. All in all, yes, I agree. It’s unlike—I mean, the question is whether it’ll be as protracted as the 1930s. But in terms of the sheer severity, the downward slope, the sense of going off a cliff, simultaneously, everyone, Niagara Falls style, that is just not something, I think, we’ve ever seen to this extent before. It’s new territory.

TETT: Wow. Well, I should say—I should say, Professor Gopinath, because, of course, you have been a professor at Harvard, or maybe I just say—since you’re all professors, call you all by your first names, if that’s OK. But what can the IMF do and do you have the resources? Because, you know, you say that these emerging markets need $2.5 trillion of external financing.

The IMF, under most measures, has, what, about a trillion dollars. What have you done and what can you do, going forward, and is it time to pass the begging bowl around, maybe starting in the White House or Beijing or anywhere else?

GOPINATH: So we’re already doing some—first of all, I think that number is going up, so this is going to be much—the demands are going to be much bigger than that. Now, of course, there are many emerging markets that have large amounts of reserves. So they will use their own. They have their own resources also to deal with external financing needs. So the entire number is not exactly for international financial institutions to deal with.

You know, this—what’s unique for this crisis, too, is, Gillian, is just the number of countries that has approached—that have approached the IMF for financing help. We have over a hundred countries that have come to the IMF. That’s more than half of the membership. That has never happened before.

A second thing that’s unique about this crisis is that the demand now is for rapid financing. So it is not the traditional IMF program which has a lengthy discussion and a long period of financing and conditionalities.

But this is a rapid financing situation because countries have health spending needs. They have to protect their workers. They have to make sure that their—you know, their people have basic livelihoods, and this is a purely exogenous shock. And so, in that sense, we are seeing a larger number of countries.

So we have—we’ve estimated that that—the number of countries that require rapid financing who will come to us will be about a hundred billion. And because of that, we’ve actually doubled the IMF’s rapid financing capacity to meet that need for a hundred billion.

In addition, we have very poor member countries that have debt servicing needs, and some of the debt is owed to the IMF, and what we have done is provide them debt service relief through the end of this year. So that’s another big step that we’ve taken. And including through the Poverty Reduction and Growth trust we are making concessional financing available.

But I think that some of the more substantial numbers in terms of the size of demand would come from countries needing kind of precautionary lending facilities to meet liquidity needs—international liquidity needs, right, because if there is going to be turbulence in financial markets and they aren’t able to get external financing at reasonable rates, I mean, that’s where the IMF also comes in. And so we have the flexible credit line. We created a new short-term liquidity line to meet this—their purpose. And so these are the multiple steps that we’ve taken and, of course, as you mentioned, we have about a trillion dollars lending capacity overall.

If you ask me the question of whether that would be enough, I would say that in the short term, you know, it seems enough. But, again, depending upon how this crisis evolves and how long it takes for the recovery to start and how many years it spills over into, I mean, we are following the situation very closely and seeing what we need to do to make sure we have the right amount of resources.

TETT: To what degree do you think there is actually, Gita, a recognition amongst the major shareholders of the IMF that they have to stand ready to supply more help if conditions worsen? I mean, how difficult is it going to be to get more support? And if it is difficult, where else can those emerging market countries go?

GOPINATH: So, I mean, our members have played a very important role in making these rapid financing facilities, increasing the access to it. Funding, providing more money into the Catastrophe Containment and Relief Trust and into the Poverty Reduction and Growth trust. So we’ve made—we’ve gotten a lot of support from them.

I think an important thing to keep in mind is also what we saw come out of the G-20 and that is an important initiative, which is the debt-servicing relief initiative that they have in line with what the IMF is doing, and we are working with them on the technical aspects of it. So that is an important step.

But we are closely engaged with our members on this and, you know, continuously updating them on what the financing needs will be. Right now, like I said, for now our capacity looks good. We have a trillion dollars. But we are absolutely not shying away from letting them know about how severe things can get and what might be needed.

TETT: Right. And, Adam, when you look at sort of the crisis in the moment, do you think that there is a kind of type of international corporate governance that is needed to make this—you know, actually handle the crisis?

TOOZE: Well, it hasn’t been the train wreck that some of us feared. I think coming into this event, given the complexion of the Trump administration, many of us—the prior was probably that this would be a disaster, and the G-20 meeting, the spring meetings of the IMF, and the World Bank, waited, I think, with a certain amount of anxiety, and comparisons were drawn to the situation in 2009 and there was a big question mark as to whether or not, as it were, we would be able to have another moment as occurred in 2009.

It’s worth remembering that at that moment in the spring, really, the first spring of the financial crisis of ’08-’09, the United States, in the lead with Britain as its partner, pushed for the expansion of the resources that the IMF has at its disposal. That $1 trillion that Gita mentioned is an effect of that moment.

The IMF, in the early 2000s was an organization that was extremely embattled both financially and politically, and this is the period when Ken did sterling work in defending the institution. But it came out of the crisis on the right side of history, if you like, and the succession of DSK and Lagarde in the leadership roles there was rather important in recementing its role.

So there were a lot of question marks about what would happen this spring, and I think the answer that we got was a sort of ambiguous one in the sense it wasn’t a train wreck and it could very easily have been a train wreck.

The Chinese cooperated in the G-20, which perhaps was a surprise to some people. They went along with the “standstill” agreement, even though much of their debt, they insist, doesn’t belong in the pot. And the Trump administration played a kind of softball game overall. But I think it’s worth saying that there is, of course, a huge disappointment about what happened at those meetings.

It’s true, absolutely, that, obviously, the IMF is making the best of its available resources. But there was quite a considerable push-on led by a coalition of both African and European countries and a lot of think tank and the usual suspects for a dramatic increase in SDRs, which is the currency that the IMF can issue.

Now, there are a bunch of technical arguments about whether the SDRs are really the most suitable mechanism for driving this crisis. But if you’re asking the political question have the structures of global governance risen to the occasion—that was, as it were, the ball that people expected them to pick up and run with—and the answer from the Trump administration was no, quite decidedly.

And it has to be said, I think, that as hard as the IMF has been working in the last three weeks—and Gita’s, obviously, in the front line of this and it must be brutal dealing with a hundred and three applications—the momentum of dramatic global reform, for what it’s worth, the steam has rather gone out of that.

So one is, perhaps, waiting for the big G-20 head of government meeting in the summer. But right now, that kind of late March/early April momentum towards a more dramatic symbolic political gesture, which centered on the SDRs, for better or worse, that’s kind of rather disappeared.

So I see kind of normal functioning of the IMF trying to run to keep up with the crisis, making the best of the available resources, using that 1 trillion (dollars) pot as best they can. But they haven’t had the big step-up in global political commitment that their predecessors saw eleven years ago in 2009.

TETT: Right. I see that Ken is back with us now. So if you can hear us, Ken, give me a wave and I’ll bring you back in the conversation. But, otherwise, Gita, I’m curious. One of the things that—oh, Ken, you are here.

ROGOFF: Yeah. I can hear you.

TETT: Great. Fantastic.

ROGOFF: I can hear you.

TETT: Great. Do you think—well, let me ask you then this before I ask Gita. Do you think the IMF has the resources it needs? I mean, if you were in charge of the IMF today would you be asking for more?

ROGOFF: Well, I mean, there’s a question of what are the needs, and they’re much bigger than the IMF has even with reasonable estimates, and there’s a question of what is needed in aid as opposed to liquidity and loans, and that, I think, is something that’s still unfolding.

I heard—I apologize. First time for everything, but got bounced from Zoom. But I heard the end of what Adam was saying, that, I mean, clearly, back in the 2008-2009 the U.S. was much more forthcoming. It’s not just a matter of aid. Let’s face it. The biggest immediate problem of why the emerging markets’ economies are crashing are trade, and it’s, of course, in the first instance because the—Europe, the U.S., and China have collapsed in their growth. But also the trade wars are terrible.

So keeping trade open. And then when we do have testing I think it’s very important to try to reintegrate migrant workers. Remittances are a massive component for many countries in terms of the total incomes they get. So there are many things to do aside, of course, from providing medical aid.

And, you know, I don’t really think this is just what we call liquidity prices for many countries. Already the oil exporters, the G-20s, recognize this for the poorest countries. I think for some countries, and not just Argentina or maybe Turkey but, you know, I think for a number of countries this is going to morph into a solvency crisis where they need to see debt write downs, not just postponements.

So, I mean, I think the IMF has done a very good job of saying this is a massive problem. Help. But it’s still unfolding. And it doesn’t help that the leaders of some of the major emerging markets have been saying, we’re fine. We’re just doing great, which they’re saying for the local audiences. But, of course, you know, the wolf is at the door.

TETT: Right. I mean, certainly, people I’m speaking to in the financial community are suggesting there could be a dozen defaults this year—

ROGOFF: I stopped. I didn’t cut off. (Laughs.)

TETT: —which is—are you cut off? Did I cut you off? Because I was just kind of saying that I think there could be a dozen defaults this year quite easily. And, you know, that raises questions about how financial markets are going to respond.

ROGOFF: Mmm hmm. Well, I think it’s just the beginning.

TETT: Gita, while we’re—

ROGOFF: I think there will end up being a lot more than a dozen defaults because it’s going to go into next year.

TETT: OK. So however bad you think it is, it could get worse.

Gita, I’m curious. As you look to provide help to countries, to your members, are you going to be dropping the sort of half austerity criteria programs that you’ve had traditionally—been traditionally associated with?

GOPINATH: So, firstly, the financing that we’re doing right now most of it is—doesn’t come with conditionality. So if you—the rapid financing facilities that we have that I mentioned the hundred and three countries have asked for, that does not have the standard conditionalities that come with IMF programs.

So we are completely cognizant of the fact that this is a crisis where countries will have to spend. There is a need for spending on health. There’s a need for spending on their workers/firms, and this will not be the time for austerity. This is a completely different kind of crisis.

Later on, when we are on the other side of this, of course, that would be the time to have the right strategy in place for—to ensure that your—our books—their books are in good—are in good shape. I think it’s important to also flag that when you—not the kind of facilities that we have, which is of the precautionary kind, which is the flexible credit line and the short-term liquidity line. These are also ones that if you are a country that has the right fundamental—the right institutions and has historically had good macro frameworks, then you have access to those and those also come without conditionality.

And now, of course, there will be—I’m sure there will be requests for more—for other kinds of programs, and we have to keep in mind that this crisis is a different one, which means that what is needed now will be different from what will be needed later for the reasons that I mentioned.

TETT: Right. We’re going to go to questions in just a moment. So do start getting ready, the members, to prepare your questions.

But before we do, I just want to quickly ask Gita one other question, which is about Argentina. To, you know, people who haven’t been following every twist and turn of Argentina, there is a tremendous feeling of déjà vu yet again.

We are going through another wave of defaults and, you know, a sense of, well, you know, what on earth can be done to salvage not just, you know, the deal that was done but also, you know, the interests of creditors and, frankly, the interests of the IMF.

Do you have any thoughts to share on Argentina, as we go to yet another or prepare for yet another default, probably tomorrow? That was actually for Gita, but if either Ken or Adam wants to comment on it, do wave your hands.

GOPINATH: I mean, first of all is you have to recognize this—

TOOZE: Gita’s back.

TETT: Oh, Gita’s back.

GOPINATH: Let me go first and then they can come in. (Laughter.)

The—I’m here. Can you hear me?

TETT: Yes.


GOPINATH: OK. I mean, first, recognize the immense hardship that has been faced by the people of Argentina, and it requires help from the international community and from everybody, and they’re doing some very big steps in trying to bring about sustainable and equitable growth in their economy.

Now, the—obviously, the negotiations that are going on right now with the private creditors is a bilateral negotiation. The IMF is not part of it. But we are hoping for a resolution that there will be some success with this. I mean, that’s as much as I can say at this point.

TETT: Ken, you have probably—you must feel a great sense of déjà vu, don’t you, with Argentina?

ROGOFF: Well, yes. But I think we have to look at the context. So Argentina came into this situation and, you know, blame—who’s to blame aside in a very weak position, and now they’re hit with this collapse in global trade and, eventually, very high costs, medical costs, and, of course, there should be a debt renegotiation here. I think, you know, there has to be something more realistic.

The IMF can’t force it. I will say, you know, a long time ago the IMF was very reluctant to do the phrase for it’s lend into arrears, which means work out something so you’re paying your creditors and we’ll give you the cheap money. And that’s not enough here, that the IMF is probably going to need to either stay out or come in after some major renegotiation is done. And the IMF has changed and it’s very specifically recognized that—this idea that the creditors, you know, need to be taken into account before we come in.

It recognizes there needs to be more negotiation. But this isn’t the time to worry about moral hazards. This is a once in many generations natural catastrophe, and I think Gita put it very well that the people of Argentina need help.

TETT: So if truly this time is different, to use the title of your book, which was—(inaudible)—in relation to debt crises—

ROGOFF: It is. It is.

TETT: Adam, before I turn—open it up to the audience, do you have any other thoughts to share on this?

TOOZE: Well, I do think—I mean, there are (a whole of ?) questions to be asked in due course about the IMF’s oscillation because, as Ken was saying, the idea was that the Fund learned from the early 2000s crisis that lending into the storm is a bad idea. That was a rule that was broken in its involvement in the eurozone crisis, arguably, also in Ukraine.

And I think there’s a skeptical position on the previous leadership at the IMF that asked questions about Madam Lagarde’s willingness to lend into, before Gita’s time and after Ken’s, into the current situation in Argentina. There was rather a lot of gung ho international enthusiasm for the new administration there. And so the IMF finds itself again on the hook.

So those—there is—there are serious, I think, governance questions to be asked about how you deal with a debtor as large as this because, you know, to be dealing with a country as large and significant as Argentina it poses huge problems to the Fund. It’s one thing to be dealing with desperate smaller borrowers who are weaker positioned. But to be dealing with G-20 members poses and has historically posed to the Fund, whether it was with the eurozone or with Argentina, major problems from—with Mexico as well.

So I think there’s a real—there are big, big, big governance problems, which—(inaudible). But I’m totally agreed with Ken and Gita. This is not the moment for arguing. It is, however, a moment for asking of the creditors that they make concessions. And it’s clearly inappropriate for the IMF to end up essentially funding things for them at this point.

TETT: Yes, absolutely. It is worth remembering that, you know, the creditors three or four years ago, five years ago, were so enamored and excited by it; indeed, that they were, you know, rushing to buy hundred-year bonds.

TOOZE: Hundred-year bonds at 7 percent, I think, was the deal with that.

TETT: Yeah. I wrote a column at the time saying I thought it was completely nuts and got a lot of pushback from people in the markets, and I feel like republishing that column right now. But there we go.

Anyway, we now have a chance to ask the members who are watching to pose some questions. You can do so. Laura (sp) is going to be picking them up and relaying them to me. Actually, no, she’ll be basically patching you in, I believe. So you’ll have your moment of glory to ask a question directly.

As ever, please be courteous. It would be polite to indicate who you are. And I would ask that you also keep your question fairly short so we can get as many of them as we possibly can. There are actually 500 people signed up, so we will do our best.

So Laura (sp), do you want to give me the first question, please?

OPERATOR: (Gives queueing instructions.)

We’ll take the first question from Martin Weiss.

Q: Hello. Can you hear me?


Q: Hi.

TETT: We can’t see you but we can hear you.

Q: Oh, great. My name is Marty Weiss. I’m an analyst with the U.S. Congressional Research Service.

I have a question about something actually that both Gillian and Adam have written about and really the role of the U.S. Fed in the—with the central-bank swap lines and the new repo facilities. The Fund has been banging the drum, at least in the past—since 2017 about the risks of kind of relying on the U.S. Fed to supply liquidity in the way that it did in the 2009 crisis. And now we’re seeing that really on steroids with the new liquidity lines and the new repo facilities.

So I guess this is for the whole panel. One, what are the kind of systemic risks that you see going forward of this kind of overreliance? And then, two, kind of what would a more fundamental role by the Fund look like? Do these new kind of—(inaudible)—kind of put forward at the spring meetings, does that adequately address these concerns? Or should the—in an ideal world, where there was more political support, the Fund play a more central role in coordinating the provision of global liquidity to emerging markets?

Thank you so much again.

TETT: Gita, that’s a bundle of questions for you, I think. And then we can ask either Ken or Adam about the swap lines.

GOPINATH: Yes. I mean, when I think of the global financial safety net, you know, the IMF is quite central to it. But these other aspects of it, including the Fed’s central-bank swap lines and other—some of the other central banks, like Japan has swap lines with their regional—with other regional central banks—those play a very important role.

And I think the Fed moved very quickly this time around, I guess, given the lessons of the global financial, to put these swap lines in place and to extend it to a few more countries, including some crisis emerging markets. So I think that has played a very important role in helping with reduced dollar liquidity problems, and it is a very welcome step.

In fact, if I think of what is it that’s actually done a lot to move—to kind of prevent a further worsening of financial-market conditions for emerging markets, it is—a lot of it has actually come from the U.S. Fed in terms of not just the swap lines, but also just keeping interest—besides interest rates being very low, many new forms of quantitative easing, you know, first moving into junk-bond, lower-yield markets. I think all of that has played a role.

Now, of course, right now that capital is needed. That financing is needed in the world, and that plays an important part. But, of course, one has to be careful what happens once things stabilize, though right now we are so much in the midst of the crisis that these kinds of facilities are very useful.

In terms of the Fund coordinating provision of global liquidity, you know, we absolutely are in touch with our partners with the regional financing arrangements. We just recently had discussions with them. So the IMF has about a trillion (dollars) in lending capacity, and the RFAs have about a trillion (dollars) in lending capacity. And so there is a significant amount out there, and that will be triggered. I mean, that will certainly—all of this money will be needed.

And lastly, again, just to mention the short-term liquidity line that the IMF has put in place is like a swap facility. Obviously, it doesn’t have the unlimited resources that you could think of that the U.S. Fed has in some sense. But, you know, we are trying very hard to make sure all these different pieces add up and are substantial enough for emerging markets.

TETT: Adam, you’ve written a lot about the central-bank liquidity swaps and the tremendous imbalances in the dollar market in 2008. Were you surprised that the Fed acted so quickly? And do you think this is storing up more problems for the future, or simply solving the problem rather effectively?

TOOZE: Well, it’s worth saying that the first Fed move was not actually any kind of move at all, because there’s a standing arrangement now, since November 2013, between all of the major advanced-economy central banks. There’s a standing swap-line facility. So all that happened, I think, on the 15th of March is that the terms and conditions on those were eased somewhat, which was a signal, basically, from the Fed to the ECB and Japan.

And in terms of the take-up of swaps this time around, we’re at about—I looked yesterday—I think we’re at about 450 billion (dollars) total take-up, of which 390 (billion dollars) or even possibly 400 billion (dollars) is ECB and Bank of Japan. And the really different thing that we’re seeing this time around in funding stress is the emphasis has shifted from what used to be the grossly unbalanced balance sheets of the European megabanks to Japan, where we also think that nonbank lenders may be involved.

But it’s that kind of a problem. So this is basically yield chasing amongst the highly sophisticated players of the advanced-economy global financial system.

In terms of emerging-market take-up of the swaps, it’s quite modest. I mean, if you’re willing to count South Korea as an emerging market—which might have been true in ’08 but is clearly no longer true now—it’s probably the most significant case of relief being provided, because it was severely stressed in ’08 and again appears to have shown some symptoms this time around; Singapore, which is a major entrepôt; Mexico has had some take-up; Brazil hardly any, as far as I can see, under the current regime.

So I think the function really of the swap lines was, as Gita was saying, this more general stabilization of dollar funding, relieving the pressure of the dollar exchange rate, which was exerting pressure on all of the emerging markets, which was really the catastrophe scenario, a sudden surge in the dollar.

In terms of the politics, it’s quite complicated, because I gather the Indonesians were quite frank about it, that they’d asked for a swap line from the Fed and were turned down. The only emerging markets which were included are Brazil, Mexico, and South Korea, if you’re willing to count those as emerging markets. It’s the same group that were included in ’08.

Indonesia wanted in. It’s generally rated, I think, as a highly sophisticated central bank with a very good macro track record. It has a fiscal regime which is based, I think, on Maastricht criteria. So Indonesia, you would think, would qualify, and it was denied again. And instead I think the quid pro quo was the Fed opened up this repo facility for them.

It's important to recognize that the Fed doesn’t do this out of the kindness of its heart and it doesn’t do this out of, I think, a general hegemonic aspiration. It does it when it thinks that funding stress in global dollar markets could reverb badly in the United States itself. That’s fundamentally the justification for Fed action. It’s a national central bank and it’s answerable to Congress on those terms.

And so I think what really drove all of this was the very alarming signs of disturbance, shall we say, in the treasury market in the second and third week of March, which were very anomalous, very peculiar movements when what were supposed to be safe assets—their yields were going up—there were big gaps opening up in the yield curve of different runs of Treasurys not being priced in a sensible way. And there was deep anxiety at that specific moment that the unloading of, say, a big emerging-markets reserves out of funding stress could add to the disturbance.

And that was not—so I think that’s really what the trigger was for the Fed’s quite rapid action. It’s supposition. We don’t know really what’s going on on the inside. But it seems a reasonable calculation. And it’s a story that’s been out there and no one’s denied it.

So I think that is how we need to understand it. But it’s only a very partial piece of, as Gita was saying, a much wider armature of Fed interventions, which have just buried the world in dollars. I mean, and that—you know, you’re—it might not be surgical. You might not be finding the specific points that need it. And there will be desperately poor countries and commodity exporters who are train wrecks anyway, but you will remove the general issue of where are we going to get our dollars. That problem has gone away since the 15th of March, globally speaking.

TETT: OK. Well, Laura (sp), let’s have the next question.

OPERATOR: The next question will—from Dee Smith.

Q: Hello. Thank you. Can you hear me?

TETT: We can, yes. Thank you.

Q: OK, great. Dee Smith, Strategic Insight Group and Lozano Long Institute of Latin American Studies at the University of Texas.

I was interested in your perspective on how these developments will affect the private sector in various emerging markets—and I’m not particularly thinking of one; one could put a lot of examples—in terms of both large institutions, financial and otherwise, and smaller institutions in terms of the ability to provide them a lifeline, and just any general thoughts on that.

Thank you very much.

TETT: Would anyone like to take that in particular?

ROGOFF: Well, I would say there’s been a—

TETT: (Inaudible.)

ROGOFF: Yeah. I think—this is Ken. Can you hear me? Yeah.

I think one thing to say is that the big rise in emerging-market debt in the last few years has been in corporates—has been in corporates. It’s a lot of private borrowing. But the thing is, because in many countries there are really only a few companies that just dominate the GDP in the country, they’re not very diversified. So when you’re, you know, a one- or two-company town, the distinction between corporate and public debt is hard to make. And we see that again and again in financial crisis.

I mean, here we have the U.S. moving into corporate debt where, you know, it has not traditionally moved. In emerging markets they do. So, you know, everything lies ahead, I think, in emerging markets. The—I think we’re still in the early innings of this crisis, and it’s going—you know, if we see a recession, which I think will certainly, in its depth, compare to the Great Depression—and it’s not going to be a V-shaped recovery. It’s going to last a long time. It’s going to be a tough period; doesn’t mean it’s going to be a wholesale bloodbath. There’s going to be a lot of smaller companies go under. And maybe some larger companies, say, in Asia will come out very strong out of this. I don’t know.

But, no, I don’t think it’s particularly better to be a corporate in an emerging market than it is to be in the United States right now. It’s pretty tough sailing in both.

TETT: Gita, do you have any thoughts on that? Or, if not, we’ll take the next question.

GOPINATH: If I may just—yeah. Yes, if you look at the elements of this crisis, of course, there’s this big collapse in commodity prices. So if you are—(inaudible)—with—where commodity exports is your major activity and you have these very large firms that rely on commodity exports, then you’re talking about a really big hit that can last a long time, because if you look at projections of prices this year and next year, they’re not going anywhere near to what they were before the crisis.

So, you know, there is—I think there is a very important question to ask, is how are you going to deal with these large enterprises, several of which are state-owned enterprises, and how are you going to finance them?

The second is the impact, tremendous impact, on tourism that this crisis has had. And there are, you know, island countries that almost rely entirely on tourism for their income. And, you know, this is, you know, an existential question for these countries. The hit that the entire economy is facing is tremendous. And then again, there’s airlines that are getting hit everywhere in the world. In advanced economies you can think of these are being systemically important sectors, strategically important sectors, in supporting them. And I think the same argument will be made in emerging markets. But the question is, how long can you continue to do that and support that?

And then, lastly, I think what’s specific about emerging markets—I mean, leaving the large companies aside—is a very large informal sector with a very large number of self-employed kind of enterprises. And you know, in previous crises you would have—when you had a crisis, it was the informal sector that provided a buffer. So you would have people moving out of the formal sector into the informal sector, and that—you know, where there was some still some activity going on, and that would serve as a buffer. But this time around you’re not seeing that. You’re seeing a collapse in informal-sector activity. And the ILO put out numbers saying that about, you know, 1.6 billion workers in the informal sector are going to have just long-term losses in income.

So, you know, there are many, many challenges going forward, and I think countries will have to make very difficult choices about which firms and sectors to nationalize/bail out and which ones that you just let go.

TOOZE: If I may, Gillian, I think one of the really fascinating things about this—

TETT: Let’s have the next question, please.

TOOZE: —is that it generalizes—it generalizes the—

TETT: Yeah.


TETT: No, go ahead, Adam. Go ahead, Adam.

OPERATOR: The next question will come from Helen Epstein.

TOOZE: Well, I was—I was just saying—OK, let’s let it go.

Q: Unmute. Ah, hi. Hello. Thank you so much. Can you guys hear me?

TOOZE: Yes, we can.


Q: Can you hear me? Oh, great. Oh, fantastic. I’m Helen Epstein. I teach at Bard College and I am also a freelance writer.

And my question is really one of the things that I’m quite alarmed about is the fact that these IMF loans are going to countries which are highly undemocratic. And for example, Uganda, which has recently been granted about a half-a-billion dollars in loans from the IMF, has—so far its COVID response has been characterized by the misuse of relief funds, the torture and arrest of a member of parliament who was trying to help his hungry constituents, the beating and rape of people in the streets by the security forces. And I really—you know, there’s a great concern that this money will be misused, as so much other aid to Uganda has been, to rig the forthcoming election and to further militarize the state, and I really wonder if this is the kind of thing that the IMF wants to encourage. And I would like, really, to hear your views on that. Thank you so much.

TETT: Gita, do you want to take that?

GOPINATH: Yeah, sure.

So in 2018 the IMF adopted a framework on enhanced engagement on governance, which is—what that means is basically we—you know, when we do our annual surveillance activities for countries, good governance and corruption issues are taking center stage. And that was not the case in the past, but that is—that is the case now. So the question that you are asking about what kinds of safeguards—(inaudible)—is what kinds of safeguards do we have in place as we are doing our lending, and that is an important question. So let me point to some.

So when we make these rapid financing facilities available and we are lending money, we have countries that—of course, they sign a letter of intent, and that requires very serious commitments. The commitments include publicly reporting where the money gets spent; you know, agreeing to do an exposed, independent audit of the—how the money has gotten used; publicly reporting where the procurement contracts went, who got the procurement contracts. So we have a bunch of requirements in place in what countries should be doing now.

Of course, we know that countries need financing immediately. It is a health crisis. This is—you know, this is an exogenous shock. There is a tremendous need for immediate financing to help people in this health crisis. And so we have to keep that in mind, but we are making sure there are safeguards in place, that this money is used for the purposes that it was lent for.

And I’ll stop with that.

TETT: Thank you. Do either of you want to comment, Adam or Ken? Because, if not, we will go to the next question.

ROGOFF: Gita gave a good answer. I mean, of course, one has to understand that if the United Nations did a vote on whether, you know, the United States’ governance was acceptable, we’d probably get a majority of people saying no. It’s never easy in these international organizations to, you know, form where the lines are and what you can do and what you can’t do.

We haven’t talked about special drawing rights, or at least I missed it if that happened, that the IMF could issue. That’s been suggested. It was done in 2008. It’s a sort of a blanket gift of liquidity funds to everyone according to their membership in the—in the IMF. And many, many people are—been pushing for that, from Joe Stiglitz to Larry Summers and Gordon Brown. And by the way, I don’t think it’s a bad idea myself. But this would go to everyone. It would go to Iran. It would go to Russia. You know, so these are tough questions.

TETT: That’s a great point. Let’s take, I think, only one more question—

TOOZE: We think that’s one of the reasons that the Treasury may have shot it down, is that SDRs would, indeed, go to Iran.

TETT: That’s a great point. Thank you.

Shall we take another question, Lori (sp)? Lori (sp), do you have another question?

OPERATOR: Yes. The next question will come from Ko-Yung Tung.

Q: Hello. This is Ko-Yung Tung. I teach at Harvard Law School. I used to be at the World Bank, and hence my interest goes across the street to the Bank.

Usually in these crises the Fund and the Bank have worked hand in glove, so I’d like to find out what the Bank is doing in these circumstances.

TETT: Gita, would you like to take that?

ROGOFF: Well, I mean, I’ll just say something quickly, which is they’re very—


ROGOFF: —they’re very involved, and they’re working with the IMF, and they’re looking at these issues about how much money is needed. When the 2.5 trillion number came out, it was a—I believe it was a joint IMF-World Bank number, and you know, they’re looking what can be done going ahead in terms of debt moratorium, debt relief. So the World Bank certainly absolutely involved, but I’ll pass to Gita.

GOPINATH: Oh, yes, indeed. I think Ken commented the World Bank is—you know, is deeply involved in helping countries. And I can talk to the parts of the work that, you know, we are coordinating with, and one big initiated which is calling for debt-service relief for poorer nations from official creditors was something that was jointly put out there by the IMF and the World Bank. And so, you know, we are working very closely with the World Bank on many of these issues to deal with the crisis.

TETT: Adam, I can see you nodding enthusiastically.

TOOZE: Gillian, can I—

TETT: Yeah.

TOOZE: Yeah, I’m trying to—I’m trying to manage—I’m trying to manage the lag.

TETT: Yes, please.

TOOZE: I think the World Bank is interesting because it also deserves credit for being one of the international financial institutions which has, in fact, been stressing the pandemic risk for many years now. And I think this is a question, after all, that we have to ask, is why has this taken us by surprise? Why is this shock as severe as it is? What was it that we recognize this risks and what not? And if you’re looking for an agency that, in fact, served as a halfway house, if you like, between the global health community—which is centered in the WHO—and the global financial community and the economics community, then it was in fact the World Bank more than any other agency. The IMF has commissioned a couple of studies here and there, including one by Larry Summers in fact, but it’s the World Bank that’s really been the pivot for that thinking. And so it’s entirely appropriate that it should also have a key role in handling this, and perhaps more importantly also in thinking forward from here into what we do to strengthen this—not just, as it were, as Gita referred to it, you know, the global financial safety net, but clearly what globalization needs is a public health safety net to go alongside, you know, the dynamics of both zoonotic disease creation that we’re—that we’re engendering and its distribution—the distribution of those risks around the world. And the World Bank must have a preeminent role in that, at least insofar as the poorer countries are concerned.

TETT: Thank you. Well, that seemed in many ways a good point to end on. I mean, I’ve found this conversation fascinating. I take away, really, three key points.

Firstly, that the scale of shock in emerging markets is absolutely astonishing and horrifying. As Adam says, we’ve never seen a simultaneous, synchronized shock of this sort in the global system, and it dwarfs anything we’ve seen in 2008 or 2007, the Asian financial crisis, et cetera, et cetera. So it really is extremely severe. And it’s not just about the capital flight; it’s about genuine economic contraction and a potential wave of looming defaults, of an existing wave of defaults.

But the second point I take away is, actually, in some ways, you know, the global community has managed to keep this at bay for the moment. The financial markets have calmed down. The capital flight has calmed down, as well, after the shocking March numbers. And although there is now severe economic deterioration, there is, in a sense, you know, a chance to have a breathing spot and think about what happens next. But the next few months are going to be extremely nasty and extremely critical. I mean, with half the members asking for help from the IMF, which we’ve never seen before, there’s going to be challenges for the IMF as never before, and the scale of coordination needed in bodies like the G-20 to manage this is going to be very, very severe. So there’s a lot to look to in the coming G-20 meetings and there will be a lot of hard questions being asked, not just about what the IMF can do but about governance and governance more widely, not least because, as Adam says, this really is an issue that has much to do with health risks and a wide division of economics than many of the multilateral bodies have traditionally used.

So I guess I will end that by saying thank you to all of you for a quite sobering conversation, and thanks to all of you for listening in. Very best of luck to all of you in working out, you know, where we’re going and, you know, making sense of all this.

There will be another meeting, I think, next—if I have my notes—on the—where are we—on the Monday. The next virtual meeting will be 11:00 on “The Humanitarian Response to COVID-19.” That goes rather well after these economic discussions. The audio and video from today’s meeting will be posted on the CFR website. And thank you all very much for both listening and participating. Thank you.

GOPINATH: Thank you.

ROGOFF: Thank you.

Top Stories on CFR


Myanmar's military has recently suffered a string of defeats—but the U.S. government seems unprepared to face the country's potential state collapse.


The authors, including a former Minister of Justice and Attorney General of Canada, UN Undersecretary-General for Legal Affairs, Founding Chief Prosecutor of the UN Special Court for Sierra Leone, and the inaugural U.S. Ambassador at Large for War Crimes Issues, urge the imperative of prosecuting alleged Russian crimes of aggression in Ukraine, and present two practical options for doing so.


The passing of America’s preeminent foreign-policy thinker and practitioner marks the end of an era. Throughout his long and extraordinarily influential career, Henry Kissinger built a legacy that Americans would be wise to heed in this new era of great-power politics and global disarray.