‘War in Ukraine Means Hunger in Africa’

The International Monetary Fund’s two top leaders discuss the global economic ramifications of Russia’s invasion.

By , the editor in chief of Foreign Policy.
People wait in line for food distribution.
People wait in line for food distribution.
Women wait in line during a United Nations World Food Program distribution at the “Escola Primária 3 de Fevereiro” school in Matuge district, northern Mozambique, on Feb. 24, 2021. ALFREDO ZUNIGA/AFP via Getty Images

Putin’s War

In the month since Russia’s invasion of Ukraine, countries around the world have imposed historic sanctions to punish Moscow for flagrantly violating international agreements. Although it is technically still able to export oil and gas, many potential buyers are already boycotting energy supplies from Russia, the world’s largest exporter of oil, contributing to the highest global crude prices in a decade. Other commodity prices are soaring too: Wheat prices have jumped 60 percent since February, nickel prices are at their highest in more than a decade, and fertilizers and pesticides are now in short supply in global markets.

Russia’s invasion of Ukraine also comes amid a historically fragile period for the global economy. While many countries have bounced back after the coronavirus pandemic, much of the world is still grappling with new outbreaks and struggling to return to normal.

I spoke with the two top leaders of the International Monetary Fund (IMF), Managing Director Kristalina Georgieva, and First Deputy Managing Director Gita Gopinath, to understand how geopolitics is worsening economic outcomes—and what can be done to make things better. The following conversation was conducted for FP Live, the magazine’s forum for live journalism, on Tuesday, March 22. It has been lightly edited for clarity.

In the month since Russia’s invasion of Ukraine, countries around the world have imposed historic sanctions to punish Moscow for flagrantly violating international agreements. Although it is technically still able to export oil and gas, many potential buyers are already boycotting energy supplies from Russia, the world’s largest exporter of oil, contributing to the highest global crude prices in a decade. Other commodity prices are soaring too: Wheat prices have jumped 60 percent since February, nickel prices are at their highest in more than a decade, and fertilizers and pesticides are now in short supply in global markets.

Russia’s invasion of Ukraine also comes amid a historically fragile period for the global economy. While many countries have bounced back after the coronavirus pandemic, much of the world is still grappling with new outbreaks and struggling to return to normal.

I spoke with the two top leaders of the International Monetary Fund (IMF), Managing Director Kristalina Georgieva, and First Deputy Managing Director Gita Gopinath, to understand how geopolitics is worsening economic outcomes—and what can be done to make things better. The following conversation was conducted for FP Live, the magazine’s forum for live journalism, on Tuesday, March 22. It has been lightly edited for clarity.

 

 

Foreign Policy: I thought I’d begin with the situation in Ukraine and the global economic ripple effects. But before that, I know you have family in Ukraine, Kristalina. Are they OK?

Kristalina Georgieva: Thank you for asking. I just talked to my family in Kharkiv. They are still safe. Their area has not been bombed, but they hear bombings virtually every day. Multiple times they were affected by losing water supply. The hardships of war are so unnecessary and so terrible, affecting people for reasons that it’s hard for them to understand “why is this happening?” But the spirit of the Ukrainian people is incredible. In my family, it is the women that are keeping very strong, and the message I get from them is we are going to win this war. We will persevere.

FP: That is so good to hear Kristalina, and I’m so glad your family is safe for now. Let me ask you then a question putting on your IMF hat. How is the IMF assisting Ukraine at this moment, and what more can the world do?

KG: The devastation on the Ukrainian economy breaks my heart. We are likely to see shrinkage that could be a third of what it was before the war. Imagine how that translates into hardship on people.

What we did was to immediately respond to a request from Ukraine for emergency financing with $1.4 billion to keep the country functioning. It is to make sure that there is support for the most vulnerable people, that there is administration securing what I just talked about: water and electricity, even in the worst-affected areas. We are also very closely engaged with Ukraine on how to apply best crisis management measures so the economy does not collapse.

FP: Gita, let’s bring you in. Russia was able to make its last debt payment last week, but Moscow still owes billions of dollars to foreign entities. What happens if it can’t make good on them?

Gita Gopinath: Russia has been current so far on its debt payments. It does have the dollars that are needed. We are still in the fog of war and there is uncertainty around the regulations and the ability to make payments go through. So, there are risks associated with this, which is what we’re seeing in terms of pricing of Russian debt on the market in terms of what the impact would be if there were a default. I think the direct effect on the rest of the world would be quite limited because the numbers that we’re looking at are relatively small. From a global perspective, it is not a systemic risk to the global economy. However, you can, of course, have some banks that have greater exposure to particular assets that could be negatively impacted. And of course, from Russia’s perspective, it will have consequences for its long term. When you default, reentry into the market is not that easy, and that can take a long time.

FP: Kristalina, talk us through the global economic impacts from Russia’s invasion. Crude prices have soared. Even more worrying is the fact that Ukraine and Russia are major suppliers of wheat, barley, even fertilizer—all of which will just have immense impacts on the developing world. What aspects of this right now are worrying you the most?

KG: Russia invaded Ukraine when the world economy was yet to fully recover from the COVID-induced crisis. What we were striving for is for growth to go up and the inflation that has become a problem to go down. Instead, we have the exact opposite: Growth is going down; inflation is going up.

We are assessing the impact of the war and the sanctions in different parts of the world in different categories of countries. First are the immediate neighbors of Russia and Ukraine that have relatively weak economies. The caucuses, some of the Central Asian republics, Moldova, they rely on trade and remittances, especially with Russia. This is now brought to a swift stop. These countries are very impacted. Second, the countries that are receiving refugees. We now are at 3.3 million [Ukrainian refugees] in neighboring countries. They’re putting a demand on these economies that if the war continues for a long time, it’s going to have a profound impact. Third, the countries that depend on imports of energy and food from Russia and Ukraine—energy primarily, of course, from Russia. Food from both Russia and Ukraine. And it is devastating for those that have a high level of dependency.

To put it very simply, a war in Ukraine means hunger in Africa. So, when we look at these lines of dependency, what we are doing is looking at the best policy action that can be taken in different circumstances. First, it was important before but even more important today to focus on the most vulnerable people, those for whom higher energy and higher food prices mean devastation. We encourage countries to direct the little policy space they have to those that are most vulnerable. And second, look at ways in which you can anticipate further developments in policies, especially central bank monetary policy, and then try to stay ahead of the curve.

FP: Gita, let’s try and just delve into this a little bit deeper. If you think of the countries that were importing much of their wheat from Ukraine—Lebanon, for example, got around 50 percent of its wheat from Ukraine—how worried are you about food and inflation? What can the IMF do to help supply chains get reoriented?

GG: I think the issue of food insecurity was always quite salient before this crisis, but it’s become even more salient. Russia and Ukraine together account for about 30 percent of the world’s exports of wheat. It’s around 15 percent for corn. And we may not have seen the full effect yet because we know, for instance, for wheat, what matters is the harvest that’s coming around this summer. And with disruptions to that harvest in the summer, we could see even bigger effects in terms of food reaching different parts of the world. Food prices have gone up in many parts of the world. That just means lower real incomes because they have less money to spend on other things. But in other parts of the world, in parts of Africa and the Middle East, in Asia, we’re talking also about real hunger. We’re talking about deprivation, food insecurity, the social tensions that come along with it. So this is a major concern. And the longer this war lasts, the more grievous the problems become.

In terms of what the IMF can do, as you know, we stand ready to help our members who are dealing with balance of payments needs, and that includes their ability to get imports of food and other essential needs that they have to meet. We can help. In terms of just the supply chain and where to get foods from, I mean, that’s not our comparative advantage. But we work very closely with all the other partners of the international multilateral system to help countries address their needs as best as possible.

FP: Kristalina, since we last spoke, you’ve come under fire over allegations of mishandling the World Bank’s “Doing Business” rankings while you were CEO there. And specifically, the allegation was that the rankings favored China. The IMF since found that those allegations couldn’t be substantiated. But I did want to ask you, given your current role, does the controversy hang over you? Are there any lessons to be learned from this, both for the World Bank and the IMF?

KG: The IMF board heard both sides of the story and expressed full confidence in my role as managing director. What I can tell you is that the IMF is very strong on data and analysis. Why? Because it constantly reviews and improves the quality of data and the quality of analysis. For us, this was an issue of a particular report of the World Bank, not of the IMF. But we always take advantage of an opportunity to do better. So we have brought a very prominent person, the former president of the [Deutsche] Bundesbank, Jens Weidmann, to lead an external panel to help us see what more we can do. And that work is ongoing. And I’m very fortunate to have one of the world’s experts on data and analysis in Gita as first deputy managing director. So, my take is that the fund is strong and will get only stronger.

FP: This is Women’s History Month, and it’s particularly great that the top two economists at the IMF are women. I want to use that as a segue to discuss the broader post-pandemic recovery because it’s so clear that the pandemic hit women especially hard around the world. And now, of course, we have these other economic shocks on top of that through Russia and Ukraine. What can we do about that?

GG: When we were at the peak of the pandemic, if you go back to 2020, when there were countries that were going into lockdowns, we saw pretty uniformly around the world, women being much harder hit than men. And that’s because they tended to work in fields that were more affected by lockdowns—areas like hospitality. What we also saw is that as schools closed down again, again women were hit through that channel because they remain the main caregivers. If somebody fell sick at home, they were the ones who were doing the caregiving, so they were much more affected during the peak of this pandemic.

As recoveries took place in many parts of the world, we have seen women come back into the labor market. We’ve seen that particularly strongly, for instance, for the advanced economy group as a whole. But if you look at emerging markets or developing economies, you certainly see that much bigger hit to women and the slower recovery in terms of women coming back into the labor market.

What we do know when we look at our 190 member countries and look at their experiences, it’s quite clear that policy matters in terms of how you deal with the pandemic and the kind of support you provide. Specifically, what would those be? Firstly, if you are able to keep your schools open as best as possible, you do have the benefit then of women being able to return into the workforce much more quickly if you’re able to help small enterprises and those who are self-employed. That keeps women engaged in economic activity because women also tend to be much more in these specific areas.

FP: Kristalina, you’ve mentioned that the fund will likely look to downgrade the global economic outlook. Are you able to tell us how far and more broadly, you know, what are the larger repercussions of slowing growth this year?

KG: We will have our growth projections presented in mid-April, and at that point, we will be able to report on how we assess the impact of this war on the global economy and more details. Our expectation is that what we had in the beginning of the year, which was a small downgrade of growth projections for 2022, by half a percentage point to 4.4 percent, is going to go down further but would still remain in positive territory. Some economies that have been fast to recover from COVID are in a stronger position to face the impact of this shock The United States has fairly strong fundamentals. But those that were not yet coming out of the COVID crisis are going to be hit even harder. And that is where I find it particularly concerning that we are going to see possibly the risk of recession in these countries where shock comes on top of a weak economy.

The issue that is very concerning, of course, is the impact on inflation. It was hot before this crisis, and it’s gotten hotter. Central banks are going to be asked to step up their actions. We are already seeing [U.S. Federal Reserve Chairman Jerome] Powell announcing that that is coming, and rightly so. But for many emerging markets, tightening of financial conditions is going to be a big shock. I’m particularly worried for low-income countries in debt distress.

FP: I’m going to bring in some of our viewer questions now. And Gita, I’m going to put this one to you first. It is from one of FP’s columnists, Adam Tooze. He writes in to say that the IMF was extremely vocal and clear-sighted in calling for a concerted global vaccine response to COVID. Adam specifically cites the two of you as being at the forefront of this effort, making clear that there was a huge payoff to vaccinate the world. I remember the data when it came out as well. And yet your appeals went largely unanswered, and so the moral judgment on this is obvious: The world failed. But the question is, and I ask you to now think of this question of the failure to vaccinate the world as economists. Essentially, there are trillion dollar notes just lying on the sidewalk. Gita, what’s your take on that missed opportunity? What does it mean for the economy and for trust in the global economic system?

We’re talking about deprivation, food insecurity, the social tensions that come along with it.

GG: On what was needed from the global community to address the health crisis, I believe they fell short. I believe without a doubt they fell short. Progress was made. So I can also put this in terms of a glass half full, which is that efforts were made. There were clearly pledges of vaccine donations. There was part financing of the Access to COVID-19 Tools accelerator. There were donations to COVAX—but not on the scale and not with the speed with which it was needed last year. Now we are in a situation where there is enough supply that has come through and countries are receiving sufficient supplies, including low-income countries. But there is now an absorption capacity issue and also a vaccine hesitancy issue. But given again how clear the economic benefits were to moving quickly, it is disappointing that not enough was done quickly enough.

It’s not too late to do the right thing because the pandemic is not over. If you just look at the chart of global cases on COVID over the last two weeks, they’ve been going up as cases have gone up in Europe and in Asia. So, we still have the opportunity to do this right. I think a mistake that governments make is to assume that they are providing developing aid to countries to help an individual country in this crisis. This is not about development aid. This is about preventing a global systemic crisis, which has consequences for everyone’s economies. So the budgets have to be more generous and much more needs to be done. It’s quite clear that COVID-19 is now here for the long term. We could have a mild endemic scenario. That’s one possibility, but from everything we hear from experts, there are very serious risks of much more serious downsides. So, it’s important for us to get the job done now.

FP: Kristalina, I want to bring you in on a similar point. As we were saying, the guidance on vaccine dissemination was clear. And yet the world didn’t rise to the occasion. What does this then mean for issues that are maybe not so clear cut where the world needs to collaborate? You’re an environmental economist by training. What about the global push to achieve net-zero carbon emissions? How do you incentivize the world to cooperate on that when they couldn’t on something that was far more clear-cut?

KG: It is a very pressing question for all of us because a climate catastrophe is virtually putting at risk our existence, and avoiding it is in everybody’s interest. When you look at the pandemic, we called for $50 billion to turn it into benefits of trillions. It is exactly the same when we talk about climate change. The advanced economies promised $100 billion a year starting in 2020, and we are yet to see the $100 billion a year materializing.

What was encouraging and remains encouraging in my mind is that private sector finance has finally gotten the message. It was incredible to see in Glasgow, Scotland, the presence of finance ministers, central bankers, and private sector financial institutions on a scale I have never seen in a climate meeting. My view is that institutions like the IMF and others have tremendous responsibility to make the economic case for climate action and be very forceful in demonstrating the benefits of this action for everybody.

We came up with a very simple framework for how the world can unite on climate change mitigation, which is: One, send a clear price signal that emissions have to go down. As economists, we know that when you have the right incentive, consumers and producers change their behavior. Two, public investments need to consider emission reduction and climate resilience and use it on a scale that really transforms pathways, but mostly to remove barriers to private investors to step forward. And three, make disclosure of climate-related financial stability risks visible to those who make investment decisions. We are working on all these fronts.

My main message to the audience is we have to learn to deal with more than one crisis at one time because we live in a more shock-prone world. And with the [IMF], we have a tremendous role to keep our 190 members able to talk with each other and reach consensus on these big, big challenges the world faces.

For upcoming FP Live discussions with leading foreign-policy experts and thinkers, register here.

Ravi Agrawal is the editor in chief of Foreign Policy. Twitter: @RaviReports

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