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Argentina's President Javier Milei gestures during the Atreju political meeting organized by the young militants of Italian right-wing party Brothers of Italy (Fratelli d'Italia) at Circo Massimo in Rome.
Big milestone for Argentina’s radical president: Economy escapes recession
A year ago, Argentina’s eccentric, wolverine-haired, “anarcho-libertarian” president Javier MIlei took office with a chainsaw and a plan: to tackle the country’s triple-digit inflation and chronic debt problems, he would hack government spending to pieces — and it seems to be working.
Latin America’s third largest economy has emerged from recession for the first time since the third quarter of 2023, with GDP growing nearly 4% since then. Month-on-month inflation has plunged from 25% last December to just 2.4% a month ago.
How’d he do it? Since coming to office, Milei has scrapped more than half of the government ministries, slashed spending on public salaries, devalued the currency, and put pension growth in a chokehold.
The subsequent return to growth is a vindication for Milei, whose state-chopping has won him plaudits from financial markets and the International Monetary Fund. It’s also earned glowing admiration from Donald Trump who envisions a similar gutting of the US Federal government (though his protectionist impulses contrast with Milei’s purer market fundamentalism).
Milei’s approach has been painful for many. The percentage of Argentines living in poverty has surged by 13 percentage points to 53% since he took office. Milei’s bet is that this is merely short term pain. He could yet be right: experts see the economy expanding by 5% next year after contracting 3% in 2024. With mid-term elections approaching in 2025, we’ll soon learn how most ordinary Argentines feel about Milei’s methodical massacres.World Bank Group President Ajay Banga listens during the G-20 Finance Ministers and Central Bank Governors' Meetings at the IMF and World Bank’s 2024 annual Spring Meetings in Washington, U.S., April 18, 2024.
The big challenges facing the IMF and World Bank
As the International Monetary Fund and World Bank spring meetings wrap up Friday in Washington, the two crucial global lenders face a few important challenges in the year ahead. GZERO has been on the ground to bring you the big takeaways.
A tale of two recoveries. The IMF’s global economic outlook is fairly rosy as a whole. Inflation is easing in the US and Europe, and 3.2% growth of global GDP is a respectable clip – especially given recent fears of a recession. The US and Chinese economies are both growing, even if Beijing is still struggling with persistent debt and property market woes.
But the recovery has yet to reach every corner of the globe. One-third of the lowest-income countries are poorer today than in 2019, before the pandemic. And because inflation has pushed up interest rates, the costs of servicing sovereign debt have skyrocketed, an especially heavy burden for lower-income countries. Bringing financial stability to these fragile situations is a key focus for the IMF and the World Bank.
Power up. The World Bank announced it is launching a massive $35 billion plan to connect 300 million people in Africa to electricity. It’s the kind of fundamental development work the World Bank excels at, and it will help put the continent on track to drive an increasing share of global growth in the coming decades.
But many of the African students who might benefit from lightbulbs to study by also lack access to basic medical care – in fact, more than half the population of the globe finds themselves shut out of formal healthcare, and another two billion struggle to afford it. The World Bank plans to bring quality care to some 1.5 billion people and bolster public health systems to create sustainable improvements.
A new approach. World Bank President Ajay Banga stepped into a delicate situation succeeding David Malpass, who courted controversy with his skepticism about climate change. Banga is the first president in over a decade coming in from the private sector and he's attempting to streamline processes and make the institution more agile and flexible, which may include merging the Bank’s keystone conferences into one.
We’ll keep you up to date on progress during the Annual Meetings this fall.
For more on the big takeaways from this year’s conference, watch Senior Writer Matthew Kendrick’s interview with Tony Maciulishere.
How to tackle global challenges: The IMF & World Bank blueprint
The International Monetary Fund and World Bank’s Spring Meetings in Washington have told a tale of two economies: In the developed world, inflation is falling, and recession looks unlikely. But many of the world’s poorest countries are struggling under tremendous debt burdens inflated by rising interest rates that threaten to undo decades of development progress. That means these key lenders of last resort have their work cut out for them.
The good news? There’s a proven model, as GZERO Senior Writer Matthew Kendrick discussed with Tony Maciulis at a Global Stage event while reporting on the meetings. Somalia, once the byword for a failed state, managed to implement massive reforms to its financial system to meet the guidelines of the IMF’s Highly Indebted Poor Countries Initiative.
“Because they met those guidelines — while still in a very fragile environment where they were fighting Islamic extremists in the country, dealing with semi-autonomous zones in the north — they managed to discharge 90% of their debt,” said Kendrick. “It's proof that even in very fragile countries, if, as the Somali finance minister said yesterday, you build these projects into nationally unifying efforts to build a better future, they can have tremendous success.”
Kendrick also cited comments from experts calling for the IMF and World Bank to change how they view humanitarian work more generally and not back away from countries amid war. “Conflicts are becoming a day-to-day part of our lives all over the world,” he says. “That means that the IMF and World Bank, in order to make progress on development, have to figure out ways to work with the institutions in these countries as they are also in conflict.”
For more of our 2024 IMF/World Bank Spring Meetings coverage, visit Glogal Stage.
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People gather as they watch from afar after an alleged gang member was killed and set on fire, amid an escalation in gang violence, in Port-au-Prince, Haiti March 20, 2024.
Want to stabilize the world’s worst crises? “Leave your textbook in your drawer.”
Matthew Kendrick spoke with Ghassan Salamé, the former head of the UN Support Mission in Libya, and former UN Deputy Secretary-General Lord Mark Malloch-Brown, as part of a panel at the IMF/World Bank Spring Meetings on Wednesday.
The international community is struggling to address half a dozen conflicts, spanning from the Middle East to Haiti, that often involve institutions poorly equipped to tackle modern problems. But that doesn’t mean they can afford to stop trying; it just means they need to get creative.
“The most urgent need is to bring back humanitarianism as a domain independent from war,” said Ghassan Salamé, the former head of the UN Support Mission in Libya, noting that the basic concerns of food, education, and healthcare must not be held hostage to military objectives. “And you cannot apply it in a selective way. You have to apply it in Ukraine with the same strength you do in Gaza.”
Bias in attention is especially stark for Sudan, where just 3.2% of humanitarian needs have been funded despite a brutal civil war that has killed over 15,000 and forced a staggering 8.2 million to flee.
“Indifference is much worse than hostility,” said Salamé. “Sudan needs concern.”
Part of the problem, according to former UN Deputy Secretary-General Lord Mark Malloch-Brown, is that “humanitarianism was based on the idea that conflict is temporary, and then you go back to development.” That means when the shooting starts, the IMF and World Bank tend to back away and wait for the dust to settle before starting to help stabilize the affected economy. That just won’t fly in the 21st century, and Malloch-Brown called for the institutions to develop new tools to provide help before, during, and after a country falls into violence to strengthen key unifying institutions, such as ministries of finance, education, and social welfare.
The key, said Salamé, is to “leave your textbook somewhere in your drawer and try to solve the situation as it is.”
Looking at crises in developing countries along longer trajectories can help highlight their hidden potential. When asked how these new approaches could apply to Haiti, where the formal government has all but collapsed, Malloch-Brown said the country “never had the degree of internal development, social reform, or inclusive economic policies that allow a stable polity to emerge.” If Haiti receives “a persistent period of tender love and care,” he added, its economic potential means “I’m optimistic enough to believe it can be fixed.”
Students read Koranic verses at a madrasa, or Koranic school, in Dhusamareeb, central Somalia, December 16, 2012.
IMF says economic picture is rosy, but how does it look from the bottom?
Inflation looks set to fall globally, and a global recession is unlikely in 2024, according to the IMF’s April update to the World Economic Outlook. That so-called “soft landing” is great news for those in New York or Paris, but what does the picture look like from the most vulnerable economies?
Money has been tight for developing countries in sub-Saharan Africa, in particular, with many over-indebted states are only just returning to capital markets after COVID-19’s economic knock-ons shut them out, and face dim medium-term growth prospects.
IMF Chief Economist Pierre-Olivier Gourinchas told the IMF/World Bank Spring Meetings in Washington, DC, that low-income countries should focus on structural reforms to make their economies and governments more efficient.
“This will help lower borrowing costs and reduce funding needs,” he said, adding that such countries should lean into their demographic advantages and “improve the human capital of their large, young populations, especially as the rest of the world is aging rapidly.”
That’s easier said than done, but the IMF can point to a massive success story: Somalia. In December last year, Mogadishu was able to discharge some 90% of its external debt after meeting the specifications of an IMF program called the Heavily Indebted Poor Countries Initiative. That achievement followed years of hard work by Mogadishu.
In 2012, decades of war had left Somalia’s federal government barely functional and without a proper budget. If salaries were paid, it was through unaccountable cash. But now, it has fully digitized payroll, invoice tracking systems, and cash management tools, all of which have helped Somalia massively increase social spending, from $8 per person per year a decade ago to $48 per person per year today.
Such success in a fragile country has raised hopes that the model can be exported. But Somali Finance Minister Bihi Iman Egeh cautions that his country’s program “was only successful because it reflected Somalia’s needs and priorities,” meaning other countries need to tailor the approach to suit their unique challenges.
Building broad consensus meant “the economic reform program was among the few common national priorities that was elevated above our lively national politics,” said Egeh. “It was a successful unifying national exercise.”
Ghana, Accra, 2023-02-16. Young schoolchildren in uniform learning multiplication tables. Illustration image of children in a school in Ghana. A little girl is at the blackboard reciting in front of the class.
To get rich, Ghana needs to wise up
About a quarter of all the chocolate you eat comes from Ghanaian cacao, so with prices at all-time highs, Ghanaian farmers should be raking it in. Instead, they’re selling at fixed prices to a government that’s struggling to settle its debts after a crushing $30 billion default last year.
On Monday, Ghana failed to reach a debt deal to restructure $13 billion in debt, breaching the terms of its International Monetary Fund bailout and pushing the country to the brink. According to the IMF, Ghana is borrowing too much in the same high-interest rate environment that led to the original default. If the government cannot formulate a plan that meets IMF standards, it risks $360 million in upcoming relief.
Nonetheless, the IMF is optimistic that the children of today’s cacao farmers will be driving the global economy in a decade or two. “The 21st century will be the African century,” said economist Michele Fornino on Monday at the IMF/World Bank spring meetings in Washington, DC. He pointed to the increasing numbers of young Africans joining the global workforce, contrasting it with the population slowdowns in Europe, East Asia, and North America that will diminish their economic clout.
But it all depends on getting those kids to school. About one in four children in Ghana is unable to attend school, a rate well below other developing countries. Improving that number will be crucial but difficult if Ghana stays trapped in perpetual cycles of debt and default.
Fornino pointed to South Korea, once among the poorest countries in the world before the vaunted “Miracle on the Han River” transformed it into a wealthy, globally connected society. “South Korean GDP would be one-third of what it is today without the improvements in education that began in 1970,” he said, and the IMF’s long-term goal is to help Ghana and other African countries make the most of similar demographic dividends.
Argentina's Economic Minister Sergio Massa during a news conference at the Casa Rosada presidential palace in Buenos Aires.
Argentina to IMF: Please give us (even) more $$$
As early as this week, Argentina's high-profile Economic Minister Sergio Massa is expected to travel to Washington, DC, in a last-ditch bid to ask the IMF for more funds on top of $44 billion worth of debt the country already owes to avoid yet another default.
You might think: I've heard this story before. And you'd be right since Argentina is a serial IMF defaulter. But this time, Massa will argue to the lender’s bean counters that they really must help Argentina because the economy is such a disaster that the nation is on the cusp of devaluing the peso (which means it'll be harder to pay the IMF back) or, worse, entering hyperinflation.
This presents the international lender with an impossible choice: give Argentina more cash despite the government failing to meet most of the targets it agreed to under the terms to trim an even bigger earlier loan — or risk precisely the type of financial mega-crisis the IMF was set up to avoid.
And, of course, there's a domestic political angle. Massa needs a big win before June 24, the deadline to pick candidates for the October presidential election. With President Alberto Fernández and VP Cristina Fernández de Kirchner out of the race to lead the ruling left-wing Peronist coalition, Massa hopes to take credit for “saving” Argentina's economy to run for the top job.
Britain's Chancellor of the Exchequer Jeremy Hunt poses with the budget box at Downing Street in London, Britain March 15, 2023.
A new attitude and a new budget: Can the Tories make a comeback?
Weeks after the International Monetary Fund forecast that the UK will be the worst-performing advanced economy this year, British Chancellor Jeremy Hunt on Wednesday handed down a fresh national budget. (Though the independent Office for Budget Responsibility now says that the economy will only contract by 0.2% this year, an improvement on previous forecasts of 1.4%.)
Budgets can have a massive impact on politics. You’ll likely remember that ephemeral PM Liz Truss’ “mini” budget last fall caused the markets to nosedive, leading to her swift resignation.
As the UK grapples with a dire cost-of-living crisis and a sky-high annual inflation rate of 10.1%, Hunt tried to convey that the government will address falling living standards without overspending while also stimulating growth after years of sluggish economic performance. For context, real household disposable income, a key standard-of-living metric, is expected to drop 5.7% between 2022 and 2024.
Indeed, the budget laid out public spending measures opposed by some Tory hardliners, including a £4 billion additional investment in free childcare and an extension until the end of June of a £2,500 annual energy price cap to offset rising energy costs as a result of Russia’s war in Ukraine.
What's more, the Tories will stick to an earlier plan to raise the corporate tax rate by 6 percentage points to 25%, a move unpopular with fiscally conservative Tories. A significant budgetary development is the abolition of limits on the amount workers can build up in their pension funds before paying tax, which is aimed at keeping some professionals in the workforce for longer. There are also some tax breaks offered to businesses to boost investment.
Much of Hunt’s budget focuses on the need to plug a hole in the labor market and boost productivity after years of sluggish growth. Crucially, while the economies of other advanced countries including the US, Canada, Japan, and the EU now exceed their pre-pandemic levels, Britain’s GDP remains stagnant. This trend started after the 2007-2008 financial crisis, and was further exacerbated by the Brexit fallout, which raised trade barriers and created a climate of uncertainty and chaos.
The challenge is now on Labour leader Keir Starmer to recast his party’s opposing message. Love him or hate him, Prime Minister Rishi Sunak, a mild-mannered technocrat who is on a mission to mend relationships around the globe, can hardly be accused of the gross incompetence that plagued his predecessors.
With general elections slated for next year, can Starmer maintain the 20-point advantage Labour currently enjoys after the implosion of the Conservative Party under Boris Johnson – or is this the beginning of the Tories’ comeback?