Transcription
Hi everyone, I'm Nicolola Tangen from the Norwegian So wealth fund and today I put on a tie because I'm in really good company with Cristina Gorava. Wonderful to be with you.
Christina is the uh managing director of IMF, the International Monetary Fund and you are known for your visionary uh leadership and the way you have been advocating for really important bold long-term reforms. So let's just start with the beginning here. Uh IMF, what is it?
Well, the IMF was created um towards the end of the Second World War together with the World Bank to help countries recover after the war and to put in place institutions that can stabilize the financial system. Our mandate macroeconomic and financial stability for growth and employment. uh we have a uh membership of 191 countries. In fact, over the last years, we got two new members, small countries, Andor and Likensstein.
That's good. And how do you help these companies?
What we do for our members is first help them to see the world economy from one vantage point. Uh we have this unique right to collect data from all countries and we do that regularly. So we can take the vital signs of economies aggregate the picture and then see what are the trends in the world they should be mindful of.
Secondly, when countries are in trouble and they need quickly financing to stabilize their economies, we come through. We have lending capacity of $1 trillion. We deploy it for countries in crisis. Uh some are middle-income countries, some are poor, vulnerable countries. And the third thing we do is we help countries build good institutions especially monetary authorities, fiscal authorities, data, statistical capacity so they can see their own economic development uh with more uh educated eye.
How bad does the crisis need to be before they call you?
Well, sometimes they call before a crisis hits. We have also a function to prevent crisis from happening. Uh sometimes they call when markets close on them. Um I'll tell you a story of my own country. I am Bulgarian.
In the late 90s, Bulgaria was hit by hyperinflation, over 8,000% inflation, and it caught on the IMF. So what the IMF did for my country was to help us put in place a currency board which really stabilized the uh economy and put fiscal discipline. Bulgaria today has 24% debt to GDP, 3% deficit and as of January 1 would be a member of the Euro zone.
Um to among the biggest clients of the fund, Argentina has had a number of programs. So far, none of them got the country completely out of trouble.
We are hopeful that our current program uh supporting a president that is very reform-minded, very determined can bring Argentina to a point of not needing uh to to borrow from the IMF anymore.
Was it when IMF bailed out uh Bulgaria that you decided, you know what, I would love to be in charge of that one day?
You know, at that time when the IMF bailed Bulgaria, I was actually at the World Bank. I was already in one of the two Bretonwoods institutions. Uh never crossed my mind at that time that we would be sitting with you and I would have been already six years at the helm of the IMF.
The the World Bank was founded at the same time as IMF. So how do you uh split the work between you?
So what the World Bank does is to look at sectors in the economy and fund investment projects predominantly education, roads, access to electricity. Right now the bank is concentrated on creating conditions for more jobs in the developing world.
In contrast the IMF and and the and the World Bank is primarily about the emerging markets in developing economies. This is where their work primarily uh goes. The IMF in contrast is about macroeconomic and financial stability. We don't fund investment projects. What we fund is balance of payment needs. So a country is about to crush, we come and we say here is a cushion for you.
Get your economy in order. The best value from the fund is to put in place good policies and responsible institutions. So the country on its own can have a good uh trajectory of growth. Uh the IMF works with all countries. All 191 countries go through what we call article 4 consultation. It is a technical term of taking the vital sides of uh each economy. Big, small, rich, poor, they all need to disclose to the fund.
But both but where the economies are.
Absolutely. AJ Banga, he's from India. He runs the World Bank. You're from Bulgaria. You run the IMF. uh should we read anything into the fact that both these important institutions are run by people from uh emerging and developing markets?
I think it is a very positive development because who does the world bank serve? The emerging markets, the developing economies. Um who is the biggest uh demander of resources from the fund emerging markets and developing economies. And I actually think that the fact that both AJ and I understand how tough it could be help us to navigate the institutions better. But above all, it brings this empathy for the impact reforms have on people. And my message to my staff is policies are for people. They're not for the books. They're not for the parliaments. They are to improve lives of people. And that is to my mind the best I bring uh to the fund.
Who owns IMF?
The 191 members of the IMF. Very interesting. How are we funded? We are like a savings bank. Countries commit resources to the fund. Then we lend this money. We are paid back with interest and we pay back those who fund us. In other words, we do not ask taxpayers for contributions. We ask countries to trust us with the management of their resources and uh the beauty of it is that u we can do a lot very quickly because we don't have to go knock on doors and say please can you we need more money can you please fund us.
We are today in Washington DC right because this is where you are headquartered so how US- ccentric is the fund.
Well, the uh US is our largest um member they hold over 17% of the quarters of the IMF and in that sense they are the only member that has v2 power. Uh we have the most important decisions we take require over 85% at least 85% voting. So if the US is not on board on important decisions uh then uh they cannot uh happen and in that sense we engage a lot with us of course but we are an institution of 191 members and for for us for the staff of the the fund what matters is are we making a meaningful contribution to a better working of the world economy. through our analysis and by cushioning countries when they are in trouble.
Let's touch on the the world economy because Christina probably nobody in the world has got better statistics than you about the state of the world. So how do you read the state of the world just now?
Better than we feared worse than it needs to be. Um, we have a world economy that has proven to be remarkably resilient to the multiple shocks that have been hitting us starting with COVID. We are projecting over 3% growth this year and next. despite the transformational forces that are hitting us um geopolitics, technology, demography, climate, we have a world that continues to grow. But first, this growth is too slow to meet the aspirations of people around the world for better lives.
When we look back before COVID the average growth rate was 3.7%. Now it lingers around three. Second we have a world economy that has not been really fully tested for its resilience. And what I mean is that uh we don't quite know how this multiple forces of transformation may test it in the future.
But it's being tested now, right?
Totally. It's being tested.
And why is it so why is it more resilient than we thought?
Three reasons actually. Great question. I thought a lot about it. My colleagues and I have debated this. First reason over the last decades because of the crisis that hit in the past especially the u uh global financial uh crisis countries have built stronger institutions and they have put in place sound policies and that applies to many countries in the emerging uh world but also uh in advanced economies. We have independent central banks. We have in many countries fiscal rules. You cannot spend money you don't have. Uh we have tax systems that are more or less delivering the public uh resource necessary. Reason number one. Reason number two, over the last decades, we also have seen in many many countries the state moving out of running the economy and letting private sector do the job. At a time of rapid changes, private sector is more agile. It is more resilient. What what uh we saw when um um President Trump announced tariffs, what did the private sector do? They rushed, they bought goods before the tariffs hit so they can cushion their uh businesses against that particular shock. And the third reason is um in fact the latest shock, the trade shock has proven to be smaller than we feared it may be. So on April 2nd the total announced tariffs were around 23%. When we look at the level now 17 18%.
And when we look at what is being collected as tariffs more like 8 9%.
Most importantly what did we worry about? We worried that all countries would say me too. So you us puts tariffs I'm going to put tariffs to the US to others and that tit for tat did not happen. I know there are people who are saying oh we should have gone aggressively and hit back. Truth is if we were to have that tit for tat hitting back uh we would have seen much uh more dramatic negative impact uh on global growth.
One of the things you are quite vocal about is the debt levels and you say that uh you know for instance the US should deal with the with the deficit sooner rather than later. Why why uh are you so concerned about the high debt level?
Because uh servicing debt especially when interest rates are no more zero or even negative takes away money from other productive purposes. What is being spent to service that is not spent for infrastructure, for getting ready for AI, for educating people for a much faster changing world and because when you have very high level of debt, you really have no buffers.
So when the next shock comes, what do you do?
Yeah. In the uh uh time of COVID, I was out there telling governments and businesses spend, protect your people, protect your uh businesses, keep the receipts, but spend at that time there was fiscal space, there was monetary policy space that was possible. Today not possible. Actually one big problem we we face and when I talk about the world is doing well but not perfectly um is that when countries put in place various programs to support people and businesses and they don't need them anymore it's very difficult to take them back. So we are saying fiscal consolidation do it slowly do it gradually but get your house in good order for the next shock to come. I don't know what it would be. I just know there would be something for which we need to have the capacity uh to cope.
When you write your speech and you tell the United States to get the house in order, do you think that perhaps I should be a bit careful? They own 17% of the bank and uh.
Well, fortunately um the Treasury Secretary Scott Bessent, he's on the same page. He thinks that they need to bring down the deficit to 3%. Uh and uh you know I we are paid to speak truth to power.
Absolutely. Do you think inflation is under control now?
It it has gone down. Yes. We see the uh trend in disinflation continuing in the right direction. Uh of course tariffs are putting pressure on prices in the United States. So far that was mute. One because there was prepositioning of goods. Two because companies profitable they could eat up some of the tariffs. We don't know how this would continue in the next months in the next year. Uh and for this reason we are not quite yet ready to say victory. Inflation is uh uh gone everywhere.
Is climate in Europe? It's okay. Europe has done a very good job in bringing inflation to target.
Is climate risk a financial risk?
Of course it is. Of course it is in two ways. First, if you accumulate in your portfolio assets that are vulnerable either to cl climate shocks or to change in policy, then you can see um unexpected significant losses on your on your assets. Um and the second is because we see already that some countries and some communities are more vulnerable. If you live in the Philippines or Vietnam these days very likely you would be hit dramatically. That hit on the economy and on communities on people it translates into financial uh risk. We have done quite a lot of work at the fund to think through financial stability risks that are related to either the economy changing rapidly uh which by the way seems to be now a slower process to decarbonization or because of the uh uh high uh propensity of climate shocks that affect um uh businesses and households and affect the financial system.
Continuing on with with the changes we're seeing, um AI um now you can look you can look at that through many different lenses, but if we look at it through the IMF lens, what how is it impacting the world?
Well, from an a uh IMF lens, we look at three things. First, we look at our countries ready for AI. uh we created an index on AI preparedness that ranks 174 countries on four things. One, digital infrastructure. Can you quickly tap into AI? Two, labor market flexibility skills. Is the economy flexible enough to adapt quickly? Three, is innovation flowing? So you have AI um algorithms do they go into health care into transportation into the rest of the economy and for the fourth prove to be the most difficult regulation and ethics.
So when we rank countries what do we see advanced economies do much better actually on the top of this list are three countries um Singapore, Denmark, United States. They kind of you can put them in in uh different one two three but this is the top of the list. You look at the bottom developing economies uh they in their vast majority they're not they're not ready.
What does it mean they're not ready?
It means that uh they're not going to be able to uh capture the productivity enhancement that comes with AI. And this is the second thing we look at. How is AI affecting uh potentially growth, productivity and growth? You know that the views are very diverse from the ultra optimist to the ultra pessimist. We are somewhere in the middle. We we think that AI can lift up productivity and growth substantially somewhere between 0.1 and 0.8% 8% of additional growth. Remember growth is slow. Growth is slow. That is high. Uh if AI helps help us, that would be of tremendous uh benefit to humanity. But then we are looking also at how is this impact going to come through the labor market. And there it is a very to my mind troubling story because what we assess is that over the next couple of years in rich countries 60% of jobs will be impacted by AI either enhanced becoming more productive changed or eliminated in uh globally on average about 40% in lowincome countries 26%. %. You take any one of these percentages, this is like a tsunami hitting the labor market.
And are we ready for that? And but as an idealist uh because you are in a way an idealist I guess.
And this will make the world more inequal. So what do you.
So that is the problem that that we see what what we what we worry about is that both within countries and across countries we may see divergence because of AI. What can we do? The only thing we can do is to help countries prepare to move faster, take advantage of AI and also think about the distributional impact of AI because it is not given that AI should be dividing societies. Maybe AI can solve problems in societies but only if we are ready. And and I should say that I do believe in the best uh of uh in people. I was um for 5 years a humanitarian commissioner for the European Union. I went to the most tragic locations on this planet from the Kiti earthquake to the Syria war to the triple disaster in Japan. Every place I would go what would impress me the most is how people help other people. Majority of human race are really good compassionate people and there is a minority that is very angry and very loud and I think that we need to find that tune to listen to these voices of goodness because most people are genuinely good people.
Yeah, that's why I am idealist. I believe in the goodness. So I agree humanity.
I agree with that but one of the things that surprised me a bit is that not more countries are making a a concerted effort in lifting the whole AI level in the countries. Now Iceland has just launched such a project. There is something going on in Sweden which is you know a bit similar.
But shouldn't more countries really put a lot of money and effort into this?
I think that um uh countries that have the um comparative advantage, cheap energy, preferably renewable energy, high level of investment in research and development, they have responsibility to move the frontier and then of course u share what they get with the rest of the world. And this is where it would be interesting to see what happens with cooperation on our planet. So here is an observation that may may surprise you. Since we got into a more geopolitically confrontational world, I see in my work at the IMF more appetite to cooperate.
Why? Because now people realize they cannot take that for granted. We used to take it for granted. Of course, we cooperate because we cannot take it anymore for granted at least in the discussions uh uh at the IMF. I see more maturity, more willingness to listen to each other. uh would it last would it translate into strong cooperation globally is to be seen but it's there.
Well I I suspect IMF is one of the few places where we see it then because it's not very common.
I actually you know it's very interesting you're saying that one of our members made an interesting comment saying well the IMF is like a a island of cooperation uh and it is true so Why is that so? I have a theory on that. One, because we actually uh make a huge effort, my colleagues, myself, our board of directors to keep the world together. Actually, I I had a simple message to the membership. They come for annual meetings. They come for spring meetings. My message is you leave your trade war, your cold war, your hot war outside of this room. You come here. Let's talk about the health of the world economy and what we can do to strengthen that health. So far that works.
Yeah. Are we in the middle of an AI bubble?
Well, I think we are worried a little bit that the um massive investments in AI uh are hitting this segment of markets. But we have to recognize that companies are profitable. they are making money on AI. In other words, this increase in investment is justified by uh profitability.
Uh will there be a correction? Most likely uh some yes, just because enthusiasm has pushed valuations that are now so stretched. Would that take us to a very bad place? I doubt it again because you see how AI is translating into marketable products that have consumers and are being sold for profit. Sold for profit.
So you you're in the camp which you think is a positive bubble. I.
Because it changes. I think I I think I think it is an incredible rapidly changing force of transformation. Incredible.
Do you manage to use it in the fund?
Oh, of course we have um u multiple fund specific AI products. We have uh IDA that helps us do our our work. For our annual meetings, we have Sammy. Sammy guides our visitors. Um we of course use copilot. I don't know whether you use it but you know I I find it super helpful. And uh we are asking um our community of professionals to measure us vis similar organizations. So far so good. the IMF is up there in a in a strong position of how we uh quickly adapt to a world of AI.
Have you got a view on the energy transition?
Well, I I do. I think the um um if there is one issue that AI creates, it's not so much the stretch valuations, it is a departure from a path towards decarbonization.
Yeah. Um would that be a um massive uh shift? Let's see. I hope no. One thing that is very clear is that um uh climate uh change is happening. It is real. We need to do two things. Try to reduce the impact as much as we can and adapt to it.
And I think the um uh for for us at the IMF there is one aspect of of this conversation which is and you brought it in your questions uh when is climate a factor in macroeconomic and financial uh stability and when it is we have to take it into account. We cannot do our job well with a country like uh Jamaica if we are not integrating in their budget plans and in their um economic uh objectives the risks of climate uh shocks and actually Jamaica is a good example where the fund engaged on the policy side to help the country be more resilient to climate shocks now and in the future. Now the US is saying that IMF has drifted from its core mission of stability.
How do you resp how do you respond to that statement?
We we one it is true that we can we have to be always mindful where we put our resources and I am very respectful when any of our members of course uh US included tell us be careful you may be venturing into too many uh directions we are a small institution we are about 4,000 people we are a fairly high performing institution so everybody wants us to do more.
Yeah. Yeah. And different things for them. So we have to have the discipline to stay uh focused and I would say uh when I look at the um delivery from the fund what we are doing for the world that yeah we are doing pretty well.
Do you personally have to compromise uh when it comes to things that you believe in in order to keep keep the peace?
We are a membership organization. I'm here to help the members work together, collaborate in a world which is more complex these days. So, uh what I believe of course matters, but what matters even more is what my membership needs from us and that is my guiding star.
Is this a more stressful environment than CO?
I think co was pretty stressful. Imagine you are you are responsible for the health of the world economy and it comes to a screeching stop.
Yeah. Uh I think what is what is um different today is that getting uh cooperation uh takes more more effort.
When we had co I remember vividly we called emergency meetings of our members to figure out what to do and we came up with very strong response. I'm very proud of what the fund has done. We deployed about a trillion dollars in lending and through the allocation of special drawing right 650 billion injection in reserves that helped to put a a floor under the the feet of many many many countries and we did it very quickly. Um when COVID was announced by uh the World Health Organization, in one week we dispersed our first emergency loan to uh the Kygis Republic. But most importantly, we helped countries to see what is the policy path and at that point what was the policy path. Monetary policy accumula uh uh accommodation is the access to to to money. Fiscal policy is the uh flow of money from from the state and that was done in a coordinated manner makes a huge difference whether individual countries do their individual thing or the world comes together with a strong uh coordinated uh response. You're now entering your second term at IMF. What are you the most proud of from your first term?
Well, co I'm very proud of, but actually what I'm most proud of my first uh term is keeping the membership together despite of the many forces against it.
Uh take u Russia's invasion of Ukraine. The fund came with a program for Ukraine that is supported by all our members with the exception of uh Russia. and that ability to bring the collective for this purpose of strengthening the world economy that I'm very proud of. I'm very proud of the staff of the fund. These are fantastic people. You know how the fund operates. We argue and we fight our individual positions and then we come to a decision. When we come to a decision, that's it. We all march in the same direction. There is u it's like a little economic army that I'm in charge of. You grew up in Bulgaria in the 50s and the 60s and uh behind the iron curtain and I was just kind of thinking about you know armies and and things like that. Just how was your upbringing like?
I was very fortunate to be uh a kid in a loving family. Ordinary family. Materially we had nothing but we had each other. And I.
You say ordinary, they were you had quite clever parents, right?
Well, they were they were clever, but my mother was uh uh worked in a shop as a um shop assistant. My father was a road technician who was so good that he got promoted to be in a position of an engineer, not party members. In other words, not part of the elite of these days. Uh but I would be coming home and I would we lived on the first floor and I would hear my father and my mother singing. We had so much nothing that we didn't have a radio until I think I was in my 20s.
So we sang and that was wonderful. I um uh one thing that my parents gave me that I am forever grateful uh to them is the encouragement to kind of never give up. Um I had um the ambition to study journalism. That didn't happen because my family was not a party family. But they kind of encouraged me to study political economy and sociology. Sociology was great fun and they would always say, you know, you can be anything you want to be. So, here I am. Needless to say, Needless to say, my my parents were very proud when I graduated from university, when I got my PhD, the first in our extended family with the PhD degree. And u uh you know I have only these wonderful memories of u uh growing up materially poor but emotionally and in terms of education rich.
What have been the the most important kind of decisions and points from growing up without a radio to sitting here in this fantastic studio at the IMF. you know the and being one of the most powerful women in the world.
I think the most important decisions were me deciding to conquer the world outside of where I grew up. I went to um London School of Economics during Gorbachov's time. So Gorbachovs comes to power. What did he start? Glasnus and Paris Striker. Glasnus meant that in all former socialist countries we were allowed to apply directly for scholarships to the west. So in seven months I learned English enough to get a British council scholarship and go to London School of Economics. Changed my life because when I came back that was 8788 when I came back to Bulgaria boom the system collapsed and I wrote the first microeconomics the first microeconomics textbooks for Bulgarian students that put me in a high academic position then I went to be a professor in Fiji.
Which in these days just imagine somebody from Bulgaria going all the way to Fiji. So that adventurous nature that I had, that incredible appetite to see the world.
But where did that come from? But I mean not not many people uh have uh you know conquer the world attitude.
So interesting story. My um father comes from a very prominent Bulgarian revolutionary family. So I can trace my origins to the 14th century, something very rare because of the Turkish um dominance. And what it meant was that we had this revolutionary spirit in my in our household. Um I think that helped me. And also uh I didn't tell you the most important thing in my upbringing, positivity. I've never heard my mother or father to say, "No, you can't do this."
What about your energy? Because when I came in here, I asked the receptionist, "Hey, what should I ask your managing director?" And he said, "You know what? You should ask her about the energy because she's got such an energy and it's really, you know, kind of having an impact on us all. So, where does your energy come from?"
Same place, right? My my especially my mother uh my mother well lived to be 92. She had incredible sense of humor and never ever ending energy. It just radiated from her. So good jeans.
How do you relax?
Huh? I relax with my grandchildren, with my granddaughter, with my grandson, with my daughter. uh they are my uh treasure place. I take from them actually source of energy.
And if you were to if you were to give them a piece of advice that they would which they would listen to in 10 years time, what would you what is your advice to them?
So I I want them above all to be kind, kind to each other, kind to other people, to have compassion. Uh I want them to be brave. I want them to be curious to to never be satisfied with what they know but always think of what they can uh learn. And actually I my I was talking to my granddaughter and I decided to do you know the usual thing when you come with with three letter you know same letter three words I came up with three C's and it is curiosity courage compassion that's what I want them to be she actually remembered it.
And you and you know what I think they totally they really sum you up as a as as a human and as a professional. So big thanks for being here today with us.
Thank you.
Thank you.