[INTERVIEW] ‘Recession will be much more severe than in 2009’

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Ex-Fed director calls on IMF to play bigger role in fighting crisis

This is the sixth in a series of interviews with global economic experts analyzing the economic fallout of the COVID-19 pandemic and possible countermeasures against a global recession. ― ED.

By Anna J. Park –  https://www.koreatimes.co.kr/www/biz/

Global financial expert Edwin M. Truman has warned that a global economic recession brought on by the COVID-19 pandemic will be more severe than the aftermath of the financial crisis a decade ago.

The former assistant secretary of the U.S. Treasury and former director of the Division of International Finance at the Federal Reserve stressed that the international community, the G-20 and multilateral development banks, need to make more concerted efforts to fight the pandemic and cope with the global crisis.

In a recent interview with The Korea Times, Truman, now a non-resident senior fellow at the Washington-based Peterson Institute for International Economics (PIIE), said that “negative growth” will result this year.

“The pandemic is hitting different countries at different times and therefore the associated economic effects are also hitting countries at different points, but there will be feedback effects.?All that said, I have no doubt that the global economic slowdown will result in negative growth in 2020 and probably subdued positive growth in 2021,” he wrote in the email interview.

“I expect that the recession will be much more severe than in 2009 in both the advanced and the emerging market economies,” he added.

As a means to curb such negative impacts from the global crisis as much as possible, the economist suggested the urgent need for countries to cooperate and coordinate monetary policies through institutional international financial platforms.

“It is essential that countries act together to deal with the pandemic and a true global economic and financial crisis. Their actions should be coordinated through the G-20 and focus on international institutions such as the IMF, World Bank and regional development banks,” he said.

Particularly, the former international economics professor and author of many in-depth books on the IMF pointed out that the U.S. and other member countries will have to augment the IMF’s resources for it to play a central role in fighting the crisis.

“The IMF will need more resources and the resources it now has will have to be stretched. That is why I have proposed not only that the major central banks expand their swap lines but that they be linked to an IMF backstop,” the veteran economist said.

“I also think that there should be a $500 billion allocation of Special Drawing Right.?And countries that are able should increase their potential bilateral lending to the fund and to the multilateral development banks where possible,” he explained.

Truman stressed that four areas ― financial support for poorer countries, curbing destructive trade practices, macroeconomic support and responsible financial supervision ― and especially emphasized the need for globally concerted collective action to minimize the threats from the current economic crisis.

He also mentioned that many advanced countries’ various rescue plans, including the U.S.’s $2 trillion plan to support the economy and to replace lost income and revenue, aiming to mitigate the immediate economic impacts of the crisis, will likely be followed by more traditional stimulus measures to bring economies back to normal. Truman added that he doesn’t expect many side effects from too much liquidity due to such plans.

“For advanced countries in general, I am not concerned about increasing debt burdens in a world in which interest rates are very low and are likely to remain low after the crisis passes. I am also not concerned about inflation or excessive liquidity. There will be some substantial relative price changes but overall inflation will remain subdued.”

Regarding more vulnerable and emerging countries, Truman said the international community should support those who are not capable of successfully carrying out monetary and fiscal policies on their own to curb the crisis.

“To the extent that the pandemic is hitting some emerging market economies later, they should learn the lessons from Korea and other countries on how best to limit its effects,” he said.

“To the extent that countries have the monetary and fiscal scope to act they should do so and the international community should support those that are not able to do so.”

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