Perhaps to take advantage of the splendid Washington spring, both the Monetary Fund and the World Bank invented a few years ago to supplement their annual meeting in the fall with another meeting in the spring. This started on April 6. But this year, and due to Covid, the offices of both the Fund and the World Bank are closed. Its officers work from home, and the spring meeting was, of course, “virtual.”
Despite this environment, as usual the World Bank and the Fund – and the finance ministers and presidents of the central banks of their major member countries – are making news. One of the most abundant sources of these “news” is a Fund publication titled Global Economic Outlook (WEO). Perhaps because of the confused atmosphere in Washington, the WEO has not yet been printed. But his text is posted on the internet.
What are the highlights from the spring meeting and the WEO? The most commented on in the US media is a proposal by Janet Yellen, the US finance minister, to agree on a flat international tax to prevent corporations and individuals from settling in tax havens to reduce their tax burdens. I don’t know how drinkable this idea will be. It is sure to be frowned upon in countries like Panama, Switzerland, and Ireland that have largely prospered from being highly attractive in the field of finance. But it is not only there that there is opposition to Yellen’s suggestion. The Wall Street Journal, the most influential conservative newspaper in the United States (US), has already reacted negatively to the proposal. In any case, and probably because the idea of Yellen was revealed too late, it was hardly mentioned in the WEO.
Covid is the subject that dominates the WEO. The document is dedicated to quantifying the immense human and economic cost of the plague practically a year after its worldwide outbreak. He confirms with data that the pandemic has devastated the world, leaving not only an immense death toll – almost three million to date – but also a serious economic contraction and an increase in poverty, inequality and unemployment. For example, it points out that young people, women and workers whose jobs do not require greater technical knowledge are the ones who have been laid off the most and the last to be re-engaged when we return to the long-awaited normality in a post-covid period. It also concludes that in 2020 the global economy suffered a contraction of 3.3%, the deepest since the Great Depression ninety years ago. As a result, in 2020 more than 95 million people joined the ranks of extreme poverty globally.
It’s not all bad news at the WEO. He affirms that there is finally light at the end of the Covid tunnel thanks to the discovery, production and injection of millions of vaccines against the pandemic. That is why there is beginning to be some optimism in this report and the Fund estimates that this year the global economy will rebound 6% and another 4.4% in 2022. But it also notes that its forecast is subject to a lot of uncertainty due to the slow rate of vaccination, especially in the third world, and the threat of new strains of Covid that are resistant to existing vaccines. According to the Fund, rich countries, which account for only 16% of the world’s population, have already arranged to purchase 50% of vaccines. Meanwhile, third world countries do not have enough resources to meet their needs. Nicaragua, for example, appears to have only received vaccines to date to immunize 10% of its adult population.
The Fund is also concerned that the fiscal measures that countries like the US have taken to counter the 2020 contraction are risky. On the one hand, the Fund recognizes that without these stimuli, the depression caused by the plague could have been up to three times worse than it was. But on the other hand, these measures have resulted in high fiscal deficits that could, in turn, cause higher inflation and higher interest rates. The latter could harm economic recovery, especially in poor countries that finance part of their development with borrowed money.
The North American media are highlighting that the US will be the locomotive that will pull the global economic recovery due to its strong growth this year. There is some truth to this, especially in countries like Nicaragua whose main trading partner is the American Union. But these media ignore that there are other nations that could be equal or even bigger players than the US For example, the WEO estimates that China and India will also grow robustly this year. In the case of China, the Fund estimates that it will grow 8.4% in 2021. And the WEO predicts that the Indian economy will grow faster than any of the other large ones at an incredible rate of 12.5%. How things change, right!
What does the crystal ball of the WEO say about Nicaragua? First, that our economy will have a growth of 0.2% in 2021 and 2.7% in 2022. But this rebound comes after three consecutive years of strong contraction. To put our performance in context, in 2021 and 2022, the Central American countries and the Dominican Republic will grow 5.6% and 4.1% respectively, figures well above ours. Our inflation will remain under control —3.7% – and we will continue with a modest surplus in our current trade account. This is due to our strong stream of remittances and modest imports. This surplus will allow our reserve level to continue to be adequate without these stimuli.
The author was Director of the World Bank.
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