At Their Annual Meeting, the IMF and World Bank Warn of Financial Blowout

Oct. 15, 2020 (EIRNS)—The IMF issued its latest Global Financial Stability Report at the Oct. 13 annual meeting of the IMF and World Bank, and even though it is written in bankerese it cannot conceal their alarm over a pandemic-triggered financial blowout. The report’s foreword, written by IMF Financial Counsellor Tobias Adrian, warns: “The COVID-19 pandemic has triggered a global economic crisis of unprecedented magnitude. The World Economic Outlook forecasts a sharp global economic contraction for 2020.” The report praises central banks for pumping nearly $7.5 trillion into the failing financial system, on top of $12 trillion in fiscal stimulus—most of which has also gone to the banks—but warns that this gigantic debt bubble could easily get out of control. “Corporate debt is rising, and it is estimated to be at record levels relative to gross domestic product in most countries.... Furthermore, sovereign debt is at historically high levels. This is a critical issue for many low-income countries and some emerging market economies, where a debt crisis might be inevitable without prompt and decisive policy action.”

In short, “Near-term global financial stability risks have been contained for now.... However, vulnerabilities are rising, intensifying financial stability concerns in some countries.”

World Bank President David Malpass also warned that the huge debt bubble of developing sector countries should not be called in, but that it had to continue to be rolled over and/or granted grace periods through the Debt Service Suspension Initiative (DSSI), which the G20 nations adopted back in April. At this week’s meeting, G20 finance ministers and central bank governors agreed to extend the DSSI by another six months. Malpass argued that during the pandemic “advanced economies have been able to provide support, especially for their financial markets and for people that have jobs that can be done by working from home.” But developing countries are facing an increasingly desperate situation, “because of the loss of jobs, the loss of income, and also the loss of remittances coming from workers working outside the country,” he said.