The words of Christine Lagarde, director of the International Monetary Fund, summarize the current global situation well: “As I did say at the October annual meeting, quoting John Fitzgerald Kennedy, that it's when the sun is shining that you want to repair the roof. It's a perfect opportunity actually now for the world leaders to repair their roof”.
The traditional appointment of spring meetings of over 180 member countries in the headquarters of the International Monetary Fund and the World Bank were preceded by 4 days dedicated to foundations and civil society associations to discuss the most urgent economic issues in conjunction with the publication of the World Economic Outlook, Fiscal Outlook and the Global Financial Stability Report. The Italian delegation, led by Economy Minister PierCarlo Padoan, saw great attention paid to the moment of political impasse that the country is going through. In fact, the European economic dynamics were at the center of various meetings focused on the change taking place but above all to clarify an internal political framework undermined by nationalist impulses and populist drifts such as the Hungarian one which worries Washington a lot.
But the trust placed in our country's progress, with the expected drop in debt/GDP from 2019 below 130%, together with the return to the Greek bond market, have not dampened the alarmist tones of the IMF on world debt, and Christine Lagarde he has repeatedly reiterated his concern about a world debt that reached 'historic highs' already in 2016 with 225% of world GDP. And with a third of developed countries with a debt/GDP ratio of over 85%, (in 2000 it was a tenth). Padoan who spoke, also with the delegation of other Mediterranean countries such as Albania, Greece, Malta, Portugal and San Marino, and reiterated the importance of the structural reforms started in the last three years obtaining unanimous applause in front of other European representatives certainly less prestigious and convincing.
The common thread of discussion of the meetings thus starts from the concern for debt sustainability in a scenario marked by the digital revolution and is inevitably linked to the adoption of the 17 global objectives by the 193 countries which outline a road map to 2030, while we are only 2 years after the completion of the World Bank's UFA2020 project to guarantee financial access to the majority of the world's population. With 40% of emerging countries facing a serious debt situation, up until 5 years ago they were only 21%, the levels of per capita income have drastically reduced leaving these countries more fragile in the face of conflicts, wars and serious social hardships as in Haiti, Congo, Chad and Syria. Corruption and tax evasion characterize the actions of weak governments and administrations that manage tax collection rates well below 20%. On taxation, it becomes increasingly necessary to broaden the international debate and, as requested several times by Lagarde, to bring the big corporates and internet companies around a table because by recovering tax revenues it will be possible to contribute to the dynamics of global growth, especially for emerging countries.
And then here is the sore point that saw the political case of the year: the World Bank changed its lending model to emerging countries after an agreement with the Trump Administration, so in fact thanks to the effective support of the Government it will double the amount to be allocated to the poorest countries from 7 to 14 billion US dollars by strengthening the two units IBRD and IFC (International Finance Corporation, which supports the private sector), and by modifying the rate applied to the Chinese, with a substantial increase in the case of IFC and coming to exclude China from other loans. In the case of the IBRD (International Bank for Reconstruction and Development) the major lender was China with projects aimed at education and health. So he financed with 2,5 billion US dollars on one side to raise cheap funds on the other side. But thanks to the agreement between WB President Kim and Treasury Secretary Mnuchin, this will no longer happen in the short term, to the benefit of India and other countries allied to the USA which will maintain the preferential rates!
There was no shortage of ideas on cybersecurity, and on Fintech to which an intense cycle of meetings was dedicated at the new IMF Fintech Laboratory as a corollary of the forecast of the world outlook and particularly rosy and encouraging also on the boost of the beneficial effects of the revolution digital, particularly advantageous for emerging countries and their financial markets. Director Lagarde's invitation to act before the dark clouds on the horizon bring bad weather, was added to David Lipton's reflection on the dynamics of the three "T"s that dominate the scenario: "Technology, Trade and Trust" or Technology, trade and trust. Three variables which, instead of driving global development, are in turn held back by the huge public and private debt, by demographic dynamics and by the devaluation of the value of assets.
And if peace with North Korea has soothed the spirits of Asian investors, the return of the 3-year Treasury to above 2014% (it hasn't happened since 0,8!) brings attention back to the broad economic transition that will follow the end of quantitative easing in Europe. And looking at inflation-adjusted yields, we see real yields in Germany, Britain, and Japan remain negative compared to 9% in the US, so we still have at least 7 months to see a valuation adjustment complete at light of a definitive rate hike cycle, a period of coexistence with the specter of rate hikes which, as requested by Lagarde, will not be able to see governments inactive, if one considers that up to now they have managed to move only XNUMX% of investments global private parties towards those global goals that many politicians, including our own, forgot to have signed up to three years ago.
