Reauthorizing the DFC is vital to ensuring the United States is not outcompeted by China in its hemisphere. It is essential for supporting US jobs, creating markets for US exports, advancing energy independence, and linking foreign policy outcomes directly to economic benefits for American workers. Congress must act decisively to secure America’s economic interests and leadership in the Western Hemisphere.

How to update the DFC to further advance US foreign policy priorities in Latin America and the Caribbean

Created in 2018 under the BUILD Act, the DFC merged the Overseas Private Investment Corporation (OPIC) with USAID’s Development Credit Authority. This restructuring introduced a more agile and powerful tool for advancing US development objectives while strategically countering rivals, especially China.

As Congress prepares to revisit the DFC’s authorizing legislation, it should prioritize ensuring that the agency can effectively mobilize private capital for high-impact investments in infrastructure, minerals, energy, technology, and healthcare. These sectors are essential to strengthening the United States domestically—a key criterion set by the current administration for all agencies pursuing foreign policy initiatives. For example, investments in rare earth mineral exploration in the region not only secure preferential access for the US to the resource but can also generate US jobs in areas such as classification, storage, distribution, and processing.

The DFC must also reposition itself with enhanced tools, such as capital financing and technical assistance, so it can lead strategic investments. These investments should prioritize relocating supply chains for critical minerals, semiconductors, pharmaceutical inputs, and digital connectivity throughout Latin America and the Caribbean. Strengthening strategic alliances with like-minded countries and the private sector is essential to expand the DFC’s role in sectors vital to US economic and national security.

Key takeaways:

• Strategic alignment: The US International Development Finance Corporation (DFC) is a crucial agency for advancing US foreign policy objectives, promoting job creation and development, fostering economic partnerships, and supporting strategic allies. It aligns with forward-looking initiatives from the Trump administration, such as América Crece 2.0, which emphasizes private-sector-led growth. But DFC’s first reauthorization provides a unique window for updates to enhance effectiveness and alignment with US foreign policy priorities. Congress has until October to approve a reauthorization bill, but the decreasing availability of funds presents an urgency for approval.
• Geopolitical competition: The DFC can and should act as a strategic counter to the rising global competition for influence across the world, and particularly, in many of the developing nations that have continued to join China’s Belt and Road Initiative. The DFC offers a transparent, market-based alternative to opaque, state-driven financing models that come with political strings attached.
• Economic security: By investing in critical infrastructure and critical rare earth minerals, cybersecurity, energy, and healthcare in Latin America and the Caribbean (LAC), the DFC can enhance US economic security by strengthening alliances with like-minded countries to serve as a counterweight to aggressive Chinese actions that seek to dominate key sectors for the US economy and US supply chains while reinforcing the value of US-led investment.

Report May 29, 2025

Why Latin America and the Caribbean matter for OECD countries

By Jason Marczak, Martin Cassinelli

Latin America and the Caribbean are increasingly vital partners for OECD countries, offering critical minerals, food security, and clean energy assets. With democratic institutions, open markets, and active multilateral engagement, the region supports global resilience. Strengthened OECD–LAC cooperation can advance shared goals in economic security amid shifting global dynamics.

Americas Caribbean

Atlantic Council Strategy Paper Series Feb 12, 2024

A strategy to counter malign Chinese and Russian influence in Latin America and the Caribbean

By Matthew Kroenig, Jason Marczak, Jeffrey Cimmino

As strategic competition with China and Russia continues to intensify, the United States and its allies need a strategy for countering the malign influence of authoritarian rivals in the Western Hemisphere. This Atlantic Council Strategy Paper proposes a path forward for the United States and its allies to do that.

China Economy & Business

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

The post Why Congress must reauthorize the US Development Finance Corporation appeared first on Atlantic Council.

First, the significant effect that government-led instant payment systems can have on citizens and the financial market transforms financial inclusion and market structures. Second, decisions made during the early stages of the process, such as system pricing and ownership structure, shape the power dynamics between local and international players, as well as incumbent and new entrants. 

These lessons are shaping an emerging framework governments can use to evaluate their need for central bank-led immediate payment systems, their potential structure, organizational features, and trade-offs involved in implementing a similar approach. The framework is composed of a three-step approach, including prerequisite weighting (i.e., “do we need this system”), the preparations needed to hit the ground running, and the process of setting up new immediate payment systems.

Pix and UPI: Initial development to growing pains

But first, it’s important to understand how immediate payment systems have developed into what they are today. 

Over the last decade, India and Brazil launched their instant payment systems, UPI and Pix, on a national scale, reshaping their payment landscapes. With 350 million UPI users and 140 million Pix users, about 25 percent of India’s population and approximately 65 percent of Brazil’s population use the systems. One of every eleven adults in the world uses either Pix or UPI to send or receive immediate payments. 

Brazil’s immediate payments policy is a payments-first approach. The Brazilian Central Bank (BCB) owns Pix and pushes it to cooperate with domestic private market players, focusing mainly on immediate payments and adjacent products. The system was launched in 2020 after a two-year ideation and development period.

Pix is the most quickly adopted immediate payment system in the world. As of the second quarter in 2024, it had reached 15.4 billion quarterly transactions. Its growth was fueled by a high degree of cooperation with the local financial ecosystem, as well as the fact that institutions with over 500,000 transacting accounts were required to participate, creating a network effect.

India developed UPI as a part of its Digital Public Infrastructure (DPI) program and implemented it as a part of a broad tech stack. Its approach to both DPI and UPI has long been for the state to develop the basic infrastructure, including a digital identity pillar, data exchange pillar, and payments pillar, allowing private sector innovation on top of the existing system.

UPI was developed under the National Payments Corporation of India, which is independent of India’s central bank and owned by various private banks. It became India’s most popular digital payment method, processing over 75 percent of the nation’s retail digital payments.

However, UPI’s growth was initially slow. It only reached 10 million monthly transactions in 2017 and took about three years to reach 1 billion monthly transactions. The growth was later expedited due to India’s demonetization, which started in 2016, the COVID-19 transition away from cash, and internationally backed payment providers entering the market.

Both Pix and UPI have significantly increased financial inclusion, supported growth in the fintech sector, and become the payment standards in their respective countries. However, their impact has not been entirely positive. Their use has also increased fraud and reshaped the power balance between different players in their markets.  

Winners and losers: Market impacts in Brazil and India 

Both systems transformed their respective markets, benefitting some players and reducing the market power of others. 

The table below provides a snapshot of the market dynamics, highlighting each of the key players, their initial power and interest mapping (green for high, yellow for medium, and red for low) and the power shifts in the market caused by Pix. Power shifts are categorized into market share and decision-making power—red with a downward-facing arrow indicates a decrease, green with an upward-facing arrow signifies an increase, and yellow represents retained power or a mixed trend.

In Brazil, Pix has transformed the financial sector by benefiting new domestic players while challenging incumbents and credit card schemes. 

Brazilian neobanks and fintech startups have grown significantly by leveraging Pix’s cost model to attract new customers. They take advantage of the optional fee structure for its value offer, including no fees for consumers and bearing the mandatory fees for businesses. Eliminated transaction fees and immediate payments increased consumer trust. It made digital payments more accessible, particularly for the previously unbanked population. Small businesses and micro-entrepreneurs have also gained access to low-cost, instant transactions, fostering financial inclusion and reducing reliance on cash. This, in turn, drove an increase in such banks’ target addressable market (i.e., relevant customer base).

However, traditional banks and credit card networks have been disrupted. Before Pix, Brazilian banks charged significant fees for interbank transfers, but Pix’s free and instant model eroded this revenue stream. As a result of Pix’s launch, traditional banks’ revenue from payments decreased by 8 percent between 2020 and 2021.

Credit card companies are seriously threatened by Pix. In 2022, BCB’s governor predicted that Pix would make credit cards obsolete. However, transaction data tells a more complicated story. With Pix introducing new consumers into the market, banks are leveraging “maturing cohorts” of consumers to offer them credit cards. Before Pix, credit card payment volumes were at a 12.7 percent annual CAGR (compound annual growth rate) between 2018 and 2020. After the launch of Pix, CAGR almost tripled, reaching 31.7 percent between 2020 and 2022.

UPI’s rapid adoption in India similarly transformed the power balance in the market and benefitted payment technology providers. 

Large-scale third-party application providers (TPAPs), particularly Google Pay and PhonePe, dominate the UPI transaction space, accounting together for over 80 percent of UPI transactions. These players leveraged UPI’s no-cost model to gain significant user adoption. Consumers and merchants have also benefited from seamless, real-time payments without additional fees. 

However, traditional banks struggle with UPI’s zero-fee structure, as it increases transaction volumes and associated costs without direct revenue gains. Some banks have pushed for the introduction of transaction fees to compensate for operational costs. For that reason, in 2022 RBI introduced subsidies for small transactions to banks, which they can share with TPAPs. In 2024, these accounted for 10 percent of PhonePe’s annual revenue. Credit card companies have also faced increasing competition. However, similar to Brazil, credit card usage volume has actually increased following UPI’s scaling. From a declining CAGR of 7.3 percent between 2018 and 2020 in payment volume, after UPI scaled, credit card growth reached a 24.2 percent CAGR between 2020 and 2022.

Big tech vs. local tech: Divergent approaches

A key distinction between Pix and UPI is their approach to global technology firms (“big tech”) and multinationals generally.

BCB has actively blocked big tech from entering the market, emphasizing the need for domestic control over digital payments. This approach is part of a general policy to strengthen the domestic ecosystem over incorporating multinational players. In 2020, for example, BCB suspended WhatsApp’s Brazilian immediate payments offering launch. It cited regulatory concerns and the potential risk to financial stability, launching Pix later that year. This strategy has helped the local fintech ecosystem and brought domestic players, mainly neobanks, to the front of the stage. 

In contrast, India’s approach has allowed big techs and multinational players to participate in the UPI ecosystem and often relied on them for last mile delivery, and consumer onboarding, driving its scaleup. Google Pay and PhonePe, respectively backed by Alphabet and Walmart, quickly dominated.They could offer payments as a loss leader (i.e., sell at a loss to attract customers to other, profitable products) while benefiting from other products over time. 

While doing so accelerated lagging adoption rates, it has also led to concerns about data privacy and market concentration. 

The Indian government has since explored regulatory measures, such as imposing a 30 percent market share cap on individual TPAPs, though enforcement has been repeatedly delayed. Another claim voiced by government officials in the debate is that, given UPI’s universal nature, providers are interchangeable, thus eliminating anti-competitive claims.

This divergence in strategies and outcomes reflects the broader debate about whether emerging economies should embrace or limit big tech’s role in financial infrastructure.

Stages of implementation

Based on Brazil and India’s experiences, a three-stage framework emerges for countries considering immediate payment systems adoption.

The first stage of weighting prerequisites involves assessing the need for a state-led payments system based on three factors: the existence of alternatives (e.g., a strong credit card presence), expected change (primarily driven by the level of financial inclusion, development costs, and the size of the economy), and state capacity. As a result, countries with low banking penetration and high reliance on cash are more likely to benefit from such systems. 

The second stage involves getting ready to hit the ground running, focusing on implementation and scaling. Understanding the existing market conditions and the shifts anticipated from the introduction of the system is crucial. Additionally, selecting an appropriate governance model—whether a central bank-led approach like Pix, a consortium-led model like UPI, or a provider model—plays a vital role in determining long-term implications. Lastly, the fee structure will also influence both adoption and market entry and should be actively established at this stage. 

The final stage involves setting up a long-term process by establishing cooperation mechanisms and managing externalities. Policymakers must implement regulatory adjustments based on market responses to address issues such as monopolization and consumer protection against fraud. They should also explore engagement mechanisms for local players through forums and bilateral consultation schemes, focusing on gaining knowledge and legitimacy as well as efficiency considerations. 

While many regions worldwide consider the future of payments, this framework can serve as an initial point of assessment. There is no perfect “one size fits all” solution. However, states’ varied ability to execute and enforce participation, the size of their economies, and the preexisting market structures significantly influence decisions concerning the “what” and the “how” of launching immediate payment systems.

Pix and UPI offer several additional insights into how state-led payment systems can reshape economies. 

While Brazil focused on domestic financial players and regulatory control, India leveraged global technology firms for swift adoption. Consequently, Brazil fostered the expansion of its local fintech ecosystem, while India established an environment with significant multinational involvement. 

In both cases, incentives for private market players aligned to support the growth of credit card provision as a subsequent step after initially introducing consumers to the financial system through Pix and UPI. While there is room for discussion about the implications of this step, it is a definitively critical point to consider when launching such systems and weighing their outcomes.

Lastly, the key lesson from these models lies in the decisions made by policymakers to initiate transformative processes. Both models illustrate the potential of such systems to enhance financial inclusion, disrupt traditional banking, and reshape economies, thereby aiding in their advancement. These lessons from UPI and PIX can be narrowly applied to public sector entities looking to create state-led systems, however, it is important to consider that market structure transformation might not be the ideal solution for every economy, especially more advanced economies which have a larger share of private sector players. Ultimately within a jurisdiction, policymakers bear the ultimate responsibility of acting to launch immediate payment systems.

Polina Kempinsky is a second-year Master of Public Policy student at the Harvard Kennedy School. This paper is part of Polina’s PAE (Policy Analysis Exercise) for her program, which explores the instant payment systems of Brazil and India.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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The post Fast payments in action: Emerging lessons from Brazil and India appeared first on Atlantic Council.

Those projections were released at the IMF-World Bank Spring Meetings, where central bank governors, finance ministers, and other economic leaders met. There, many sounded the alarm about the global economy’s trajectory and discussed their plans to cushion their countries from the blow of low growth and high inflation, which are expected to result from US President Donald Trump’s sweeping tariffs.

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy. Read what they want you to know below.

This week’s expert contributors

APRIL 26 | 12:01 PM ET

“Those who seek to deconstruct the system… have an obligation to share the vision of what comes next”

Wrapping up the week, GeoEconomics Center Senior Director Josh Lipsky, who is also the chair of international economics at the Atlantic Council, reflects on the founding of the Bretton Woods institutions and calls for visionary leadership to shape what comes next.

Read the remarks

The US dollar has been the global reserve currency for approximately a century, and we can sit here as we did this week and talk about all the macroeconomic factors of why that is—liquidity and capital markets and all the ins and outs that make something a reserve currency or not.

But the fundamental reason something becomes a reserve currency, the world’s leading experts on currency will tell you, including at the Atlantic Council, is the rule of law.

But another way to say that is trust: Trust that, fundamentally, you will be treated fairly, there will be a process if there’s a dispute, that you understand the system, how it works, and how it doesn’t. That trust was hard fought for and hard won by the United States.

We often romanticize the three weeks in New Hampshire in 1944, as when the world came together and set out a new international economic order and created the dollar as the global reserve currency. But the truth is much more complicated. There was wrangling and backstabbing and negotiation and suspicion, countries not wanting to deal with each other, bilateral negotiations just like we see this week.

And what emerged from that meeting was not a consensus. It was a precarious and tenuous agreement to see if the United States, as the leader of an international economic system, could earn the trust of the world. And they did it.

The United States did something that no superpower in the history of the world had ever done before. They shared their power. They built a rules-based international system, and that system benefited the world, but it also benefited the United States. It generated enormous prosperity in this country.

We overlook that history at our own peril. Are there deep flaws in that system? Of course, there are. Have they built up, especially in the past twenty, thirty years to the detriment of American workers and workers around the world in advanced economies? There is no doubt. Is reform needed? Of course, there is absolute unity across the IMF and World Bank about the need for reform.

But those who seek to deconstruct the system that was built over nearly a century have an obligation to share the vision of what comes next.

This world that we have built, this economic order, is imperfect. But it represents the consensus of the citizens of the countries that these ministers and governors represent. And the brilliance of this system is that every country has a voice.

And working together, they build a stronger global economy. We may have forgotten those lessons as a century has moved on, and it may be painful for all of us as we seek to relearn them. But we have to come out of the other end of this, not just in a bilateral world, the way we operated before the Bretton Woods system, but a way that shows we have learned and not forgotten the lessons of history. That is what we will be committed to at the Atlantic Council, and that is what we will continue to work on in the days, weeks, and months ahead.

APRIL 26 | 11:24 AM ET

Thanksgiving in April

Last year at the Annual Meetings, my colleague Martin Mühleisen likened these gatherings to Thanksgiving, as both ‘sides’ of the family come together in good spirits—though there may be a kick under the table. On this, I agreed, noting there is meaningful cooperation, collaboration, and respect between the IMF and World Bank.

Despite the overarching sense of gloom at these Spring Meetings, as the trade war heightens economic uncertainty, there were encouraging signals that much-needed coordination and partnership between these two institutions and beyond can and is happening.

For example, take domestic revenue mobilization and debt, two connected challenges listed prominently on the agenda. That’s the case for good reason: Emerging market and developing economies collectively face a financing shortfall in the trillions. As I discussed on Tuesday with the French Treasury’s William Roos, who is also co-chair of the Paris Club, these countries lack fiscal space to invest in growth or climate resilience, mainly due to declining development assistance and hamstringing debt (at least half of these countries are in or at high risk of debt distress).

The implications for macro stability, economic development, and poverty alleviation give both the Bank and Fund a shared interest in prioritizing action. They have similar tools at their disposal—financing, concessional lending, trust funds, policy advice, and capacity building. But too often these tools are utilized in isolated, fragmented, and (at times) even counterproductive ways.

This is why joint efforts such as the IMF-World Bank Debt Sustainability Framework for Low-Income Countries and the Domestic Resource Mobilization Initiative are so critical. So is the new, much-anticipated “Playbook” for debt restructuring released on Wednesday by the Global Sovereign Debt Roundtable, which the Fund and Bank co-chair along with the Group of Twenty presidency. Ceyla Pazarbasioglu—the director of the Strategy, Policy, and Review department at the Fund—got giddy discussing these collaborations with Pablo Saavedra, vice president of Prosperity vertical at the Bank, and me.

As much as ongoing and strengthened coordination between these two institutions is important, I am even more encouraged by what I heard from them and others, on and off the 19th Street campus, and in front of cameras and behind the scenes. The people I spoke with acknowledged the need to revisit the broader international financial system for better cooperation (including with regional international financial institutions), improved ownership of national policies by and alignment with governments, and ultimately more effectiveness in an era when everyone has to do more with less. Keep an eye out for momentum that can and should enable progress, not only in the lead up to the Annual Meetings in October but also ahead of the fourth Financing for Development Conference in Seville this summer. If you’re curious about what that will entail, watch my conversation with United Nations Assistant Secretary General for Economic Development Navid Hanif and Ambassador of Zambia to the United Nations Chola Milambo.

APRIL 25 | 6:27 PM ET

Dispatch from IMF-World Bank Week: Success, in one underappreciated way

In the meetings and panels I attended this week, the air was thick with existential dread over the Bretton Woods institutions’ very future. Delegates came prepared for the worst, bracing for a difficult set of discussions with the new US administration.

Considering the expectations for these meetings were so low, I would say they wound up a qualified success. The mood had already improved after the United States supported an IMF deal with Argentina, struck the week before, and after US Treasury Secretary Scott Bessent delivered a speech providing reassurance that the United States values the Bretton Woods institutions—as long as major reforms are undertaken.

Even though most people focused on the gloomy outlook for the world economy over the course of the week, some gave in to guarded optimism as markets stabilized on the hope for a US stand-down on several trade fronts.

The shift in mood wasn’t the only sign of success; there were concrete deliverables. One came from the Global Sovereign Debt Roundtable, which issued a roadmap for debt restructuring negotiations, signaling important consensus among major creditor countries. Moreover, the IMF and World Bank announced that they will engage with the new Syrian government to help restore their country’s war-damaged economy.

In addition, the statement by the International Monetary and Financial Committee chair (issued in lieu of a communiqué) struck a tone that was clearly aimed at addressing the United States’ stringent demands—although it did not give any indication of how the IMF would do so, and the real work still lies ahead.

Despite these positive signals, the global financial system faces considerable uncertainty. The Argentina program is a risky bet, the Trump administration could switch its view on the Bretton Woods institutions, and there is now a bigger question mark attached to the dollar’s future as the world’s dominant currency.

This week proved the value of IMF-World Bank meetings in troubled times. In speaking at Atlantic Council headquarters on Thursday, Spanish Finance Minister Carlos Cuerpo told us that the most important deliverable this week, with difficult decisions looming over the next few months, was simply for people to keep “talking to each other.” I couldn’t agree with him more.

APRIL 25 | 3:48 PM ET

The actions needed to support those who are financially underserved in Africa

At World Bank headquarters, the Atlantic Council’s Ruth Goodwin-Groen sat down with Admassu Tadesse, president and managing director of the Trade and Development Bank Group, to talk about the absence of venture capital in Africa and the need to promote inclusive finance.

APRIL 25 | 3:02 PM ET

Egypt’s Rania Al-Mashat on navigating today’s global shocks

APRIL 25 | 1:57 PM ET

This week shifted our understanding of everything from dollar dominance to trade wars

This week’s IMF-World Bank Spring Meetings have only highlighted that no one is coming to save the global economy. There is no rescue committee, no stimulus plan, and no quick Fed cuts around the corner.

Most of the ministers knew this was the state of affairs coming in. But it’s one thing to talk about a trade war. It’s another to see the IMF cut the growth forecast for nearly every country in the world because of a single policy decision.

In the beginning of the week, I sensed gloominess and anxiety in the hallways and in our private conversations with finance chiefs. But by the end, I noticed something else, the same thing I remember back in 2008 during the financial crisis: a steely sense of resolve. These leaders understood that at some level, the tariffs are here to stay, trade deals would take months or longer, and the global economy is being restructured.  It would be, as one minister said privately, just something we have to weather.

That’s true, but how bad will the storm be? No one knows. That doesn’t mean this week didn’t offer clarity, however. Our team walked away from these meetings with a transformed understanding of three issues:

1. There’s a difference between wanting dollars and needing dollars. The dollar’s status as a reserve currency is safe for the time being. That’s what Bloomberg’s Saleha Mohsin told me in our conversation, and she brought the data to back it up. But while the world still needs dollars for a functioning global economy, there were many people this week who wouldn’t mind finding some plan Bs. Do they exist? Not exactly. The European finance chiefs we spoke to were skeptical that a move to the euro would stick—and some, such as the Banque de France governor, weren’t sure it was a good thing given it was a result of instability in the United States, not a vote of confidence in the euro area.
2. The Trump administration is as focused on the IMF as it is on the World Bank. There was chatter going into the week that the administration was more focused on putting pressure on the World Bank than the IMF. But US Treasury Secretary Scott Bessent, in a speech on Wednesday, spent as much time—if not more—talking about the Fund going beyond its mandate than he did on the Bank lending to China. That surprised many, and it means there are fights ahead as the IMF—and the Bank—tries to respond to its largest shareholder in the months ahead without alienating the other 190. Considering the Trump administration has an end-of-July review deadline to decide its policy on US involvement in international organizations, the eighty-first anniversary of the creation of Bretton Woods institutions (July 22) could be one of the most significant since their founding.
3. Emerging markets and developing economies are already getting hit hard. Our conversations made it clear that a range of countries across regions is already feeling the impact of the trade war and economic slowdown in the form of job loss and increased poverty rates. These countries are going to need assistance from the IMF and World Bank in the near future. Even if the US president reversed his policy and slashed tariffs back down as soon as tonight, that wouldn’t fix the problem. It’s the volatility that feeds the uncertainty that pulls back investments. As the old saying goes, trust arrives on foot but it leaves on horseback.

APRIL 25 | 11:03 AM ET

The Bank of England’s Megan Greene: On tariffs, the “risk is now on the disinflationary side”

APRIL 25 | 10:15 AM ET

Slow progress on debt restructuring

Amid the week’s focus on trade tensions and economic uncertainty, the lingering issue of developing country debt has received little attention. However, reports released on Wednesday by the IMF and World Bank’s Global Sovereign Debt Roundtable (GSDR) suggest that the frustratingly slow process of restructuring unsustainable debts—a problem that took center stage amid the economic dislocations of the COVID-19 pandemic—has made important, albeit incremental, gains over the past few years.

A handful of countries have passed through the restructuring process, most of them low-income economies whose debts were supposed to be addressed by the Group of Twenty governments’ Common Framework for debt “treatment.” But some other nations—notably Sri Lanka—did not fit within that framework. What has emerged has been a case-by-case process in which government and private-sector lenders have worked through complex roadblocks, many of which were posed by the world’s largest sovereign lender, China.

The GSDR co-chairs’ Progress Report lays out many of the nuts-and-bolts issues that have been addressed, ranging from “comparability of treatment” across different creditor groups to the restructuring of “non-bonded commercial debt,” which generally means bank loans. It also lists several areas that need to be addressed going forward, including how to enhance coordination of private-sector creditors.

While the reports are careful not to point fingers at any specific lenders, the reality is that many of the issues before the roundtable have been posed by China, which is loath to take write-downs on its massive portfolio of loans. Beijing’s position on these issues has at times been opaque, but a recent paper put out by the Harvard Kennedy School usefully illuminates much of the back and forth that has taken place during the recent restructurings—as well as the work that remains to be done.

APRIL 25 | 9:17 AM ET

Catch up with everything happening at the Atlantic Council on day five

Dispatch from IMF World Bank Week: Why surveillance matters

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

Catch up with everything happening at the Atlantic Council on day four

A common tone among key leaders is a sign for optimism

In defense of “boring”: A European leader’s message to Trump

Read day three analysis

APRIL 24 | 7:57 PM ET

Dispatch from IMF World Bank Week: Why surveillance matters

This morning, I watched as IMF Managing Director Kristalina Georgieva unveiled her Global Policy Agenda (GPA), a biannual document that outlines the managing director’s vision for the IMF’s work over the coming year.

 The most notable part of this year’s GPA is its focus on surveillance—in other words, the IMF’s work to assess the economic health of its members. As part of that focus, the GPA discusses the Comprehensive Surveillance Review, the IMF’s way of setting priorities and updating its processes for conducting bilateral and multilateral surveillance. There are some things to applaud in the outline for the upcoming review, including the emphasis on the IMF’s core areas of expertise: fiscal, monetary, and financial issues—and, most importantly, the persistent theme of external imbalances. 

However, some will not applaud the fact that there were few passing references to climate and no mentions of gender, despite the IMF having increased its budget for these and other emerging topics within the past few years. The GPA proposes instead “adapting surveillance” by setting principles around the topics to be covered. This approach aligns well with US Treasury Secretary Scott Bessent’s remarks from yesterday that the IMF has suffered from “mission creep.” But European partners will no doubt have concerns that the Fund is abandoning its climate strategy, approved just four years ago.  

My own view is that the GPA’s focus on surveillance is a welcome departure from the past. Surveillance may not get as many headlines as the IMF’s lending programs, but it provides an enormously valuable public good, particularly in those countries that do not receive regular market coverage. The IMF’s policy advice can also steer bilateral and multilateral donors and their efforts to prioritize assistance.

Watch this space closely to see whether the Comprehensive Surveillance Review delivers concrete reforms and real modernization efforts to help serve both advanced and developing economies.

APRIL 24 | 4:38 PM ET

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

APRIL 24 | 2:56 PM ET

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

APRIL 24 | 1:42 PM ET

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

APRIL 24 | 9:22 AM ET

Catch up with everything happening at the Atlantic Council on day four

APRIL 24 | 8:43 AM ET

A common tone among key leaders is a sign for optimism

All things considered, the IMF-World Bank Spring Meetings are generating surprisingly optimistic and positive messages. 

Weeks of policy volatility, market volatility, and much hand-wringing over the Trump administration’s stated effort to reconsider the multilateral arrangements laid the groundwork for a tempestuous set of meetings. Yet we are just past halftime with no existential crisis (yet) at the IMF or the World Bank.

At this point, the European Commission, World Trade Organization (WTO), and US Treasury have all spoken publicly. They may not have been singing from the same sheet music, but they were all certainly singing in harmony.

EU Commissioner Valdis Dombrovskis, speaking at the Atlantic Council, said that the EU “is not giving up on our closest, deepest, and most important partnership, with the United States… And we will need each other even more in tomorrow’s increasingly conflictual and competitive world.”

His tone matches that of European Commission President Ursula Von der Leyen earlier this month, who declared that “we know that the global trading system has serious deficiencies. I agree with President Trump that others are taking unfair advantage of the current rules. And I am ready to support any efforts to make the global trading system fit for the realities of the global economy. But I also want to be clear: Reaching for tariffs as your first and last tool will not fix it.“

WTO Director-General Ngozi Okonjo-Iweala, speaking at the Council on Foreign Relations, highlighted how there are promising overlaps in looking at the administration’s unilateral objectives and the objectives of multilateral organizations. “In every crisis, there is an opportunity between multilateral objectives and unilateral objectives,” she said. “I do agree with the administration now… when they say there needs to be dynamism in the system, I share that. Some of the criticisms they make, I agree with because I have said the same. We need to get more results. We need to re-dynamize the system. We don’t need to have things cast in cement that may not be relevant to twenty-first-century issues anymore.” 

She also agreed with the White House’s complaint, as stated in an April 2 executive order, that the economic framework supported by the Bretton Woods system “did not result in reciprocity or generally increase domestic consumption in foreign economies relative to domestic consumption in the United States.” In addition, Okonjo-Iweala urged resource-rich African nations to focus more on building value-added enrichment and employment within the region to increase domestic demand, even as she urged China also to increase domestic demand.

US Treasury Secretary Scott Bessent, speaking at the Institute of International Finance, said, “China can start by moving its economy away from export overcapacity and toward supporting its own consumers and domestic demand.” In addition, he said that “the IMF and the World Bank serve critical roles in the international system. And the Trump administration is eager to work with them—so long as they can stay true to their missions.”

Bessent also said that the IMF will need “to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades” and “call out unsustainable lending practices by certain creditor countries,” adding that “a more sustainable international economic system will be one that better serves the interests of the United States and all other participants in the system.”

In his IMFC-DC Statement, released yesterday, Bessent said, “we need to restore the foundations of the IMF and World Bank. The United States continues to appreciate the value the Bretton Woods Institutions can provide, but they must step back from the expansive policy agendas that stifle their ability to deliver on their core missions.” He added that “for low-income countries in particular, both the IMF and World Bank should promote policy discipline for countries to strengthen their institutions, tackle corruption, and ultimately lay the foundation for sound investment so that they see a future that no longer relies on donor assistance.“

These leaders this week are sending a clear signal that they are not walking away from decades of established relationships and structures that have served the world well. Of course on the other hand, there is no guarantee that China and other countries will agree with the policy trajectory previewed on various stages in Foggy Bottom. Policy volatility will remain a reality for the next few years. But the initial messaging from the first days of the 2025 IMF-World Bank Spring Meetings gives reason for optimism.

APRIL 24 | 8:00 AM ET

In defense of “boring”: A European leader’s message to Trump

Warren Harding, a genial but bland Republican senator from Ohio, won the US presidential election of 1920 behind the campaign slogan “Return to normalcy.” It was a salve for an American electorate, giving him more than 60 percent of the vote, following US President Theodore Roosevelt’s adventurism, American engagement in World War I, then the failed postwar idealism of US President Woodrow Wilson.

“America’s present need is not heroics but healing,” Harding said, “not nostrums but normalcy; not revolution but restoration; not agitation but adjustment; not surgery but serenity; not the dramatic, but the dispassionate…” 

It was certainly unintentional, but I heard echoes of Harding when Valdis Dombrovskis, a Latvian who serves as an executive vice president for the European Commission, came to the Atlantic Council yesterday in defense of “boring” predictability.  While mentioning US President Donald Trump only once in his opening remarks, he underscored what Europe has long seen as its shared virtues with its American partners.  

“You see our fundamental values, individual liberties, democracy, and the rule of law often painted as weakness by authoritarian regimes to prey upon,” said Dombrovskis, who previously served as the European Union’s (EU’s) trade negotiator and is one of Europe’s longest-serving commissioners. “However, in times of turmoil, predictability, the rule of law, and willingness to uphold the rules-based international order become Europe’s greatest assets. We are committed to doing whatever it takes to defend our “boring” democracies, because boring brings certainty and a safe haven when a rules-based order is questioned elsewhere. Our processes allow for debates and consultations to take place, building buy-in from our key stakeholders and enabling us all to pull in the same direction.”

This week’s meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, are arguably the most important since the financial crisis of 2008-2009, because the Trump administration is seeking fundamental changes to the world trading and financial system not seen since the Bretton Woods agreement of 1944. In that year, the United States and its partners brought down protectionist trade barriers, established a new international monetary system, and laid a foundation for post-World War II global economic cooperation. One of the results was the creation of the IMF and the World Bank.

The last thing the Trump administration appears to want is a return to the normalcy of the eighty years that followed that agreement, arguing that the United States has been taken advantage of by its trading partners and that international system. One can say many things about Trump’s first hundred days in power, but “boring” certainly isn’t one of them. 

Read more

Inflection Points Today

Apr 24, 2025

In defense of ‘boring’: A European leader’s message to Trump

By Frederick Kempe

EU Commissioner for Economy and Productivity Valdis Dombrovskis spoke at the Atlantic Council in Washington on April 23, making the case for greater predictability.

European Union International Financial Institutions

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

These meetings mark a milestone for Syria. But more political engagement will be necessary.

How can the IMF return to its core mandate in a vastly different global economy?

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

What ever happened to climate change?

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Catch up with everything happening at the Atlantic Council on day three

Read our day two analysis

APRIL 23 | 6:04 PM ET

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

With tariffs and trade continuing to dominate conversations taking place in the halls of these Spring Meetings, it would be easy to forget that there is an official theme, and it isn’t trade: It’s jobs.

That is fitting, in my view. Here’s why:

There are two numbers that I’ve seen over and over again as I dash from building to building on 19th Street. One, of course, is the 2.8 percent global growth forecast, down from 3.3 percent as projected in January. But the other is 1.2 billion: That’s the number of young people set to enter the labor force in emerging markets and developing economies over the next decade. I often see it alongside the number 420 million, which is the estimated number of jobs to be created. Even if the models are way off, the math will not add up.

Beyond this jobs gap equation, jobs are being discussed (including at yesterday’s World Bank flagship event) as a factor, if not a multiplier, in the broader economic growth equation. Jobs are linked to trade and, in many ways, to other dynamics of the global economy. That includes the challenges that many emerging markets and developing economies face, such as debt, demographic pressures, domestic-resource and private-capital mobilization, and facilitating the digital transformation.

You could say we have heard this all before. We have. But in this era of geopolitical fragmentation and geoeconomic tension (some might say “turmoil”), it’s helpful to drive attention and meaningful action toward an agenda that leaders and investors from all regions and income groups can and should rally behind. And job creation is apt for that.

That’s even the case for the United States. US Treasury Secretary Scott Bessent acknowledged as much in his speech this morning, noting that job creation and promoting prosperity are key US interests.

Watch more

APRIL 23 | 4:48 PM ET

These meetings mark a milestone for Syria. But more political engagement will be necessary.

The participation of a Syrian government delegation in the 2025 IMF-World Bank Spring Meetings in Washington, DC, marks a significant milestone in Syria’s efforts to reintegrate into the global economic community. Led by Finance Minister Mohammed Yosr Bernieh and Central Bank Governor Abdelkader Husrieh, this visit represents Syria’s first high-level engagement with these institutions in over two decades.

At the Spring Meetings, Syrian officials are participating in discussions focused on restoring financial support and aid to Syria. Notably, a roundtable hosted by the Saudi Finance Minister Mohammed Al-Jadaan and the World Bank garnered strong international interest in Syria’s reconstruction efforts. Additionally, the United Nations Development Programme (UNDP) has announced plans to deliver $1.3 billion in aid over the next three years to support Syria’s rebuilding initiatives.

One of the critical challenges facing Syria is the existing US sanctions against the country, which have hindered reconstruction efforts. Recent developments indicate a small shift in this dynamic. The UNDP has received a sanctions waiver from the US Treasury Department to raise fifty million dollars for repairing the Deir Ali power plant south of Damascus. Furthermore, Saudi Arabia’s commitment to pay approximately fifteen million dollars in Syria’s arrears to the World Bank is a significant step toward enabling Syria to access funds through the International Development Association, which provides grants to low-income countries.​ Following Syria’s engagements in Washington, the IMF appointed Ron van Rooden as its first mission chief to Syria in fourteen years, signaling a potential revival of economic cooperation aimed at supporting Syria’s recovery.

Despite these steps, more political engagement is necessary to achieve substantive progress. Washington has signaled its hesitancy for more engagement by reportedly limiting Syrian Foreign Minister Asaad Al-Shaibani’s travel visa to New York only and restricting his ability to participate more broadly in meetings in Washington. However, a bipartisan letter issued on Monday by Senators Jeanne Shaheen (D-NH) and Jim Risch (R-ID) of the Senate Foreign Relations Committee reflects a growing bipartisan recognition among US policymakers of the potential benefits of reengaging with Syria under carefully considered conditions. The letter advocates for a strategic approach to US-Syria relations, emphasizing the importance of facilitating dialogue and cooperation to support Syria’s reconstruction and regional stability.

But for momentum to build, both Washington and Damascus must explore more robust diplomatic channels, including incremental confidence-building measures and expanded humanitarian coordination. This could create a framework conducive to deeper economic collaboration, ultimately serving US national security interests while fostering stability in Syria and the region.​ 

APRIL 23 | 3:55 PM ET

How can the IMF return to its core mandate in a vastly different global economy?

At the Institute of International Finance conference today, US Treasury Secretary Scott Bessent said that the United States will exercise strong leadership in the IMF and World Bank to push those institutions to refocus on their core mandates after years of “mission creep.” For the IMF, this means promoting members’ policies that are conducive to sustained and balanced trade. And when trade imbalances occur, the adjustment should be symmetrical for surplus and deficit countries, not aimed only at deficit ones. The IMF’s other critical mission is to provide short-term, temporary assistance to member states in balance-of-payment crises—provided the member in question changes the policies that led to the crisis.

While the push for the Bretton Woods institutions to focus on their core mandates is necessary and timely, many questions remain on how the IMF, in particular, will do that under international conditions drastically different from the ones eighty years ago.

The Bretton Woods Conference in 1944 produced a fixed but adjustable exchange rate system with largely closed capital accounts. Now, many countries want free trade, free capital flows, free exchange rate markets, and monetary sovereignty—even though not all of these can sustainably coexist without tension. So the question is, how can the IMF, with its current toolkit, rectify today’s persistent trade imbalances and prevent them from happening again? It would be a missed opportunity if delegates to this week’s meetings fail to come up with some ideas for how the IMF can accomplish this.

It is also important to clarify the line between the core mandate of short-term temporary assistance and longer-term, structural lending. How should the IMF approach the mandate of giving short-term financing to help members in balance-of-payment crises, given the reality that it can take a long time for countries to make the structural reforms necessary to avoid falling into further crises? At the same time, lending to support structural reforms is a longer and more intrusive process than short-term financing, opening up the IMF to criticisms of mission creep and interfering with borrowing nations’ sovereignty. As the IMF-World Bank Spring Meetings delegates discuss how to best return the IMF to its core mandate, such important issues need to be clarified as soon as possible.

APRIL 23 | 3:39 PM ET

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Read his remarks

Transcript

Apr 24, 2025

France’s François Villeroy de Galhau on a US recession: ‘Bad news for the US is bad news for all, including for Europe’

By Atlantic Council

The governor of the Banque de France, speaking at the Atlantic Council, said that the European Central Bank would likely cut interest rates further this year.

Europe & Eurasia European Union

APRIL 23 | 2:43 PM ET

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

One might be tempted to think—after Treasury Secretary Bessent’s remarks at the Institute of International Finance today—“another US administration, another call for Bretton Woods reforms.” On the surface, the speech does not seem fundamentally different from ones heard during previous administrations, with remarks that reminisce about the original Bretton Woods Conference, convey support for the mission of the institutions, and call upon the institutions to focus on their core mandate.

But it would be wrong to understand these remarks as a signal that the role of the IMF and World Bank will remain unchanged over the coming years. Instead, the secretary’s speech opens up fundamental challenges for the IMF and World Bank, both to their identity and their futures as global multilateral organizations.

First, it is not clear that the continued support of the Bretton Woods institutions expressed today will be the final word of the US administration. The White House is conducting a review of US membership in international organizations, and there are voices in the administration that would prefer the United States withdraw from the IMF and World Bank. While Bessent’s speech is an important opening statement, he will need to be able to point to concrete deliverables in order to win the internal debate against the isolationist wing in the US government.

Second, a return of each institution to its “core mandate” would involve a significant change in activities, running counter to the objectives of a large part of the IMF and World Bank’s membership. Eliminating workstreams on climate policies and social issues would imply a 180-degree turn for the current management of the institutions and the climate-conscious governments that have supported them in recent years; it would also mark such a turn for the constituency of developing countries that benefited from subsidized lending with relatively easy conditionality in recent years.

Third, for the IMF, the Treasury secretary’s missive to “call out countries like China that have pursued globally distortive policies and opaque currency practices” is reminiscent of an episode in the late 2000s, when the IMF was called upon to speak out more forcefully against Beijing’s exchange-rate practices. The result then was a refusal by China to meet its Article IV obligations, a standoff that was only resolved after the IMF softened its stance a few years later.

This is not to say that the United States does not have a valid point. The IMF has been reluctant to call out China for its distorting trade practices and could have been more attentive in looking into accusations that China has also been unduly managing its exchange rate. Given the lack of an explicit mandate on trade policy issues, and the need to work with government-provided data, the IMF will have to think carefully how it can accommodate the demands of the US government, and it will likely run into bitter resistance from Chinese authorities along the way. The ensuing confrontation could well lead to a breakdown of the IMF’s consensus-based way of operating and perhaps a deeper split in the membership of the institution.

Fourth, Bessent also called on the IMF to be tougher in enforcing conditionality for its loans and for the World Bank to cease lending to countries that no longer meet its eligibility criteria. Again, the United States has a valid point here, but it will result in a conflict with European countries that will worry about economic development in African partner countries (due in part to migration pressures across the Mediterranean). And China would, of course, benefit if development lending from multilateral institutions shrinks at a time when official development assistance is already on the decline.

In sum, the secretary’s speech, while providing much welcome support for the IMF and World Bank, has raised a host of issues that will require tough decisions within a relatively short timeframe. Expect intense meetings of financial diplomats to continue long after the flags in front of the IMF building have been put back into storage, awaiting the next formal gathering of the IMF and World Bank in October.

APRIL 23 | 2:11 PM ET

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

Today’s remarks by Treasury Secretary Scott Bessent at the Institute of International Finance were probably more closely watched than many of the IMF-World Bank official events. The remarks represented the first real statement of the Trump administration’s priorities for the Bretton Woods institutions. 

Bessent made clear that the Trump administration remains committed to maintaining its economic leadership in the world and in the international financial institutions. You could almost hear the huge sigh of relief coming from the institutions on 19th Street following this comment. Bessent also steered clear of grandiose proposals to reform the core mandates of the World Bank and IMF. Instead, his remarks made clear that both institutions have “enduring value,” and the focus should instead be on limiting “mission creep.” Another good sign that the Trump administration wants to work with, rather than step back from, the Bretton Woods institutions.

Some of Bessent’s key messages echo points delivered in the IMF managing director’s curtain-raiser last week, another welcome sign of potential alignment between the IMF and its largest shareholder. In short, the current global economic model is not sustainable, and large and persistent external imbalances need to be addressed. Bessent’s call on China to stop relying on overcapacity and exports to grow its economy could have been lifted straight from a speech by former Treasury Secretary Janet Yellen. But Bessent did something more novel by emphasizing that the United States also needs to rebalance and by calling on the IMF to critique both the United States and surplus economies. I could not agree more that the IMF’s External Sector Report needs to be more direct on what countries can do to address unsustainable imbalances. 

Other reforms called for in the speech urge the IMF to execute its mandate of temporary lending, call out unsustainable lending practices, and hold countries to account for not delivering on reforms. Again, these are not new messages from the United States. My question is whether IMF management, alongside its executive board, will feel more urgency to fulfill these types of reforms. I certainly hope so.

APRIL 23 | 1:37 PM ET

What ever happened to climate change?

At the 2024 Annual Meetings, climate change appeared to be front and center on the IMF agenda. Before the gatherings, the Fund released papers with provocative titles such as “Destination net zero: The urgent need for a global carbon tax on aviation and shipping” and “Sleepwalking to the cliff edge?: A wake-up call for global climate action.” The World Economic Outlook (WEO) elevated “combating climate change” to equal status with the task of promoting medium-term global growth.

But at these spring meetings, climate change is not to be seen—no recent papers and only six brief mentions in the first chapter of the WEO, including a single paragraph at the very end of the section on medium-term growth.

The IMF certainly has no hard and fast rules on what should be addressed in the WEO. With global economic and financial uncertainty demanding the attention of world leaders, other pressing issues also get short shrift this spring. For example, “poverty” gets few mentions. But downgrading attention on climate change appears to reflect a conscious decision at a moment when the United States, the Fund’s largest shareholder, is rejecting policies intended to address climate-related issues.

Speaking at the Institute of International Finance today, US Treasury Secretary Scott Bessent made clear the Trump administration’s view of climate issues on the agenda of the IMF. “Now I know ‘sustainability’ is a popular term around here. But I’m not talking about climate change or carbon footprints,” he said. “I’m talking about economic and financial sustainability… International financial institutions must be singularly focused on upholding this kind of sustainability if they are to succeed in their missions.”

The obvious question then is whether the IMF will respond by shifting away from climate-change mitigation in its core work of advising governments and lending.

APRIL 23 | 1:21 PM ET

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

APRIL 23 | 11:10 AM ET

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Read the full transcript

Transcript

Apr 23, 2025

EU Commissioner Valdis Dombrovskis: With the rules-based order in question, Europe’s ‘boring democracies’ offer ‘certainty and a safe haven’

By Atlantic Council

At an Atlantic Council event on the sidelines of the IMF-World Bank Spring Meetings, the commissioner talked about the EU-US relationship, saying the bloc won’t give up on its transatlantic partner.

European Union Ukraine

APRIL 23 | 9:10 AM ET

Catch up with everything happening at the Atlantic Council on day three

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

Mapping Washington’s and Beijing’s next moves in the trade war

The Global Financial Stability Report highlights strains in the US Treasury bond market

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The flagship reports walk a fine line

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

We’ve seen these risks before

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF released its World Economic Outlook. Let the debate begin.

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

Catch up with everything happening at the Atlantic Council on day two

Read our day one analysis

APRIL 22 | 9:06 PM ET

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

APRIL 22 | 6:03 PM ET

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

APRIL 22 | 5:17 PM ET

Mapping Washington’s and Beijing’s next moves in the trade war

APRIL 22 | 5:01 PM ET

The Global Financial Stability Report highlights strains in the US Treasury bond market

The IMF’s Global Financial Stability Report (GFSR), released today, comprehensively describes the market turmoil triggered by the tariff war. So far, financial market conditions have been orderly, but risks of further asset price losses remain elevated.

Yields on US Treasury bonds have risen, lowering bond prices, contrary to their usual behavior when investors have flocked to them as safe haven assets like in previous bouts of market turmoil. The GFSR highlights the growing strains in the intermediation capacity of broker-dealers—which bid for Treasury securities at issuance to distribute to investors—in the Treasury market. In particular, the holding of Treasury securities has overburdened the balance sheets of broker-dealers—rising from just above 100 percent in 2008 to more than 400 percent in 2024. Repo rates’ heightened sensitivity to the volume of issuance also suggests that broker-dealers’ intermediation capacity may approach its limit. This has contributed to the growing illiquidity observed in the Treasury bond market, which will eventually make it less efficient and raise US financing costs.

Moreover, hedge funds have significantly piled into highly leveraged basis trades—taking long positions in Treasury futures contracts while shorting the cash market. Rising bond yields (or falling bond prices) have caused losses, forcing many hedge funds to liquidate their positions, amplifying bond price declines.

Many US banks have attributed the strains on broker-dealers’ balance sheets to regulatory constraints—especially the Supplementary Leverage Ratio (SLR)—and have argued for a relaxation or even removal of the SLR. At present, it looks like banks are making headway in their deregulation push under the Trump administration against a full implementation of Basel III, a proposed international banking regulatory framework. Similar demands have been made by bankers and some officials in the European Union as well.

However, banks’ deregulation efforts, which are enjoying political tailwinds in the United States, are at odds with the GFSR’s recommendations that member countries fully implement international prudential standards, including Basel III and the SLR. It will be interesting to see how the IMF reconciles these differences.

APRIL 22 | 3:19 PM ET

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The IMF released its latest World Economic Outlook (WEO) today, downgrading its estimates for global economic growth this year and next, following the beginning of the tariff war and the considerable policy uncertainty surrounding it. Global growth projections for 2025 dropped 0.5 percentage points; US growth estimates are down 0.9 percentage points, while China’s have dropped 0.6 percentage points.

As Managing Director Kristalina Georgieva put it in her curtain-raiser speech last week: “Uncertainty is costly.”

Here at IMF HQ2, people are abuzz with worry about these downgrades. But those downgrades are old news, soft-launched at Georgieva’s speech last week.

Instead, here’s what I’m focused on: To deal with the tariff war and its negative impacts, the IMF—in the WEO—recommends that member countries “reform and rebalance,” sorting out imbalances between saving and investment at home (looking at you, United States) and imbalances between domestic consumption and production (what China needs to work on). It also calls on developing countries to more effectively mobilize domestic resources. Such reforms would balance out trade relationships and make them more sustainable, benefiting all.

Those recommendations are all well and good, but the IMF has not explained how it expects countries to be able to make these reforms. These countries have failed to make recommended reforms in the past when the international environment was much more benign, including during previous eras of low interest rates.

By highlighting the importance of balanced trade, the IMF has harkened back to its original mandate, formulated at the Bretton Woods Conference in 1944. And that is a good thing: Persistent trade imbalances (mainly with countries such as China and Germany posting surpluses while others, mainly the United States, incur deficits) have made the trading system unsustainable, both practically and—as the United States’ unilateral tariff moves show—politically.

Watch more

APRIL 22 | 3:07 PM ET

The flagship reports walk a fine line

The IMF faced some unique challenges in drafting this April’s World Economic Outlook (WEO) and Global Financial Stability Report (GFSR). The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth. The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder—not an easy task on both counts. 

In this context, the IMF’s flagship reports do an admirable job of striking a balance between highlighting significant risks to the global economy from recent trade actions while also noting that markets have remained broadly resilient. The WEO’s “reference forecast” downgrades global growth 0.8 percent across 2025 and 2026, and growth forecasts for almost every country are also downgraded. But the WEO does not go so far as to forecast a global recession, and the IMF’s Pierre-Olivier Gourinchas stated in his remarks that financial markets have largely been resilient in the face of recent shocks. Likewise, the GFSR highlights recent volatility and elevated financial-stability risks without declaring a financial crisis to be imminent.

But the flagships do not shy away from laying out risks should trade tensions persist. Scrolling down in the WEO to page 33 (Box 1.1), the IMF lays out a more dire scenario from an extension of the US Tax Cuts and Jobs Act, continued weak domestic demand in China, and the lack of productivity growth in Europe. The GFSR highlights forward-looking vulnerabilities from a correction of asset prices and turbulence in sovereign bond markets.

The real message from both documents is heightened uncertainty. In fact, across the WEO and GFSR, the word “uncertainty” appears more than one hundred times. This message is on point, as uncertainty abounds and poses its own strains on the global economy.  But how countries, including advanced economies, deal with this uncertainty will be the real determinant for future global growth.

APRIL 22 | 2:34 PM ET

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

APRIL 22 | 2:02 PM ET

We’ve seen these risks before

The IMF’s flagship reports have achieved a remarkable feat—bringing a clear-eyed view to what recent tariff announcements and financial volatility in recent weeks imply for the global economy, without pretending to know much about what will happen in the near future.

The 0.5 percentage-point drop in projections for global growth was expected, following a slowing in the global economy in recent months and the April 2 US tariff announcements. Interestingly, the suspension of many US tariffs, increases in the US tariff rate on China, and Chinese tariff increases in response have not led to a forecast upgrade but rather changed the composition of growth away from the United States and China and toward other countries.

Focusing on specific numbers does not yield much insight, however, as both the World Economic Outlook (WEO) and Global Financial Stability Report are clear on the uncertainty that still prevails. Further asset price corrections in the United States (where share prices still look expensive), coupled with higher interest rates (due to impending fiscal stimulus) and exchange rate fluctuations, have the potential to create significant shocks that could destabilize financial markets. Emerging markets could be in for a rude shock, but the prospects for advanced economies with high debt are not much better, given leveraged balance sheets and strong interlinkages between financial institutions and other market participants that could quickly propagate shocks throughout the system.

Hence, there should be no illusion about the risks facing the world economy. Such risks are reminiscent of the 2008 financial crisis, and continued uncertainty about tariffs and other policies could move markets closer to the abyss. Uncertainty goes in both directions, however. The WEO rightly points out that a resolution of the tariff issue and an end to the Ukraine war, however improbable right now, could provide a major boost for the global outlook. Whether global projections become reality, therefore, depends largely on actions being taken by the White House over the coming months.

APRIL 22 | 1:55 PM ET

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

APRIL 22 | 1:52 PM ET

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF forecast of 4 percent growth for China both this year and in 2026 probably won’t go over well in Beijing.

The IMF’s World Economic Outlook (WEO) number for China’s projected growth is down from its January forecast of 4.6 percent. That puts the IMF more at odds with China’s official forecast of “about 5 percent” growth, released last month. It also contrasts with last week’s announcement out of Beijing that the Chinese economy grew 5.4 percent during the first quarter as exporters tried to get ahead of US tariffs (a result that was released after the WEO’s drafting ended). The IMF now puts China’s growth last year at five percent, which accords with the government’s figure.

IMF Economic Counsellor Pierre-Olivier Gourinchas told reporters that US tariffs actually will take a 1.3 percentage-point bite out of China’s growth this year, but that fiscal expansion announced by Beijing last month will offset some of that loss in momentum. However, the WEO says that China is still struggling to shift away from export-driven growth: “The rebalancing of growth drivers from investment and net exports toward consumption has paused amid continuing deflationary pressures and high household saving.” Small wonder then that the IMF is now forecasting that “stronger deflationary forces” will result in zero inflation this year, down from the IMF’s earlier forecast of 0.8 percent inflation. The IMF’s China growth forecast is at the midpoint of projections from foreign investment banks. Goldman Sachs and Nomura forecast 4 percent, Citi and Morgan Stanley predict 4.2 percent, while UBS projects 3.4 percent. By contrast, the Rhodium Group is seeing the possibility of China’s growth being stronger than last year’s 2.4 to 2.8 percent growth (according to Rhodium Group’s own estimates).

APRIL 22 | 11:40 AM ET

The IMF released its World Economic Outlook. Let the debate begin.

The latest IMF World Economic Outlook (WEO), released today, has three separate projections for global growth, each based on different outcomes for the Trump administration’s tariffs. The projection the WEO’s authors emphasized in their press conference this morning (which they call a “reference forecast”) is based on the impact of the tariff increases announced between February 1 and April 4 and sees global growth of between 2.8 percent and 3 percent this year. Overall, that represents about a 0.5 percentage point cut in the IMF’s growth forecast from its last WEO update released in January.

There is a cottage industry of economists who dissect WEO forecasts, many of whom view their IMF brethren as being too inclined to accentuate the positive. The latest of these critiques came last weekend from Alex Isakov and Adriana Dupita at Bloomberg Economics. “In the four large crises we studied,” they wrote, “the fund’s initial assessment of the immediate impact on global growth understated it by 0.5 percentage points. However much the IMF may downgrade the growth forecasts to start, history suggests the ultimate blow will be worse.”

That said, the IMF’s take hardly falls into the realm of Pollyannaish forecasting. IMF Economic Counsellor Pierre-Olivier Gourinchas made it clear at the press conference this morning that the risks facing the global economy lean “firmly to the downside,” with the risk of a worldwide recession currently at 30 percent, up from 17 percent at the time of the WEO released in October 2024.

APRIL 22 | 10:03 AM ET

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

This morning, while launching the new World Economic Outlook, IMF Chief Economist Pierre-Olivier Gourinchas said that “while we are not projecting a global downturn, the risk it may happen this year [has] increased substantially.”

But what is a global downturn or, to use a more ominous term, a global recession?

In an advanced economy, such as the United States, a recession is usually defined as two successive quarters of negative gross domestic product (GDP) growth. Not all countries use that standard, but most include negative GDP growth as part of the definition of a recession. But it’s different when you are talking about the global economy. Because many developing and emerging markets can grow at 5 percent or more during a given year, a global recession can occur even when overall global GDP growth is positive. Think of it like this—if your car only goes 20 mph, going to 0 mph is a major problem.

But it’s also a problem if your car is going 40 mph and you suddenly can only drive at 20 mph.

The IMF has a broad range of criteria it uses to try to determine a global recession, including a “deterioration” in macroeconomic indicators such as trade, capital flows, and employment. Translation? They know it when they see it. When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession. It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.

Pay close attention to how Georgieva answers this question in her press conference later this week. And just because the global economy isn’t in a recession (or global downturn) by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the threshold.

This post was updated at 1:20 p.m. to clarify the IMF’s position on a global economic downturn.

APRIL 22 | 8:58 AM ET

Catch up with everything happening at the Atlantic Council on day two

How countries are reacting to the trade war

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

Our experts outline the debates and topics on the minds of global finance leaders this week

Read earlier analysis

APRIL 21 | 8:52 PM ET

How countries are reacting to the trade war

As central bank governors and finance ministers gather in Washington, DC, for the IMF-World Bank Spring Meetings, they will be engaging in some of the most important trade negotiations since the creation of the Bretton Woods institutions in 1944.

History offers some perspective: In July 1930, after US President Herbert Hoover signed the Smoot-Hawley Tariff Act, a range of countries immediately retaliated against the United States, including France, Mexico, Spain, Japan, Italy, and Canada. Others, such as the United Kingdom, chose negotiation instead. 

Today, the GeoEconomics Center has a Trade War Index, tracking countries’ policy actions and rhetoric in response to the Trump administration’s tariffs as central bank governors and finance ministers prepare to meet their US counterparts.

In this index, countries receive scores from -1 to +1 based on their responses. Take Vietnam, for example: It scored a +1 on policy after the country’s officials sent Trump a letter offering to eliminate tariffs on US imports (though this offer has already been rejected by the United States) and followed up by dispatching a special envoy to Washington to keep talks moving.

On the rhetorical front, Vietnamese trade officials called the tariffs “unfair” but focused their comments on domestic impacts rather than directly criticizing the United States—earning the country a -0.5 on the communication scale.

Separating policy from rhetoric reveals how these governors and finance ministers are approaching the negotiation table. Are they feeling domestic pressure to respond? Do they believe they have leverage over the United States? How much economic pain can they withstand?

Countries such as India and Mexico know there is an enormous amount at stake. Their leaders have thus far proven willing to make both conciliatory statements and concessions to Trump in the hopes of securing a deal. Global markets are watching nervously. The outcome of the sideline negotiations at these Spring Meetings will signal whether the White House is truly in deal-making mode or whether, as we have argued at the GeoEconomics Center, many of these tariffs are in fact here to stay.

APRIL 21 | 4:57 PM ET

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

The IMF-World Bank Spring Meetings have long been marked by pageantry. The Washington headquarters are normally draped with banners. Cultural events have competed with panel discussions on headline economic issues featuring government ministers, captains of finance, and Nobel laureates. Over the years, the event has earned the moniker “Davos on the Potomac” among jaded staffers.

But this year’s gathering is very different. Call it the “stealth meetings.” The signage is gone from outside the building, and inside is a bare-bones schedule of panels. 

The tone is somber—and small wonder why. Just blocks away from the meetings sits the White House, where US President Donald Trump has spent his first one hundred days in office disrupting the global economy with tariffs unseen for a century. The United States is pulling back from international organizations, and its support for issues such as climate-change mitigation and poverty reduction is in question. Its position on the role of the IMF and World Bank in a rapidly changing international economy is unknown.

With the outlook for global growth clouded by the tariffs, all eyes turn to tomorrow’s release of the IMF’s World Economic Outlook (WEO). In last week’s curtain-raiser speech for the meetings, IMF Managing Director Kristalina Georgieva said that the WEO’s growth projections “will include notable markdowns, but not recession,” along with increases in the inflation forecast for “some countries.” Global recessions are relatively rare; the last occurred in the aftermath of the 2008 Global Financial Crisis. But there is plenty of room in a forecast of slower growth for individual countries to fall into recession—including some of the world’s largest economies. 

To break down the WEO and all the other news from the week, keep checking out our analysis throughout the week.

APRIL 21 | 4:31 PM ET

Our experts outline the debates and topics on the minds of global finance leaders this week

Spring Meetings unlike others—and not just because of trade

Why these meetings are existential for the IMF and World Bank

Dispatch from IMF-World Bank Week: A fractured foundation

Three ways to think about Trump’s tariffs

What to make of Argentina’s new $20 billion financial rescue

The true impact of Trump’s tariff war, beyond the stock market

No one is coming to save the global economy

Trump can make the IMF more effective

APRIL 20 | 5:15 PM ET

Spring Meetings unlike others—and not just because of trade

In Washington, DC, the flowers are blooming, the skies are blue, and the streets are filled with finance ministers and central bank governors from around the world.

The scene at the start of this year’s IMF-World Bank Spring Meetings is familiar, but the context could not be more different. Questions about tariffs, trade wars, and the Trump administration’s broader stance on multilateralism abound. IMF Managing Director Kristalina Georgieva kicked off the Spring Meetings with her curtain raiser last week, and she did not shy away from making clear that trade tensions and the on-again, off-again tariff increases generate significant risks for growth and productivity. She rightly pointed out that smaller countries will be caught in the crosshairs and need to put their own houses in order to withstand trade shocks.

But what was more notable was Georgieva’s focus on macroeconomic imbalances, shorthand for the disparity seen between, for example, the massive current account deficits of the United States and the surpluses of China, the European Union, and Japan. These imbalances have gotten scant attention from the IMF in recent years, despite being a persistent issue for decades. The IMF’s latest External Sector Report declared that imbalances were receding.

Yet macroeconomic imbalances represent a key element of US complaints about the unfairness of the international trading system. Surplus countries have relied on US import demand to fuel growth for years, and the United States has played its part by sustaining large fiscal deficits. Last week’s speech rightly brought this issue back to the forefront.

For a sense of how far the IMF will take this message, pay close attention to the World Economic Outlook, Global Policy Agenda, and International Monetary Fund Committee (IMFC) communiqué, which will all be released later this week.

APRIL 20 | 4:52 PM ET

Why these meetings are existential for the IMF and World Bank

While the trade war is top of mind for delegates at the IMF-WB 2025 Spring Meetings, there is also concern about US policy towards the two Bretton Woods institutions.

It isn’t yet clear what that policy will be—it will depend on the conclusions of the review of US participation in multilateral organizations, the findings of which are due in August. From my discussions with individuals who will be participating in the IMF-World Bank meetings this week, I could sense worry about a number of possible US policy stances, ranging from insistence that the two institutions strictly focus on their core mandates (reversing a perceived mission creep going on for some time) to US withdrawal from one or both institutions.

Since the United States is the largest economy in the world and the biggest shareholder of the IMF and World Bank, these institutions can only function effectively with the constructive engagement and leadership of the United States. Thus, this year’s spring meetings are of existential importance to the IMF and World Bank. While going through the public agenda, delegates should spend time to discuss and find ways to address the concerns raised by the US administration with minimal negative spillovers for the rest of the world: including the US concern about persistent trade imbalances, which it attributes to unfair trade practices, including high tariffs and other non-tariff measures, implemented by other countries. Progress in these discussions will be important to retain active US involvement in the two institutions.

For example, as a part of such progress, the IMF could put greater emphasis on its recommendations to countries running persistent current-account surpluses to make adjustments, including by strengthening their currencies, to promote more balanced trade relations over time, instead of putting the burden of adjustment solely on deficit countries.

The open, rules-based trading system—which has promoted aggregate world economic growth but failed to equitably distribute the fruits of free trade—is unraveling. Usual calls for member countries to lower tariffs and walk back other protectionist measures won’t be sufficient to stop it.

APRIL 20 | 3:16 PM ET

Dispatch from IMF-World Bank Week: A fractured foundation

If you’re at Dulles Airport this evening, look around. You might see one of the world’s finance ministers and central bank governors, representing over 190 countries, who are arriving for the most important IMF-World Bank Meetings since the 2008 Global Financial Crisis.

They land in a very different Washington than the one they left in October. US President Donald Trump has launched a global trade war, and, as a consequence, the IMF is set to forecast a major downgrade for the entire global economy. Whether the countries these financial leaders represent end up in a recession—or worse—depends in part on what happens over the next five days.

Usually, delegates’ time at these meetings is focused on a wide range of topics, from sovereign debt to new lending arrangements to financial technology. But this spring, there’s no debate over attendees’ focus: Trade will dominate, as each country looks to meet with the Trump administration to see whether any trade negotiation is viable. The main event will be when senior US and Chinese officials meet, if they do. It would be their first meeting since their countries levied tariffs higher than 100 percent on each other.

But here’s the irony of the week ahead: By engaging in all the bilateral negotiations, these countries are unintentionally undercutting the case for multilateral economic coordination that is the foundation of the Bretton Woods system.

Each country will work to secure the best arrangement for itself and its citizens. None of this would be surprising to the creators of the IMF and World Bank; just look at the minutes from the original conference to see all the wrangling between the forty-four founding nations.

But this is a first: The world’s largest economy, and the one that created the Bretton Woods system in the first place, is trying to completely uproot it.

For every country, the challenge of this week is to not get trapped in the past. There will be time to consider all the successes and failures of the past eighty years. But right now, the international economic order is being reshaped in real time.

That’s what this week is about: not who has complaints about the system—nearly every country has its fair share—but who has the vision for what comes next.

Watch more

APRIL 18 | 2:16 PM ET

Three ways to think about Trump’s tariffs

The second Trump administration has embarked on a novel and aggressive tariff policy, citing a range of economic and national security concerns. Our GeoEconomics Center is monitoring the evolution of these tariffs and providing expert context on the economic conditions driving their creation—along with their real-world impact.

The Trump administration utilizes tariffs in three primary ways, depending on the objectives of any particular action.

1. Negotiation tool: The administration sees tariffs as a way to put pressure on trade partners during negotiations, as well as a potential bargaining chip. Used in this way, tariff rates can increase US leverage and result in new trade agreements, like the US-China Phase One trade deal signed during Trump’s first term.
2. Punitive tool: Trump administration officials have stated that they would like to avoid overuse of financial sanctions as a form of coercive economic statecraft, since they believe it can incentivize countries to reduce their reliance on the US dollar. As an alternative, the Trump administration is relying more on tariffs to “punish” or “sanction,” including for non-trade issues. The administration values the ability to easily escalate the tariff rate and, therefore, its punitive power.
3. Macroeconomic tool: The Trump administration also, more conventionally, wields tariffs in support of a wide range of macroeconomic goals:
   • Protecting domestic industries, such as steel, from unfair trading practices and encouraging domestic manufacturing.
   • Decreasing US trade deficits.
   • Increasing revenue from duties. Of course, the “Catch-22” is that if reshoring is successful, the United States will not be able to increase revenue from import duties.

Explore the full Trump Tariff Tracker

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

APRIL 16 | 3:52 PM ET

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

Buenos Aires is getting a boost. On April 11, the International Monetary Fund (IMF) approved a twenty-billion-dollar, four-year loan to Argentina, with the first twelve billion dollars arriving on April 15. The Inter-American Development Bank (IDB) and World Bank followed up by releasing another $22 billion in financing. In response, Argentina lifted large elements of its currency and capital controls, known as the “cepo,” which had long stifled investment and growth. Marking the twenty-third IMF loan to Argentina since the 1950s, the deal comes as libertarian President Javier Milei has dramatically cut Argentina’s spending in an effort to stabilize government finances. Atlantic Council experts answered four pressing questions about Argentina’s latest financial rescue and the road ahead.

Read their answers

New Atlanticist

Apr 16, 2025

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

By Martin Mühleisen, Jason Marczak

What exactly did the IMF agree to, and what is required of Argentina? Our experts dive into the deal and map what comes next.

Fiscal and Structural Reform International Financial Institutions

APRIL 11 | 7:22 AM ET

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

The imposition of US tariffs and retaliatory tariffs by some trading partners, combined with a ninety-day pause of most “reciprocal” tariffs by US President Donald Trump, have led to extreme financial market volatility in recent days. While the equity market gyrations have occurred in relatively orderly market conditions so far, some recent developments have signaled that selling pressure may have spread to other markets—particularly US Treasury securities and short-term US dollar funding. 

To understand the financial stability impacts of the current market turmoil, it is important to monitor the pressure on these markets, which are crucial for the smooth functioning of the global financial system. Left unaddressed, these strains could trigger a freezing up of financial markets, raising the risk of a serious financial crisis.

Continue reading

New Atlanticist

Apr 11, 2025

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

By Hung Tran

The state of the US Treasuries and US dollar funding markets, as well as actions of the Federal Reserve, are where to focus attention.

Economy & Business Politics & Diplomacy

APRIL 8 | 11:46 AM ET

No one is coming to save the global economy

US President Donald Trump has launched a global economic war without any allies. That’s why—unlike previous economic crises in this century—there is no one coming to save the global economy if the situation starts to unravel.

There is a model to deal with economic and financial crises over the past two decades, and it requires activating the Group of Twenty (G20) and relying on the US Federal Reserve to provide liquidity to a financial system under stress. Neither option will be available in the current challenge.

First, the G20. The G20 was created by the United States and Canada in the late 1990s to bring rising economic powers such as China into the decision-making process and prevent another wave of debt crises like the Mexican peso crisis of 1994 and the Asian financial crisis of 1997. In 2008, as Lehman Brothers collapsed and financial markets around the world began to panic, then President George W. Bush called for an emergency summit of G20 leaders—the first time the heads of state and government from the world’s largest economies had convened.

What followed was one of the great successes of international economic coordination in the twenty-first century—the so-called London Moment, when the G20 agreed to inject five trillion dollars to stabilize the global economy. With this joint coordination, the leaders sent a powerful signal to the rest of the world that they would not let a recession turn into a worldwide depression.

Nearly twelve years later, at the outbreak of the COVID-19 pandemic, the same group of leaders convened to work on debt relief, fiscal stimulus, and—critically—access to vaccines.

Now we face the third major economic shock of the twenty-first century. But this one is fully man-made by one specific policy decision. It could, of course, be undone by a reversal of the decision to send US tariff rates to their highest level in a hundred years. But as I have said since November, Donald Trump is serious about tariffs, they are not only a negotiating tool, and that means many of them are likely here to stay.

There will be no “London Moment” this time around. The United States can’t call for a coordinated response to a trade war it initiated—one that is predicated on the idea that the rest of the world is taking advantage of the United States. 

Continue reading

New Atlanticist

Apr 8, 2025

No one is coming to save the global economy

By Josh Lipsky

Neither the Group of Twenty nor the Federal Reserve should be expected to use their playbook from previous economic crises to respond to economic shocks caused by US tariffs.

China Economy & Business

APRIL 8 | 10:15 AM ET

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

US President Donald Trump’s stance on foreign aid has raised questions as to what approach he will take with regard to international financial institutions, and in particular the International Monetary Fund (IMF). But Trump also takes pride in recognizing a good deal when he sees one, and the IMF is indeed a good deal for the United States and the American people. The cost of US participation is low, but the role that the IMF plays in fighting financial crises is invaluable to supporting the US economy. 

After four years representing the United States at the IMF, I can attest that the United States plays an outsized role at the institution. As US executive director, I engaged regularly with counterparts in regions such as Africa, the Middle East, and Latin America to help shape and support IMF lending in a manner that helped advance US interests and reduced Chinese influence. In this era of heightened uncertainty, the IMF could benefit from refocusing on its core priorities and helping countries stand on their own feet. Fortunately, the United States is well positioned to push for such reforms from within the institution. Should the United States instead opt to step back from the IMF, it would not only squander one of its most valuable international economic tools but would also open the door for China to play a lead role in an institution that has long supported US interests. 

Continue reading

New Atlanticist

Apr 7, 2025

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

By Elizabeth Shortino

The institution provides the United States a significant source of economic leverage, helps prevent financial crises, and serves as a counterweight to China’s influence.

Economy & Business International Financial Institutions

The post Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war appeared first on Atlantic Council.

Access to credit plays a crucial role for small and medium enterprises (SMEs), which account for 90 percent of businesses globally and generate over 50 percent of employment. However, barriers such as high collateral requirements, discriminatory lending practices, and borrower discouragement—especially among women-led firms—hinder their growth. Evidence from firm-level data in the World Bank Enterprise Surveys and the Atlantic Council’s Freedom Index reveals a strong link between freedom—spanning economic, legal, and political dimensions—and borrower discouragement. In high-freedom environments, borrower discouragement rates drop to 17 percent, while they reach nearly 48 percent in low-freedom settings.

Among these dimensions, legal freedom stands out as the most influential. Strong legal frameworks that protect property rights, enforce contracts, and combat corruption instill confidence in entrepreneurs and encourage credit-seeking behavior. The impact of these factors is particularly significant for SMEs and women-led businesses in low- and middle-income countries, where financial systems remain underdeveloped. Economic deregulation and transparent financial markets improve access to credit, while gender-sensitive policies—such as targeted financial education and credit guarantees—help mitigate the systemic biases that female entrepreneurs encounter.

Global case studies of successful policy interventions offer valuable lessons. New Zealand’s robust property rights framework, Singapore’s pro-business environment, and Kenya’s M-Pesa platform illustrate how strategic reforms can empower entrepreneurs and bridge credit gaps. These initiatives demonstrate that fostering freedom reduces borrower discouragement and drives inclusive economic growth.

Fellow

Jérémie Bertrand

Nonresident Senior Fellow

Freedom and Prosperity Center

Economy & Business English

Staff

Nina Dannaoui-Johnson

Deputy Director

Freedom and Prosperity Center

Africa Human Rights

Staff

Annie (Yu-Lin) Lee

Program Assistant

Freedom and Prosperity Center

East Asia Rule of Law

Fellow

Caroline Perrin

Nonresident Fellow

Freedom and Prosperity Center

Economy & Business English

Trackers and Data Visualizations

Jun 15, 2023

Freedom and Prosperity Indexes

The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

Report Mar 15, 2024

Attracting foreign direct investments

By Jérémie Bertrand, Joseph Lemoine, Dan Negrea, and Caroline Perrin

Foreign direct investment (FDI) is a pivotal objective for countries seeking to bolster their economic development and global competitiveness. By delving into the relationship between freedom and FDI using the Freedom and Prosperity Indexes and examining institutional mechanisms to influence investment, we shed light on the dynamics that determine a country’s attractiveness to foreign investors.

Economy & Business Freedom and Prosperity

Report Sep 23, 2024

How Zimbabwe can achieve its vision of prosperity

By Nina Dannaoui, Joseph Lemoine, William Mortenson, James Storen

Empowering women and attracting foreign investment will be critical in helping Zimbabwe make its vision of prosperity a reality.

Africa Economy & Business

The Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries and to explore the nature of the relationship between freedom and prosperity in both developing and developed nations.

Learn more

The post How greater freedom empowers entrepreneurs and expands access to credit appeared first on Atlantic Council.

As a forum specifically created to address shared economic challenges, the G20 is critical for accelerating progress on issues of women’s economic empowerment and security. The group’s efforts are especially relevant since compounding crises in recent years have exposed existing economic inequalities. Research shows that working women experienced worse effects from the COVID-19 recession—unlike previous economic downturns that predominantly affected men. In September 2021, women were 2.4 times more likely than men to report losing paid work in order to care for others. Pursuing gender-inclusive policies is critical for achieving collective prosperity and sustainable development.

The United States is set to take over the G20 presidency in 2026. If the United States puts gender empowerment high on the agenda, it can help deliver growth both at home and around the world. Despite recent efforts in the G20, there is still a lot of work to be done to address inequalities and promote progress for women.

Here are five charts that demonstrate these persisting economic gaps:

The Women Peace and Security (WPS) Index measures progress on gender equality on thirteen indicators across three dimensions—inclusion, justice, and security. These indicators include maternal mortality rate, intimate partner violence, employment, and financial inclusion. While most G20 countries have made progress since the start of the index in 2017, the story looks different when we take a closer snapshot.

From 2021 to 2023, almost all G20 countries experienced significant backsliding, according to the WPS Index. This regression was primarily driven by the uneven recovery from the COVID-19 pandemic, which triggered global economic recessions and was further compounded by conflicts in Europe and the Middle East. These crises exposed and exacerbated existing economic inequalities, with women often bearing the brunt of the negative impact. According to research from 2022, the COVID-19 pandemic set gender parity back by a generation, with weak recovery making it even more difficult. 

Notably, this decline was not limited to emerging economies. Advanced economies such as the United States, Canada, and European G20 members also recorded substantial downgrades in gender equality indicators. In these advanced economies, women faced increased unpaid domestic burdens, higher rates of unemployment, and diminished access to childcare services. Even countries with robust social safety nets and gender equality frameworks proved vulnerable to systemic shocks. This all underscores that the G20’s collective commitment to gender equality requires stronger, crisis-resistant policy instruments specifically designed to protect women’s economic security.

In 2018, the IMF noted that no advanced or middle-income economy achieved less than 7 percent in the gender labor force participation gap. Six years later, only France and Canada have managed to reduce that rate to below 7 percent within the G20.

The gap in labor force participation can reflect social and cultural norms, but it can also represent the structural barriers that women face in the labor market, including access to quality education or equitable hiring practices. Gender inclusion in the labor force is important because when a country has a more diverse pool of talent and fully taps into its available human capital, it generates better economic results for everyone, including increased GDP growth, reduced income inequality, and improved overall economic productivity.

Yet within formal employment, wage disparities between women and men have remained a persistent driver of inequality. In the United States, women earn only eighty-four cents for every dollar earned by a man, and globally, the gender pay gap is still approximately 20 percent. In fact, the United States ranks among the bottom five G20 countries when it comes to gender-based wage inequality.

On average around the world, women reinvest more of their income in their families, influenced by the care burden that many women shoulder for children or the elderly. Pay inequality directly impacts these families’ financial stability, housing options, educational opportunities, and quality of life. Progress to narrow this gap has been frustratingly slow. While equal pay has been widely endorsed in principle, implementing it effectively has proven challenging.

For the G20 specifically, addressing wage inequality represents both an economic imperative and a moral obligation. Studies consistently show that reducing gender wage gaps boosts GDP, increases tax revenue, and enhances business performance through greater diversity.

Only 12.3 percent of finance ministers and central bank governors across over 185 countries are women. This is more than 10 percent lower than the average proportion of women represented in cabinet members globally. This disparity is driven by a few factors, such as male dominance in the study of economics, barriers that prevent women from being promoted, and social perceptions of women’s abilities.

The G20 fares a little better than this global percentage with three female central bank governors and five female finance ministers. However, overall economic empowerment and security for women will be tougher to achieve when gender parity and inclusivity are still lacking in global economic leadership. The G20 should be the forum where the world’s major economies can convene and commit to achieving gender-balanced economic results.

The path forward

Addressing these gender gaps would have positive economic impacts globally. Women’s participation in the formal labor force increases economic diversification and drives income equality. Moody Analytics estimated that closing the gender gap could boost the global economy by seven trillion dollars. While there’s no silver bullet solution that would be able to fix these disparities overnight, there are a series of policies that could help, such as improving educational opportunities or equitable hiring practices.

There is a risk that women’s economic empowerment will not be a key focus for the G20. Leading the group next year, the United States has an opportunity to guide the global conversation by showing how investing in women creates resilient economies that benefit everyone.

Alisha Chhangani is an assistant director with the Atlantic Council GeoEconomics Center.

Jessie Yin is an assistant director with the Atlantic Council GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Charting the path for women’s economic security in the G20 appeared first on Atlantic Council.

The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report paints a dire picture of the possibility of avoiding the 1.5 degrees Celsius (°C) rise in global surface temperature. According to this report, “global warming is more likely than not to reach 1.5°C even under the very low [greenhouse gas] emission scenario” and it will be “harder to limit warming below 2°C.” The report provides strong evidence that, based on the current trends of greenhouse gas (GHG) emissions around the world, 1.5°C will be reached before 2040, which is a bit more optimistic than a 2023 article published in the journal Nature, which estimated the world will reach 1.5°C by 2029, leaving the global community with a mere five-year runway. Yet, a recent report by the European Commission warns that we already passed the 1.5°C-mark in 2024. The IPCC report also highlights the fact that there is a massive shortfall in the level of financial flows needed to achieve climate targets in different countries and sectors.

The link between social and physical infrastructure and economic growth and stability is un-disputable. However, the scale of financing required to meet the Sustainable Development Goals (SDGs) and establish climate-resilient infrastructure for the future global economy is the subject of widespread estimation and debate. These projections differ significantly based on various factors, such as the target year (2030, 2040, or 2050), the specific areas of focus (whether traditional infrastructure, SDG priorities, or the energy transition), and the underlying assumptions shaping the analyses. Despite these variations, one undeniable truth emerges: the financing gap is projected to reach trillions of dollars annually over the next ten to thirty years. This gap has been growing wider with the rising population (and, hence, growing needs for new infrastructure and maintaining the existing ones) and the increasing frequency of severe climate, destroying current critical infrastructure in many countries and negatively impacting their operations in others. Hence, the world not only needs to bridge the financing gap for building and maintaining basic infrastructure—between 1–4 billion people lack dependable access to electricity, water, internet, and sanitation—but old infrastructure must be climate proofed and new infrastructure must be built with climate resiliency in mind. Without bridging this massive and growing SDG and infrastructure financing gap, global growth will come to an eventual halt in just a few decades. 

This presents the global economy with the enormous challenge of funding its sustainable development and infrastructure needs. Given the magnitude of these gaps, it is evident that states, multilateral development banks (MDBs), and international financial institutions (IFIs) alone cannot bridge them. Therefore, there is an urgent need for innovative alternative financing solutions, namely from private sources. 

This report aims to provide a nuanced analysis on this very topic. Section 2 provides a holistic review of the investment gaps in global infrastructure, energy transition, and achieving SDGs. Section 3 highlights several challenges as they relate to de-risking, leveraging ratios, and potential sources of financing. Section 4 presents the case for making infrastructure an asset class that would attract private investment. Section 5 concludes the report. 

Amin Mohseni-Cheraghlou is a Senior Lecturer at American University and a former Senior Advisor at IMF’s Office of Executive Directors.

Nisha Narayanan is a senior fellow at the Atlantic Council’s GeoEconomics Center and is the head of country risk at a global financial institution.

Hung Tran is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and and senior fellow at the Policy Center for the New South.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Financing the future: Unlocking private capital for global infrastructure and climate goals appeared first on Atlantic Council.

The limitations of the Group of Twenty (G20) “Common Framework” have been extensively discussed and actionable solutions have been put forward. Tackling those limitations of the Common Framework is crucial for countries currently in debt distress, which experienced “significant delays” in the obtention of debt relief. As stressed by Kristalina Georgieva, managing director of the International Monetary Fund, “The framework can and must deliver more quickly.”

What’s hampering progress? Coordination issues, for one thing, but numerous voices also point to China’s role in hindering progress toward resolving the global debt crisis. The People’s Republic of China—a member of the IMF—has not only lent significant sums to borrower nations but also has the capacity to slow down processes because of the preferential terms in its lending agreements.

Overall, 147 countries—representing two-thirds of the global population and 40 percent of the world’s gross domestic product (GDP)—have either benefited from China’s Belt and Road Initiative (BRI) projects or shown interest in joining the program. By 2023, Chinese investment had begun to rebound since China’s zero-COVID policies, but China’s resistance to debt relief for its low-income borrowers will fuel sovereign defaults for years to come. China has spent an estimated $1 trillion through the BRI, thereby considerably strengthening its influence across Asia, Africa, and Latin America. Laos, for instance, owes almost half of its external debt (65 percent of its GDP) and is struggling to repay the debt that financed infrastructure like the high-speed Laos-China railway. China’s ownership of around 17.6 percent of Zambia’s external debt also slowed down Zambia’s debt restructuring negotiations significantly, contributing to a lengthy negotiation of two and a half years.

This piece outlines how China’s lending practices harm low-income borrowers and hinder debt restructuring negotiations through the use of debt clauses giving it de facto seniority. It further outlines ways for the Bretton Woods institutions to collaborate to change these dynamics and improve financing prospects of borrower countries and a more level field for lenders.

Lili Vessereau is a Research Scholar, Teaching Fellow and Fulbright Scholar at Harvard University, where she focuses on sovereign debt and macroeconomic impact of climate change.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Issue Brief Oct 9, 2023

How the IMF can navigate great power rivalry

By Hung Tran

Fragmentation resulting from geopolitical competition between large economies is posing a serious challenge to the fulfillment of IMF’s core missions. Here’s how it can respond.

China Economy & Business

Issue Brief Apr 16, 2024

Geoeconomic fragmentation and net-zero targets

By Shirin Hakim and Amin Mohseni-Cheraghlou

This report outlines how the Bretton Woods Institutions can mitigate the effects of growing geoeconomic fragmentation on global net-zero targets.

China Climate Change & Climate Action

The post Toward equitable debt contracts: Preventing de facto seniority-clause escalation in the sovereign lending space appeared first on Atlantic Council.

Evolution of freedom

The only non-Atlantic member of the G7, Japan is a country that defies easy categorization. Even as it has experienced comparative macroeconomic stagnation over the past three decades, Japanese companies have remained innovative and the country as a whole remains prosperous. While the persistence of Liberal Democratic Party (LDP) leadership has led some to characterize Japan as an immature democracy, it also enjoys enviable political stability and its democratic institutions and culture have deep-rooted foundations. Even as Japan has been criticized for its overly rigid labor markets, it has earned admiration for low levels of inequality, high levels of safety, and the stoic persistence of the Japanese people in the face of recurrent natural disasters. Both the great strengths of Japan and the many challenges that it faces ahead are in sharp relief in this year’s Freedom Index, which makes a continued and important contribution to our understanding of the dynamics of freedom around the world. In this essay, I explore several of these trends, offering potential explanations and—at times—respectful disagreements, as well as suggesting opportunities for Japan to continue to strengthen the foundations of its freedom and prosperity in the years to come.  

As the Freedom Index recognizes, Japan is among the world’s leading democracies, with well-developed institutions and a mature economy that promote a high degree of freedom and prosperity for its citizens and residents. Notably, the country’s scores in the political and legal subindexes are both significantly above the OECD average and have experienced only minor fluctuations in the last three decades. That Japan is a stable and mature democracy is reflected not only in the Freedom Index but other well-known indices such as those released by the Economist Intelligence Unit and Freedom House. 

At the same time, as the Freedom Index recognizes, Japan has further opportunities to strengthen the foundations of its own democracy and prosperity. This is perhaps most evident in scores in the economic subindex of the Freedom Index, which lag behind Japan’s scores in the political and legal subindices. In 2023, Japan’s economic score fell six points below the Organisation for Economic Co-operation and Development (OECD) average and lagged behind peer countries such as Australia, Germany, and the United States by approximately ten points. This gap is explained largely by poor performance in two components: women’s economic freedom, and investment freedom.  

Regarding the former, the underlying data used to construct the component (the World Bank’s Women, Business and the Law index) point to two important aspects in which Japan’s legislation does not reach the same standards of gender equality as other developed countries, specifically equal pay, and workplace protection. Although “womenomics” was a major theme of former Prime Minister Abe’s premiership from 2012–20 and has remained a priority in subsequent administrations, it is true that there is still work to be done.  

In particular, Japan has struggled to right the so-called “M-curve” whereby women in their thirties have much lower labor force participation rates than younger and older age groups, often reflecting temporary withdrawal from the workforce in the early stages of child-rearing. Although this phenomenon is evident in many developed countries, structural rigidities and other distinctive features of Japan’s labor market and work culture have had the effect of limiting women’s ability to return to career-track roles after childbirth. Although the most recent national data suggest significant improvements in this area, the persistent gap between female and male labor force participation in managerial roles attests to the continued importance of this challenge. 

The evolution of investment freedom in Japan is also distinct from many other developed nations. In general, Japan has averaged a ten- to twenty-point gap between the OECD average since 1995, though this gap has narrowed somewhat since 2004, reflecting in part liberalization efforts introduced by the Koizumi and Abe administrations as well as sustained improvements in Japanese corporate governance standards. These have had an important effect over time in attracting additional foreign investment, which has helped to improve Japan’s score. Anecdotally, foreign involvement in state-supported strategic national projects, such as a joint Taiwan Semiconductor Manufacturing Company (TSMC)-Sony-Denso semiconductor fabrication facility in Kumamoto, also attest to more welcoming attitudes and approaches to both foreign direct and portfolio investment. In light of contemporary trends in economic analysis, such as work by the International Monetary Fund and other international institutions to highlight the pernicious economic effects of inequality, it is also reasonable to question whether Japanese labor protections that count against its economic freedom score are truly a mark against economic freedom. An alternative reading might suggest they are instead an example of the kind of stakeholder capitalism that institutions such as The Business Roundtable have called for the United States and others to embrace.  

As for Japan’s score on the political subindex, high marks reflect the extraordinary stability of Japan’s democratic institutions, not only since 1995 but over the last sixty years. To be sure, some commentators have argued that the persistent dominance of the LDP throughout most of the postwar period suggests Japan is an immature democracy. However, the success of the Democratic Party of Japan (2009–12) in capturing a sweeping majority—and then the clear electoral rebuke that followed persistent policy missteps and returned the LDP to power—demonstrate the ability of the Japanese electorate and Japan’s democratic institutions to both generate change and support a peaceful transition of  power. Further, a major reason for the LDP’s persistent electoral success has been its willingness to adapt and accommodate a wide range of political views from moderate conservatism to right-wing nationalism. Political leadership is strongly supported by the bureaucratic system, which has been the driving force of the policymaking process.  

Even the visible (if relatively small in magnitude) drop in the Freedom Index’s civil liberties component in 2019 can readily be explained by restrictions imposed to try to tackle the effects of the COVID-19 pandemic, as evidenced by the subsequent rebound in 2022. A similar fall is observable in the Index’s rating for legislative constraints on the executive. In this case, the drop has been persistent but the cause—and implications—of this drop are worth evaluating critically. One potential explanation is the fact that the national legislature did not decisively condemn multiple scandals related to political appointees in the executive branches and several members of the Cabinet during the late Abe administration (2012–20) and across the Suga and Kishida administrations (2020–24). At the same time, in foreign policy circles, the emergence of a more empowered and decisive Japanese premiership has been widely lauded as vital in allowing Japan to cope with an increasingly complex and severe foreign policy environment. Given that effective foreign policy is a critical guarantor of Japan’s economic freedom—and a critical buttress for the rules-based international economic order that Japan seeks to uphold—these scores deserve cautious interpretation. 

By contrast, the reduction in political rights observed in the Index—though relatively small—is nonetheless a cause for sober reflection. This drop in particular coincides with the former Prime Minister Abe’s second term. Abe’s strong leadership had many positive effects but its treatment of the press at times did not live up to the ideals of Japanese democracy. For example, certain journalists were practically expelled from press conferences when the administration felt their questions were unfair, which can be seen as an indirect restriction of freedom of information. This minor episode reflects a pressure that was looming over journalism in Japan, where the law regulating broadcasting gives an extraordinary importance to the neutrality of public and private media outlets (see Article fourof the Broadcasting Act of Japan). 

Finally, the most notable trend in the legal subindex, which seeks to capture bureaucratic quality and control of corruption, showed a more than fourteen-point improvement from 2002 to 2014, perhaps reflecting the legacy of major government restructuring efforts launched by the Hashimoto administration (1996–98) and carried forward under the subsequent Koizumi administration (2001–05). These gains have since been somewhat sustained, reflecting perhaps the intermittent revelation of corruption scandals, such as a notable case concerning Japan Highway Public Corporation in the 2000s and the recent incident affecting several ministers of the LDP accused of misuse of political donations.

Evolution of prosperity

Just as it is free, Japan is also among the most prosperous countries of the world, a reality well reflected by its high scores across the Prosperity Index. However, rather than dwell on Japan’s considerable strengths, I will focus here primarily on several caveats that highlight challenges ahead for the Japanese economy.  

First, although Japan is prosperous, growth in both gross domestic product (GDP) and income over the past two decades has been extremely limited. This in part reflects a basic reality that maintaining high levels of growth at the economic frontier is always difficult, particularly following the global financial crisis and in the shadow of rising public debt burdens around the world. Nonetheless, it is also true that Japan has underperformed even relative to most of its G7 and developed country peers, leading to a widening gap in income levels between Japan and the United States, France, and Germany (Figure 1). 

Figure 1: Change in Income for Selected Countries (1995-2023)

Source : World Bank GDP per capita, PPP

Second, Japan has experienced a slow rise in economic inequality since the start of the millennium. This is especially notable given the emphasis that Japanese culture and policy place on equality and homogeneity. Although in comparison to both large developed countries such as the United States and large developing countries such as the People’s Republic of China, Japan remains an almost shockingly egalitarian country, it is nonetheless true that policy efforts to increase the level of competition and productivity across the Japanese economy are correlated with increases in inequality. Whether it is these domestic policy changes that have caused inequality to rise, or whether it is structural shifts in the international economy that have led, for example, to many Japanese firms increasing the share of flexible contract employees over protected permanent employees, is unclear. However, the reality that a growing share of Japanese households are facing economic instability and seeing their incomes eroded by rising food and energy prices is unambiguous and a pressing policy challenge.  

Finally, it is worth commenting on Japan’s performance in terms of education. Once more, when compared to the global or regional average, Japan’s score stands as relatively high. Japan’s education system has long been regarded as one of the best in the world, with high literacy rates and a strong emphasis on the fields of science, technology, engineering, and mathematics. For example, Japan exceeded the OECD average for number of fifteen-year-old students amongst the top performers in the OECD Program for International Student Assessment (PISA). Nonetheless, the picture is not so optimistic when noting that Japan’s gap with respect to countries such as Germany or the United States is very sizeable (twelve and six points respectively). This gap could be explained partly by the lack of recognition of the importance of higher education. With the aging population, the need for lifelong learning and reskilling workers have become challenging priorities for Japan. 

The path forward

Looking forward to what the evolution of freedom and prosperity for Japan may look like in the near future, I would like to touch upon four major challenges that Japan may face.  

First is its demographic challenges. Japan is one of the most rapidly aging societies in the world with a shrinking working-age population. According to the World Bank, Japan’s population growth rate has been negative since 2011, and the decreasing workforce also means that there are fewer contributors to social security systems, exacerbating already strained public finances. The government is making various efforts to tackle this issue, including policies to increase the birth rate and address rural depopulation. However, their effects are limited in scale and scope. Immigration policy also remains relatively restricted and, while the necessity of reform is obvious in any macroeconomic analysis, the political economy of large-scale immigration is one where Japan closely resembles its developed country peers: there are no simple answers on offer. These policy areas could be considered both as difficult challenges and potential opportunities for growth.  

Second, Japan has substantial opportunity to more assertively promote diversity, equity, and inclusion. For example, couples married under current law are not allowed to elect to maintain separate surnames, despite a clear public majority in favor of such a reform. Same-sex marriage also enjoys strong public support and is even being considered in some local municipalities but progress at the national level has been slow across both the legislative and judicial branches. As discussed above, Japan also has further room to expand economic opportunities for women. When combined with other strategic labor market reforms, this could lead to significant productivity gains.  

Third, the shifting labor and investment market may affect Japan’s scores in the Freedom and Prosperity Indexes. As noted, Japan’s labor market used to lack flexibility and maintains significant structural rigidities when compared with most developed Western economies. Even today, most Japanese who join a company or government agency as regular employees out of college will think of their career with that institution in terms of decades rather than years. This stability of employment and accompanying seniority-based wage hikes have certain virtues in cultivating skilled, dedicated core employee bases. At the same time, locking away talent within companies and limiting incentives for top performers to excel may have reduced incentives and opportunities for innovation and entrepreneurship. Further, strong protections for some sections of the workforce may have come at the expense of others; as illustrated by the aforementioned rise in the frequency of dual-track employment structures. In this sense, as Japanese companies look to build job-type employment structures, they have an opportunity to square this circle, maintaining the low levels of inequality for which Japan is rightly praised while also providing more opportunities for flexible and dynamic career paths that will promote economy-wide productivity gains (and, hopefully, better work-life balance). 

Last but not least, the increasingly severe security and geopolitical circumstances surrounding Japan are likely to shape the country’s domestic political economy. A belligerent North Korea and the rising threat of a Taiwan Strait contingency remain as important regional security threats, while the situations in Ukraine and the Middle East are also of concern for Japan. In concert with the United States and like-minded partners, Japan is preparing itself for such contingencies while also seeking to proactively reduce the risk that they will occur. As part of this general trend, there is increasing discussion about a potential amendment to the Constitution of Japan, including a part of Article Nine. In some respects, such reforms might be seen as weakening Japan’s freedom—and may well register as such in the Freedom Index—but their actual impact is a matter of interpretation. Likewise, as US-People’s Republic of China tensions have contributed to Japan’s implementation of a world-leading economic security program, measures undertaken to promote Japan’s economic autonomy may alternatively be interpreted by some stakeholders as undermining economic freedom.  

As Japan prepares in 2025 to mark the eightieth anniversary of the end of World War II, it faces an uncertain political and economic future and a complex and challenging international security environment. However, the roots of freedom, prosperity, and democracy run deep in Japan, and Tokyo’s continued commitment to promoting a free and open rules-based international order is clear. Further, Japan’s ability to build a model of capitalism that delivers both freedom and broad-based prosperity is worth learning from, just as Japan must continue learning from its developed country peers as well as the Global South. 

Kotaro Shiojiri is a Japan Foundation visiting scholar at the Wilson Center, fellow at the Edwin O. Reischauer Center for East Asian Studies at Johns Hopkins University School of Advanced International Studies, and visiting associate professor at the Graduate Schools for Law and Politics at the University of Tokyo. Shiojiri earned his BA in law, MA in international studies, and PhD in public policy from the University of Tokyo, and his LLM from Harvard Law School. 

The Atlantic Council and its staff, fellows, and directors generate their own ideas and programming, consistent with the Council’s mission, their related body of work, and the independent records of the participating team members. The Council as an organization does not adopt or advocate positions on particular matters. The Council’s publications always represent the views of the author(s) rather than those of the institution.

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Evolution of freedom

Taiwan’s diplomacy stresses its peaceful transition from a single-party authoritarian state under the Chinese Nationalist Party, or Kuomintang (KMT), to a robust democracy with strong protections of civil and political rights. It identifies as a “beacon of democracy,” especially in East Asia, a region in which democracy has not been the predominant political form historically. The time coverage of the Freedom Index, 1995–2023, is well-suited to analyze Taiwan’s contemporary institutional evolution, and our survey findings support Taiwan’s self-image as a liberal democracy.  

Binary indexes of democracy, such as the Boix-Miller-Rosato (BMR) or the Democracy Dictatorship Index, identify 1996 as the year of Taiwan’s democratic transition, but the transition away from the authoritarian system that had existed in Taiwan since 1945 was as early as the late 1970s. As pressure from below demanding steps towards greater political openness intensified in the 1980s, the KMT-led authoritarian regime grew increasingly tolerant of dissent, allowing the democratization process to move forward.  

A key factor behind the regime’s changing attitude toward democratization was Taiwan’s deepening isolation as leading countries, including the United States, abandoned the view that Taiwan’s “Republic of China (ROC)” state represented all of China and shifted recognition to the People’s Republic of China (PRC). Some key inflection points included the lifting of the “Temporary Provisions for the Suppression of the Communist Rebellion” in 1991, which had originally been enacted as a constitutional amendment in 1948. This was accompanied by a series of increasingly significant elections, including the first comprehensive elections for the National Assembly (1991) and Legislative Yuan (1992), as well as the first direct election of a Taiwan Provincial Governor (1994).

While Taiwan’s democratization was an incremental process, 1996 is generally seen as the crucial milestone in Taiwan’s political history, for that year saw its first direct presidential election. The victor was the incumbent, Lee Teng-hui, the candidate of the former authoritarian regime’s ruling party, the KMT. Lee’s strong performance—he won more than 50 percent of the vote in a four-way race—benefitted from his decision to align himself with the democratic transition. His election also helped to marginalize those in the KMT who took a more skeptical view of democracy. The political subindex, based on the continuous measure of democracy produced by the V-Dem project, likely reflects the slow adoption of democratic values by those who saw their political dominance eroding under the new rules of the game.  

Taiwan’s democracy took another big step forward in 2000. In that year, the index jumps to a level comparable to that of well-established democracies in Europe and North America. The Index reflects the first turnover of power in the new democracy following the victory of the opposition Democratic Progressive Party’s (DPP) presidential candidate, Chen Shui-bian. The opposition party’s first national election victory marks the completion of the democratic transition of Taiwan, which since then has experienced only small, incremental changes in political freedom in areas such as women’s representation and protection of minorities.  

Nonetheless, the political subindex components point to some features of Taiwan’s political and constitutional architecture that lag behind more established democracies. Most saliently, the component measuring the degree of legislative constraint on the executive receives a significantly lower score than the rest of the components, and presents a greater volatility throughout the period of analysis. I believe this discrepancy reflects the awkwardness of Taiwan’s quasi-presidential constitutional system. The head of state (president) is separately elected for a fixed term, giving him or her a popular mandate. This important role coexists with a standard parliamentary system in the legislature. The president appoints the head of government (premier), and while legislative confirmation is not required, the legislature can remove the premier with a vote of no confidence, which triggers new legislative elections. Since 1996, Taiwanese politics have been characterized by a constant debate about the relative powers of the presidency versus the legislature and premier. This challenge recedes during periods of unified government (2008–16, 2016–24), when the president takes the leading role, but it reemerges in periods of divided government (2000–08, 2024 to the present).  

The legislative constraints indicator closely reflects the two parties’ relative strength in these two branches of power. From 2000 to 2008, the DPP held the presidency but the KMT had a majority in the legislature, leaving President Chen Shui-bian struggling to implement his domestic agenda. In 2008, the country returned to unified government under President Ma Ying-jeou, with the KMT holding both the presidency and the legislative majority. While Ma faced a surprisingly feisty legislative leadership, the legislature was still much more deferential to presidential power than had been the case under Chen. The small ups and downs in the indicator since 2016—a period of unified government under DPP President Tsai Ing-wen—reflect the ongoing search for a stable balance of legislative and executive power. Indeed, when Taiwan returned to divided government in 2024, the KMT-led legislature immediately proposed reforms aimed at constraining the presidency.  

Taiwan’s scores on two other components of the political subindex are low compared to other measures and require explanation. First, the score for political rights of association and expression is lower than might be expected, in part because the two main political parties tend to exploit the popularity of democracy to achieve a political edge. Both parties, when they were out of power, accused their opponents of reviving undemocratic practices, including politically motivated prosecutions of party leaders and officials. In fact, accusations of corruption have been used to sideline politicians, especially after they leave office. Chen Shui-bian’s conviction on bribery charges in 2009 is a clear example of this practice.  

Second, Taiwan imposes restrictions on media ownership, a practice which is reflected in the political rights component of the Index. Some Taiwanese see these restrictions as an effort to deny certain political views access to the media. However, others believe they are necessary to prevent the Beijing government from influencing mass media in Taiwan. In particular, the visible drop on this measure starting in 2020 probably captures the National Communications Commission’s decision not to renew the TV license of Chung T’ien Television. Chung T’ien was widely believed to be a mouthpiece for Beijing whose news coverage was biased against the DPP and in favor of KMT, which argues for more favorable relations with the PRC.  

Turning now to the economic subindex, Taiwan has a long history of strong performance in terms of economic freedom. It is clear that the component measuring women’s economic freedom is the main factor driving the overall positive trend since 1995, and especially until 2004, with an extraordinary increase of more than thirty points. Half of this increase takes place in 2003, reflecting the improvement in legislation regarding workplace conditions for women, mainly in the areas of nondiscrimination, sexual-harassment prevention, and maternity leave conditions. Other important advances include granting equal treatment for men and women regarding asset holdings in 2004, and equal access to industrial and dangerous jobs in 2015. Nonetheless, it is worth noting that the overall high degree of gender equality in the public sphere is not always accompanied by a similar level of equality in the private domain. Taiwanese women still carry a disproportionate share of household work, as well as other burdens typical in strongly patriarchal societies.  

The indicators of trade and investment freedom seem to be highly sensitive to Taiwan’s relationship with mainland China. In particular, the large movements in investment freedom (2005, 2015, 2017, and 2022) reflect changes in cross-Strait investment regulations that alternately ease and tighten the conditions for PRC-Taiwan capital flows. Similarly, the seven-point drop in trade freedom in the early 2000s is likely a product of stricter restrictions for export and import of goods and services with China. As the concluding section details, China poses a significant threat to Taiwan’s democracy. Anxiety about how economic interactions could make Taiwan vulnerable to PRC economic coercion explains why Taiwan’s trade and investment policies have not moved consistently in the direction of greater openness. If we could exclude the China element from these indicators, I assess that Taiwan’s scores would be a lot smoother, reflecting a sustained commitment to fairly open trade and capital movement with the rest of the world.  

The rule of law in Taiwan, as measured by the legal subindex, has experienced a mild increase since the year 2000, mainly driven by notable increases in improving bureaucratic quality, control of corruption, and informality. The democratization process very significantly improved the level of accountability for political leaders and public officials at large, improving the overall capacity and efficiency of the public sector to enforce and abide by the law. Judicial effectiveness and independence is an important factor contributing to this development, and the fact that the score on this area is relatively high since the year 2000 certainly captures the reality of the situation in Taiwan. My intuition is that the transitory dip in the 2008–16 period is due to what people perceive to be politically motivated prosecutions of politicians, a perception that was particularly acute in the immediate aftermath of Chen Shui-bian’s presidency.  

Two more insights are worth mentioning. On one hand, the visible fall in clarity of the law between 2012 and 2016 can only be explained by an aggravation of the discussions regarding the balance of power between the presidency and the legislature in a period of intense partisan competition and outside-the-system political mobilization. Efforts to use constitutional revision to settle these disputes necessarily introduce uncertainty about the legal system.  

On the other hand, Taiwan’s security score experienced a sharp decline of over ten points between 1996 and 2000. While this component has fluctuated since 2000, it remains below its 1995 level. I believe it would be a mistake to attribute this decline to domestic factors. Taiwan continues to be a safe society with low rates of crime. The timing of fluctuations in the security component suggest it is highly sensitive to Taiwan’s citizens’ feelings of insecurity relative to the PRC’s military threat. The drop in the security score during the Lee Teng-hui and Chen Shui-bian presidencies (1996–2008) reflects the increase in PRC political and military pressure on Taiwan, beginning with its military exercises at the time of the 1996 elections. While the PRC paused some of its pressure on Taiwan during Ma Ying-jeou’s presidency (2008–16), the sense of threat has steadily increased over the first quarter of the century. 

Evolution of prosperity

The evolution of Taiwan’s Prosperity Index score is somewhat easier to analyze, as the positive overall trend since 1995 is mainly driven by economic and health outcomes, but nonetheless there are some interesting takeaways from the analysis of the different components.  

Taiwan’s economic success story is well known, with impressive and sustained gross domestic product (GDP) per capita growth numbers for several decades now. The income component of the Prosperity Index not only reflects this fact, but also the limited negative effects of the last two large global crises, namely, the Great Recession of 2008–09 and the COVID-19 pandemic. The Taiwanese economy has proven resilient and mature, despite a very profound transformation from a developmental state with a relatively high level of state intervention to a much more deregulated market economy.  

Despite Taiwan’s strong growth, inequality has increased over recent decades, from a very low base in the early years of our study. Rising inequality is due in part to the structural changes in terms of economic policy mentioned above, together with a weak legal environment for unionization. Other forces driving incomes in a more unequal direction include the offshoring of traditional manufacturing after 1987, primarily to mainland China, and an economy increasingly bifurcated between the domestic-facing retail and service sectors and an export-oriented high-tech sector. Despite the decline in performance in eradicating inequality, Taiwan still maintains a more equitable income distribution compared to the United States and China. Its Gini coefficient, around eighty in recent years, remains higher than the East Asia and Pacific regional average (66), mainland China (56.5), and the United States(65.3).  

Regarding health, Taiwan is among the top performers in the world, increasing its score by more than ten points since 1995, when the country adopted a universal health insurance scheme. The recent evolution of the health indicator in Taiwan contrasts sharply with that of other developed countries, especially when it comes to its handling of the COVID-19 crisis. Taiwan managed the health emergency better than virtually any other country of the world, closing its borders very early, requiring quarantine for everyone entering the country, implementing a state takeover of mask production and distribution, requiring masks in public, and accelerating the production and implementation of vaccinations. As a result, COVID-19 did not spread in Taiwan until the vaccines were available, and the death toll from the pandemic is negligible in the health indicator, unlike European countries and the United States (Figure 1). It is certainly true that other countries, especially Asian developed nations like Japan, were also capable of containing the negative public health effects of the pandemic. Nonetheless, the really distinctive feature of Taiwan is that it was able to do so without a major erosion, even if shortlived, of civil liberties of its citizens (Figure 1). There were restrictions in Taiwan, but the limitations on individual freedom were drastically lower than in other developed countries, and did not require draconian enforcement thanks to the generalized voluntary compliance of the population.  

Freedom and Prosperity Indexes, Atlantic Council (2024)

Finally, the dynamics of the minorities component are complex and require interpretation. The sharp increase in the year 2000, coinciding with the first DPP presidency, surely reflects the substantial improvement of the indigenous Taiwanese population in terms of access to public services, jobs, and opportunities. On the contrary, the fall in the score in the last five years is probably explained by the situation of migrant workers, whose numbers have increased significantly in the recent period, and whose legal status and conditions have not been as well protected as those of domestic workers. During the COVID-19 pandemic, for example, some foreign workers were confined to their workplaces for long periods of time, while most Taiwanese enjoyed a relatively normal lifestyle with few pandemic-related limitations on their day-to-day activities. 

The path forward

Taiwan’s democratic institutions have functioned smoothly for nearly three decades. After eight rounds of presidential elections and even more of legislative and local elections, campaigning and voting in competitive, multiparty elections is routine. Taiwanese also enjoy a high degree of protection for their civil rights, in realms ranging from freedom of speech to marriage equality for LGBTQ+ couples. While all democracies have their flaws— Richard Bush’s book Difficult Choices outlines many of Taiwan’s—the island’s political system seems to meet the conventional definition of a consolidated democracy: democracy is, indeed, the “only game in town.”¹

Perhaps the best evidence of the strength of Taiwan’s democracy is its citizens’ tendency to view it as the defining trait that makes Taiwan Taiwan, and differentiates it from the People’s Republic of China.  

With the exception of indigenous Taiwanese, who constitute a little over 2 percent of the population, the people of Taiwan are descended from settlers from mainland China. Their ancestors arrived over several centuries, including a long wave of migration between the late sixteenth and late nineteenth centuries and a short wave between 1945 and 1949. From 1895 to 1945 Taiwan was colonized by the Japanese empire.  

For most of its history, Taiwanese were subjects of empires and states that controlled the island from afar. When the ROC took control of the island at the end of World War II, the new government expected Taiwan to uphold its goal of merging Taiwan into the Chinese state on the mainland. Even after the ROC lost the civil war and the PRC was founded in 1949, the ROC government continued to insist that “recovering the mainland” was its destiny, and Taiwanese should work toward restoring the ROC in the mainland. The PRC, too, believes in merging Taiwan into China, but its policy is that the Chinese state Taiwan should join is the PRC.  

The advent of democracy in the 1990s opened the possibility of a different destiny for Taiwan. Some Taiwanese even called for formal independence from China—for abandoning the “ROC” label and eschewing forever the possibility of merging into a mainland-based nation. Some made the case for independence on the grounds that Taiwan is not “Chinese.” Advocates of Taiwanese cultural nationalism argued that, despite their Chinese ancestry, Taiwan’s culture is an amalgam of indigenous, Japanese, and Western influences that differentiate it from China.  

No matter how the case for independence is made, however, the PRC government has made it clear that it will oppose such a move with military force, so the idea of formal independence has lost much of its support in Taiwan.  

At the same time, Beijing’s pressure on Taiwan to allow itself to be absorbed into the PRC was intensifying, Taiwan’s political and social institutions were becoming freer and more democratic. Meanwhile, despite Beijing’s efforts to promote the idea, support for unification within Taiwan has dwindled. And the mainstream rationale for Taiwan’s separate status has shifted from cultural nationalism to a sense of civic nationalism—the idea that what makes Taiwan unique—and unification unwelcome—is the island’s liberal democratic political system. Democracy, warts and all, has become a point of pride and distinction for Taiwanese, which should make for a bright projection for its continued thriving in Taiwan.  

Unfortunately, the future of democracy on the island does not depend on the Taiwanese people alone. The PRC opposes both Taiwan’s continued self-government and its democratic system. In Beijing’s view, Taiwan’s historic connections to the Chinese mainland make it an inseparable part of “China,” and as the PRC state is the current government of China, Taiwan must, sooner or later, be incorporated into the PRC. There’s no chance that the PRC would adopt Taiwan’s liberal democratic institutions and practices, so unification would almost certainly bring an end to democracy in Taiwan, as it has in Hong Kong.  

How likely is this outcome? It is impossible to predict, but the PRC is determined to bring Taiwan to heel, peacefully if possible, but by force if necessary. So far, the two sides have managed to avoid conflict, in part because the costs and risks of forcible unification are high, and in part because Beijing believes it can prevail without force eventually. I think it is likely that this stalemate will continue in the near future. If it does continue for the next five to ten years, the situation may evolve to a point where a mutually acceptable arrangement is possible. Or it may not, in which case Taiwan’s democracy will continue to exist under constant threat.  

Taiwan’s prosperity is similarly dependent on external factors. The high-tech boom that followed the offshoring of traditional manufacturing in the late 1980s and the 1990s has made Taiwan more important than ever in the global economy. The IT manufacturing ecosystem—of which the semiconductor giant Taiwan Semiconductor Manufacturing Company (TSMC) is only the most famous of many critically important firms—has made Taiwan more central to the global economy than ever. Regional and global supply chains connect Taiwan to partners in Japan, Korea, the United States, the PRC, and more, as well as to customers around the world. 

The mutual benefit derived from these relationships is an important deterrent to military conflict in the Taiwan Strait—Beijing has everything to lose, economically, if these economic relationships are disrupted. Beijing thus faces a dilemma: realizing its goal of unification could undercut its economic success, but avoiding that outcome means tolerating a political status quo in the Taiwan Strait that the PRC leadership has defined as unacceptable. As long as Taiwan continues to act with restraint— avoiding creating the perception that unification has become impossible—the economic benefit of tolerating the status quo will probably outweigh the political cost. Still, any of these factors could shift unexpectedly, with the likely result that both democracy and prosperity in Taiwan would take a tragic turn. 

Shelley Rigger is Brown professor of East Asian Politics and vice president for academic affairs/ dean of faculty at Davidson College. Rigger has a PhD in government from Harvard University and a BA from Princeton University. Rigger is the author of two books on Taiwan’s domestic politics, Politics in Taiwan: Voting for Democracy (Routledge 1999) and From Opposition to Power: Taiwan’s Democratic Progressive Party (Lynne Rienner Publishers 2001). She has published two books for general readers, Why Taiwan Matters: Small Island, Global Powerhouse (2011) and The Tiger Leading the Dragon: How Taiwan Propelled China’s Economic Rise (2021). 

The Atlantic Council and its staff, fellows, and directors generate their own ideas and programming, consistent with the Council’s mission, their related body of work, and the independent records of the participating team members. The Council as an organization does not adopt or advocate positions on particular matters. The Council’s publications always represent the views of the author(s) rather than those of the institution.

2024 Atlas: Freedom and Prosperity Around the World

Twenty leading economists and government officials from eighteen countries contributed to this comprehensive volume, which serves as a roadmap for navigating the complexities of contemporary governance. 

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The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

The Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries and to explore the nature of the relationship between freedom and prosperity in both developing and developed nations.

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The successes of the past twenty-five years are undeniable—since 2000, poverty has been cut in half and global gross domestic product (GDP) growth has more than tripled. However, the failures are real as well. The internet, for all the incredible ways it has reshaped trade and innovation, has also fueled long-simmering divisions within countries.

The world is searching for a new “Wright Brothers moment”—a transformational invention that not only enhances productivity but simultaneously inspires people to imagine what comes next. The internet made us look down at our phones; the Wright Brothers made us look up to the sky.

The question is, will the United States and its allies be able to reap the benefits of this century’s Wright Brothers moment? It will likely depend on the economics. From 1900 to 1925, the pound sterling lost its global reserve currency status, industrialization fueled the greatest period of globalization the world had known, and the United States emerged as an economic superpower.

Fast forward to 2025 and the United States has the strongest gross domestic product (GDP) growth of any advanced economy, its startups set the standards across the world, and its geopolitical rivals, including China, have shown since the COVID-19 pandemic that they are not, in fact, ten feet tall.

But the difference between success and failure will be decided in unexpected places. Below are five pressing questions about the global economy in the year ahead. The answers to each of these questions will help determine whether the next twenty-five years mark a supercharged quarter century or push the United States off its economic flight path. 

1. Will Trump try to fire the Federal Reserve chair?

For all the concerns about the future of the US dollar, one of the only real near-term threats would come from a lack of confidence in the Federal Reserve’s independence. What could trigger such a crisis? Check out our breakdown of how Group of Twenty (G20) countries handle the dismissal of their central bank chiefs: 

The good news is that President-elect Donald Trump has said he isn’t going to try to fire Federal Reserve Chair Jerome Powell before his term is up in 2026. The bad news is that he might be able to do it if he changes his mind. The closest the United States has come to testing the idea is probably President Lyndon Johnson asking his Justice Department if he could fire then Federal Reserve Chair William McChesney Martin in 1965.

If the US president proposes this idea, then expect markets to send a ferocious signal not to cross that line. A more likely outcome is that Trump will appoint a new Federal Reserve chair very early in his term, which will cause some confusion but not an outright crisis. 

2. What effects will new US tariffs on China have?

New year, new tariffs? New US tariffs on China are coming—that much is already clear. But to understand how they will impact the US economy, take a deeper look at the tariffs that Trump put on Chinese goods during his first administration. The chart shows how Mexico and Canada have now overtaken China as the top sources of goods covered under the previous Section 301 China tariffs (which included a range of agricultural and manufacturing products). 

If the goal of higher tariffs is friendshoring, or diversifying import sources to trusted partners, the data show that maybe there’s something to this whole strategy—even if it takes time. And it’s not just Mexico and Canada stepping up to replace Chinese exports—the next twenty top US trade partners have nearly all increased their exports to the United States regardless of geography, from South Korea to Germany, and from Vietnam to Brazil.

While the first wave of tariffs had to wait out a pandemic, the next wave may hit China faster and harder, and the rest of the world is ready to take advantage. 

3. Is China’s Belt and Road Initiative back in business?

It certainly looks that way. New data from 2023 show that it was the first year since 2016 that China’s loans to Africa increased compared to the year before. The analysis below shows how China’s economic slowdown, and the COVID-19 pandemic, conspired to curb spending over the past few years.

But now it appears that Chinese leader Xi Jinping is ramping the Belt and Road Initiative back up. And this time, the money that is being spent is in yuan, not US dollars. The focus has shifted to smaller projects and lower financing levels to avoid some of the defaults seen in earlier projects.

The question now is whether Trump tries to counter the Belt and Road Initiative with bilateral US spending or by organizing a Group of Seven (G7) alternative to Beijing. 

4. Will the Global South get more voting power in the IMF?

When the Atlantic Council hosted India’s finance minister, Nirmala Sitharaman, in Marrakesh in 2023, she said that India and the Global South would not accept another unfair arrangement at the Bretton Woods institutions on voting power. This year, her ultimatum will be put to the test. How would the distribution of power change if votes were finally reallocated in the International Monetary Fund? It’s not as clear as you might think: 

The United States would gain votes, as would China, if votes were distributed simply based on a country’s share of global GDP. The real formula is more complicated, but the chart above does help show how things could shift. India would gain a little, and most of the G7 would lose. Of course, Europe losing also costs the United States, as it would have fewer friends at the board.

There is, however, no clear path forward, and it’s hard to see Trump agreeing to anything that benefits China. But don’t expect Indian Prime Minister Narendra Modi or Xi to capitulate either. A new battle of Bretton Woods may be brewing.

5. What’s next for US dollar–backed stablecoins?

In 1971, US Treasury Secretary John Connally famously told a group of European finance ministers that the dollar was “our currency, but your problem.” Europe in particular is going to be thinking about that notion quite a bit in 2025. To understand why, see how dollar stablecoins are increasingly popular around the world: 

Last year was a big year for cryptocurrency; Bitcoin’s price reached one hundred thousand dollars in December, and the industry played a significant role in the US elections. But the focus in 2025 will shift to stablecoins. Today, $170 billion worth of stablecoins are in circulation worldwide, with 98 percent of those pegged to the dollar. 

But as the chart shows, about 80 percent of the flow of US dollar-backed stablecoins happens outside the United States. This is driven mainly by adoption in Europe (with Russia in the lead), in India, and in Southeast Asian countries, such as Vietnam, Singapore, and Indonesia, which are using stablecoins for remittance payments and as a way to access dollars. 

The result is that while the United States finally created a regulatory framework for these assets, other central banks and finance ministers are going to ask the incoming Trump Treasury department exactly what the plan is for all these new dollars floating around in their economies. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Sophia Busch is an assistant director at the Atlantic Council’s GeoEconomics Center.

Research and data visualizations provided by Jessie Yin, Mrugank Bhusari, and Alisha Chhanganni.

This article is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in receiving this newsletter, email
SBusch@atlanticcouncil.org

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The Economic and Social Costs of the Gaza War

“We’ve had the loss of lives, injuries, and the cessation of economic activity in general in Gaza—as well as the demolition of infrastructure,” economist Perrihan al-Riffai said on Tuesday, October 22^nd, during the launch of her new report, authored in partnership with the Atlantic Council’s empowerME Initiative and GeoEconomics Center.  

The new report, “The economic and social costs of the Gaza War,” uses data to navigate the war’s toll, not only upon the “epicenter countries” directly involved in the conflict but also the broader Middle East. The socioeconomic cost of the war has been overwhelming—but not entirely in the ways economists, at the beginning of the war last October, initially thought.  

Al-Riffai noted that the war had a negative effect on supply chains—especially vis-a-vis Houthi attacks in the Red Sea—but that the increased costs of the diversion had not translated into the expected increase in prices for consumers. Another surprise was the conflict’s apparent lack of immediate impact on oil and energy prices.  

Other socioeconomic impacts, though, were predictably devastating. The war has “helped exacerbate Egypt’s already challenging foreign exchange situation and current account difficulties,” said al-Riffai. Israel faces surging inflation, debt, and military spending, with its labor market hemmed in by militarization. Moreover, “the longer the conflict goes on and the more intense it becomes,” there is potential that risk-shy investors could turn away from investment in the broader Middle East.  

As for the human toll, migration and displacement have shot up. Palestinian refugees fleeing to nearby countries already facing economic challenges, like Jordan and Lebanon, may unfortunately represent “an extra pressure point on public utilities, including the social sector, health, and education. Unfortunately, what ends up happening is the refugees end up suffering in addition to the host country’s citizens.”  

Reshaping Egypt’s fiscal policy with Finance Minister Ahmed Kouchouk

“We still need to keep the course of reforms and to keep monitoring things, but on the fiscal side, we’re seeing good performance,” said Egyptian Finance Minister Ahmed Kouchouk, speaking at an Atlantic Council event on Wednesday, October 23^rd, discussing the future of Egypt’s fiscal policy. His Excellency discussed Egypt’s prosperous relationship with the IMF and spoke on the ongoing program which aims to address fiscal imbalances accrued during the Covid-19 pandemic, as well as public spending at large. 

Discussing current challenges to the Egyptian economy, Minister Kouchouk spoke on the work that the Egyptian Central Bank is doing to bring inflation back to its 2025 target, as well as the importance of social safety programs for Egyptians impacted by rising costs – including a conditional cash transfer program developed in collaboration with the World Bank.  

Minister Kouchouk also noted that Egypt has made climate and sustainability a priority in economic planning. H.E.’s participation in the Coalition of Finance Ministers for Climate Action has allowed Egypt to collaborate with other nations and adopt new strategies to meet the Sustainable Development Goals. Further, Egypt has become the first issuer of green bonds in the region. “We are streamlining climate in our work, in our planning, in the fiscal risk statement.”   

Saudi Arabia’s economic outlook with Minister Faisal F. Alibrahim

“The idea of Vision 2030 was based on optimism for the future,” said H.E. Faisal F. Alibrahim, Saudi Arabian Minister of Economy and Planning on Thursday, October 24^th, at the Atlantic Council. The Minister spoke on the Kingdom’s primary economic goals – namely, to diversify the economy to bring in different sources of growth and to elevate the role of private businesses. “Ultimately, the objective is for the private sector to grow.  We have set an ambitious target of 65% for the private sector, and we’re moving slowly in that direction.” 

As the Saudi economy moves away from oil dependency, the Minister dsicussed the investment diversification effort the Kingdom made in various industries under Saudi Vision 2030, including in technology, artificial intelligence, and tourism. The government has also made sustainability a key priority and has invested heavily in electric vehicles, hydrocarbon energy, solar energy, and carbon removal technology. The Minister stressed the government’s strong commitment to sustainability and the need for the Kingdom to take a regional leadership role on this issue: “A stronger Saudi economy is good for the region.”  

“The heart of all of this is technology and innovation,” said Minister Alibrahim. “Diversification is essentially just doing what you don’t know how to do.” 

Egypt’s sustainable investment and trade growth, with Minister Hassan El Khatib

“I want stable policies, I want predictable policies, and I want to make sure that this location is competitive now and for the next twenty years,” said H.E. Hassan El Khatib, Egypt’s minister of investment and foreign trade. “Egypt has a major advantage and a great opportunity today, especially with the supply chain shift, with onshoring, with our abundance of quality labor.”

On Friday, October 25th, the minister joined the Atlantic Council at the International Monetary Fund to discuss Egypt’s sustainable investment and trade growth with empowerME Initiative Director Racha Helwa. He highlighted Egypt’s empowerment of its private sector and its planned shift away from government-led economic growth: By 2030, H.E. said, the Egyptian government aims for the private sector to contribute 75 percent of investments. These efforts are part of Egypt’s commitment to building an attractive business environment, securing more foreign direct investment, and streamlining existing trade and tax policies.

For example, the minister underscored the need to make the logistics of trade simple and fast, not only by reducing non-tariff barriers but also by pursuing digitization. “Trade is about the ease of getting goods in and out,” His Excellency said. “We want to cut the time taken to release goods by 30 to 50 percent.” Egypt’s trade prospects stand out in a troubled region given the country’s excellent strategic location, clear policies, renewable energy resources, abundant high-quality labor, and stable approach to regional challenges.

Kate Springs and Leila Ouhri are Young Global Professionals in the Atlantic Council’s Middle East Programs.

empowerME

empowerME at the Atlantic Council’s Rafik Hariri Center for the Middle East is shaping solutions to empower entrepreneurs, women, and youth and building coalitions of public and private partnerships to drive regional economic integration, prosperity, and job creation.

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But with finance ministers and central bank governors gathering in Washington for the IMF-World Bank Annual Meetings, there may only be time for a crash course in cooperation, as they look to tackle challenges ranging from inflation to slow gross domestic product (GDP) growth to debt crises and beyond.

To gauge whether delegates can revive the spirit of cooperation in this geopolitically fragmented moment, we sent our experts to the center of the action in Foggy Bottom. Below are their insights, in addition to takeaways from our conversations with financial leaders outlining the global economy’s outlook for the coming years.

Dispatch from IMF-World Bank week: A look at the seeds that were planted

The “loop-the-loop circuits” of global remittances need straightening out—and fast

Read our earlier analysis

See all our programming

IMF-World Bank Week at the Atlantic Council

WASHINGTON, DC APRIL 21-25

The Atlantic Council hosts a series of special events with finance ministers and central bank governors from around the globe during the 2025 Spring Meetings of the World Bank and International Monetary Fund (IMF).

Dispatch from IMF-World Bank week: A look at the seeds that were planted

Over at the IMF, leaders and delegates can finally wind down, with the final day of the week having fewer meetings, bilats, and events. There are reasons to commend the progress made just before or during the annual meetings, as the IMF reformed its subsidized lending policies and released a new “debt-at-risk” framework that quantifies risks associated with debt projections. In addition, Group of Twenty (G20) ministers officially endorsed a plan outlining next steps for the World Bank’s strategy for reform. However, the fate of the World Bank’s goal to replenish the International Development Association, while supported by some sizable commitments, remains uncertain.

In fact, much felt uncertain this week, with the US election whipping up doubt about Washington’s future commitment to the Bretton Woods institutions. A shock in the United States—the largest shareholder in both institutions—would reverberate across the global economy. The institutions and the ministers were reluctant to give direct public comments on the topic, deeming it to be a purely domestic issue. But, as became clear in private conversations we had on the ground, anxiety about the election behind closed doors was unmistakable.

The tension was also palpable when it came to China’s domestic economy. Europeans are concerned about retaliation after the recent vote on electric-vehicle tariffs, hoping to avoid tit-for-tat escalations. Food and energy exporters in the Middle East, Asia, and South America are worried about the future of their exports if the Chinese economy continues to slow, leading to a drop in demand.

Major announcements were missing this week, which contrasts with what we saw last year in Marrakesh, where leaders were able to achieve significant progress on quota reform and debt restructuring deals. But true change in international economics and finance takes years, and quiet diplomacy could help prevent problems from escalating. Mark your calendars to join us at the Spring Meetings, as we return to see if the seeds planted behind closed doors this week flourish—or wither.

The “loop-the-loop circuits” of global remittances need straightening out—and fast

There’s one phrase I’ll never forget from this year’s IMF-World Bank Annual Meetings: “Funny loop-the-loop circuits.” 

That is how European Central Bank President Christine Lagarde, speaking at the Atlantic Council on Wednesday, characterized the process of sending remittances—money migrants send back home. She explained that sending remittances “takes forever” and “is very expensive,” and the money “does funny loop-the-loop circuits around the world” along the journey. 

Lagarde wasn’t the only one to hone in on the issue, as this week in Washington, the topic of remittance payments—usually confined to technical discussions and policy footnotes—took center stage in several discussions. But Lagarde’s remarks highlight the complex journey remittances often take, in which funds pass through multiple correspondent banks, undergo regulatory compliance checks, and face currency exchange fees, leading to delays and higher costs as the money “loops” through various intermediaries before reaching the final destination. The numbers paint a compelling picture: Last year, global remittance flows (valued at $890 billion) surpassed both foreign direct investment and official development assistance, making them an increasingly vital source of income for emerging markets. Today, the average cost of sending remittances stands at 6.4 percent—more than double the World Bank’s target of 3 percent by 2030. In some corridors, such as Tanzania to South Africa, the cost can be even higher: For example, it can cost nearly one hundred dollars to send two hundred dollars.

Ahead of the meetings, my colleague Ananya Kumar and I outlined a twenty-first-century approach to remittances, advocating for the introduction of more digital solutions in financial systems and enhanced private-sector collaboration and experimentation in digital infrastructure to reduce costs and increase speed.

But technology alone isn’t the answer—the regulatory framework also needs to evolve. Remittances are inherently a global issue: They cross borders, link multiple payment systems, and involve migrants who navigate between different national economies, making it impractical to address their challenges through domestic policies alone. This situation calls for coordinated action from international bodies like the IMF and World Bank, and support from South Africa’s Group of Twenty presidency.

Dispatch from IMF-World Bank week: Slow and steady may no longer suffice

The intensification of war in Lebanon has “flipped” the country’s economic priorities “180 degrees,” says minister of economy and trade

European Commissioner Jutta Urpilainen: Investing in Europe’s security requires investing in international cooperation and partnerships 

An evasive—and elusive—G20 communiqué

Don’t forget about regional development banks. They play a key role in a Bretton Woods 2.0.

There’s plenty of worry—but not much talk—about China’s economy

Read our earlier analysis

Dispatch from IMF-World Bank week: Slow and steady may no longer suffice

Well, the week has nearly come to an end, except for a few talks. The plenary speeches have been delivered, and the IMF’s and World Bank’s ministerial-level forums (the International Monetary and Finance Committee and Development Committee, respectively) have come and gone.

When the dust settles tomorrow after another round of consultations and seminars—despite some important, albeit incremental, policy changes—it’s unlikely that very much will be remembered to distinguish these annual meetings from their recent predecessors.

The most important IMF reform, which actually was agreed upon earlier this month, will provide additional assistance to low-income countries that come to the IMF hat in hand during a crisis. Wealthier countries agreed to contribute additional resources to a fund that finances concessional loans to the poorest countries to the tune of an additional $3.6 billion of lending a year. The IMF is also moving to cut the charges and surcharges imposed on borrowers, which will reduce the repayment burden that countries face.

But on the long-term issues facing the global economy, which is still trying to regain higher levels of growth in the post-COVID era, the messages from the meeting sound too familiar: raise productivity, implement labor market reforms, pursue the “green transition,” and improve people’s lives. Indeed, these goals have been outlined at several previous annual meetings, but progress is slow.

That is one of the basic truths of the multilateral process. Change comes slowly, when it comes at all. But in a world facing a rising tide of geopolitical fragmentation, wars, debt crises, and demographic change, incremental change may no longer suffice. Sometimes slow and steady just means sclerotic.

The intensification of war in Lebanon has “flipped” the country’s economic priorities “180 degrees,” says minister of economy and trade

At the IMF-World Bank Annual Meetings, Lebanese Minister of Economy and Trade Amin Salam has sensed a shift in conversations, and priorities, with the Bretton Woods institutions regarding Lebanon. 

“A few months ago, we were looking at reform and recovery. . . we were looking at a deal with the IMF,” he said in a conversation with senior economist Perrihan Al-Riffai. “Now, everything has changed.” 

That deal, slated to include a three-billion-dollar loan to “kickstart the economy,” was the subject of a staff-level agreement in 2022. (According to the head of the IMF mission to Lebanon, the deal stalled amid Lebanon’s slow implementation of promised reforms). The three-billion-dollar loan, Salam said, was supposed to be a “stamp of approval” or a sign of trust in the Lebanese economy, encouraging investment. But the intensification of Israel’s war against Hezbollah in recent weeks, including airstrikes in Beirut and a ground campaign in southern Lebanon, “really flipped the equation 180 degrees,” with economic conversations focusing on sending aid to Lebanon to help the economy recover—and with investors looking elsewhere. 

Speaking at the Atlantic Council interview studio at IMF headquarters, Salam looked back on the challenges his country has faced before today’s war: a financial crisis in 2018, the COVID-19 pandemic, impacts from the war in Ukraine, and the Beirut port explosion in 2020—which destroyed “half the city,” Salam explained. 

“Lebanon has witnessed a sequence of different challenges . . . that hit the socioeconomic scene,” he said. “There is no economy in the world that can really tolerate or that can handle so many different challenges . . . within such a small amount of time.” 

Salam said that the tourism and agriculture sectors, which were the “oxygen of the economy,” have been particularly impacted. That raises fears, he said, that if the war continues and if Lebanon keeps “spending without income,” it will have to tap into its reserves. “That is unhealthy for the economy,” he explained. 

The country needs $250 million monthly “just to handle the emergency situation,” Salam explained, pointing to the rising costs required to support displaced people, provide food, and maintain health services. That would amount to $3 billion a year. Yesterday, international partners at a conference for Lebanon in Paris pledged $1 billion in aid, including $200 million for Lebanon’s security forces. 

Salam praised the Paris conference for filling the needs gap, as once the war became more intense this year, countries that began helping Lebanon were only able to meet a small fraction of the needs. He said that the funds geared toward security forces will help the country comply with United Nations Security Council Resolution 1701, which is intended to prevent conflict along the country’s border with Israel. That, he said, requires sending the army to “create a safe and peaceful zone.” 

While his country is pushing for humanitarian aid, it “is not the solution,” Salam said. “The solution is the ceasefire.” 

“The more we extend this war, the wider the scope gets . . . the more the needs are, the more the billions will accumulate that we will need in emergency help,” he said.

Watch the full event

European Commissioner Jutta Urpilainen: Investing in Europe’s security requires investing in international cooperation and partnerships 

European Commissioner Jutta Urpilainen argued Friday that while the European Union (EU) focuses on boosting its security and competitiveness, it must not fail to invest in its international cooperation and partnerships. 

“We are living in a very interconnected and intertwined world,” she told Atlantic Council Europe Center Senior Director Jörn Fleck. While the European Union bolsters its “hard security,” she said, it must also address other security threats, such as terrorism and even climate change. “And that means,” she added, “that we have to also invest in our international cooperation and international partnerships.” 

Urpilainen explained that over her five-year term, the COVID-19 pandemic and the increasing size of the youth population across the Global South has changed Europe’s “playbook” when it comes to development. The pandemic, she said, showed Europe how it needs to “coordinate our efforts with set common objectives” and collaborate in more ways, such as pooling resources; meanwhile, the rising number of young people in partner countries has taught Europe it needs to “invest in youth” and work to empower them. 

The commissioner also said that she saw a new dynamic form, in which partner countries in the Global South no longer wanted to be the “subject of aid,” but rather wanted to work with the EU on reforms and improving their resilience. That, she added, is the model behind the European Union’s Global Gateway strategy to invest in infrastructure projects worldwide. 

There are several reasons behind the 300-billion-euro plan, Urpilainen explained. One is the “huge gap of investments” across the EU’s partner countries. Achieving the United Nations Sustainable Development Goals, she noted, would take trillions of dollars in additional investment each year. But another reason is that, amid intensifying geopolitical competition, competitors such as the EU are engaged in a “battle of offers,” she explained. “We need to have our own European offer to our partner countries.” 

She noted that, for the EU, “it’s very important to respect very [high] standards in terms of environment and social standards,” she said. “We don’t want to create new dependencies. Instead, we really want to strengthen the resilience of our partner countries.” 

Urpilainen also said that development actors and leaders aren’t working closely enough to exchange ideas and information—and thus to achieve better results. “We work too much in silos as an international community. I think we very much share common objectives when it comes to sustainable development goals,” she said. “We should get out of these silos.”

Watch the full event

An evasive—and elusive—G20 communiqué

The gathering of Group of Twenty (G20) finance ministers at the IMF-World Bank meetings used to make news. Reporters would devote megabytes of copy to the communiqués, which often overshadowed the Fund’s own pronouncements. But this year, the document has been harder to track down than tickets to a Taylor Swift concert. The website of the G20’s 2024 “rotating presidency” (Brazil), has been silent on the topic so far, and most news organizations have given it a miss.

I finally found the communiqué thanks to Japan’s Ministry of Finance, and it’s understandable that it isn’t grabbing headlines. The thirty-five dense paragraphs do contain discussion of a multitude of important issues—from the ten downside risks facing the global economy to inequality and climate change to a “Roadmap towards Bigger, Better, and More Effective” multilateral development banks. But concrete proposals are a bit lacking. Instead, the ministers cite a vast range of reports, working groups, and reviews, all of which work toward building elusive consensus among a group increasingly riven by geopolitical differences.

A few years ago, the pressing problem of developing-country debt was at the forefront of the ministers’ deliberations. But that issue has been relegated to one paragraph that “welcomes” meager progress in restructuring a few countries’ obligations. Meanwhile, the ministers gloss over the social cost of the debt and its centrality to their headline issues of climate-change mitigation and sustainable development.

It is notable that the communiqué is silent on the biggest global issues: Ukraine and the Middle East. However, Reuters reported that the Brazilian chair issued a statement saying “members had differing views on whether the conflicts should be discussed within the group.” That statement has not been officially posted either.

All of this suggests that the brief era in which it was believed that twenty governments from advanced and emerging market economies could work together productively in a single multilateral forum may be fading into posterity.

Don’t forget about regional development banks. They play a key role in a Bretton Woods 2.0.

As the World Bank and International Monetary Fund turn eighty, multilateral development bank reform is atop everyone’s agenda this week.

The agenda extends beyond the Bretton Woods twins, however, to include the regional development banks (known as RDBs)—the EBRD (Europe), AfDB (Africa), ADB (Asia), and IDB (Latin America), among others. As Undersecretary of the US Treasury Jay Shambaugh noted in his annual-meetings preview speech at the Atlantic Council, RDBs “have become critical sister institutions to the World Bank and IMF, complementing and deepening the impacts of the Bretton Woods system”

In the context of COVID-19, I wrote that RDBs have a critical role to play in recovery given their agility, complementarity, and continuity. 

This is arguably even truer—and these traits more crucial—today in the face of ongoing shocks and a tenuous economic landscape marked by debt, conflict and fragility, fragmentation, demographic pressures, and extreme climate challenges alongside opportunity in the green and digital transitions. The ability of RDBs to specialize, be context vigilant, pivot more quickly to respond to changing needs, and seize investable opportunities differentiates them in the international financial system. These sentiments were echoed in my conversation on Thursday with EBRD President Odile Renaud-Basso: “We can react quickly to events and adjust to the needs of the country; the war in Ukraine for example tested our agility to come up with quick solutions.”

And as the Bank and Fund (and let’s not forget the World Trade Organization) evolve in governance and operational capabilities and efficiencies, new paths and platforms for collaboration and coordination with the RDBs are being created or expanded. For example, AfDB has partnered with the World Bank on Mission 300, a joint initiative to connect 300 million people in Africa to electricity by 2030; and Ajay Banga updated this week that in the just the first six months of the Global Collaborative Co-Financing Platform (announced in April by ten multilateral development banks), more than one hundred projects are in the pipeline.

Given their size and global reach, it is easy for the Bretton Woods institutions to garner all the attention. But ensuring RDBs and all actors in the international financial system are fit for purpose and aligned can bring meaningful scale, efficiency, innovation and impact.

There’s plenty of worry—but not much talk—about China’s economy

Seats in the IMF’s atrium started filling up a full forty-five minutes before the Fund’s biannual Debate on the Global Economy, with guests lining up in the back and sides for this standing-room-only event. 

The panel, which included IMF Managing Director Kristalina Georgieva, discussed the global economic outlook, lingering stress on consumers from elevated prices, liquidity challenges, and limited room for fiscal maneuvering. Without getting into politics, the speakers referenced the US election and the importance of the United States as the “anchor of the multilateral system.” In the same breath, they debated why the United States had such a proclivity for trade barriers compared to the EU’s relative openness. Why would the US be more fearful about China’s threat to its jobs and manufacturing, while European peers’ economies were actually slowing?

Part of the answer they provided was that the United States could afford to be more protectionist and isolated. I delved deep into possible US approaches to tariffs with China in conversation with former National Economic Council Deputy Director Clete Willems on Tuesday. Our conversation leaned more towards the argument that the United States, with its outsized economic weight, could use tariffs as leverage for more suitable terms of trade globally. At the same time, however, the United States needs to provide better incentives to trading partners and put market access back on the table. 

Surprisingly, in the IMF’s conversation about the outlook for global growth and major economies’ fiscal positions, one country’s domestic situation wasn’t discussed: China. According to Bloomberg calculations, based on the IMF’s own World Economic Outlook forecasts, China will be the largest contributor to global growth for the next five years. The panel’s time was limited to just an hour, of course, but it’s still puzzling why more time wasn’t spent on the world’s second-largest economy.

Dispatch from IMF-World Bank week: Gray clouds are rolling in…

Ukrainian Finance Minister Serhiy Marchenko on how his government hopes to use its new $50 billion loan

Europe must have “its own view” on trade and tariffs, says Spanish Minister of Economy Carlos Cuerpo

Irish Finance Minister Jack Chambers: The US and EU must “guard against” rising protectionism

How low-income countries fare in the flagship publications

A look at what’s behind all the talk on payments in Washington and Kazan this week

Read our earlier analysis

Dispatch from IMF-World Bank week: Gray clouds are rolling in…

“Let’s achieve inclusive growth” here, “boost green finance” there. Along 19th Street in downtown Washington DC, the familiar pageantry of the IMF-World Bank meetings is in full bloom, carrying slogans that call upon delegates and visitors to end poverty and collaborate on a bright future for the citizens of the world.

As a former IMF official, I remember the energy and optimism conveyed by this colorful redesign of the Annual Meetings a little more than a decade ago. There was a genuine belief around the world that the global powers could work together peacefully in the Bretton Woods institutions and the, at the time, relatively young Group of Twenty.

Today’s reality looks starkly different, unfortunately. Large countries seem less and less willing to put aside domestic interests in favor of the multilateral process. Autocratic countries would like to end the dollar’s dominance, and a new trade war looms on the horizon as the World Trade Organization fades into oblivion. And Western democracies themselves face populist movements for whom the values espoused by the posters in Foggy Bottom remain an ideological (and budgetary) anathema.

There is still value in holding face-to-face meetings for finance officials in Washington, of course. Quiet diplomacy may be able to avoid an escalation of problems, and an increasing focus on helping low-income countries seems to be the common denominator that still leads to meaningful policy decisions. There is intense geopolitical competition for the “Global South,” which helps facilitate agreement on issues such as the IMF’s reform of its subsidized lending policies and the World Bank’s impending replenishment of its International Development Association, for example. But these accomplishments pale in comparison with the challenges at hand.

The colorful posters that flank 19th Street are becoming a relic of times past. They stack up against a reality of record debt levels, widening inequality, and a hotter planet. There is still time to turn things around, but inside the buildings, blue-sky optimism has long given way to the gray clouds of realism.

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Ukrainian Finance Minister Serhiy Marchenko on how his government hopes to use its new $50-billion loan

During a week when the United States and its G7 partners will approve some $50 billion in loans to Ukraine backed by immobilized Russian assets, Ukrainian Finance Minister Serhiy Marchenko sat down with GeoEconomics Center Deputy Director Charles Lichfield to discuss how Kyiv hopes to use the money. 

The loan—part of the Group of Seven (G7) Extraordinary Revenue Acceleration of Ukraine announced in June this year—“helps us at least to think about some possible relief,” Marchenko said, explaining that he hopes the funds will help cover Ukraine’s current financing gap and also help with medium-term goals over the next few years. 

“There are some discussions about additional military needs,” he said, referring to the United States’ suggestion that it will devote half of its $20-billion contribution to military assistance provided it can get a new appropriation through Congress. He added that the government intends to use “at least part of this money” for reconstruction. 

On international support, Marchenko spoke about the Ukraine Recovery Conference. He said that instead of looking forward to next year’s convening in Rome, he would prefer to look back on “what we already achieved,” such as cooperation agreements and various memorandums. “We shouldn’t try to create some new vehicle in Rome,” he said. “We should track our decisions, which were made during London and Berlin, and then think about how to implement [them].” 

Watch the full event

Europe must have “its own view” on trade and tariffs, says Spanish Minister of Economy Carlos Cuerpo

“Europe has to have its own view and its own position” distinct from both the United States and China when it comes to trade and tariffs, said Carlos Cuerpo, the Spanish minister of economy, trade, and business. Cuerpo appeared at an Atlantic Council event on Thursday in conversation with GeoEconomics Center Senior Director Josh Lipsky.

Spain abstained from voting on the European Union’s decision this month to adopt tariffs on Chinese-made electric vehicles. Explaining this position, Cuerpo said Spain is “a very open economy that actually thrives thanks to multilateralism” and trade under World Trade Organization (WTO) rules. But, he added, “It’s 2024. It’s not 2004. We have to be open, but we should not be naive.” 

This approach, he said, requires protecting Europe’s strategic industries, including electric vehicles (EVs) and ensuring that Chinese EV companies “compete on a level playing field” with European ones. Stating that Beijing employs “unfair” and “asymmetric” EV subsidies, Cuerpo called for an “efficient use of the WTO as a way out of these controversies.” The need for an efficient WTO framework to resolve such disputes, he said, “has been forgotten” in the last few years.

Cuerpo also discussed the state of the Spanish economy amid lagging growth rates across the European Union. While acknowledging that structural unemployment was one of the “main challenges” for the Spanish economy, Cuerpo touted Spain’s low levels of inflation and its expected growth rate of 2.9 percent for 2024—the strongest among all advanced economies. “We expect that as our main partners do recover, we would have a tailwind going forward,” he said. 

On Spain’s role in international financial institutions, Cuerpo noted that Spain’s banks are “ready to engage and to help” in the construction of a digital euro, as well as to take part in discussions with the European Central Bank on its development. He also spoke of Spain’s initiative to expand its aid to low-income and middle-income countries in South America, which includes an increase in its contribution to the World Bank’s International Development Association fund. 

Looking ahead to the future of the International Monetary Fund and the World Bank, Cuerpo said that “we need to be bold in the way that we face what Bretton Woods institutions need for the twenty-first century.” But, citing the GeoEconomics Center’s work on a “Bretton Woods 1.5,” he added that before undertaking massive reforms, “we need intermediate steps that will help us arrive in a realistic way” at those bold objectives.

Watch the full event

Irish Finance Minister Jack Chambers: The US and EU must “guard against” rising protectionism

In a world in which deglobalization and conflict are unfolding, the world needs to reignite cooperation on trade to improve economies globally, said Irish Finance Minister Jack Chambers.  

Chambers appeared at an Atlantic Council event on Thursday in conversation with GeoEconomics Center Deputy Director Charles Lichfield.  

Earlier this month—with the EU’s investigation into Chinese subsidies for electric vehicles still underway—the European Commission voted in favor of imposing tariffs on the import of Chinese electric vehicles. Meanwhile, China has launched an anti-subsidy investigation into EU dairy products. Chambers said that it is important to “resolve [the electric vehicle] issue and indeed other issues that exist between the EU and China as it relates to trade.” 

Ireland “promotes and supports free trade between all countries, and that’s something that has underpinned our wider economic development,” Chambers said. “We need to avoid a situation where we have tit-for-tat disputes or protectionism taking hold,” he cautioned, as that would “damage” the economy. 

Trade is something that the United States and EU will need to work more closely on, Chambers said, including after the upcoming US presidential elections. The finance minister said that he is “concerned” about the “protectionist outlook taking hold” in the EU and United States. “We have to guard against that because it’s a net negative for everybody.” 

In September, the European Court of Justice ruled that Ireland had given Apple (which has its European headquarters in Cork) illegal tax breaks; Ireland is now responsible for recovering those funds from the company. The government plans to use the fourteen-billion-euro windfall to invest in infrastructure. 

“Obviously, we sought to defend a matter of interpretation on tax policy,” Chambers said. “We respect the outcome, but it was important we defended the tax policy that we had at the time.” 

In discussing whether the ruling would dissuade multinationals from investing in Ireland, Chambers touted the country’s ability to give companies stability and predictability. “We’re confident that the system that we have presently is one that gives them that stability for the future.” 

Watch the full event

How low-income countries fare in the flagship publications

Attention to developing-country issues in the IMF flagship publications is noticeably sparse at this year’s annual meetings. The World Economic Outlook offers only a limited assessment of the outlook for the swath of low-income countries that have lost ground since the COVID-19 pandemic hit in 2020, a topic I wrote about earlier this week.

The Global Financial Stability Report (GFSR), whose headline messages my colleague Hung Tran previously summarized for this blog, does detail recent trends affecting the so-called “frontier markets.” These make up the group of developing economies that before the pandemic had become the darlings of sovereign lenders like China and institutional investors because of their solid growth and seemingly bright prospects. However, many of them fell into debt distress after 2020, and their interactions with lenders and investors shifted toward difficult debt-restructuring negotiations.

The GFSR reports that there has been “significant progress” on restructuring, a conclusion that many observers might consider to be overstated given the uncertain prospects for either sustainable growth or debt sustainability in countries like Ghana, Sri Lanka, and Zambia. But at the same time, the report chronicles that frontier economies have enjoyed “strong investor risk appetite” for new international bond issues, “although yields remained high.” Indeed, some 20 percent of those countries have had to offer yields “close to 10 percent or higher” above the rates on US Treasury bonds carrying a similar maturity in order to attract those investors. The GFSR also reports that about four billion dollars of frontier economy debt will have to be repaid before the end of this year, and about thirteen billion dollars will come due in 2024 and fourteen billion dollars in 2025. Nearly 60 percent of those maturing bonds carry yields close to 10 percent or above. This hardly sounds like grounds for confidence if the global economy hits an unexpected speed bump again.

A look at what’s behind all the talk on payments in Washington and Kazan this week

Events at the annual meetings this year have a special emphasis on payments and digital public infrastructure, reflecting the burgeoning emerging market interest in developing and deploying new technologies. The public and private schedule at the IMF and the World Bank this week is chock-a-block with events on digital payments: the macroeconomic impacts of them, issues of inclusion and technological infrastructure, and the nuts and bolts of putting these technologies to use. The Group of Twenty is a welcome entrant to this payments party, as it released its progress report on the roadmap for enhancing cross-border payments on Monday. But even as Washington seems all business this week, the BRICS summit—which is simultaneously underway in Kazan, Russia—is all geopolitics when it comes to payments. 

Russian President Vladimir Putin opened the summit with an emphasis on the role of the dollar in the global financial system, saying that “the dollar is being used as a weapon.” BRICS members have stated their goal to develop an alternative payments channel to the dollar, which would allow them to continue trade and other activities. This is not a surprising proposal, considering the challenges Russia is facing as a result of the economic measures taken by the Group of Seven in response to the invasion of Ukraine in 2014 and 2022. Other BRICS members are more cautious about this announcement, looking to create short-term strategies for mutually beneficial trade relationships—such as increased invoicing in local currencies—while mulling over the long-term strategy of alternative payments channels. The BRICS members’ geopolitical interest in payments systems stands out this week, as discussions of payments systems not only encompass domestic economic considerations but also seek to address the impact on the global financial system.

Bangladesh’s finance adviser on the interim government’s reform priorities

Dispatch from IMF-World Bank Week: Solving the inclusive growth puzzle

Egyptian Finance Minister Ahmed Kouchouk on his government’s reform progress: “We’re not yet out” of economically difficult times

The number of finance ministers and central bank governors who are women is shockingly low. Here’s what that means for the economy.

A warning from the IMF: Risks to financial stability ahead threaten to expose fragilities

Christine Lagarde on European competitiveness, US tariffs, and creating a digital euro

Two new publications show emerging-market credit risk is better than previously believed

The dark end of the WEO street

Read our earlier analysis

Bangladesh’s finance adviser on the interim government’s reform priorities

Less than three months after a caretaker government assumed power in Bangladesh, the country’s finance adviser, Salehuddin Ahmed, sat down with Atlantic Council GeoEconomics Center Assistant Director Mrugank Bhusari to talk about the reforms the interim leadership is pursuing. 

Ahmed explained the interim government will be working to implement “structural” changes across the country’s institutions, banks, insurance companies, markets, and beyond. They “have to be made efficient with the proper people,” he said, “and previously there was a lack of transparency and accountability.” 

Over the long term, Ahmed said he hopes the interim government will “leave some footprint” so that the next government takes up those reforms instead of entering office and proceeding to “sweep everything under the carpet.” 

Even as the IMF is forecasting Bangladesh’s economy to grow at 5.4 percent, its forecast did get a small downgrade. Ahmed said that such a downgrade was a “logical” and “rational calculation,” considering the slowing in economic activity the country faced in the beginning of the year and as student protests swept the country in the summer. 

While Bangladesh is just about to graduate out of the group of least-developed countries, as determined by United Nations standards, Ahmed believes there’s still work to do. “I think we have done reasonably well,” he explained, “but the fruits of development, they have not gone to the people . . . because the rich have become richer. . . so we are now giving this attention,” by focusing on social development, education, and equal growth across the country. 

While the IMF-World Bank Annual Meetings are underway, leaders representing the BRICS bloc of countries—named for the core group of Brazil, Russia, India, China, and South Africa—are also meeting in Russia. Bangladesh has applied to join the bloc, and Ahmed said joining BRICS is “still valuable” because Bangladesh wants to create a wider market for its garments and other products. 

While Bangladesh is developing frameworks to process payments with Indian rupees and Chinese yuan, Ahmed said that he thinks the dollar will “be able to remain dominant.” But the country, he said, is having “some problems” making payments in dollars for a nuclear power plant Russia built in Rooppur, given that Russia has been banned from the financial messaging system SWIFT. Bangladesh decided last year to pay Russia in Chinese yuan. 

Watch the full event

Dispatch from IMF-World Bank Week: Solving the inclusive growth puzzle

It’s day three, and the annual meetings are clearly in full swing on both sides of 19th Street and across town.

The security and cafeteria lines are longer. There are fewer, if any, empty seats at the events—even as organizers put on multiple simultaneous events to absorb enthusiastic delegates and attendees.

To that end, it was a full house this morning over on 15th Street at the Atlantic Council to hear European Central Bank President Christine Lagarde’s insights on the European economy and the international financial landscape, from inflation to digital currencies to decoupling. On many things, she struck a generally sanguine, if not cautiously optimistic, tone.

That positivity ended, however, when she was presented with the number (a measly 12 percent!) of finance ministers and central bank governors who are women, which she called “abysmally small.”

As Lagarde pointed out, more diversity in leadership leads to better outcomes. But, taking a step back, improving women’s economic participation and financial inclusion across the board helps solve many of the challenges leaders are convening in Foggy Bottom to discuss. For example, more women in the labor force and in entrepreneurship increases productivity (improving growth) and boosts tax revenues (easing debt).

It’s a critical piece of the inclusive growth puzzle, along with creating opportunities for youth that can help usher in a demographic dividend. This requires better education and skilling on the supply side and generating more jobs on the demand side—and better aligning supply to demand. There’s no time to waste: 1.2 billion youth will enter the workforce in the next ten years, and only 420 million new jobs are projected (a data point repeated by World Bank President Ajay Banga again today, during a high-profile, packed-house event).

So if you’ve got a list going of issues and announcements to watch from the annual meetings, add “measures that address gender and generational inequality” right at the top.

Egyptian Finance Minister Ahmed Kouchouk on his government’s reform progress: “We’re not yet out” of economically difficult times

Seven months after the IMF agreed to increase its latest loan program with Egypt, Finance Minister Ahmed Kouchouk sat down with Racha Helwa, director of the empowerME initiative at the Atlantic Council, to talk about the deal and Egypt’s reform priorities. 

On the latest extension of the program, Kouchouk said that “usually, every program has its own nature.” This one, he explained, is directed toward helping Egypt improve its current account imbalances that arose after the pandemic and also toward helping the country improve its oversight across public spending. 

According to Reuters, the program had previously stalled amid delays to divesting public assets and increasing the role of the private sector. “I think private sector should be leading,” Kouchouk said, explaining that such an arrangement could be a solution for Egypt as it looks to increase production and growth while taking on less borrowing. “This is in the interests of everybody.” 

In February this year, Egypt signed a foreign-direct-investment deal with the United Arab Emirates to develop the area of Ras El Hekma. “The structure” of the deal “is quite good,” Kouchouk argued, because it will swap eleven billion dollars in UAE deposits at Egypt’s central bank into foreign direct investment. “This investment will give them and give us a higher rate of return, so it’s a good deal.” 

Kouchouk said that the reforms Egypt has thus far implemented, as part of its commitments, are helping support improvements in the economy. But “we’re not yet out” of economically difficult times, he said. “We still need to keep the course of reforms and to keep monitoring things.” 

Kouchouk participated in the Atlantic Council discussion shortly after a Coalition of Finance Ministers for Climate Action meeting. Before the group was formed in 2019, Kouchouk explained, he had seen many Sustainable Development Goals and other aspirations form without finance ministers in the loop—then finance ministers had to deliver the news that there was not adequate financing for those goals. 

The coalition, he said, “lets us all benefit and learn. And it’s making us deal with financing of the climate challenges . . . in a much more proactive manner.” 

Watch the full event

The number of finance ministers and central bank governors who are women is shockingly low. Here’s what that means for the economy.

This week, on the ground at the IMF-World Bank Annual Meetings, the gender gap in global economic leadership is glaringly apparent. Only twenty-two of the 191 IMF countries have women as finance ministers, and twenty-four have women as central bank governors—significantly lower than the average proportion of women in cabinet minister positions globally.

During a conversation this morning between European Central Bank (ECB) President Christine Lagarde and Atlantic Council CEO and President Frederick Kempe, our team shared research illustrating that only 12.3 percent of finance ministers and central bank governors are women. “I think it’s abysmally small and does not reflect the availability of talents and merits that many economists and macroeconomic experts and financial experts have around the world. There’s a whole pool of talent that is not tapped into . . . but it’s also a lack of diversity,” Lagarde commented.

Lagarde is the first female finance minister of a Group of Seven economy, the first woman to head the IMF, and the first female president of the ECB, so she is no stranger to the barriers women face in this field. She concluded, “We all know from having studied that and practiced it, that diversity is a source of better decision, of more stability, of better [outcomes] altogether—whether it’s in the financial sector or otherwise . . . we should learn that lesson and just do it.”

Explore the research

A warning from the IMF: Risks to financial stability ahead threaten to expose fragilities

As I wrote yesterday, the IMF’s World Economic Outlook presents a rather benign view (to quote, “stable yet underwhelming”). But its sister publication, the Global Financial Stability Report has called for policymakers to remain vigilant about medium-term risks to global financial stability. It identifies two main sources of that risk.

The first is the lofty asset valuation around the world, driven by accommodating monetary and financial conditions for too long. Indeed, the price-to-earnings ratio for the S&P 500 index—a standard measure of stock market valuation—has reached 29.6, or one standard deviation above the long-term mean of 19.26. Historically, stock markets have tended to correct when valuation gets much higher than that. Furthermore, public and private debt levels are high, as is the leveraging used by financial institutions in their portfolios. These frothy asset valuations can amplify future financial shocks.

The second is the disconnect between very heightened uncertainty generated by geopolitical rifts and low levels of measured market volatility. This disconnect could cause a surge in volatility when geopolitical conflicts materialize, catching market participants off guard and triggering disorderly market conditions.

This is a timely reminder to policymakers and financial regulators around the world to use the time immediately ahead—while many risks are still contained thanks to the economic soft landing—to strengthen the resilience of financial institutions, so as to be better prepared for future turmoil.

Christine Lagarde on European competitiveness, US tariffs, and creating a digital euro 

The role of a global reserve currency should “never be taken for granted,” said European Central Bank (ECB) President Christine Lagarde on Wednesday at an Atlantic Council Front Page event on the sidelines of the International Monetary Fund-World Bank Annual Meetings.

Lagarde addressed a host of issues facing the continent, including the European Union’s (EU’s) ambition to create a central bank digital currency (CBDC), the ECB’s efforts to keep prices stable, what Europe’s lagging economic competitiveness means for the ECB’s fight against inflation, and the outsize impacts that the next US president’s approach to trade will have on the global economy.

Below are more highlights from this conversation with Lagarde.

Read the highlights

New Atlanticist

Oct 23, 2024

Christine Lagarde on European competitiveness, US tariffs, and creating a digital euro 

By Daniel Hojnacki

The European Central Bank president discussed the European Union’s ambitions for becoming more competitive and modernizing its payments systems.

Economy & Business European Union

Two new publications show emerging-market credit risk is better than previously believed

The International Finance Corporation (IFC)—a member organization of the World Bank Group—has released two important studies, which unfortunately have been buried by the busy talks about other issues at the IMF-World Bank Annual Meetings this week.

The studies are from the Global Emerging Market Risk Database Consortium of twenty-six multilateral development banks and development financial institutions. The publications provide detailed information on credit risk in emerging markets and developing economies based on the investment experience of consortium members.

On their lending to private entities in emerging markets and developing economies, the average annual default rate is 3.56 percent—broadly aligned with many non-investment-grade companies in advanced economies; the average recovery rate is 72.2 percent—higher than many global benchmarks.

On their lending to sovereign and sovereign-guaranteed borrowers, based on forty years of experience, the average annual default rate is 1.06 percent and the average recovery rate is 94.9 percent—much better than previously assumed by many in the financial markets.

While this data reflects the unique experience of multilateral development banks and development finance institutions, it can provide useful input for the private sector’s lending and investment decisions. This is important as the world’s governments and multilateral development banks have tried hard to catalyze private capital to invest in emerging markets, developing economies, and low-income countries, especially in climate-mitigation and energy-transition efforts—to complement meager public investment efforts.

The dark end of the WEO street

Sometimes it makes sense to look at the downside. That’s certainly the case with the World Economic Outlook (WEO), whose authors always devote considerable thought to what could go wrong—and right, although the sunnier outlook always gets less attention. In the latest report, there is a lengthy box in the first chapter with the catchy title “Risk Assessment Surrounding the World Economic Outlook’s Baseline Projections,” which delves into the scenarios and “confidence bands” that give greater texture to the IMF modeling.

But for many readers, the real meat of the report from issue to issue is the section that details “risks to the outlook,” which this time around are “tilted to the downside.” Assembling the WEO is always a process of negotiation. While the IMF Research Department holds the pen, it inevitably must reflect the input and pressures from other departments, IMF management, and the always prickly membership—especially the most important governments that have their own view of how their economies should be presented. Small wonder, then, that some Fund insiders say that the most accurate view of the outlook sometimes can be found in the downside risk section.

In this WEO, most of those risks focus on systemic issues: how the recent cycle of monetary tightening might bite “more than intended,” leading to financial market repricing; intensified “sovereign debt stress” in emerging markets and developing countries; renewed “spikes” in commodity prices; increased protectionism; and a “resumption” of social unrest around the world (which, according to an accompanying chart, supposedly has subsided of late—not that most of us would notice). But one country is singled out: China. That’s because of a scenario in which the country’s already struggling property market experiences a deeper-than-expected contraction. China, of course, did the WEO authors no favor by announcing wide-ranging measures to put a floor under its housing market in the weeks leading up to the annual meetings, when the report was largely done and dusted. As much as anything else in the WEO, this risk bears close scrutiny in the coming months.

A tale of two town halls

Reading between the lines of the IMF’s World Economic Outlook

Dispatch from IMF-World Bank Week: “Stable yet underwhelming”

A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit

The Bank of England’s Megan Greene on why interest rates “will probably have to end up a bit higher” than before the pandemic

A bleak paper on the plight of low-income countries

Read our earlier analysis

A tale of two town halls

As an expert at a think tank, I registered as a representative of a civil society organization (or, as the IMF and World Bank say, “CSO”) and thus joined both IMF Managing Director Kristalina Georgieva’s town hall yesterday and World Bank President Ajay Banga’s event today. They followed the same format: opening statements from the principal followed by moderated Q&A with the in-person and online audience. Both were well attended. Both were substantive and informative. And both covered a fairly wide range of topics.

But, like the institutions themselves, they differed in style and vibe, as well as in the substance. 

On style, Georgieva and the moderator were both seated the whole time, while Banga (or Ajay, as he prefers) and his moderator were standing—he delivered his opening speech from a podium, then onstage with a handheld mic. Also notably, he introduced and engaged other executives in responding to questions, including World Bank Managing Director of Operations Anna Bjerde. Taken together, I found the Bank event more informal, candid, and inviting.

On substance, Georgieva touted progress both in the global fiscal situation and the IMF’s operations but reiterated her curtain-raiser message: “We can do better.” She said this message also applies to the extent and nature of the IMF’s engagement with civil society. Perhaps surprisingly, audience questions were limited on debt and fiscal matters, instead skewing toward “macro-critical” issues ranging from dealing with conflict and fragility to addressing climate change, and from gender to governance, even though the Fund is arguably still debating about the extent to which it should be addressing such issues. Banga focused on how he and his team are delivering towards “building a better Bank,” the charge he was given when he took the helm eighteen months ago—bringing speed and simplification to both the money and the knowledge sides of the Bank. He prioritized jobs and enabling environments and made a pitch for International Development Association (IDA) replenishment, telling governments “I need your help” in making the case for them to ante up and even increase their contributions. Questions ranged from addressing informality to operationalizing callable capital to supporting conflict-affected people and beyond.

In the end, we CSO representatives may not have heard anything new, but the commitment and level of engagement and transparency is arguably new and worth acknowledging in and of itself. And for participants like me who like to understand, compare, contrast, and ultimately influence what’s happening on both sides of 19th Street and the Bretton Woods institutions’ varying perspectives, reforms, and impacts, it was two hours very well spent.

Reading between the lines of the IMF’s World Economic Outlook 

Just hours after the IMF released its World Economic Outlook (WEO), three Atlantic Council experts sat down at IMF HQ1 to talk about the updated growth forecasts for countries worldwide and about the reforms needed to boost growth. 

Martin Mühleisen, a former IMF official, pointed out that this WEO was likely easier to write than the last couple of editions, because just before the October 2023 and April 2024 WEOs released, “big shocks”—in the form of war in the Middle East—occurred, and the IMF team had to “scramble” to incorporate how those events would impact the economy. But while this WEO may have been easier to write, it also “presents a different kind of challenge” because of the upcoming US elections, Mühleisen argued. He added that growth numbers are in a way “tentative” because the outcome of the US elections will trigger “volatility that we can’t really assess at the moment,” which could be good or bad for the global economy. 

But in the medium term, Mühleisen said, growth looks “lower than anything we had in the past,” and “trade, geopolitics, [and] inflation surprises just add to the fact that we’re probably going to see a somewhat lower trajectory on average over the next couple of years.” 

Nicole Goldin, a former consulting economist with the World Bank, pointed out that the WEO reflects “relatively stable” global growth overall, but emerging markets and developing economies are seeing low projections. Conflict is playing a role in that, as wars have a “somewhat disproportionate impact” on emerging markets and developing economies. Debt also plays a role in these low projections, she added. Hung Tran, a former IMF official, added that low-income countries falling further behind “will be a big problem socially [and] politically” for the world economy. 

While the IMF has struck a positive tone in seeing countries achieve a soft landing in the battle against inflation, Tran clarified that inflation might just be slowing because of “lower activity,” meaning that while inflation for goods has shrunk dramatically, inflation for services is sticky. That, he said, is “something that we need to keep an eye on.” 

The IMF has called for a “policy triple pivot” to protect from risks to global growth. But, Tran noted, significant reforms will be required. “The political will and the political appetite to do that simply [are] not there,” he said.  

Goldin pointed out a few policy changes that could help secure and boost global growth. One such measure is harnessing artificial intelligence (AI) to boost productivity. AI is “coming in as both the threat and the opportunity,” she said. Another change is for countries to balance punitive policies (such as tariffs and protectionist trade policies) with inducements (such as development financing) when working with other nations. Those “positive economic statecraft” tools can help “bring about the policy reforms that are needed,” she explained. 

Watch the full conversation

Dispatch from IMF-World Bank Week: “Stable yet underwhelming”

One section heading in the World Economic Outlook released by the International Monetary Fund this morning aptly sums up the mood at this year’s annual meetings: “Stable yet underwhelming . . .”

The outlook is stable as major economies have managed to engineer a soft landing with inflation slowing, labor markets proving resilient, and GDP growth at 3.2 percent this year, unchanged from the IMF’s previous estimates (although the estimate for next year was revised down a touch, to 3.2 percent). However, behind that stability is a series of revisions worth taking note of. The US growth rate has been revised upward by 0.2 percentage points (to 2.8 percent) this year, and by 0.3 percentage points (to 2.2 percent) for 2025. The WEO shows that Asia continues to be the growth engine for the global economy, with India expected to grow by 6.7 percent this year and 6.5 percent next year, followed by Vietnam at 6.1 percent in each of the next two years. China is expected to undershoot its “around 5 percent” growth target, coming in at 4.8 percent this year and slowing further to 4.5 percent in 2025.

By contrast, euro area growth has been revised downward by 0.1 percentage points (to 0.8 percent this year) and by 0.3 percentage points (to 1.2 percent) next year. Also concerning is the downward revision of low-income countries’ growth by 0.2 percentage points (to 4.0 percent) this year and by 0.4 percentage points (to 4.7 percent) next year.

The growth estimates and revisions in the WEO are indeed underwhelming, a product of uneven global recovery from the many shocks of the past few years. More importantly, the world seems set for a period of low growth, triggered by challenges such as aging populations, weak investment, and historically low production efficiency—especially if countries fail to implement significant structural reforms to improve economic performance (but even the WEO admits such reforms face strong social resistance).

But there’s a second beat to the subhead in the WEO: “Stable but underwhelming—brace for uncertain times.” That points to factors that could tilt the balance of risks to the downside, but the WEO says nothing about the elephant in the room: the outcome of the US presidential election, which could heighten turmoil in geopolitical conflicts, trade wars, and social instability in the United States—the largest shareholder of both institutions. Such developments would trigger the need for a fresh set of revisions of economic forecasts.

Putting the WEO aside, two issues that IMF Managing Director Kristalina Georgieva raised in kicking off the meetings did pique my interest, but they are drawing less attention. The first is that in facing climate change, countries should try to free up funds for the green transition by eliminating their fossil fuel subsidies—such subsidies amounted to seven trillion dollars in 2022. The second point is that countries should work together to set up AI regulations, not just to avoid the risks the technology poses but also to harness its ability to raise productivity, potentially boosting growth by 0.8 percentage points. If the IMF can get governments focused on that, it would be a great service to the Fund’s membership.

This week, our team will continue to tease out developments big and small from the annual meetings.

A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit

This week, finance ministers and central bank governors from over 190 countries will gather in Washington, DC, for the International Monetary Fund (IMF) and World Bank Annual Meetings. But there is another major economic event happening on the opposite side of the world. Leaders of the BRICS group are meeting in the Russian city of Kazan for their annual summit, with Iran’s new president, Masoud Pezeshkian, in attendance for the first time after his country officially joined the BRICS earlier this year.

Uncertainty continues to loom over Iran as Israeli officials pledge to retaliate against Tehran’s ballistic missile attack on Israel earlier this month. However, while most analysis focuses on Iran’s geopolitical objectives in the region, there has been less discussion about the severe economic constraints facing the regime. These challenges will be at the center of Iran’s priorities during its first BRICS summit. 

Read the full analysis

Econographics

Oct 22, 2024

A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit 

By Josh Lipsky, Alisha Chhangani

The reality is that Iranian President Masoud Pezeshkian will show up to the BRICS leaders meeting and look for support across the BRICS not only in the military domain, but also for his country’s economy.

Economic Sanctions Economy & Business

The Bank of England’s Megan Greene on why interest rates “will probably have to end up a bit higher” than before the pandemic

According to Megan Greene, an external member of the Bank of England’s Monetary Policy Committee, the United Kingdom’s neutral rate of interest—the rate when there is full employment and stable inflation—has “probably risen a bit.” 

“We’re not going back to the [interest] rates that we had pre-pandemic,” she said in an interview at the Atlantic Council’s IMF HQ1 studio. 

Greene, in conversation with Atlantic Council GeoEconomics Center Senior Director Josh Lipsky, said that she favors “more of a gradualist approach” to cutting interest rates in pursuit of the neutral rate of interest, commonly called “r star.” Back in August, she explained, she voted against an interest rate cut at the Bank of England based on various indications that inflation has been sticky. But the Bank voted 5-4 in favor of a cut.  

“Now that we’re in a rate-cutting cycle. . . we should remain on a cautious and gradual path,” she said. 

In September, the Monetary Policy Committee voted to hold rates steady, in part based on “uncertainty [about] what state of the world we’re in, off the back of a pandemic and a war in Europe,” she explained.  

The committee, she added, has come up with three “states of the world” to map the future of the rate-cutting cycle: 1. Inflation is coming down as inflationary shocks ease, meaning the Bank won’t need to be restrictive. 2. Inflation persists somewhat, requiring the Bank to “bear down” on inflation. 3. There have been more structural changes in the economy that require the Bank to be “more restrictive for much longer.” 

“I think it’s most likely that we’re in the second state of the world, where actually it requires monetary policy to bear down on inflation,” she said. 

On whether there is a risk that the Bank is too restrictive heading into the next vote on interest rates in November, Greene said that relative to other developed economies, the United Kingdom’s “speed limit” for how much it can grow without it being inflationary “is pretty low,” due to low investment overall that has slowed productivity growth. 

Speaking at the IMF-World Bank Annual Meetings, Greene said that the institutions are “a microcosm for a better state of the world than the one we’re living in,” with conflicts happening in Europe and the Middle East. “People from different countries do come together over really good analysis to try to support those who are most vulnerable.” 

Watch the full interview

A bleak paper on the plight of low-income countries

On a day when attention focuses on flagship publications like the World Economic Outlook and Global Financial Stability Report, it is always useful to dig into papers that will attract less attention. It’s well worth the time to read through a World Bank report on the deepening financial plight of low-income countries (LICs). Fiscal Vulnerabilities in Low-Income Countries: Evolution, Drivers, and Policies by the World Bank’s Joseph Mawejje offers a bleak view of where the world’s twenty-six poorest countries—home to 40 percent of all people living in extreme poverty—stand four years after the COVID-19 pandemic hit. The bottom line: Unlike most of the world, these nations have not rebounded from the brutal impact of the crisis on the global economy.

The study calculates that the average government debt-to-GDP ratio in these countries “increased by 9 percentage points in 2023 alone—the largest annual rise in more than two decades—to 72 percent,” driven largely by expanding fiscal deficits. Those deficits have “expanded markedly, from 1.2 percent of GDP in 2019 to 2.4 percent in 2023.” While that is relatively low compared to many advanced and middle-income economies, the LICs have much less ability to finance their deficits, especially as they have little recourse to raise money from scarce domestic sources. Instead, they try to obtain financing from abroad.

However, the study says that “net financial flows—including foreign direct investment and official aid—fell to a 14-year low in 2022,” the most recent year for which comprehensive data was available. That means these countries have to borrow, and most now are in, or at high risk of, debt distress. This underlines the importance of finding new approaches to debt relief, an issue that has vexed the IMF and World Bank for years—and is unlikely to be resolved this week.

Our experts outline what to expect from the IMF-World Bank Annual Meetings

What’s behind the IMF and World Bank’s data dance-off

Dispatch from IMF-World Bank Week: What you won’t see on the agenda, and why it matters

All eyes on China as IMF-World Bank Week gets underway

The IMF needs to find its geopolitical bearing

The IMF-World Bank Annual Meetings in 2024: Five important issues to be addressed

Our experts outline what to expect from the IMF-World Bank Annual Meetings 

On the first day of the IMF-World Bank Annual Meetings, three Atlantic Council nonresident senior fellows gathered in IMF headquarters to talk about what they’re hoping to see as the week rolls on—and to reflect on the changes that have been achieved since last year’s meetings in Marrakesh. Here are some highlights from the conversation. 

• Central banks have done a “good job . . . so far” in slowing inflation, said Martin Mühleisen, a former IMF official. Hung Tran, also a former IMF official, added that while central banks have had some success, the structural reasons behind high inflation—including geopolitical competition, economic fragmentation, and trade friction—still exist, and will “feed and keep structural inflation higher.” 

• Nicole Goldin, a former consulting economist with the World Bank, noted that prices are still high, and financial leaders will need to focus more on dealing with the fallout. “Inflation tends to impact those most vulnerable the most,” she said. 

• Tran said China’s struggle to restore its growth and recover sustainably has been a surprise, and that China’s youth unemployment problem would play a part in burdening the growth potential “for many countries, including China, for years to come.” “That needs to be a high-priority item for the IMF,” he said. 

• Mühleisen noted that over the past year, he has been struck by “the reality of much closer collaboration between different autocratic countries,” pointing to China’s support for Russia as it continues its war in Ukraine. He sees an “open competition between different camps,” adding that the United States, as a major shareholder in the IMF, will need to think about whether to freeze out countries in the autocratic bloc. In such a scenario, those countries, he explained, “will still be members,” but Western allies could “take decisions that the majority of the Western democracies take in their own interests.” 

• Goldin said that she will be watching to see whether the Bretton Woods institutions can “walk and chew gum” to concurrently address both short-term issues such as debt distress and long-term issues such as liquidity pressures in countries. Mühleisen said that he would like to see IMF shareholders “insist on more accountability” for lending programs, which have not resulted in some countries implementing reforms they committed to earlier on in negotiations. “Shareholders need to think a bit more about what teeth they can give the IMF,” he said. 

• Mühleisen expressed skepticism about whether there will be “any progress” on the matter of reforming IMF quotas in the short term. “That will drag on for some time, and as long as that is kind of on hold and not proceeding, I don’t think the IMF will be able to tackle much.” 

• Tran is watching what the IMF does to mobilize the fiscal resources needed to adapt to and mitigate climate change. He pointed to the IMF managing director’s call to eliminate fossil-fuel subsidies, which Tran said is the “right approach,” in contrast to recent efforts to mobilize private-sector resources. 

• Goldin said she’ll be watching whether the International Development Association, a mechanism of the World Bank, will be replenished and how the conversations around artificial intelligence evolve. 

Watch the full event

What’s behind the IMF and World Bank’s data dance-off

It’s opening day of the annual meetings and there seems to be a new field of (friendly) competition between the IMF and the World Bank: data. 

The Bank has evicted its swag store from the prime real estate at the atrium’s front entrance to the lower level (C1, just by the cafeteria entrance), swapping it with an interactive data exhibition complete with a supersized display of real-time indicators and statistics across its priority work areas such as gender, food and agriculture, electricity, the International Development Association, and corporate outcomes, courtesy of the Bank’s Scorecard launched at the Spring Meetings this year. There are large interactive touch screen monitors, too.

For its part, the IMF has set up a slightly less conspicuous stand on the second floor of HQ1, where it’s touting its new—and improved—portal. The updated platform consolidates data and statistics from fragmented sites across the Fund, including data.imf.org, DataMapper, the Regional Economic Outlooks, and the World Economic Outlook (WEO)—but don’t go looking for the latest WEO yet, which will be released tomorrow. The goal is that the data will be easier to find and, arguably more importantly, that it will be easier to use the Fund’s data to inform decision making, policy, and investments.

Truth be told, the IMF and World Bank’s data and research are complementary. And of course, emphasizing the importance of data and evidence is not new to either Bretton Woods institution, as both of their mandates include providing evidence-based advice, and they regularly publish statistics and analyses, research, and visualizations of their data. Both participate in data generation and data sharing initiatives. The Bank, for example, is a member of the United Nations-led Global Partnership for Sustainable Development Data, and both the Bank and the Fund are part of the Development Data Partnership along with a variety of multilaterals, international organizations, and companies.

Perhaps as multilateral reform efforts hit stride, pushing new data platforms and putting them on such display is an effort to signal or amplify to the broader development, economic, and finance communities that these institutions are even more committed to data-driven impact, open for data business, and keen to engage. As a believer in “you can’t manage what you don’t measure,” this data nerd is here for it.

PS: Check out the Atlantic Council’s Econographics for our data-driven analyses and visualizations.

Dispatch from IMF-World Bank Week: What you won’t see on the agenda, and why it matters

The world’s financial leaders are descending on Washington this week for the IMF-World Bank Annual Meetings, but one of the most important issues for the future of the global economy won’t be on the official agenda.  

While China’s economy, debt relief, and slowing inflation will all be at the top of the agenda for ministers, what everyone wants to talk about is the US election. They have good reason. The outcome will determine the trajectory on trade policy and tariffs in the world’s largest economy and may impact who is selected as the next Federal Reserve chair (Jay Powell’s term is up in 2026). It will also tell the world how the United States plans to engage—or not—in international economic collaboration over the next four years. 

There is a reason why the US Treasury’s Jay Shambaugh has been arguing (as he did at the Atlantic Council last week) that the world needs the Bretton Woods institutions—and that without them, there would be a giant “IMF-shaped vacuum” in the global economy. He’s concerned that as the institutions mark their eightieth birthday, many around the world have forgotten why they were created in the first place. 

It wasn’t only the ravages of World War II that forced the delegates in New Hampshire to build a new international financial architecture: It was also the trade wars of the 1930s, including the Smoot-Hawley Tariff Act and retaliatory tit-for-tat tariffs, which prolonged and deepened the Great Depression. 

I was in the room last week when IMF Managing Director Kristalina Georgieva, in her curtain-raiser speech ahead of the meetings, said trade was “exhibit one” of where the global economy can do better. For an institution that has a reputation for being focused on fiscal policy (the old joke is that IMF stands for “it’s mostly fiscal”), it was a telling choice. She knows, as does everyone coming to Washington this week, that the decision made by the American people on November 5 will impact every economy in the world. 

It may not be on the official agenda, but you can bet we’ll be diving into the election this week.

All eyes on China as IMF-World Bank Week gets underway

One of the many big questions looming over the IMF and World Bank this week is how they will assess China’s recent efforts to revive its sagging economy. Faced with the challenging combination of a property crisis, deflation, a mountain of local-government debt, rising youth unemployment, and plummeting business and consumer confidence, Beijing has announced a series of efforts aimed at boosting growth. But so far, those measures seem to be falling short of what is needed, as I write this week.

No doubt, many officials and analysts will be looking to Tuesday’s release of the World Economic Outlook to gauge how the IMF assesses China’s shifting policies. Last week’s curtain-raiser speech for the meetings from IMF Managing Director Kristalina Georgieva was silent on the subject, but in an interview with Reuters, she did hint at some concern about the course that Beijing is charting. She said that China’s economy has become too big for Chinese policymakers to continue relying on exports to drive growth. Instead, she said, China needs to shift toward reliance on consumption. Without such a shift, she said, China’s annual growth could fall below 4 percent in the medium term (compared with the government’s current target of “around 5 percent”). Such an outcome, Georgieva told Reuters, “is going to be very difficult for China. It’s going to be very difficult from a social standpoint.”

The most recent IMF forecast, released in May, projected 5 percent growth for China this year and 4.5 percent in 2025. But the Fund’s call for more domestic consumption, which has been a constant theme for the past decade, seems increasingly out of step with the direction of Chinese economic policy, which has been prioritizing the development of high-tech industries while brushing off criticism of rising exports.

Read more on China’s economy

New Atlanticist

Oct 21, 2024

China’s economic stimulus isn’t enough to overcome that sinking feeling

By Jeremy Mark

Local governments are struggling under large amounts of debt, the property sector is heavily burdened, and Chinese leadership is preoccupied with just keeping the economy afloat.

China Economy & Business

The IMF needs to find its geopolitical bearing

The following is an abridged version of a recent article in Econographics. Read the full version here.

At the IMF-World Bank Annual Meetings, Western delegates should think hard about how the financial and intellectual capital invested in the Bretton Woods institutions can be put to better use in the interests of democracies around the world.

The World Bank’s case is relatively straightforward (it needs more financing and efficient project implementation), while the IMF’s case is more complicated. The fund saw a major shift of its activities into climate and development lending in recent years, requiring several rounds of fundraising to increase its basic capital (or quotas) and build up trust funds to provide subsidized loans to lower-income members.

These efforts have recently borne fruit, allowing the fund to lower its lending rate for the poorest member countries. However, the IMF is increasingly running into budget constraints among its larger members, and it will need to push for better lending results. It should insist on more thorough debt restructurings before concluding programs with countries, many of which are mired in (Chinese-held) debt; some of those countries are both frequent IMF customers and known to quickly forget the promises made at the time their lending programs were concluded, spelling financial trouble. The United States and other Group of Seven (G7) countries, as the main creditors of the IMF, have the most to lose if the institution continues to extend loans that put its own balance sheet at risk.

The IMF will also need to sharpen its policy messages. Its role in economic surveillance has moved to the background in recent years, although its reports and pieces on geopolitical fragmentation (including the semi-annual World Economic Outlook) still attract interest. But the policy conclusions in those reports and policies often disappoint. For example, a recent blog post downplayed the impact that Chinese subsidies and trade practices have on strategic sectors and how those practices would provide China with advantages in a further intensification of geopolitical tensions.

The IMF’s main shareholders should therefore use the Annual Meetings to lean on the IMF to refocus its resources on where they could be most useful at this time—freeing up its excellent staff to analyze economic trends and develop useful policy solutions in an environment of geopolitical rivalry. Democratic countries around the world need its work and its independent voice more than ever.

The IMF-World Bank Annual Meetings in 2024: Five important issues to be addressed

The world’s finance ministers and central bank governors will be confronted with a very complex and difficult situation—including five important issues they must address. Despite intense geopolitical contention that has stymied international cooperation on many fronts, there is a chance that the gathering could lead to agreements to stabilize a volatile global economy. It is important such an opportunity not be missed.

1. Policy coordination to ensure a global soft landing

Major countries’ economies, including those of the United States, China, and many in Europe are in similar, negative cyclical circumstances. They share a common interest to engineer soft landings for their economies as headline inflation rates slow despite persistent services inflation, and employment growth weakens while unemployment rates rises. China has been particularly mired in deflation. Its GDP price deflator—a comprehensive measurement of price changes—has remained in negative territory for five consecutive quarters, amid a balance sheet slowdown triggered by a property sector crisis. All the major countries could benefit from coordinating their stimulative policy measures to generate positive feedback effects.

Doing so would be an opportune moment for the Group of Twenty (G20)—which will gather during the annual meetings—to deliver on their mission as the premier forum for international policy coordination. They could start by agreeing on a set of measures—such as coordinated easing moves—to ensure a soft landing for the global economy. In particular, interest rate cuts announced by major central banks, especially the US Federal Reserve (the Fed), would revive bond flows to emerging, developing economies. The IMF can play a catalytic role in this endeavor by providing analytical support for coordinated monetary easing coupled with appropriately supporting fiscal policy measures. At the same time, it should safeguard government debt sustainability where necessary. After all, a soft landing is the base case scenario in the IMF’s latest growth estimates, which show global GDP growing at 3.2 percent and CPI slowing to 5.9 percent in 2024.

Read the other four big issues on the docket

Econographics

Sep 27, 2024

The IMF-World Bank Annual Meetings in 2024: Five important issues to be addressed

By Hung Tran

Despite intense geopolitical contention that has stymied international cooperation, the October gathering could nevertheless lead to agreements to stabilize a volatile global economy.

Economy & Business International Financial Institutions

The post Get an inside look at the IMF-World Bank meetings as finance leaders navigate a geopolitically fragmented world appeared first on Atlantic Council.

As the world’s economic leaders convene at the upcoming International Monetary Fund-World Bank meetings next week, and as South Africa becomes the latest in a series of emerging markets to hold the Group of Twenty (G20) presidency starting this December, remittances should be at the forefront of discussions about the global financial system.

From large emerging market countries in the G20 to small island economies, remittances not only form a large portion of many nations’ gross domestic product (GDP), but have become the biggest source of their external financing over the last decade. In the years since the COVID-19 pandemic, even as remittance flows and household reliance on remittances have grown, the cost of sending and receiving them has remained significantly higher than World Bank and G20 targets. For some cross-border payment corridors, the cost of sending two hundred dollars is as high as one hundred dollars. And most of these costs are passed on to migrants and their households. 

There are macroeconomic factors in play when it comes to the post-pandemic volume and growth of remittances. The United States and advanced economies in Europe are the biggest sources of remittance flows into emerging markets. Sustained GDP growth and recovering labor markets in advanced economies have led to growth in the volume of remittance flows for emerging markets over the last decade.

In contrast, recessionary pressures in advanced economies, which lead to lower incomes and higher unemployment, as well as inflationary pressures, can impact the incomes of migrant workers, leading to lower remittances. Of the combined global value of $890 billion, the emerging market share of remittances is $669 billion. For these emerging market recipients, remittance flows can provide buffers for current account and fiscal deficits. This is especially crucial for economies whose remittance flows form a large portion of their GDP. 

There is an emerging bifurcation in low- and middle-income countries that receive remittance flows. Among emerging markets, India, China, Mexico, the Philippines, and Egypt together account for almost half (45 percent) of the emerging market share of global remittances. For all of these economies, remittance flows on average form less than 9 percent of their GDP. In smaller economies with limited access to international capital markets, remittances play a critical role in supporting current account balances and addressing fiscal deficits. For example, in countries such as Tonga, Tajikistan, and Lebanon, remittance flows can make up over 30 percent of GDP.

However, migrants spend a large part of their income on transaction costs, which impacts households’ ability to spend and save. Both the World Bank, through its sustainable development goals, and the G20 have attempted to address the issue of high costs. The global average cost of sending remittances stands at 6.35 percent, more than twice the sustainable development goal of 3 percent, and above the G20 target of 5 percent. Costs are below 5 percent for only 37 percent of corridors globally, and there are major regional differences, especially within emerging markets. 

Therefore, an important question for policymakers is how to reduce the costs to migrants and their families and meet the benchmarks set by the World Bank and the G20. Remittance costs are made up of transfer fees and foreign exchange costs, with fees making up three-fifths to two-thirds of costs across digital and cash channels. The type of payment channel used by senders and receivers matters for reducing costs—digital payments are typically less expensive than non-digital counterparts, with banks being the costliest way to send money across borders, and mobile operators the cheapest.  

While digitalization of remittance channels can help reduce costs, the more significant global effort, to be undertaken by the G20 and the international financial institutions, must focus on the systemic components of the cross-border payments cost structure. A few global existing examples have created the proof of concept for lowering the costs of cross-border payments: 

• The introduction of Wise (formerly TransferWise) as an institutional nonbank partner into the United Kingdom’s Faster Payments System—which primarily included banks—improved costs and speed estimates. This demonstrates that new and nonbank participants must be included in the ecosystem of cross-border payments. This can include emerging fintech companies as well to provide more options to remittance senders and receivers. 
• Project Nexus is an experiment run by the Bank for International Settlements aimed at connecting domestic payments systems that run 24/7, all through one platform. This makes possible the interoperability necessary to connect distinct domestic payments systems through regulatory and technological harmonization. These scalable models can offer a way forward to interlink countries’ domestic models. Importantly, Nexus offers transparent schemes and governance models that countries can adopt to participate in the project. 
• Retail digital assets, especially combined with easy conversion and disbursement options—such as stablecoins or central bank digital currencies—can address high transfer fees associated with remittances. Many such multicurrency tokenization projects are currently underway. But so far, these projects have not focused primarily on improving remittance payments. It would be interesting to see how a high-volume corridor like the one between the United States and Mexico is impacted by the use of digital assets for remittances.

Introducing new participants, better rules, and innovative technologies can lower remittance costs for individuals and households. Too often, the issue is that remittances are an afterthought in the development of payments systems—their cross-border quality makes them secondary to domestic financial inclusion and payments concerns. Remittances now make up one-sixth of all cross-border payments—they remain significant drivers of countries’ GDPs and geopolitically relevant, especially in a time of increasing instability. It is time that international financial institutions and domestic markets reduce the pains associated with sending and receiving them.

Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

Ananya Kumar is the deputy director, future of money at the Atlantic Council’s GeoEconomics Center.

The post Advancing a twenty-first century approach to remittances appeared first on Atlantic Council.

The post Event with Under Secretary Jay Shambaugh featured in Reuters on US Treasury urging new IMF and World Bank steps to ease liquidity strains appeared first on Atlantic Council.

The post Event with Under Secretary of the Treasury Jay Shambaugh featured in Bloomberg on US plans for providing financing to developing nations appeared first on Atlantic Council.

Replenishing the IDA would provide several economic, social, and security benefits.

In the 1950s, South Korea was one of the poorest countries in the world. It was a major recipient of concessional funding from the IDA. South Korea’s gross domestic product (GDP) per capita in 1960 was just $158, but in 2022 it was $32,254. Within a decade of receiving concessional funding, South Korea turned its economy around, became a donor to the same fund, and is now one of the richest countries in the world. South Korea’s story is a timely and powerful reminder of the transformative potential of international development.

Concessional finance works, and it benefits everyone. Decades of evidence back this. Since it was created by the World Bank, the IDA has helped lift millions out of poverty, fostered inclusive growth, increased school enrollment, expanded health services, built government capacity, and strengthened regional cooperation. The economic devastation created by the COVID-19 pandemic might feel like a thing of the past, but these funds provided life-saving support throughout those years.

And as a result, thirty-six countries have graduated out of being recipients of these funds. Many of them are now themselves donors. But despite that progress, nearly 700 million people still live in extreme poverty today, mostly in Africa. They face unprecedented challenges that the next phase of the fund—which is up for replenishment at the end of this year—can help address.

For example, these funds can help propel job creation and economic transformation. In 2012, according to the World Bank Group, the GDP per capita in Sub-Saharan Africa was $1,819. In 2022, it was $1,701. It’s been a lost decade of African growth. The next decade must be different. With appropriate funds, African countries could invest in an educated and healthy workforce, especially among women and girls, including by introducing measures that reinforce their right to determine when and how many children to have. And African countries don’t have to rely just on concessional financing: These funds can work hand in hand with the private sector arm of the World Bank to create jobs, expand markets, bring clean and affordable energy to the 600 million people who currently go without, and accelerate the digital transition.

Adapting to climate change is also a major challenge that is not contained by countries’ borders. In April, African leaders met in Kenya to discuss the next phase of the fund. Days later, heavy rains covered 80 percent of Kenya, which caused floods, landslides, and significant damage. Nearly 200,000 people were displaced. Extreme weather events like this are increasingly common, especially in Africa. And without urgent action to adapt to them, a further 130 million people could be pushed into extreme poverty by 2030. A significant replenishment of IDA would offer more support to countries to help them understand the risks of climate change, protect critical infrastructure, better prepare for crises, and hardwire adaptation into their development.

Adequate funding would also massively contribute to preventing conflict and forced displacement and creating the right incentives for peace. By 2030, nearly 60 percent of extremely poor people will be living in fragile and conflict-affected situations. These countries face overlapping crises, which are pushing forced displacement to record highs. The number of people needing humanitarian assistance has more than doubled since 2018.

This is why African leaders have called for an ambitious replenishment for IDA21. The business case is strong: This funding can leverage capital markets, which would turn every donated dollar into over three dollars of support to low-income countries. And while donor countries face many pressures, it is paramount that these contributions are seen for the strong economic, social, and security benefits they provide for everyone.

That shared responsibility extends to the recipient countries. They must make the necessary decisions (oftentimes difficult ones), implement reforms, and invest their own resources in development priorities. But the World Bank must also play its part. With each replenishment, the fund has become more complex, which has introduced heavy requirements for client countries. The World Bank is aiming to reverse that trend, by shifting our incentives from the loans and money we provide to the development outcomes we can help achieve, to reach the most marginalized people and to ensure that every single dollar goes as far as possible.

Abdoul Salam Bello is a nonresident senior fellow at the Atlantic Council’s Africa Center and executive director of Africa Group II at the World Bank Group board of directors, where he represents twenty-three African countries.

Vel Gnanendran is the executive director of the World Bank Group representing the United Kingdom.

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

Learn more

The post The days of multilateralism are not behind us appeared first on Atlantic Council.

Introduction
Honduras’s business climate in context
A roadmap to improving the business climate in Honduras
Conclusion
Acknowledgements
About the authors
Central America Task Force members

Introduction

Honduras, situated in the heart of Central America, stands at a pivotal juncture in its political, economic, and social development. The country has faced numerous challenges over the past decades, from political instability and economic volatility to social unrest and pervasive corruption. However, the political shift marked by the election of Xiomara Castro, the first female president of Honduras, raised expectations for long-awaited reforms.

Castro’s administration began with a focus to tackle corruption, improve governance and the investment climate, and address inequalities. Despite these initiatives, her reforms have faced various levels of success and resistance, with her pledge to establish the International Commission against Corruption and Impunity in Honduras (CICIH) still unfulfilled.¹ Recent events have emphasized the urgency for President Castro to act against corruption. Her controversial decision to end the long-standing extradition treaty between Honduras and the US has sparked widespread debate within the country and internationally, weakening the fight against organized crime.² Castro’s stance has been further shaken by the release of a video that led to the resignation of her brother-in-law, who served as the Secretary of the National Congress, and her nephew, who held the position of Minister of Defense.³ As of early September, Castro is under pressure to resign amidst public demonstrations.⁴ This scandal has raised serious concerns both at home and abroad regarding the extent of corruption and the pervasive influence of drug networks in Honduras’s political sphere. These events highlight the necessity for effective measures to combat drug trafficking and regulate electoral campaign financing.

From a broader macroeconomic perspective, Honduras is intricately linked to the wider regional dynamics of Central America. As part of Northern Central America, alongside Guatemala and El Salvador, Central America’s second largest country also grapples with the intertwined issues of unemployment, poverty, violence, and migration. The sub-region faces common struggles against organized crime and corruption, which significantly impacts the economic and social fabric of each nation. Additionally, the Honduran economy’s heavy reliance on remittances —over a quarter of the gross domestic product⁵—primarily from the United States, introduces vulnerability to changes in domestic US policy and economic fluctuations. Compounding these challenges, climate change exacerbates natural disasters like hurricanes and droughts, further straining Honduras’ social conditions, economic resources, and infrastructure.

One of the most significant geopolitical shifts under Castro’s administration was the decision to switch diplomatic recognition from Taiwan to China. This move—not totally unexpected from Castro’s campaign⁶—was seen as a way to explore new opportunities for foreign investment, trade, and infrastructure development, potentially impacting Honduras’s economic landscape. However, it has also brought challenges, including putting at stake Honduras’s long-standing relationships with allies and partners in the Western Hemisphere, and ensuring that any new partnerships translate into tangible benefits for the Honduran population.

Additionally, Honduras continues to face severe energy challenges that impede economic growth and development. Frequent power rationing, driven by inadequate investment in transmission and distribution systems, coupled with the failure to increase grid capacity, highlights the urgent need for competitive tenders and investment in firm power generation. This investment is crucial not only for addressing current energy deficits, but also for unlocking the country’s future energy potential. Furthermore, significant fiscal challenges exacerbate the problem. The state-owned energy company, ENEE, accumulated a staggering overall debt of approximately $4.29 billion by May 2024,⁷with an estimated $75 million owed to the private sector.⁸ These financial issues are an additional strain to Honduras’s energy infrastructure and underscore the need for comprehensive reforms to stabilize the energy sector and the broader economy. Addressing these energy challenges is critical not only for promoting economic and fiscal stability but also for improving the overall quality of life for Hondurans.

While overcoming these domestic challenges remains crucial, Honduras is at a critical moment where global economic trends, such as nearshoring, offer promising opportunities for growth. As companies seek to relocate their manufacturing and services closer to North American markets, Honduras could potentially become a key player in regional supply chains. By leveraging its strategic location, improving infrastructure, enhancing workforce skills through education and vocational training, and providing legal certainty in-country, Honduras could be an attractive destination for nearshoring and foreign investments. Próspera has been held up as an example of this potential.A private city and special economic zone on Honduras’s Roatan Island, it was designed to operate under its own fiscal, regulatory, and legal framework. Próspera aimed to attract foreign direct investment and drive economic development,⁹though the future of Próspera and Próspera-like enterprises remains in “limbo” after Castro repealed, in her first days in office, the Special Economic Zone law.¹⁰ This move has raised concerns among international investors and US lawmakers, including Senators Cardin and Hagerty, who have emphasized the importance of respecting existing investments and maintaining a stable and predictable business environment in Honduras.¹¹

In this context, for over a year, members of the Atlantic Council’s Central America Task Force (CATF)—a nonpartisan, high-level group of leaders from government, business, and civil society mostly from El Salvador, Guatemala, and Honduras—set out to provide independent analysis and recommendations on how to accelerate business confidence in Honduras. This roadmap—the first of a two-part series by the Atlantic Council’s Adrienne Arsht Latin America Center and DT Institute—focuses on pragmatic recommendations specifically tailored to Honduras, to assist in tackling corruption and strengthening business confidence. In close collaboration and through repeated consultations with the CATF, this brief explores core issues facing Honduras and outlines actionable recommendations for the public and private sectors to undertake to improve the country’s business climate.

Honduras’s business climate in context

Honduras possesses numerous attributes that appeal to both local and global investors, including its strategic proximity to US markets, favorable legal protections, and low tariffs facilitated by the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), abundant natural resources, and productive agricultural sectors. However, the investment landscape is marred by persistent uncertainties stemming from corruption, legal domestic and international inconsistencies, costly and unreliable energy supply, bureaucratic hurdles in licensing and permitting, and deteriorating infrastructure, all of which pose significant obstacles to enterprises across the spectrum. According to the International Monetary Fund (IMF), Honduran real gross domestic product (GDP) grew by 4 percent in 2022—nearly identical to Guatemala’s 4.1 percent growth and 1.2 percentage points above neighboring El Salvador’s—and is estimated to grow by 3.6 percent by the end of 2024, marginally outperforming Guatemala, and El Salvador by 0.1 and 0.6 percent, respectively.¹²

President Castro’s administration has proposed an ambitious agenda for the “refoundation” of the country,¹³ purportedly targeting systemic corruption and advocating for the introduction of an inclusive economic framework. However, little progress or change has happened, mostly due to institutional uncertainties in the Legislative Branch, the rapid pace of legislative and regulatory changes, coupled with a narrative that often blames the private sector for societal woes¹⁴have fostered an atmosphere of unpredictability, resulting in diminished private investment and job opportunities.¹⁵

Lack of public-and private-sector coordination

While the Castro administration has publicly acknowledged the importance of foreign direct investment for generating opportunities, job creation, and economic expansion,¹⁶conflicting views within the government about the private sector’s contribution to national welfare have created uncertainty. This inconsistency has raised concerns among Honduran businesses regarding the administration’s commitment to fostering a stable and conducive investment environment. One example was the introduction of the Tax Justice Law bill, which was presented to Congress without consultation with the private sector. Introduced in April 2023, the reform bill sought to overhaul the tax system by introducing progressive tax principles, transitioning from territorial to worldwide income taxation, and eliminating the possibility of forgiving tax debts, among other reforms.¹⁷ The lack of dialogue with the business community for this proposal was seen as detrimental because it undermined the private sector’s confidence in the government’s willingness to collaborate on policies that directly affect their operations.
Additionally, the international investment community has echoed such uncertainty. The US State Department’s 2023 Investment Climate Statements on Honduras highlight that US businesses believe the administration’s policies have weakened Honduras’s appeal as an investment destination relative to its Central American neighbors.¹⁸ For instance, the repeal of the hourly employment law in April 2022, which eliminated flexible hiring practices essential for seasonal and part-time workers,¹⁹is one policy decision that raised concerns about the country’s attractiveness for investment. which raised concerns about potential expropriation risks if power-purchasing agreements could not be renegotiated, further damaged investor confidence. Although the government has renegotiated eighteen contracts,²⁰these are still “stuck” and pending approval from the National Congress. This reform has not only discouraged private investment but also limited the commercial sector’s ability to privately contract energy, leaving economic growth dependent on the pace and capacity of ENEE.

To address these issues, fostering a consistent and robust dialogue between the public and private sectors is essential. Such engagement would help harmonize policies, build mutual trust, and create a more stable and attractive investment environment in Honduras.

Cumbersome and costly regulatory environment

Honduras’s regulatory environment is characterized by complexity and inefficiency, creating challenges for businesses, and hindering economic growth. The country’s regulatory framework is often burdensome, with numerous bureaucratic procedures and regulations that businesses must navigate to operate legally. Starting a business in Honduras involves multiple steps, taking an average of forty-two days to complete, and incurs high costs equivalent to 28.1 percent of per capita GDP.²¹Additionally, obtaining business licenses and permits can be time-consuming and costly due to excessive red tape and administrative hurdles. Cumbersome customs procedures and trade regulations further exacerbate the challenges, impeding the smooth flow of goods and increasing business transaction costs.

These regulatory barriers contribute to a lack of competitiveness, stifling innovation and entrepreneurship while deterring foreign investment. Simplifying regulations, streamlining administrative processes, and enhancing transparency and accountability in regulatory enforcement are essential steps to alleviate the burden of the regulatory environment and foster a more conducive business climate in Honduras.

Issues with the rule of law

Honduras’s rule of law faces significant challenges marked by weak governance, widespread corruption, and limited access to justice. The country struggles with institutional fragility, where political interference often undermines the independence of the judiciary and law enforcement agencies. Corruption is pervasive across various sectors, hindering accountability and eroding public trust in government institutions. Furthermore, the recent denunciation of the extradition agreement between the US and Honduras is a major setback in the fight against drug trafficking.²²It undermines previous efforts to decrease high levels of violence, organized crime, and gang violence. It also poses significant threats to citizen security and the rule of law.

As mentioned in a previous Atlantic Council report, civil service reform and “debloating” the government payroll is essential to combat corruption.²³ Such reforms can help professionalize the public sector and create a merit-based system that rewards competence and performance. Reforms in civil service can attract top talent and establish a permanent core bureaucracy to ensure long-term continuity for institutional and economic policy, as well as insulate key government functions from undue political influence.

Despite facing challenges, ongoing efforts persist in addressing the fragility of the rule of law in Honduras. One notable initiative is the Justice, Human Rights, and Security Strengthening Activity (Unidos por la Justicia), launched by the US Agency for International Development (USAID) in 2016.²⁴ This project aims to enact institutional reforms, enhance access to justice and civil society, bolster law enforcement, and empower women to combat gender-based violence. Furthermore, the Biden administration committed US$4 billion²⁵over four years to combat crime, poverty, and corruption in Honduras, as well as in neighboring countries El Salvador and Guatemala, under a plan titled US Strategy for Addressing the Root Causes of Migration in Central America.²⁶ Since 2021, the root causes strategy has attempted to address the underlying drivers of irregular migration from Central America. The United States government assistance has been directed toward generating over 90,000 jobs and providing $179 million in financing for micro and small businesses. Additionally, investments totaling over $4 billion have been committed to strengthen economic security, enhance food security for over 275,000 individuals, and provide education and vocational training for thousands of youths,²⁷though it is important to note that many of these initiatives were already underway prior to the strategy’s launch. While this initiative has aimed to mitigate migration pressures, it has been criticized for its approach. A year after the strategy was launched, Marisa Limón Garza, deputy director at the Hope Border Institute, pointed out that while the administration has taken positive steps, outdated deterrence tactics and the lack of humanitarian approaches toward rising migration hinder broader reform efforts.²⁸ Furthermore, critics have expressed concerns that the strategy’s emphasis on financial aid lacks clear accountability mechanisms to address immigration pull factors directly, as well as measurable targets to ensure long-term results rather than mere temporary relief.²⁹

Infrastructure challenges

Honduras still lacks key elements of physical infrastructure to capitalize on opportunities for trade and investment. The country’s expensive and unreliable energy, inadequate public utilities, and e-government digital systems present some of the greatest obstacles to private-sector development and investment.

Improving Honduras’s energy sector is crucial for reducing costs and enhancing reliability, which are vital for business operations. Chronic issues such as energy shortages and high costs persist, particularly in rural areas where electrification rates are lowest (more than one in four households lack access to electricity).³⁰ Daily blackouts are common; as of June 2023, the Honduran government started to implement scheduled blackouts to ration electricity throughout the country.³¹ In 2023, electricity losses were estimated to be as high as 37.7 percent of total production, increasing the National Electricity Company’s debt to approximately US$4.17 billion³² compared to US$3.4 billion in 2020.³³ Despite efforts to increase installed capacity and meet growing demand, transmission and distribution losses remain high due to theft and illegal connections. As a result of energy losses, many firms resort to owning generators to mitigate the effects of unreliable electricity supply. However, these generators contribute to operational costs and indicate shortcomings in the public utility’s service provision.

Furthermore, ENEE’s mounting debt to private generators has created significant challenges. The government’s failure to make payments has destabilized these companies financially, forcing them to seek additional financing to keep their operations running and continue supplying energy. Génesis Rodezno, Executive Director of the Honduran Association of Electric Power Producers (AHPEE), has highlighted that ENNE’s failure to pay on time increases the cost of credits provided by private banks, putting at risk the survival of these companies.³⁴ In turn, this financial instability threatens the country’s overall energy supply. Thus, addressing inefficiencies in the electricity sector is essential for promoting business growth and economic development in Honduras, requiring comprehensive reforms to enhance infrastructure, reduce losses, and improve service quality.

A lack of digital infrastructure has long impacted the country’s ability to partially or fully digitalize, leading to limited access to information and public services, particularly for people living in remote areas. According to the United Nations’ E-Government Development Index, Honduras ranks second to last in the Americas in terms of using information technologies to promote access and inclusion of its people.³⁵ These low levels of digitization result in a lack of transparency and accountability by impeding access to information, increasing the risk of errors, and limiting the ability to track government actions effectively, making it more difficult to detect and prevent corrupt practices. Importantly, a lack of digital infrastructure makes it more difficult for local and international businesses to access information, communicate with customers and suppliers, and conduct financial transactions. According to the UN Conference on Trade and Development’s B2C E-commerce Index, which measures an economy’s preparedness to support online shopping, Honduras ranks 98 out of 152 countries surveyed.³⁶

Human capital

Honduras faces significant challenges related to human capital, including limited access to quality education, skills gaps in the workforce, and elevated levels of informality. The country’s education system struggles with inadequate funding, infrastructure, and teacher training, resulting in low educational attainment levels and a lack of necessary skills in the workforce. This hinders productivity and innovation, limiting economic growth and development opportunities. Furthermore, a substantial portion of the workforce operates in the informal sector—which today accounts for a significant portion of the country’s economic activity, estimated at around 70 percent of total employment—lacking access to social protections and training opportunities, exacerbating inequalities, and perpetuating poverty. Additionally, brain drain remains a concern, with skilled workers often seeking opportunities abroad due to limited prospects and economic instability at home. Addressing these human capital challenges requires investment in education and vocational training programs, as well as policies to promote formal employment and create pathways for skills development and retention. By prioritizing human capital development, Honduras can unlock its potential for sustainable growth and prosperity.

Notwithstanding these five types of challenges, Honduras presents lucrative business prospects, attracting continued interest from multinational corporations.

A roadmap to improving the business climate in Honduras

The Central America Task Force set out to discuss and define how the United States can work with Honduras and other Northern Central American countries to accelerate business confidence and promote greater economic development and investments while best supporting Honduras in combating corruption and strengthening the rule of law. The Task Force’s recommendations pursue three broad objectives. First, they seek to improve public-private coordination to enhance investor confidence. Second, the recommendations identify areas where rule of law, judicial framework, and human capital can enhance Honduras’s business climate. Finally, the recommendations aim to position the United States to partner with an increasingly prosperous and capable Honduras to advance mutual economic and geopolitical interests.

Improving governance and the rule of law

Ensuring electoral integrity is an essential first step to strengthen political trust and ensure a level playing field for businesses. If former President Juan Orlando Hernandez’s trial taught Honduras anything, it was that the country needs to strengthen its laws around electoral procedures: US prosecutors allege that Hernandez took approximately US$1 million in bribes to finance both his 2013 and 2017 presidential campaigns.⁴⁰ In 2025, Honduras will hold general elections, underscoring the urgency of introducing regulations on party finances and new laws that would allow for cooperation agreements with individuals under criminal investigation. This practice to confront illicit campaign financing, which is commonly used in the United States, was a key factor in the successful prosecution of major corruption cases by the now-defunct International Commission against Impunity in Guatemala (CICIG).⁴¹ By leveraging testimony from lower-level participants, CICIG was able to go after high-level corrupt individuals such as politicians, former military officials, and businesspeople, although there is controversy around the reach of the CICIG. Nevertheless, while CICIG was able to expose several criminal networks, its relative success was mixed as it often faced criticism for excessive zeal in criticizing judges and uneven management of its cases. While not a perfect instrument, CICIG stands as a potential model for countries struggling with entrenched corruption, and many lessons could be learned from its existence.

To solidify short-term wins into long-term gains in strengthening the rule of law, the Honduran government should continue to enact civil service reforms that promote transparency, accountability, and merit-based hiring practices. This could include the establishment of an independent civil service commission that oversees hiring, promotions, and dismissals. For example, the Special Law on the Organization and Functioning of the Nominating Board for the Proposal of Candidates for Magistrates of the Supreme Court of Justice, passed in July 2022, was a welcome reform that seeks to limit external interference in the selection of magistrates.⁴² The Honduran government should also invest in training and capacity building for civil servants with the help of USAID to ensure they have the skills and knowledge necessary to perform their duties effectively. Accumulating human capital and skills within the civil service is difficult, as only 20 percent of workers are part of career civil service while the remaining 80 percent are temporary contractors with high turnover rates.⁴³ Resuming the School of High Public Management project, created on 2018 by the Council of Ministers’ Decree PCM-19-2018, would be a positive step toward addressing this challenge. This initiative, which was supported by the Honduran government and the European Union, aimed to improve high-ranking public officials’ leadership skills, understanding of public administration and ability to optimize state resources.⁴⁴ By fostering a results-based management culture and promoting accountability, it could contribute to addressing the civil service’s existing challenges. Finally, the government should also provide incentives for civil servants to report corruption and protect whistleblowers from retaliation.

Finally, the growing awareness of responsible business conduct (RBC) in Honduras presents an opportunity to promote transparency and responsible practices within the private sector in the long term. Organizations like the Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) are crucial in providing training and support to businesses, especially small and medium-sized enterprises (SMEs), to engage in responsible practices. FUNDAHRSE’s initiative, offering the “Corporate Social Responsibility Enterprise” seal, incentivizes exemplary conduct in areas such as health, education, environment, ethics, employment, and marketing. To further encourage RBC adoption, policymakers can collaborate with FUNDAHRSE to expand its reach and support programs that promote responsible business practices across all sectors. This partnership can enhance Honduras’s business climate, fostering trust and sustainability in the long term.

Improving public-and private-sector engagement, coordination, and policy development

Promoting consensus and coordination between the government, private sector, and civil society is essential for creating a stable and predictable investment climate in Honduras. Collaboration among stakeholders can help identify common goals, address concerns, and develop effective policies and strategies to promote economic growth and development.

The first step to achieving greater public- and private- sector engagement is to establish a public-private dialogue platform. This structured platform would promote periodic dialogue between public- and private-sector representatives and should be facilitated by the government in collaboration with business associations like the Consejo Hondureno de la Empresa Privada (COHEP), local commerce and industry chambers, and civil society organizations. The United States, through several agencies and the American Chambers of Commerce, should also participate as a representative of US businesses operating in Honduras.

The implementation of such a platform has been hindered by historical mistrust, bureaucratic inertia, and competing interests. Such dialogues have occurred in the past, oftentimes on an ad hoc basis, with the last one having occurred in early 2024 after demands from the country’s private sector.⁴⁵ To overcome these barriers and fragmented efforts to convene such dialogues, an institutionalized platform would provide a formal avenue for stakeholders to discuss key economic issues, exchange information, and address concerns openly and constructively. Importantly, this dialogue would serve as a forum for enhancing transparency and inclusivity in the policymaking process. For example, the Tax Justice bill in Honduras, first presented to Congress by President Castro’s administration, sounded the alarm among business leaders, who feared that it could discourage foreign investment.⁴⁶ Adding to the obstacles posed by the controversial legislation is Honduras’s withdrawal from the International Center for Settlement of Investment Disputes (ICSID), which also threatens foreign investment.⁴⁷ A public-private dialogue would allow private-sector stakeholders to voice these concerns and find pathways to inform policies that would encourage rather than discourage domestic and foreign investors. By involving stakeholders in the decision-making process, the government can gain valuable insights, build support for reforms, and foster a sense of ownership over policy outcomes.

Through this dialogue, Honduran policymakers and private-sector leaders can establish a minimum common agenda aimed at accelerating the country’s economic development. Here, Honduras can replicate Guatemala’s “Guatemala Moving Forward” plan—an interagency and multisectoral cooperation agreement that establishes a roadmap to attract more foreign investment and improve conditions for the Guatemalan economy. Important to its success was political will across administrations (the plan was introduced under former President Alejandro Giammattei’s administration and later adopted by President Bernardo Arevalo). Here, the US government, through its Central America Forward initiative, has already introduced a Business-Enabling Action Plan as part of its lines of effort, which could narrow down some of the focus areas for the minimum common agenda to build from.

As part of the public-private dialogue’s mandate, the Honduran government, in collaboration with private-sector stakeholders, should establish a dedicated fund for financing development-project feasibility studies and economic landscape-mapping exercises. The fund should be governed by a board of directors comprising representatives across the government, private sector, and civil society, ensuring transparency and accountability in fund management. Feasibility studies and mapping exercises should be prioritized by their potential to drive economic growth, create jobs, and address key development challenges in Honduras. Here, international financial institutions and development banks can be crucial partners for raising capital and providing technical expertise. For example, the International Finance Corporation published in 2022 its Country Private Sector Diagnostic (CPSD) report for Honduras, which identified agribusiness, manufacturing, business process outsourcing (BPO), and digital financial services (DFS) for micro, small, and medium-sized enterprises (MSMEs) as sectors where the business community, through government support, can unlock greater investment potential.⁴⁸ Doubling down on these studies, the fund would finance additional economic landscape studies like this one to identify areas for business climate improvement and delineate implementation schemes.

Streamlining government processes

Honduras faces significant challenges in its business environment, characterized by complex regulatory processes, bureaucratic inefficiencies, issues with public procurement, and barriers to entry for entrepreneurs. To foster economic growth and attract investment, Honduras must streamline government processes and enhance its regulatory environment.

First, the government, alongside business councils, should undertake a comprehensive review of the Honduran regulatory framework to identify redundant, outdated, or overly burdensome regulations that impede business operations. Honduras should, therefore, enhance transparency in government procedures and transactions. It should do so by widely implementing anonymous reporting channels, which have the potential to enhance the delivery of public services and increase responsiveness to citizen needs. This is especially crucial within the judicial system, where improving transparency can play a pivotal role in reducing impunity and enhancing overall judicial outcomes.

Additionally, the government should prioritize the modernization of regulatory processes through the adoption of digital technologies, automation, and online platforms to streamline administrative procedures and reduce bureaucratic red tape. Here, USAID can encourage the development of strategic blueprints for digital governance, electronic services, and cybersecurity, specifically. With the help of other development agencies, USAID can assist in policy formulation and enhancing institutional capabilities, including collaborating with donors like the Inter-American Development Bank (IDB) and the Government of South Korea on digital transformation initiatives to advance transparency and interoperability among government bodies; and facilitating knowledge sharing and the dissemination of successful practices with governments that have effectively implemented comprehensive digital transformation strategies, like Brazil.

Honduras must also strengthen its institutional capacity for public procurement. Such capacities must include the development of specialized procurement units in government agencies, the establishment of procurement training programs for procurement officials, and the recruitment and retention of qualified procurement staff, the government, and civil society. Additionally, the use of electronic procurement systems, online bidding, and e-procurement portals would help to streamline the procurement process, reduce the risk of fraud and corruption, and increase competition among suppliers. Lastly, an independent procurement oversight body that contemplates the development of a complaints and appeals mechanism and the implementation of anti-corruption measures in line with the broader anti-corruption agenda could help improve the perception of doing business in Honduras.

Addressing infrastructure challenges: energy, transport, and logistics

Infrastructure development is critical for supporting economic growth and attracting investment in Honduras. However, the country faces significant challenges, including inadequate transportation networks, unreliable energy supply, and lackluster digital infrastructure. Addressing these infrastructure deficits requires concerted efforts to invest in upgrading existing infrastructure and developing new projects to meet the needs of businesses and communities.

One area ripe for infrastructure investment is transportation networks, including roads, ports, and airports. Improving road connectivity within Honduras and its neighboring countries can reduce transportation costs, facilitate trade, and stimulate economic activity. For example, Honduran policymakers could prioritize investments in key transportation corridors such as the central, south, and west corridors which connect major urban centers and industrial zones. Additionally, upgrading ports and airports to handle increased trade volumes would complement these efforts by enhancing intraregional connectivity and supporting overall economic growth. Drawing inspiration from Colombia’s example, the 4G Road Infrastructure Program, which has been credited with boosting trade and reducing transportation costs, Honduras could adopt a similar model by engaging in public-private partnerships (PPPs) to finance and manage large-scale projects. Furthermore, upgrading critical infrastructure such as the Port of Cortés and the Ramón Villeda Morales International Airport would improve logistics initiatives and support Honduras’s growing trade needs.

Another critical infrastructure challenge is unreliable energy supply, which poses significant barriers to business operations and investment. Honduras has struggled with high electricity costs and frequent power outages, which negatively impact productivity and competitiveness. To address this issue, the government should implement comprehensive reforms in the energy sector, including promoting private-sector participation, diversifying energy sources, and enhancing grid reliability. On this last point, Honduras should invest in modernizing the electrical grid and its national energy company, ENEE, to improve reliability and reduce outages. This involves upgrading transmission and distribution infrastructure and integrating smart grid technologies. Notably, this has been a focus of the current government, which has allocated 16 percent of public investment- amounting to $232 million- towards these efforts.

In today’s digital age, robust digital infrastructure is crucial for economic development. Honduras lags in digital connectivity, which hampers business efficiency and access to global markets. Investing in digital infrastructure, including expanding broadband access, and enhancing mobile network coverage, is imperative. South Korea’s transformation into a global technology leader was driven by substantial investments in digital infrastructure and education. The country prioritized widespread high-speed internet access and fostered a culture of innovation. Honduras can take similar steps by collaborating with private telecom companies to expand broadband access, particularly in rural areas, and by promoting digital literacy programs to ensure the workforce can effectively utilize digital tools.

By prioritizing investments in transportation, energy, and digital infrastructure, Honduras can create a more conducive environment for business and attract greater investment. These infrastructure improvements are not just about physical assets; they lay the groundwork for enhancing human capital. With better connectivity, reliable energy, and access to digital resources, the Honduran workforce can gain the skills and knowledge necessary to thrive in a competitive global market.

Human capital development

Investing in human capital development is crucial for building a skilled workforce capable of driving economic growth and innovation. The future of Honduran business competitiveness is directly tied to the quality and skills of the current and incoming workforce. However, many entry-level employees lack essential skills for workplace success. The gap between private-sector demands and educational offerings has resulted in systems ill-prepared to meet evolving needs.

Solving this issue involves investing in education and vocational training programs to equip workers with the skills and knowledge needed to succeed in a rapidly evolving economy. This can be managed with a two-pronged approach. On the public-sector side, Honduras should better use the resources allocated toward its education⁴⁹sector to modernize school infrastructure, improve instructor quality and pay, and prepare students for their future endeavors. On the other hand, private-sector organizations, both domestic and foreign, should institutionalize partnerships with vocational training programs to outline the exact skills they are looking for in potential employees, so that training centers can better prepare their students. By prioritizing investments in education, capacity building, and digital-skills development, Honduras can lay the foundation for sustainable development and attract greater investment in key sectors, such as technology, agriculture, and renewable energy.

COVID-19 spurred a digital learning surge, yet national primary and secondary curricula lack digital literacy, a crucial skill for navigating online platforms safely and effectively. The Ministry of Education initiated the National Digital Education Transformation Program (PNTED) in 2020 to bridge the digital gap.⁵⁰ However, PNTED does not include strategies for digital literacy implementation in primary and secondary education. Here, the Ministry of Education should spearhead a campaign to embed digital literacy into the national curriculum. This inclusion can mitigate online risks, enhance economic prospects, and align with the PNTED goals. USAID and partners can aid the Ministry of Education by offering technical support, such as aligning digital literacy standards across education levels, enhancing monitoring capabilities for digital platforms, and integrating cybersafety training into the education curriculum. This concerted effort would ensure that students and educators are equipped with essential skills for the digital age.

Conclusion

While Honduras boasts attractive attributes for investors, such as proximity to US markets, persistent challenges hinder its business climate. Corruption, legal inconsistencies, energy supply issues, bureaucratic hurdles, and infrastructure deficiencies deter potential investments. Under President Xiomara Castro’s administration, recent decisions- such as ending the extradition treaty with the United States- have sparked debate about the country’s approach to tacking corruption and strengthening governance, which are key for fostering a more favorable business environment. This situation highlights the need for concrete action to restore confidence in the government’s commitment to reform.

To prevent further deterring investment, enhancing coordination between the public and private sectors is essential. Strengthening governance, improving infrastructure, enhancing human capital, and combating corruption are crucial. Implementing a public-private dialogue platform, streamlining regulations, and investing in education and vocational training can foster economic growth.

Additionally, addressing infrastructure deficits, promoting electoral integrity, and embracing responsible business conduct are essential steps. Collaboration with international partners, like the United States, can provide support and expertise in these endeavors. By addressing these challenges and implementing strategic reforms, Honduras can unlock its potential for sustainable growth and prosperity, attracting greater investment and fostering a conducive business environment.

While Honduras faces significant challenges, there are also immense opportunities for growth and development. By implementing the recommendations outlined in this brief, Honduras can enhance its business climate, attract greater investment, and pave the way for a prosperous future.

Acknowledgements

This roadmap is the first of two as part of the work of the Adrienne Arsht Latin America Center’s Central America Task Force (members listed below), a high-level group of policymakers, business leaders, and civil society from northern Central America that seeks to create a basis for consensus and galvanize support for strengthening the rule of law and mitigating corruption, increasing productivity and enabling sustainable economic development, and reducing conflict in Guatemala, Honduras, and El Salvador. Thank you to Jason Marczak, vice president and senior director for the Adrienne Arsht Latin America Center, for his guidance on this publication, as well as the Atlantic Council’s editorial team. A special mention to Kelsey Page, associate director, communications and editorial at AALAC, and AALAC’s young global professional, Isabella Palacios, for helping bring this publication to the finish line. This publication was produced with the generous financial support of DT Institute. Thank you to DT Institute for their insights and collaboration.

Staff

María Fernanda Bozmoski

Director, Impact and Operations and Lead for Central America

Adrienne Arsht Latin America Center

Northern Triangle

Former staff

Eva Lardizábal

Former Assistant Director

Adrienne Arsht Latin America Center

Coronavirus Inclusive Growth

María Fernanda Bozmoski is deputy director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she leads the Center’s work on Mexico, USMCA, and Central America. Bozmoski has co-led the Center’s Central America Task Force, managed the Center’s trade portfolio, and programmed events in Asia for US policymakers. Before joining the Atlantic Council, Bozmoski worked at the Cato Institute, the Council of the Americas, and completed an externship at the Inter-American Dialogue. She speaks native Spanish, English, and French, fluent Italian, and near fluent Portuguese.

Eva Lardizábal was an assistant director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she focused on regional economic development and prosperity, Central America, and the rule of law. Lardizábal authored the center’s biweekly Aviso LatAm newsletter and frequently organized policy dialogues with high-level government officials, business leaders, and civil-society members across the United States and Latin America. Prior to joining the Atlantic Council, she worked at the Think Tanks and Civil Societies Program and the Organization of American States. Originally from Honduras, Lardizábal holds a bachelor’s degree in political science and Latin American studies from the University of Pennsylvania.

El Salvador 
Co-chair: Johanna Hill* (Co-chair for El Salvador until her appointment to the WTO)
Maria Eugenia Brizuela de Avila, former minister of foreign affairs (1999–2004); nonresident senior fellow, Adrienne Arsht Latin America Center, Atlantic Council
Ricardo Castaneda Ancheta, senior economist and country coordinator for El Salvador and Honduras, Instituto Centroamericano de Estudios Fiscales (ICEFI)
Juan José Daboub, former minister of finance and chief of staff to the President, Republic of El Salvador; president, HUGE Business and Investment Council
Leonor Selva, executive director, Asociación Nacional de la Empresa Privada (ANEP)
Claudia Umaña, former president, Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES)

Guatemala
Co-chair: Maria Antonieta del Cid, representative for Central America (1999–2000; 2017–2019), International Monetary Fund; former president of the Bank of Guatemala (2006-2010); former minister of finance (2004-2006), Republic of Guatemala
Roberto Gutierrez, president, Fundación para el Desarrollo Integral de Programas Socioeconómicos (FUNDAP); president, Red Nacional de Grupos Gestores
Guillermo Montano, founder, Transactel, Telus International, Dollar City, and Panamerican Food Company; president, Asociación Guatemalteca de Exportadores (Agexport)
Maria Pacheco, president and founder, WAKAMI
Leticia Teleguario, former minister of Labor and Social Welfare (2016-2018), Republic of Guatemala; Special Advisor on Corporate and Inter-Agency Relationships, UN Women Guatemala
Juan Carlos Zapata, executive director, Fundación para el Desarrollo de Guatemala (FUNDESA)

Honduras
Co-chair: Jorge Ramón Hernández, former judge, Inter-American Commission on Human Rights (IACHR); former ambassador of Honduras to the United States; Former Vice President of the Central Bank of Honduras, Republic of Honduras
Gabriela Castellanos, president, Consejo Nacional Anticorrupción (CNA)
Jaime Díaz Palacios, executive vice president, Central American Bank for Economic Integration (CABEI)
Eduardo Facussé, president, Cortes Chamber of Commerce and Industries (CCIC)
Jacqueline Foglia, executive director, Consejo Nacional de Inversiones (CNI)
Mey Hung, corporate affairs manager for Guatemala and Honduras, Walmart

United States and International Community
Co-chair: Anne W. Patterson, former Assistant Secretary of State for International Narcotics and Law Enforcement; former US ambassador to El Salvador, US Department of State
Abby Daniell, director, Latin America, Canada and Caribbean Public Sector, Amazon Web Services (AWS)
Karim Lesina, executive vice president; chief external affairs officer, Millicom
Jason Marczak, vice president and senior director, Adrienne Arsht Latin America Center, Atlantic Council
Maria Liliana Mor, director of strategic partnerships and development, ProMujer
Salvador Stadthagen, former ambassador of Nicaragua to the United States, Republic of Nicaragua

Issue Brief Mar 31, 2021

The role of the private sector in catalyzing inclusive economic opportunities in the Northern Triangle

By María Fernanda Bozmoski and Domingo Sadurní

As in every democratic country in the world, the private sector in Central America’s Northern Triangle (Guatemala, Honduras, and El Salvador) has a central role in generating employment, driving economic growth, and spurring innovation. But in a region plagued by one of the highest levels of economic informality, weak government institutions, and pervasive corruption, private enterprises—both decades-old industry behemoths and newer startups—can have a more positive influence in steering the Northern Triangle toward inclusive and sustainable economic development.

Americas Entrepreneurship

Issue Brief May 26, 2021

Combatting corruption in the Northern Triangle: Prioritizing a whole-of-society approach

By María Fernanda Bozmoski, Carlos Hernández, Roberto Rubio and Domingo Sadurní

Public corruption and weak rule of law are arguably the most persistent and long-standing challenges for strengthening democratic institutions and sustaining inclusive economic development in the Northern Triangle. Guatemala, Honduras, and El Salvador have grappled with widespread corruption that has fueled mistrust in political and wealthy elites, eroded democratic norms, exacerbated poverty, widened social inequality, and contributed to the conditions that force migrants to leave their homes.

Corruption Inclusive Growth

Issue Brief Sep 1, 2021

Addressing instability in Central America: Restrictions on civil liberties, violence, and climate change

By María Fernanda Bozmoski, María Eugenia Brizuela de Avila, Domingo Sadurní

Citizens across Latin America and the Caribbean are rising up in protest. Political frustration and economic stagnation are fueling social discontent exacerbated by the continued COVID-19 pandemic and the slow health response. In Central America, restrictions on civil liberties, high rates of gender-based violence and extortion, and worsening climate change are compounding the lack of economic opportunities and pervasive corruption seen in El Salvador, Guatemala, and Honduras.

Climate Change & Climate Action Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

The post Accelerating business confidence in northern Central America: A roadmap for Honduras appeared first on Atlantic Council.

Introduction
Guatemala’s business climate in context
A roadmap to improving the business climate in Guatemala
Additional actionable recommendations for combating corruption in Guatemala
Conclusion
Acknowledgements
About the author
Central America Task Force members

Introduction

The still-young presidency of Bernardo Arévalo could be an inflection point in Guatemala’s efforts to combat corruption—a deeply entrenched issue that has long hindered progress in the nation and in Central America in general. With the largest population and economy in the Central American isthmus, Guatemala’s political and economic stability is vital not only for its citizens but also for the United States and the western hemisphere writ large. Arévalo’s administration, now past the six-month mark, represents a unique opportunity for the creation and implementation of significant reforms across government and institutions to dismantle the corruption that has stifled development and eroded public trust in democracy, as well as to move forward with other most needed structural reforms.

The administration’s efforts are critical for creating a more predictable and attractive investment environment, which is essential for promoting faster economic growth, increasing productivity, creating more formal jobs and enhancing people’s living conditions. With a long track record of macroeconomic stability, together with a significant flow of remittances and a diversified economy, the country is on the brink to achieving investment-grade status, according to major credit rating agencies.¹ However, Guatemala’s weak institutional capabilities, which cannot be fixed overnight, have fostered distrust toward political institutions and among certain businesses and unions. This distrust, coupled with increased polarization has undermined democratic norms and hindered economic growth. Highlighting the severity of these issues, the 2023 Corruption Perceptions Index of Transparency International placed Guatemala in the bottom fourteenth percent globally.²

Amid this challenging backdrop, the Arévalo administration has made efforts to address corruption. As an example of this, in his first weeks in office, the President appointed a new anti-corruption czar, Santiago Palomo, to lead the efforts of the National Commission against Corruption.³ However, this commission has limited political power and cannot investigate crimes, as criminal investigation is an exclusive function of the Attorney General’s Office. In July, Palomo stepped down from his position in the commission to become the administration’s chief spokesperson, and Julio Flores was appointed as his successor. The mandate and reach of the commission, as well as additional executive branch efforts that could strengthen the nation’s rule of law, are particularly crucial as Guatemala faces increasing pressures from external factors, ranging from transnational organized crime, climate change, and natural disasters, which further complicate the fight against corruption.⁴

The Atlantic Council’s Adrienne Arsht Latin America Center, in partnership with the DT Institute, has developed this roadmap for Guatemala. This publication, informed by over a year of consultations with the Central America Task Force, emphasizes the urgent need for robust anti-corruption measures to restore confidence among national and international investors, and calls for other relevant structural reforms crucial for improving the business climate. It provides pragmatic, multisectoral, and multistakeholder recommendations to drive impactful reforms that strengthen the rule of law.

By implementing comprehensive reforms, combating corrupt practices in public bids and tenders, accelerating the digitalization agenda, and seizing opportunities generated by nearshoring, Arévalo’s Guatemala could be on the cusp of transformative change. If successful, these efforts, supported by international cooperation, could significantly curb corruption, enhance institutional resilience, reduce migration, and foster economic prosperity in the region.

Guatemala’s business climate in context

When compared to the rest of the Central American countries, Guatemala stands out to investors for the size of its economy, population, and proximity to the United States, as well for its macroeconomic stability and credit rating. The country is an attractive destination for national and international investors, and, like its neighbors, benefits from its proximity to the North American market and favorable trade agreements such as the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR). Additionally, Guatemala’s growing tourism sector and the emerging tech scene in Guatemala City offer promising opportunities for economic diversification.

However, despite these advantages, significant challenges remain. While the country has experienced steady economic growth, as reported by the World Bank and the International Monetary Fund (IMF), this growth has not translated into meaningful reductions in poverty or decreased inequality. The World Bank notes that Guatemala’s gross domestic product (GDP) grew by 4.1 percent in 2022, with an expected growth rate of 3.5 percent by the end of 2024.⁵ Despite this growth, the country continues to grapple with high poverty rates, with over half of the population (55 percent) living below the poverty line as of 2023.⁶ The situation is further complicated by the prominence of the informal economy, which employs seven out of ten workers.⁷

These persistent issues are closely tied to Guatemala’s historically weak state capacity, which hampers progress in unlocking prosperity. Although the country’s tax revenue remains among the lowest in the region,⁸ the tax administration has significantly improved with technical assistance from the US government and multilateral organizations, resulting in increased tax collection and the identification of major tax fraud in recent years.⁹ However, important challenges remain with the prioritization and effectiveness of public spending.¹⁰ This inadequacy of public spending has severely impacted the government’s ability to provide essential services such as health and education and to invest in infrastructure. This deficiency contributes to high rates of child malnutrition and limited access to quality education, especially among indigenous and rural populations.

Additionally, another challenge for Guatemala is the inconsistent application of laws and regulations. The legal environment is often unpredictable, with uneven enforcement creating uncertainty for businesses. Furthermore, the slow judicial process, highlighted by the country’s difficulty in electing Supreme Court magistrates from 2014 to 2023¹¹ deters long-term investments and undermines the rule of law. However, in November 2023, Congress elected new magistrates to complete the 2019-2024 term, and now, new appointments for both the Supreme Court and the Court of Appeals are expected to take place in October, as that term ends. Despite these recent developments, establishing a stable and predictable legal framework remains crucial. The current administration must prioritize reforms that ensure consistent enforcement and strengthen the rule of law to build investor confidence and promote inclusive economic growth.

Another significant issue for businesses operating in the country, is Guatemala’s infrastructure deficit –particularly in transportation and energy. The country’s road network is underdeveloped, hampering logistics and trade efficiency. According to the World Bank, Guatemala ranks 134 of 141 in road connectivity.¹² Additionally, the energy sector faces rising demand, challenges in expanding new projects, and inadequate coverage in rural areas. For businesses and investors examining the Guatemalan landscape, while the business climate has become more favorable in recent years, several issues remain:

• Regulatory and bureaucratic hurdles: The regulatory environment is characterized by complexity and inefficiency, creating substantial barriers for businesses. According to the Ibero-American Index of Bureaucracy 2023, opening a small business in Guatemala requires an average of 4,870 hours, equivalent to 203 days to complete the necessary procedures with different state agencies.¹³ In contrast, in El Salvador, the other Central American country tracked by the index, the process takes significantly less time, with an average of 1,474 hours, or sixty-one days, to open a small business.¹⁴Additionally, trade regulations and customs procedures are cumbersome, impeding the smooth flow of goods and increasing transaction costs. These regulatory challenges hinder competitiveness, stifle innovation, and deter foreign investment. They also create openings for corruption. Streamlining administrative processes and enhancing transparency in regulatory enforcement are essential for creating a more conducive business climate.
• Infrastructure gaps: Guatemala’s inadequate infrastructure poses significant challenges for business and investors. The country’s road network is underdeveloped, with limited access to isolated regions. In addition, the country’s ports are struggling with operational inefficiency, with severe congestion resulting in vessel wait times of up to thirty days before they can unload at Puerto Quetzal and Puerto Santo Tomas.¹⁵ The energy sector, despite achieving competitive energy prices through a successful public bidding process,¹⁶is still slow with the generation of new projects due mostly to bureaucratic obstacles and community resistance to hydropower projects due to environmental and resource access concerns.¹⁷ The sector is further challenged by energy theft and targeted attacks on infrastructure, all of which destabilize the nation’s energy supply. Additionally, the lack of digital infrastructure limits access to information and public services, particularly in rural areas, further affecting transparency and accountability. Addressing these deficiencies in transportation, energy, and digital sectors is essential for fostering a more supportive environment for business activities and investment.

• Human capital development: Significant challenges in human capital development include limited and unequal access to quality education, skills gaps in the workforce, and high levels of informality.¹⁸ While education has become more accessible for Guatemalans, low literacy, poor retention, and disparities between rural and urban populations remain critical issues.¹⁹ These obstacles prevent the development of a skilled labor force. In addition, Guatemala’s investment in education, particularly in secondary education, remains among the lowest in the region, further exacerbating the gap in learning outcomes and skills development.International Monetary Fund. Western Hemisphere Dept.²⁰Additionally, a substantial portion of the workforce operates in the informal sector, characterized by unregulated working conditions and restricted access to social protections, thereby exacerbating inequality and perpetuating poverty.²¹ Addressing these challenges requires substantial investment in education and vocational training programs, as well as policies to promote formal employment and skills development.

A roadmap to improving the business climate in Guatemala

The Central America Task Force convened to discuss and define how the United States can work with Guatemala to accelerate business confidence and promote greater economic development and investments while supporting the country’s efforts in combating corruption and strengthening the rule of law. The Task Force’s recommendations are centered around four broad objectives: guaranteeing political stability, addressing regulatory and bureaucratic challenges, enhancing infrastructure and human capital development, and improving public- and private-sector engagement. The group also discussed the promise of nearshoring trends for Guatemala.

Improving political stability

Ensuring additional political stability is crucial for a predictable investment climate in Guatemala. The country’s recent history of political turbulence, particularly during the last presidential election in 2023, has led to uncertainty for businesses. Strengthening electoral integrity and transparency is essential to build citizen trust in the political system and increase foreign investors’ interest in the country.

To transform short-term gains into long-term rule of law improvements, the Guatemalan government should enact civil service reforms that promote transparency, accountability, and merit-based hiring practices. Establishing an independent civil service commission to oversee hiring, promotions, and dismissals can help reduce political interference and improve institutional integrity. Additionally, investing in training and capacity building for civil servants with the help of international partners like the US Agency for International Development (USAID) will ensure they have the necessary skills to perform their duties effectively.

Reducing regulatory and bureaucratic hurdles

To foster increased economic growth and attract investment, the government should undertake a comprehensive review of the regulatory framework to map out, identify, and eliminate redundant, outdated, or overly burdensome regulations. Simplifying regulatory processes and enhancing transparency will help reduce the costs and time associated with starting and operating a business.

Adopting digital technologies and automation to streamline administrative procedures can further reduce bureaucratic red tape. USAID and other development agencies can support Guatemala in developing strategic blueprints for digital governance, electronic services, and cybersecurity. By collaborating with donors like the Inter-American Development Bank (IDB), Guatemala can advance transparency and interoperability among government bodies and facilitate knowledge sharing with countries that have successfully implemented digital transformation strategies.

Enhancing infrastructure and human capital development

Addressing the challenge of increasing energy demand, ensuring the construction and operation of generation projects in the pipeline and the timely construction and maintenance of transmission lines to bring energy to strategic productive places and the rural areas are essential steps toward a more reliable energy supply. Digital infrastructure development is crucial for improving access to information and public services, especially in remote areas. Enhancing digital connectivity and promoting e-governance can improve transparency, accountability, and service delivery. International cooperation and investment in digital infrastructure will help Guatemala integrate more effectively into the global economy.

Concurrently, the nation needs to address human capital challenges as it works to unlock its economic potential. The country faces significant issues related to education, skills gaps, and high levels of informality in the workforce. Investing in education and vocational training programs will equip the workforce with the skills needed for productivity and innovation. Policies promoting formal employment and skills development are essential for reducing inequalities and fostering sustainable economic growth.

Improving public- and private-sector engagement

Promoting consensus building and coordination between the government, private sector, and civil society is essential for creating a stable investment climate. Establishing a continuous public-private dialogue platform to facilitate periodic discussions between public- and private-sector representatives—which can complement the US-led High Level Economic Dialogue (HLED)²² —can help address economic issues, facilitate information exchange, and develop effective policies. This national dialogue would enhance transparency, build mutual trust, and create a more inclusive policymaking process.

The Guatemala Moving Forward plan (Guatemala no se Detiene), a national plan dating to 2021, successfully attracted foreign investment through interagency and multisectoral cooperation. The plan includes an investment strategy to allocate $7.78 billion across one hundred infrastructure projects.²³ A renewed public-private dialogue can replicate this model to drive economic development. Establishing a dedicated fund for financing development project feasibility studies and economic landscape mapping exercises, governed by a board of representatives from government, the private sector, and civil society, would ensure transparency and accountability in fund management.

Additional actionable recommendations for combating corruption in Guatemala

Enhancing transparency and legal certainty

To combat corruption effectively, Guatemala must enhance transparency and legal certainty across all sectors. The Law for the Simplification of Requirements and Administrative Procedures²⁴ (Ley para la Simplificación de Trámites y Requisitos Administrativos), enacted in 2021, is a crucial step in this direction. As an anti-red tape law, it aims to streamline bureaucratic processes and reduce openings for corruption. As of September 1, the Ministry of Economy has transitioned to a fully electronic system for all processes and procedures. As of September 2024, close to 1,100 processes across government agencies are fully digital, and the remaining 103 remaining processes will be digitalized by the end of the year.²⁵ To complement this transition, the plan should also include training for government employees on new processes and procedures, regular audits to monitor compliance, and a public awareness campaign to inform citizens about the changes and how they can benefit from them.

Additionally, reforming laws governing the selection process for magistrates and judges across the judicial system is crucial. Strengthening this process will ensure that all judicial cases, including those related to corruption, are handled impartially and with greater efficiency, by ensuring that appointments are based on merit rather than political affiliations. Strengthening the legal framework around electoral processes, such as introducing stringent regulations on campaign financing and promoting greater transparency in electoral spending, will help minimize the influence of organized crime money in politics. Addressing political influences in the courts, particularly the Constitutional Court, is critical. Implementing measures such as random assignment of cases and independent oversight can help mitigate these influences.

Both publicizing and extending transparency measures are essential as well. The government should actively communicate the positive steps being taken through regular updates, transparency reports, and public forums. This will build trust and enhance credibility among citizens and foreign investors. Creating an online portal where citizens can access information about government projects, spending, and performance metrics can also contribute to greater transparency.

It is also critical to develop and implement robust governance models that incorporate digital tools to enhance transparency. These models should include mechanisms for regular audits, whistleblower protections, and public reporting. Digital tools, such as blockchain technology, can be used to create tamperproof records of transactions and decisions, making it easier to detect and prevent corruption. Furthermore, strengthening regulatory frameworks and ensuring harmonization and coordination across the Northern Central American countries will create a more unified and effective approach to combating corruption. This can be achieved by establishing a regional anti-corruption task force that shares best practices and coordinates efforts across borders. In this line, the northern Central American governments should re-consider the ratification of the Central American Apprehension Order Agreement, which would allow them to enforce judicial decisions from neighboring countries for specific crimes, streamlining cross-border law enforcement.

Strengthening public-private partnership laws is also essential. Clear guidelines and regulations should be developed to ensure transparency and accountability in collaborations between the public and private sectors. This includes mandatory disclosures of contracts, independent audits of projects, and strict penalties for breaches of conduct. Guatemala can draw from the experience of countries like Singapore or Dominican Republic, which has successfully implemented stringent public-private partnership frameworks that minimize corruption risks.

Digitalization initiatives

Standardizing and digitizing permits and processes will promote transparency and prevent undue interference. Creating a digital tool that standardizes permits and processes can significantly reduce opportunities for corruption. This tool should include features such as automated workflows, electronic signatures, and real-time tracking of applications. Developing a coordinated approach to digitalization across various government departments will ensure consistent application and reduce the potential for corruption. This can be achieved by establishing a central digital transformation office responsible for overseeing and coordinating all digital initiatives within the government.

Infrastructure and nearshoring initiatives

Ensuring that all infrastructure projects, especially large-scale ones like road construction and urban development, are subject to transparent bidding, execution, and monitoring processes is essential. This can be achieved by implementing an open contracting system, where all stages of the procurement process are made public. Independent oversight bodies should be established to monitor the implementation of projects and ensure compliance with transparency standards. Congress should approve important infrastructure initiatives such as a vehicle to undertake priority infrastructure projects and advance key reforms recommended in the IMF’s latest Article IV report. These include revising the public-private partnership law, enacting a new ports authority law, and passing additional legislation vital to enhancing competition and infrastructure development.²⁶

Positioning Guatemala to take advantage of nearshoring opportunities requires promoting a clear, corruption-free business environment and legal certainty. This can be done by creating special economic zones with streamlined regulations and robust anti-corruption measures, attracting foreign direct investment while ensuring transparency and accountability.

Educational shifts

Implementing training programs for public officials focused on ethics, anti-corruption practices, and transparency is crucial. These programs should be mandatory and include modules on the legal and ethical implications of corruption, as well as practical strategies for identifying and preventing corrupt practices. Educating the public on their rights and how to report corruption will empower citizens and create a culture of accountability. Public awareness campaigns, community workshops, and the integration of anti-corruption education into school curriculums can help achieve this.

Comprehensive civil-sector reform is necessary to support these initiatives. This includes revising civil service laws to promote merit-based hiring and promotions, establishing performance-based evaluations, and providing competitive salaries to reduce the temptation for corruption.

Conclusion

In conclusion, the fight against corruption in Guatemala is key to unlocking inclusive economic growth, enhancing public trust, and creating an attractive investment climate. Achieving this requires progress in implementing a digital agenda, strengthening institutions, increasing public capacities, and fostering public-private partnerships. By addressing these interconnected areas through comprehensive and coordinated efforts, Guatemala can create a more stable, transparent, and attractive environment for investment and development, paving the way for sustained economic growth and improved quality of life for its citizens.

Despite the challenges previously explored, Guatemala continues to offer substantial opportunities for investors. The country benefits from solid macroeconomic stability, making its economy one of the most resilient in the region against internal and external shocks. Its diverse economy, strategic location, and potential for growth in sectors such as agriculture, tourism, and technology provide a strong foundation for future development. With targeted reforms to address corruption, improve infrastructure, streamline regulations, and invest in human capital, Guatemala can enhance its business climate and achieve sustainable economic growth. By fostering a more transparent, efficient, and secure environment, the Arévalo administration can attract significant investment and drive long-term prosperity for the nation.

The private sector in Guatemala has the potential to drive inclusive economic opportunities, especially in sectors like agriculture, tourism, urban development, transportation, and technology. Previous work from the Adrienne Arsht Latin America Center and DT Institute emphasizes the need for public-private partnerships to foster economic growth and improve job opportunities. Strengthening the legal framework and ensuring transparency in public procurement processes are critical steps toward creating a more conducive business environment.

Acknowledgements

This roadmap is the second of two as part of the work of the Adrienne Arsht Latin America Center’s Central America Task Force (members listed below), a high-level group of policymakers, business leaders, and civil society members from northern Central America who seek to create a basis for consensus and galvanize support for strengthening the rule of law and mitigating corruption, increasing productivity and enabling sustainable economic development, and reducing conflict in Guatemala, Honduras, and El Salvador. Thank you to Jason Marczak, vice president and senior director for the Adrienne Arsht Latin America Center (AALAC), for his guidance on this publication, as well as Eva Lardizabal, former assistant director with AALAC, who was instrumental during the Task Force’s meetings. We also thank the Atlantic Council’s editorial team for their support throughout this process. A special mention of Kelsey Page, associate director, communications and editorial at AALAC, and AALAC’s young global professional, Isabella Palacios, for helping bring this publication to the finish line. This publication was produced with the generous financial support of DT Institute. Thank you to DT Institute for its insights and collaboration.

Staff

María Fernanda Bozmoski

Director, Impact and Operations and Lead for Central America

Adrienne Arsht Latin America Center

Northern Triangle

María Fernanda Bozmoski is deputy director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she leads the Center’s work on Mexico, USMCA, and Central America. Bozmoski has co-led the Center’s Central America Task Force, managed the Center’s trade portfolio, and programmed events in Asia for US policymakers. Before joining the Atlantic Council, Bozmoski worked at the Cato Institute, the Council of the Americas, and completed an externship at the Inter-American Dialogue. She speaks native Spanish, English, and French, fluent Italian, and near fluent Portuguese.

El Salvador 
Co-chair: Johanna Hill* (Co-chair for El Salvador until her appointment to the WTO)
Maria Eugenia Brizuela de Avila, former minister of foreign affairs (1999–2004); nonresident senior fellow, Adrienne Arsht Latin America Center, Atlantic Council
Ricardo Castaneda Ancheta, senior economist and country coordinator for El Salvador and Honduras, Instituto Centroamericano de Estudios Fiscales (ICEFI)
Juan José Daboub, former minister of finance and chief of staff to the President, Republic of El Salvador; president, HUGE Business and Investment Council
Leonor Selva, executive director, Asociación Nacional de la Empresa Privada (ANEP)
Claudia Umaña, former president, Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES)

Guatemala
Co-chair: Maria Antonieta del Cid, representative for Central America (1999–2000; 2017–2019), International Monetary Fund; former president of the Bank of Guatemala (2006-2010); former minister of finance (2004-2006), Republic of Guatemala
Roberto Gutierrez, president, Fundación para el Desarrollo Integral de Programas Socioeconómicos (FUNDAP); president, Red Nacional de Grupos Gestores
Guillermo Montano, founder, Transactel, Telus International, Dollar City, and Panamerican Food Company; president, Asociación Guatemalteca de Exportadores (Agexport)
Maria Pacheco, president and founder, WAKAMI
Leticia Teleguario, former minister of Labor and Social Welfare (2016-2018), Republic of Guatemala; Special Advisor on Corporate and Inter-Agency Relationships, UN Women Guatemala
Juan Carlos Zapata, executive director, Fundación para el Desarrollo de Guatemala (FUNDESA)

Honduras
Co-chair: Jorge Ramón Hernández, former judge, Inter-American Commission on Human Rights (IACHR); former ambassador of Honduras to the United States; Former Vice President of the Central Bank of Honduras, Republic of Honduras
Gabriela Castellanos, president, Consejo Nacional Anticorrupción (CNA)
Jaime Díaz Palacios, executive vice president, Central American Bank for Economic Integration (CABEI)
Eduardo Facussé, president, Cortes Chamber of Commerce and Industries (CCIC)
Jacqueline Foglia, executive director, Consejo Nacional de Inversiones (CNI)
Mey Hung, corporate affairs manager for Guatemala and Honduras, Walmart

United States and International Community
Co-chair: Anne W. Patterson, former Assistant Secretary of State for International Narcotics and Law Enforcement; former US ambassador to El Salvador, US Department of State
Abby Daniell, director, Latin America, Canada and Caribbean Public Sector, Amazon Web Services (AWS)
Karim Lesina, executive vice president; chief external affairs officer, Millicom
Jason Marczak, vice president and senior director, Adrienne Arsht Latin America Center, Atlantic Council
Maria Liliana Mor, director of strategic partnerships and development, ProMujer
Salvador Stadthagen, former ambassador of Nicaragua to the United States, Republic of Nicaragua

Issue Brief Mar 31, 2021

The role of the private sector in catalyzing inclusive economic opportunities in the Northern Triangle

By María Fernanda Bozmoski and Domingo Sadurní

As in every democratic country in the world, the private sector in Central America’s Northern Triangle (Guatemala, Honduras, and El Salvador) has a central role in generating employment, driving economic growth, and spurring innovation. But in a region plagued by one of the highest levels of economic informality, weak government institutions, and pervasive corruption, private enterprises—both decades-old industry behemoths and newer startups—can have a more positive influence in steering the Northern Triangle toward inclusive and sustainable economic development.

Americas Entrepreneurship

Issue Brief May 26, 2021

Combatting corruption in the Northern Triangle: Prioritizing a whole-of-society approach

By María Fernanda Bozmoski, Carlos Hernández, Roberto Rubio and Domingo Sadurní

Public corruption and weak rule of law are arguably the most persistent and long-standing challenges for strengthening democratic institutions and sustaining inclusive economic development in the Northern Triangle. Guatemala, Honduras, and El Salvador have grappled with widespread corruption that has fueled mistrust in political and wealthy elites, eroded democratic norms, exacerbated poverty, widened social inequality, and contributed to the conditions that force migrants to leave their homes.

Corruption Inclusive Growth

Issue Brief Sep 1, 2021

Addressing instability in Central America: Restrictions on civil liberties, violence, and climate change

By María Fernanda Bozmoski, María Eugenia Brizuela de Avila, Domingo Sadurní

Citizens across Latin America and the Caribbean are rising up in protest. Political frustration and economic stagnation are fueling social discontent exacerbated by the continued COVID-19 pandemic and the slow health response. In Central America, restrictions on civil liberties, high rates of gender-based violence and extortion, and worsening climate change are compounding the lack of economic opportunities and pervasive corruption seen in El Salvador, Guatemala, and Honduras.

Climate Change & Climate Action Latin America

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

The post Accelerating business confidence in northern Central America: A roadmap for Guatemala appeared first on Atlantic Council.

Executive summary

Zimbabwe’s Vision 2030 Agenda outlines an ambitious plan to transform the nation into an upper-middle-income country by 2030, aligning with the United Nations’ Sustainable Development Goals and the African Union’s Agenda 2063. The plan focuses on both economic growth and social progress, highlighting the need for a comprehensive development approach. Nations with more open and efficient economic, political, and legal systems typically experience greater prosperity and well-being.

A key component of Vision 2030 is creating an effective business environment that fosters entrepreneurship and attracts foreign direct investment (FDI). Gender equality and women’s empowerment are integral to this vision, as harnessing the full potential of the population can drive economic productivity and innovation. By fostering an environment that attracts FDI and supports entrepreneurship, Zimbabwe aims to create a robust economic foundation for durable prosperity.

Nina Dannaoui is the deputy director at the Atlantic Council’s Freedom and Prosperity Center.

Joseph Lemoine is the senior director at the Atlantic Council’s Freedom and Prosperity Center.

William Mortenson is a young global professional at the Atlantic Council’s Freedom and Prosperity Center.

James Storen is a program assistant at the Atlantic Council’s Freedom and Prosperity Center.

Feb 26, 2024

2024 Atlas: Freedom and prosperity around the world

The contemporary geopolitical landscape is marked by a series of crises—economic downturns, geopolitical tensions, and global pandemics—that have reshaped the role of governments worldwide. This comprehensive volume, featuring insights from twenty leading economists and diplomats, serves as a roadmap for navigating the complexities of contemporary governance. 

Report Jun 25, 2024

The path to prosperity: The 2024 Freedom and Prosperity Indexes

By Ignacio Campomanes, Nina Dannaoui-Johnson, Joseph Lemoine, Dan Negrea

In this “year of election,” freedom continues to decline globally. Political rights, judicial independence, and checks and balances are eroding. Prosperity growth has slowed, particularly in developing countries. The data underscores a strong link between freedom and prosperity, highlighting the need for data-driven policy reforms.

Democratic Transitions Freedom and Prosperity

Issue Brief Apr 15, 2024

How Bangladesh can achieve its vision of prosperity

By Nina Dannaoui-Johnson, Joseph Lemoine, Annie (Yu-Lin) Lee

Bangladesh is forging ahead with its Vision 2041, aiming to transform into a developed and prosperous country by 2041.

Bangladesh Freedom and Prosperity

The Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries and to explore the nature of the relationship between freedom and prosperity in both developing and developed nations.

Learn more

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Introduction

After decades of globalization, structural transformation, financial collapse, and technological change, the global economy faced a once-in-a-century pandemic. COVID-19, and the associated lockdowns, sent shock waves through households, businesses, and government budgets. Real economic activity and employment ground to a near halt, while digital work and commerce skyrocketed overnight. Subsequently, recovery was hindered by inflation. The war in Ukraine and the heightened pace of extreme weather events caused further economic devastation. Amid such tumult, governments spent an unprecedented amount of money, especially on fiscal transfers. In the process, they often struggled to deliver those transfers directly to citizens, compounding and creating new demand for financial inclusion and innovation.

In today’s uncertain economic and geopolitical environment, comprehensive financial services—lending, payments, savings, insurance—have grown even more critical to economic resilience, participation, and growth. Yet, worldwide data shows a gap: most people globally lack access to these services. Individuals and communities at the greatest disadvantage more often than not face other challenges to economic or social empowerment, which compounds the inequality. At the same time, however, these workers, entrepreneurs, and consumers who belong to the global majority have the potential to earn, spend, produce, and invest in ways that unleash financial dynamism and well-being for their families while also promoting global prosperity and inclusive, sustainable development.

Despite their strength in numbers, the global majority has been largely overlooked in research and deliberative forums. To address knowledge and action gaps, this brief will provide the basis for mobilizing policymakers, investors, and innovators to advance a new financial inclusion agenda designed for the global majority.

What is meant by “global majority”

Many characteristics are shared by individuals and communities around the world. People may be united by gender, generation, race, ethnicity, work, or language. Less obvious as a unifying trait, however, is a person’s status vis-à-vis financial services. While 76 percent of the world’s population has access to a financial account, more than half (52 percent) of adults globally do not save at all. They are emblematic of this global majority, which fintech has been described as “the portion of the world’s population who, while having trillions of dollars in economic power, have historically been excluded from accessing financial services.” In other words, the global majority is the world’s financially underserved population without basic or adequate access to financial services, including borrowing, banking, insurance, payments, and remittances. They earn money but are not maximizing it. They may be able to stretch limited funds to “get by,” but find it more difficult, if not impossible, to save, build wealth, or prepare for potential crises. These people comprise the aspirational, emerging, and expanding middle class, defined by Pew Research Center and the World Bank as those living on $10 a day.

Many of the global majority have limited access to financial services, including though legacy institutions, but are still excluded from the system or unable to use the full range of products available to optimize their economic opportunity or guarantee economic security. They are not likely to be extremely poor, but more likely to be categorized as low income or financially insecure. While being financially underserved is the defining characteristic considered in this brief access to education, health, energy, transportation, and other social and developmental inputs are associated factors for success and empowerment of the global majority and worthy of further exploration.

Enabling this global majority, including those who work in the informal economy, is about ensuring they are better able to protect, utilize, leverage, and grow the money they are making or the assets they have. It is about optimizing quality of life and creating economic security in the present and future. Achieving this objective, however, requires the ability to save, send, and receive money, and being empowered and able to borrow for the range of one’s ambitions and needs—education, housing, starting or expanding a business, old age and retirement, etc.—and to protect assets once accrued.

Who forms the global majority

Among the many reasons to pay attention to the global majority is the reach and representation across and into diverse communities worldwide, including people in low-, middle-, and high-income countries. People of the global majority are multiethnic and intergenerational. They are all genders, though women are more likely to face financial inclusion challenges. The International Monetary Fund (IMF) reports that “on average, men own 55 percent more deposit accounts than women in the sample and also hold significantly higher outstanding value of deposits than women. The gender gap widens further if the loan account ownership and outstanding value of loans are taken into consideration.”

The global majority includes youth, refugees or displaced persons, racial and ethnic minorities, migrants, and people with disabilities who are less likely to be well served by traditional institutions or to be able to access the products or services they need. They are likely to have some education, but may not have robust financial literacy.

From a workforce perspective, they are students, farmers, freelancers, formal and informal workers, and owners of micro, small, and medium enterprises (MSMEs) in a wide range of goods and services sectors. They are among those sending or receiving $857 billion in global remittances in 2023. They are at the core of productivity and consumption that underpins growth.

Given that they are not defined by a single characteristic, the global majority may be hard to quantify into a single number. Indicators and surveys suggest, however, that at least half the world’s adults—roughly 3 billion people—are likely experiencing some form of economic insecurity or aspiration that could be improved with financial services.

People of the global majority are among the 50 percent or more of those in many low- or middle-income countries who do not have an account with a formal financial institution or mobile money provider. (It should be noted that the global average of those with an account reached 76 percent in 2021.)

Global majority by the numbers

They are among the 74 percent who would find it difficult to come up with emergency funds within a week.

They are among the 75 percent who are worried about being able to pay bills if faced with a medical emergency.

They are among the 71 percent concerned about saving money for retirement and old age.

They are among the 53 percent of adults globally who borrowed money in some way, including the 46 percent of those in developing economies who did so exclusively through the help of family and friends.

They are among the 93 percent of adults globally who do not have access to formal housing finance.

They are among the 68 percent of business owners or operators worldwide that perceive access to finance as a principal business constraint.

Why the global majority matters now

The global economy is on a slow and divergent path of recovery, and people face lingering uncertainty. Five-year growth prospects look dim, forecast at their lowest point in decades, owing to headwinds such as geopolitical tension, demographic pressures, and persistent inflation. At the same time, there is risk of protracted stagnation across lower-income countries, with poverty resurging. Today, one out of three countries is poorer than it was at the onset of the pandemic. At the same time, the future of money—the rapid pace of financial services development and increasing digitization—spells opportunity for economic participation and growth that the right agenda for the global majority can capitalize on.

Given what is already known, and what is being learned, about the criticality of financial inclusion for economic participation, equitable prosperity, resilience, and financial well-being, the importance of the global majority agenda is clear. Even though “global majority” is a newer framing, the differentiated evidence and significance around the global majority has yet to be fully collected, unpacked, and analyzed.

Effect on economies and businesses

Financial exclusion is a drag on economic participation, sustainable development, and global growth. By bringing more people into the system, financial inclusion reduces poverty, promotes investment, drives consumption, and creates small-business value. Inadequate access to financial services widens inequality, undermines inclusive growth, and prolongs or exacerbates economic as well as environmental, social, and governance (ESG) risks.

Both qualitative and quantitative evidence points to the potential of the global majority to drive inclusive growth if increased and improved access to financial services is unlocked. The effects have been both direct and indirect, macro and micro. For example, a major study by the World Bank and IMF across 218 countries from 2004 to 2021 showed that increasing the penetration, availability, and use of financial services has a significantly positive impact on the world’s economic growth. Moreover, by lowering transaction costs and better spreading capital and risk across an economy, financial sector development and improved financial systems—key factors of financial inclusion—have been found to have positive impacts on employment and economic growth. Regional studies in Africa and Asia point to similar patterns and links between financial inclusion, economic growth, and inequality, further underscoring the case for a global majority agenda.

Increased financial inclusion, especially of the poor and in particular poor women, can have wide-ranging positive impacts at the micro level that ultimately contribute to prosperity. The benefits have been seen in self-employment business activities, household consumption, and financial well-being, though the impact varies across different types of financial products. Moreover, financial inclusion appears to have an even larger impact in lower-income households and countries—home to most of the global majority—where need and gaps are likely to be greater.

Inequality was exacerbated during the pandemic, and those facing economic precarity before the pandemic suffered the shock more acutely. Importantly, financial development and inclusion has proved to be associated with decreasing inequality. The effect is primarily driven by the disproportionate impact financial inclusion has on poorer or economically disadvantaged people by easing their credit constraints such as lack of collateral, networks, or credit history.

Effect on people and families

The case for amplifying the global majority extends beyond the ways in which their financial inclusion could affect economies at large, to the potential effect on people’s lives and well-being. Helping people feel secure in their financial future is key to well-being and the willingness to take on calculated risk, which is key to innovation and growth. Surveys and experiential and anecdotal reporting from the global majority can be drawn upon to tell an initial story even as further analyses are called for as part of the agenda.

For example, a 2018 Gallup survey of more than 15,000 people in ten countries—Bangladesh, Chile, Colombia, Greece, Japan, Kenya, South Korea, the United States, the United Kingdom, and Vietnam—showed that perceptions of financial inclusion and control are closely linked to economic outlook and security. On average across the countries just a third reported having financial control. The highest rate was in the United States (54 percent); the lowest was in Kenya (14 percent). In the 2021 Global Findex Survey (which, like any dataset, has its limitations), 63 percent of adults in developing economies reported being “very worried” about one or more common expenses.

Client and financial services user data can also be revealing. Focus groups and surveys of people’s financial behaviors and attitudes toward digital payments and central bank digital currencies in India, the Philippines, Mexico, and Nigeria reveal, for example, that the ability to hold money in a variety of cash and digital forms helps them maintain control and flexibility over finances. Cash is seen as the most immediate option, while the ability to reverse transactions is an advantage of digital payments. In a customer survey by Tala, a money app operational in India, Philippines, Kenya, and Mexico, users reported a range of benefits including improved financial management and decreased financial stress. Female borrowers also expressed increased self-confidence and influence on decision-making. Sentiments are shifting for business users as well. For example, a survey of SMEs in the US, UK, China, Mexico, and South Africa found that while 24-7 availability and range of functionality and services are key reasons they are adopting fintech, 57 percent of users still report that products are not adequate to meet their business needs from financial services

These illustrative insights underscore that gathering further customer and provider feedback along with data and evidence, including on the specific role, impact, and outcomes of the global majority to incentivize and encourage action, is a pivotal piece of the work ahead.

Advancing an agenda for the global majority

In many ways, prospects for the global majority lie in differentiation and diversification. Beyond addressing the range of barriers, solutions are needed across financial products and services to meet specific unmet needs and wants of the global majority, including those that are more sophisticated or upmarket or require more risk, as well as integrated and comprehensive services. Given that a large share of the global majority are employers and entrepreneurs who form the backbone of economies worldwide, the agenda should explore promising financial solutions for businesses, especially small ones, to better enable them to thrive, grow, and hire. At the same time, as the products and services for the global majority are likely to grow in complexity, the need to prioritize consumer safety, including through policy and regulatory measures, becomes tantamount.

Understand and meet diverse needs

An agenda for the global majority must build on what we global stakeholders know to form a deeper, data-driven, disaggregated understanding of the state of the global majority and financial services gaps. This includes engaging and elevating the lived experiences and voices of the global majority. Research into the global majority has been fragmented. Existing quantitative and qualitative data needs to be better collected to paint a more comprehensive picture of the shared and differentiated needs and wants, opportunities, and challenges with respect to access and use of financial services by the global majority in all its constituencies. Similarly, financial inclusion has largely relied on account ownership and related metrics that may be outdated, especially with digitization. A holistic picture of financial inclusion needs to include adoption, diversification, and impact indicators. Recognizing that the global majority exists in diverse communities and contexts, it is critical to assess specific needs and barriers to the full range of formal financial services faced across people and places.

We have a few baselines that must be taken forward. Among the most common challenges to accessing financial services products are lack of money, registered identity, resources, or documentation to establish accounts or credit. Lack of education in general is a challenge, as many people may not have received a primary education or have been prohibited from any education. Weak numeracy or financial literacy is a significant handicap, especially for using services that require more complex awareness, planning, or computational thinking. Individuals new to account ownership may not understand the fees and risks and may be more susceptible to fraud.

Though some challenges are shared, there is no “one size fits all” for the global majority. We know, for example, that women and youth tend to experience many of these challenges more acutely, but better data is needed to understand the intragender inequalities (such as age or geography) in financial independence. Financial literacy is very often a higher hurdle for women. In the Global South, women are less likely to have a phone, less likely to have an account because another family member has one, and more likely to need help using an account. In sub-Saharan Africa, for instance, one in five unbanked women lacks a government-issued ID.

We know there are also demand-side constraints to be tackled. For example, a shared issue is that the cost of services, interest rates, or transaction fees are deemed too high by consumers. Many people of the global majority distrust formal financial systems and institutions, especially in societies where the banking sector is controlled or influenced by the government. When it comes to borrowing, religious or societal norms can also influence the demand for financial services, with lower appetites for taking on debt characteristic of some cultures. While mobile money and other financial technologies are becoming more widespread, many people, especially seniors, continue to lack digital skills, technology, or access to the necessary infrastructure (digital, communications, electricity) to make use of what is available.

Beyond understanding constraints, advancing a global majority agenda is about understanding people’s financial concerns and identifying where their needs may not be met sufficiently through existing products, methods, or community structures. Solutions must cater to the user’s existing skill set and be safe and reliable. While this need must be assessed more rigorously, some data suggests, for example, that at the household level, lacking the ability to pay medical bills and education fees causes the most worry, especially in low- and lower-middle-income economies. At the same time, an estimated 70 percent of MSMEs in emerging markets lack sufficient financing amid the global MSME finance gap—the difference between current supply and potential demand, which can potentially be addressed by financial institutions. The gap now stands at approximately $5.7 trillion, rising to $8 trillion when informal enterprises are included.

Identify what is, or is not, working, why, and for whom

Moving toward an agenda for the global majority requires taking stock of effective, scalable solutions and policies, and asking why they work, why not, and for whom.

We saw microfinance among the first innovations that brought financial inclusion to the masses, spawning related solutions such as microinsurance. But providers and the ecosystem must balance scale against risks for the global majority that have become more variable as microfinance and related products and services have become more widespread and commercialized from the initial philanthropic orientation. Recently, for example, borrowers have seen aggressive debt collection methods, with some borrowers taking on more debt than they can manage from predatory lenders. Moreover, in many countries where microfinance took root early, the market has become oversaturated, bringing additional risks.

We see countries integrating financial education alongside numeracy as part of school curriculum to promote financial literacy and improve downstream financial behavior, but there are potential issues in implementation, such as ensuring compliance, access to high-quality teaching materials, and training for educators that will need to be addressed.

We recognize that solutions for the global majority need to have the proper degree of targeted design, context vigilance, and customization to meet their diverse needs. Underlying discrimination or language can be a barrier for many. The next step is to identify what solutions work and for whom. For example, solutions, or specific design elements, may need to be different for women and men. Because women may have less product experience than men do, particular attention to ease of use, instructions, onboarding, and practice can help women use products consistently and confidently. Innovations such as blind applications that do not include demographic data or gender-intentional (i.e., not blind) credit scoring and risk-based pricing are worthy of exploration and evaluation.

As new products and opportunities for the global majority take shape, so will new risks. More research is needed on what is effective and what is necessary to ensure consumer protection is balanced with consumer choice and business opportunity. Existing systematic reviews and evidence gap maps for access to finance or other financial inclusion interventions (including digital, discussed below), as well as benchmark surveys of financial consumer protection regulations and policies, offer a departure point for placing a global majority lens on understanding and advancing a knowledge-informed, differentiated-solutions agenda.

Double down on digital

Beginning with mobile money, digital solutions have proved to be transformational, and we can expect even more fintech innovations to be at the forefront of the agenda for the global majority. Underscoring the importance of the technological channels, a novel IMF study of fintech solutions across 198 countries revealed that digital lending has a statistically significant positive effect on economic growth, with a larger effect in developing countries but a wider magnitude in higher-income economies. As fintech helps individuals save or spend, it can also help businesses unlock capital, protect assets, and provide complementary business services such as inventory management and customer intelligence. Digital credit has also shown to have positive effects on subjective well-being.

Typically, there are lower costs to maintaining a mobile money or branchless banking account than a traditional bank account: 19% cheaper by one study. Roughly two-thirds of people in sub-Saharan Africa do not have mobile money accounts, but among the millions who do, many are now using them for more than making payments, including to save and borrow. In middle-income economies, the IMF’s latest Financial Access Survey (2023) shows that the number of retail agents and mobile money agents more than doubled between 2019 and 2022, while the number of ATMs and bank branches declined by 9 percent over the same period.

Moving forward, we need to assess just how positively disruptive blockchain, crypto and artificial intelligence will be for the global majority, while risks through technology design (including positive friction), regulation, or industry standards need to be exposed and managed. Already blockchain-based solutions are said to offer lower costs with fewer barriers to entry to the underserved, and digital currencies—including emerging retail central bank digital currencies such as in Nigeria, India, and the European Central Bank—are being hyped for building trust and promoting faster, safer transactions, loan and capital origination, and dollarized protected savings.

Create pathways for collaboration on a differentiated agenda for the global majority

Multilateral forums have been important pathways for drawing attention and resources to global shared challenges and experiences. Two initiatives that could be part of the foundation of a collaborative pathway for the global majority are the G20’s Global Partnership for Financial Inclusion (GPFI) and the Bank for International Settlement’s (BIS’s)new Fully Scalable Settlement Engine (FuSSE) initiative with the IDB.

GPFI was launched in 2010, following the G20 Summit in Seoul, where leaders recognized financial inclusion as a key pillar of the global development agenda. They endorsed a concrete Financial Inclusion Action Plan and included it in the Leaders’ Declaration. GPFI is the main implementing mechanism of the endorsed action plan and serves as an inclusive platform for G20 and non-G20 countries alike and relevant stakeholders for peer learning, knowledge sharing, policy advocacy, and coordination. Importantly, the GPFI’s efforts include helping countries apply the G20 Principles for Innovative Financial Inclusion, strengthening data for measuring financial inclusion, and guiding countries on target-setting methodologies.

On the digital money side, the BIS has initiated a new initiative with the IDB to provide open-source technology among central banks to facilitate the implementation of payment systems and other settlement infrastructures. By also providing regulatory advice and building institutional capacity, the Fully Scalable Settlement Engine (FuSSE) initiative aims to strengthen and integrate financial systems across Latin America and the Caribbean and in doing so lower barriers to entry, ease transactions, and improve product design and accessibility for consumers. A related collaboration among the World Bank, IMF, and BIS could break new ground tokenizing these institutions’ lending, guarantee, and financing instruments in ways that could reshape the global financial system. Together, these initiatives demonstrate the potential for a global multilateral platform to serve the global majority.

Call to action

The global majority agenda is more than a catchphrase. Rather, it is an inspired and informed new framing for financial inclusion for all. The global development community and private sector have a unique opportunity to build on the work that has been done to advance financial inclusion for more people, with more impact. By launching new efforts around digital money, and by stimulating and streamlining efforts to innovate, research, and create community and collaboration, a deliberate and differentiated agenda for the global majority will emerge to improve the lives of billions of people, contributing to global prosperity. Weaving together the elements highlighted in this brief, an agenda for the global majority could follow the World Bank’s Financial Inclusion Support Framework and multitiered approach to financial inclusion. The agenda could emerge concurrently across service providers and platforms at the micro level; infrastructure and support services at the meso level; and policy, legislation, regulation, and supervision at the macro level. Industry, governments, researchers, and everyday economic citizens all have a role to play. This effort must be driven by generating and synthesizing strands of research and data to develop an improved understanding of the diverse needs and experiences of the global majority and of existing policy, technology, and programmatic solutions. Ultimately this will foster new ideas and solutions on multiple levels, from service providers to infrastructure and governance.

Correction: A previous version of this report misstated in which countries Tala is operational. They are India, the Philippines, Kenya, and Mexico.

Dr. Nicole Goldin is currently Senior Fellow (non-resident) with the Atlantic Council GeoEconomics Center as well as Executive Principal and Chief Economist of NRG Advisory a boutique consulting practice. Her work focuses on economic growth and financial inclusion, generational, geographic and gender inequality, positive economic statecraft, development finance and multilateralism. She is former Senior Advisor to the State Department and USAID, and Lead Economist and Strategy Advisor to the World Bank and UNICEF. She has worked with leading international non-governmental and public policy organizations including Center for Strategic and International Studies (CSIS), Clinton Global Initiative, Ford Foundation, and FHI360, and with private sector entities such as Gerson Lehrman Group, Abt Global, and Chemonics International. Additionally, Dr. Goldin has been Professorial Lecturer at George Washington University and was elected and served as an ANC Commissioner in Washington D.C. local government. She holds a PhD in economics and two master’s degrees in international development studies and international affairs.

This issue brief was made possible by the generous support of Tala as part of a new research partnership on the global majority.

Sophia Busch, Assistant Director of the GeoEconomics Center, provided primary research and data visualizations. Alisha Chhangani and Clara Falkenek provided additional research support.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Executive summary

Over the past five years, global shifts have reshaped the world. China’s rise, US-China tensions, COVID-19, and Russia’s 2022 invasion of Ukraine exposed supply chain vulnerabilities, pushing resilience to the top of the agenda. Latin America and the Caribbean (LAC) can seize the opportunity to provide solutions for US companies through nearshoring. With the most US bilateral free trade agreements, geographic proximity, and abundant critical minerals and forms of renewable energy, LAC is perfectly positioned to support the “China+1” strategy while also meeting environmental, social, and governance (ESG) standards. Estimates suggest nearshoring could add an annual US$78 billion in additional exports of goods and services in Latin America and the Caribbean in the near and medium term.¹ Similarly, nearshoring could allow the US government and US companies to diversify supply sources and build resilient supply chains, while boosting inclusive economic growth in the region.
How can nearshoring be transformed from rhetoric to action?

How can the United States and regional governments work together to materialize nearshoring opportunities? How can the private sector be included in this endeavor? To answer these questions, the Atlantic Council created the Nearshoring Working Group, a multisectoral group of practitioners and experts from the United States and the region to help advance actionable policies to accelerate economic engagement across the hemisphere.² Through numerous consultations with Nearshoring Working Group members and conversations with officials in the United States and across the region, this report identifies three overarching conditions that need to be met to materialize nearshoring, and suggests ten opportunities to achieve the three conditions.

Improving domestic “pull” factors

• Modernizing port and telecommunications infrastructure: Pursue modernization of port infrastructure to reduce transportation costs associated with nearshoring, and expand internet access.
• Improving “soft” infrastructure at border crossings: Leverage regulatory modernization and harmonization of customs processes to improve intraregional trade and coproduction.
• Offering reliable, clean energy sources: Create regulatory frameworks for renewable energies to reduce share of fossil fuel dependency, and update transmission lines to achieve reliable electricity.
• Providing legal certainty and fostering strong institutions: Offer predictable “rules of the game” for investors by strengthening independent regulatory agencies and pursuing digitalization of public services.

Unlocking US “push” factors

• Leveraging existing US trade policy toward the region: Work with partner countries to ensure provisions of current free trade agreements (FTAs) are best utilized in promoting nearshoring and supply chain resilience and sustainability.
• Tailoring development and investment policies to US strategic goals: Investment development policy must be tailored to US strategic goals, by lifting institutional constraints to International Development Finance Corporation (DFC) lending to LAC.
• Leveraging the existing toolbox across the US government: Include the breadth of US government programs and agencies as a tool of intragovernmental, bilateral engagements to catalyze nearshoring.

Enhancing public-private sector collaboration

• Strengthening workforce development: Closer collaboration between the public and private sectors is essential to close the skills gap between jobseekers and employers and improve the region’s human capital.
• Enhancing trade and investment promotion through multisectoral collaboration: Incorporate private-sector input in the decision-making process of investment promotion schemes such as investment promotion agencies (IPAs) and free trade zones (FTZs) to render both tools more effective.
• Supporting industries by following winners: Governments should provide incentives for winning industries to further grow, avoiding the draining of fiscal resources for industries that have yet to prove their yield.

Nearshoring will allow the United States to produce shared prosperity and reinvigorate partnerships across the Americas. Failing to seize today’s opportunities means ceding ground to China in our own hemisphere. Our success requires a new set of tools to better leverage investment opportunities.”

Senator Michael Bennet (D-CO)

Nearshoring and reshoring is about increasing opportunity for the American worker. The relative growth of our economy and our ability to fund and support our world vision compared to the Chinese Communist Party (CCP). The economic and cultural hegemony that the CCP wishes to have would set the whole world back. This is the opportunity for US leadership.”

Senator Bill Cassidy (R-LA)

Report Feb 26, 2024

Redefining US strategy with Latin America and the Caribbean for a new era

By Jason Marczak, María Fernanda Bozmoski, Matthew Kroenig

The strategic interest of the United States and the countries of Latin America and Caribbean (LAC) lies in strengthening their western hemisphere partnership. However, the perception of waning US interest and the rise of external influences necessitate the rejuvenation of and renewed focus on this partnership.

Caribbean Economy & Business

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Unlocking economic development in Latin America and the Caribbean: Five opportunities for private-sector leadership and partnership

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. In this context, the Atlantic Council is providing timelier-than-ever insights to highlight the critical role of the private sector in supporting growth and improving lives in Latin America and the Caribbean.

Economy & Business Inclusive Growth

Issue Brief Sep 9, 2022

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This publication outlines practical, forward-looking policy recommendations needed for SMEs to fully become engines of socioeconomic prosperity.

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The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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An initiative led by the Atlantic Council’s Adrienne Arsht Latin America Center in partnership with the US Department of State continues to focus on facilitating greater constructive exchange among multisectoral thought leaders and government leaders as they work to implement commitments made at the ninth Summit of the Americas. This readout was informed by a private, information-gathering roundtable and several one-on-one conversations with leading experts in the digital space.

Executive summary

At the ninth Summit of the Americas, regional leaders agreed on the adoption of a Regional Agenda for Digital Transformation that reaffirmed the need for a dynamic and resilient digital ecosystem that promotes digital inclusion for all peoples. The COVID-19 pandemic exacerbated the digital divide globally, but these gaps were shown to be deeper in developing countries, disproportionately affecting women, children, persons with disabilities, and other vulnerable and/or marginalized individuals. Through this agenda, inclusive workforce development remains a key theme as an avenue to help bridge the digital divide and skills gap across the Americas.

As part of the Atlantic Council’s consultative process, thought leaders and practitioners evaluated progress made in the implementation of the Regional Agenda for Digital Transformation agreed on at the Summit of Americas, resulting in three concrete recommendations: (1) leverage regional alliances and intraregional cooperation mechanisms to accelerate implementation of the agenda; (2) strengthen public-private partnerships and multisectoral coordination to ensure adequate financing for tailored capacity-building programs, the expansion of digital infrastructure, and internet access; and (3) prioritize the involvement of local youth groups and civil society organizations, given their on-the-ground knowledge and role as critical indicators of implementation.

Recommendations for advancing digitalization and workforce development in the Americas:

Report

May 31, 2024

PACC 2030 objectives: The road to implementation

By Wazim Mowla, Charlene Aguilera

The Atlantic Council organized a PACC 2030 Working Group and worked closely with governments, the business community, and civil society organizations to support the implementation of PACC 2030’s objectives.

Caribbean Climate Change & Climate Action

Report

Apr 16, 2024

Advancing health and resilience policies in Latin America and the Caribbean

By Isabel Chiriboga, Martin Cassinelli, Diego Area

During an off-the-record private roundtable, thought leaders and practitioners from across the Americas discussed how to further enhance access to and finance for health services and products in the region.

Coronavirus Latin America

Summit of the Americas

An initiative led by the Adrienne Arsht Latin America Center of the Atlantic Council in partnership with the US Department of State focused on facilitating greater, constructive exchange among multi-sectoral thought leaders and government leaders as they work to implement Summit commitments.

Staff

Isabel Chiriboga

Assistant Director

Adrienne Arsht Latin America Center

Colombia Corruption

Staff

Maite Gonzalez Latorre

Program Assistant

Adrienne Arsht Latin America Center

Americas Education

Former staff

Diego Area

Former Director, Strategic Development Partnerships

Adrienne Arsht Latin America Center

Crisis Management Democratic Transitions

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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The post The future of digital transformation and workforce development in Latin America and the Caribbean appeared first on Atlantic Council.

While African athletes that year had won thirty-seven medals, including eleven golds, it is expected that they will rake in much more—about fifty—in Paris. There is a lot expected of several stars, including Kenyan marathon runner Eliud Kipchoge (considered the greatest marathoner of all time), Botswanan sprinter Letsile Tebogo, Burkinabé triple jumper Hugues Fabrice Zango, Senegalese tae kwon do champion Cheick Cissé Sallah, and Moroccan breakdancer Fatima El-Mamouny (who competes as Elmamouny). Some athletes are already meeting these expectations, with South African swimmer Tatjana Smith having already won a gold medal and Tunisian fencer Fares Ferjani having earned the silver. Beyond individual athletes, there is also optimism about various teams: For example, the Bright Stars of South Sudan were the object of great attention after giving the US team a wake-up call in a shockingly close exhibition game earlier this month (but on Wednesday, they lost to the United States).

There are also athletes who, in search of better training conditions, have migrated from Africa to countries in the West and will compete under those countries’ flags.

It is a challenge to be a high-level athlete in Africa. The International Olympic Committee’s (IOC’s) initiatives in Africa, which fund projects to support sports on the continent, do not solve the structural problems that push African athletes to leave the continent. Usually, these expatriates blame the lack of African infrastructure and mentoring programs, in addition to the costs of training and other professional challenges. While some of the African athletes who train in the United States are still competing under the flags of African countries—such as Ivoirian sprinter Marie-Josée Ta Lou or world-record-holding Nigerian hurdler Oluwatobiloba “Tobi” Amusan—time away from the African continent can easily turn into a permanent departure and end with a change of citizenship.

With that being the case, the Olympic performances of African countries don’t fully reflect the true power of the continent in sport.

As a former French deputy minister of sports, I see a paradox in Africa’s sports sector: the youngest continent in the world (70 percent of Sub-Saharan Africa’s population is under thirty years old) is a place where people aren’t engaging as much in physical activity such as sports. Plus, a recent survey highlighted that the sports sector is “underdeveloped” with key deficits in data, public strategy, and private investments.

Sports are much more than hobbies for personal fulfillment or ways to improve health. They are also powerful tools for development, major business opportunities, and pivotal ways to exercise soft power.

The opportunity at hand

According to the United Nations (UN), sports play a role in achieving many of the seventeen Sustainable Development Goals, including goals such as eradicating poverty and famine, securing education for all, supporting victims of disasters or emergency situations, and fighting diseases. Sports can also help promote gender equality, as taking part in sports is associated with getting married later in life. The UN Educational, Scientific, and Cultural Organization runs a flagship initiative called Fit for Life, which uses sports to not only improve youth wellbeing and empowerment but also support more inclusive policymaking. The African Union (AU) has recognized the role that sports can play, as a driver of the cultural renaissance outlined in its Agenda 2063; the AU proposed a Sports Council to coordinate an African sports movement.

But the international recognition of the role sports play in development has come late—and there are issues that have yet to be sorted out. Olympic Agenda 2020, adopted by the IOC in 2014, outlines recommendations for countries to make the most of sports’ impact on society, encouraging them to align sports with economic and human development, build climate-friendly infrastructure, promote gender equality, protect the rights of children and laborers, acquire land ethically and without causing displacement, improve security, and protect the freedom of the press.

At previous global sport gatherings (notably the 2008 Beijing Olympics and the 2022 FIFA World Cup in Qatar) human-rights communities have raised these issues. Their voice over many years has pushed organizations, such as FIFA and the IOC, to adopt various human-rights policies and frameworks. In considering the host nation for the 2026 World Cup, FIFA for the first time required bidding countries and cities to commit to human-rights obligations. Such requirements could have an impact in Africa, although that remains to be seen; an African country has only once hosted a global sport gathering (South Africa hosted the 2010 FIFA World Cup), while Egypt currently has its eye on the 2036 Summer Olympics, over a decade from now.

Beyond development, sports are major business opportunities. South Africa has continued to argue that hosting the World Cup was worth it, as the billions it spent went toward much-needed infrastructure that has supported an increase in tourism—and thus, economic activity—that lasted for more than a decade. The global sports industry was worth $512 billion in 2023 and is projected to grow to $624 billion in 2027. 

In Africa, the contribution of sports to the continent’s gross domestic product is more limited (0.5 percent) than it is for the world at large (3 percent). And while North America has the largest share of the sports market, Africa’s share is growing at a rate of 8 percent each year. The National Basketball Association’s investment in the Basketball Africa League is a signal to other investors of the positive outlook for African sports and the new ecosystem of opportunities. With Africa’s middle class estimated to reach 1.1 billion by 2060, and with the continent urbanizing and growing more connected, Africa is a premier market for ventures in the sports industry.

If this business opportunity is harnessed, there is reason to be optimistic that African talent will no longer have to seek earnings abroad and that African markets will see added value, including in the form of new infrastructure, hospitality offerings, merchandising, and content/media. Upcoming major sports events on the continent are slated to generate such growth, with Senegal organizing the 2026 Youth Olympic Games and Morocco co-hosting the 2030 FIFA World Cup.

Well-structured and adequately supported sports are also tools of soft power, and countries around the world, notably Saudi Arabia, are investing in them. In Africa, the Olympic Games have always been an opportunity for African countries to speak more loudly than in the UN fora. For example, African countries boycotted the 1976 Montreal Olympics, protesting New Zealand’s participation after the country’s national rugby team played several matches in South Africa (which had been banned from the Olympics because of its apartheid policy). At the 1992 Barcelona Olympics, as apartheid came to an end, the finalists of the ten-thousand-meter race—Derartu Tulu, a Black athlete from Ethiopia, and Elana Meyer, a white athlete from South Africa—hugged each other to celebrate South Africa’s return.

A new sports agenda

Africa had a late introduction to global sport competition. No African country has ever hosted the Olympic Games. The first Black African athletes—South African runners Len Taunyane and Jan Mashiani—didn’t get the opportunity to compete until 1904, eight years after the first modern Olympic Games were held. It wasn’t until the 1960 Olympic Games in Rome that the first Black African athlete took the gold: Ethiopian Abebe Bikila won the marathon running barefoot. Since then, Kenya, Ethiopia, and South Africa have been the leading Olympic teams from Africa.

To be able to compete with the best teams today and to hold onto its talents, Africa needs a more robust agenda that covers all dimensions of sports.

First, it is essential to address youth education. Governments should include sports in education systems, and sports federations should organize regular competitions within local leagues for youth. Governments should also consider making their funding of training centers contingent on the number of enrolled athletes; it has been shown that sports help improve enrollment and attendance at school, and thus sporting excellence can lead to academic excellence. Of course, in addition to investing in sports facilities at schools, it is crucial to also invest in infrastructure that helps underserved populations access these facilities, thus easing regional inequalities.

However, the financing of African sports cannot be too dependent on governments’ budgets (as it currently is) seeing as national budgets are limited. African governments should provide a fiscal and regulatory framework that supports the work of the private sector. Rather than abandoning the athletes to themselves, governments should consider creating national centers of excellence or institutes for training—similar to France’s National Institute of Sport, Expertise, and Performance—which would allow athletes to access better training conditions on the continent, hopefully keeping them in Africa.

Governments should also ensure that foreign clubs and teams that continue to host the greatest African athletes financially support the development of the African sports industry, which would not only help cultivate more star talent but also foster job creation in advertising, sports medicine, journalism, and fitness.

Sports have much greater geopolitical significance than many decision makers realize. Moving forward, they should integrate sports into their foreign policy, both bilaterally and multilaterally.

For Africa, the surge in athletic talent is evidence that its people are committed to a new era for the continent. Leaders should harness this opportunity to supercharge Africa’s transformative sports movement.

Rama Yade is the senior director of the Atlantic Council’s Africa Center. She was formerly the French deputy minister of sports and also served as the ambassador of France to the United Nations Educational, Scientific, and Cultural Organization.

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Since their inception in July 1944, they have played central roles in global finance and built the world’s economic architecture as the norm-setters, knowledge-producers, convenors, and actors in the international development and finance landscape.

In 2024, the BWIs are facing multi-faceted existential challenges, posing serious risks for their relevance and effectiveness. The rapidly changing nature of the global economy, commerce, and finance and the increasing challenges triggered by the emergence of new players, technologies, and crises—especially in the past two decades—are forcing these institutions to take a renewed look at their governance structure and mandates. This is not the first time they have had to do so.

A reformed Bretton Woods system already emerged nearly five decades ago in 1976 through the Jamaica Accords. In 1971, the Nixon administration created a shock when it canceled the direct convertibility of the US dollar to gold and rendered the old Bretton Woods system inoperative as currency exchange rates became more volatile. The new rules stabilized the international monetary system by permitting floating exchange rates and formally abolishing the gold standard, which the United States was already no longer underpinning.

This time, meaningful reform for the BWIs will require a genuine acknowledgment of the following developments in the global political economy:

1. Economies that are not part of the high-income club are playing an increasingly large role in global trade and finance. However, the BWIs’ voting, leadership, and governance structures do not reflect this shift in the global economy and the IMF and WBG remain US-, Group of Seven (G7)-, and European Union (EU)-centric institutions. Together, the EU and the United States still maintain about 40 percent of votes in the World Bank and the IMF even as their relative prominence in the global economy has eroded.
   
   
   
   
2. The global economy is facing a growing number of challenges that have stretched the resources of BWIs and tested their effectiveness in bringing together the right stakeholders. One can point to unsustainable levels of sovereign debt, weather-related extreme events, increasing risk of pandemics, and aging populations as only some of these multifaceted challenges. Moreover, tariffs, subsidies, currency wars, protectionism, industrial policies, sanctions, geoeconomic fragmentation, and decoupling have become commonplace hurdles to globalized trade. The emergence of heightened geopolitical tensions between some of the world’s largest economies has undermined global financial stability and has also introduced significant difficulties for the BWIs to adhere effectively to their mandates of effective global governance, shared prosperity, and international monetary cooperation. This is eroding gains made through globalization in the past few decades.
3. The emergence of state-led development finance institutions and the growing number and influence of regional multilateral development banks and financial institutions, sovereign wealth funds, and pension funds have drastically altered the global landscape of development finance, calling for a more active collaboration between BWIs and the following parallel institutions:
   • Nearly 160 countries are signatories to China’s Belt and Road Initiative (BRI) and/or the G7’s Partnership for Global Infrastructure and Investment.
   • More than forty multilateral development banks and financial institutions—such as the Asian Development Bank, the Inter-American Development Bank, the African Development Bank, the Islamic Development Bank, and the Asian Infrastructure Investment Bank—are active in the global development finance landscape.
   • More than fifty national development banks such as Qatar Development Bank, Korea Development Bank, and Development Bank of Nigeria are offering a wide range of financing products to international public and private entities.
   • More than 130 sovereign wealth funds boast around $12 trillion in assets globally.
   • Public and private pension funds have over $24 trillion and $42 trillion in global assets, respectively.
4. Several multinational corporations (MNCs) command economic and technological might larger than many countries and are increasingly shaping the future of global economy through innovation and by influencing policy debates. MNCs are estimated to account for nearly one-third of global gross domestic product (GDP) and a quarter of global employment, and the revenue of Walmart alone was larger than the GDP of more than 170 countries in 2023. Environmental, social, and governance standards have been put in place to create a framework where MNC activities are not detrimental to environmental and social objectives but are based on best governance practices. However, the BWIs have played too minor a role and influence in these conversations. 
5. The emergence of digital currencies and assets and the increasing role of technology (artificial intelligence, machine learning, and fintech) in economic and monetary policy offers challenges and opportunities for the efficiency and stability of the global economy. Alternative finance championed by non-state actors has moved faster than international and domestic supervisory and regulatory bodies, including the BWIs, which have not kept up with the rapid pace of change. For example, the IMF in collaboration with the Bank for International Settlements could play a significant role in coordinating the global efforts in standard-setting for central bank digital currencies and new cross-border payment systems.
6. New debates and policies are altering global economic, monetary, and trade policies. Modern monetary theory, universal basic income, quantitative easing and tightening, modern central banking, global minimum taxation, fair trade, and human rights considerations in global supply chains are some of the issues BWIs need to be more proactive about.

Acknowledging the gravity of the risks facing effectiveness and relevance of BWIs, our Bretton Woods 2.0 Project has conducted in-depth policy research on the rising challenges facing BWIs’ governance and operations and has put forth feasible policy recommendations for their consideration in their reform journey. Substantive reforms are never easy, especially for multilateral organizations with such long and complex histories and intractable geopolitical rifts between their members. Difficult decisions, especially regarding the governance and leadership structure of these institutions, must be made, however. As Axel van Trotsenburg, senior managing director at the WBG recently acknowledged, for the IMF and WBG to remain true to their mandates and still relevant at their one hundredth anniversary in twenty years, they must embark on reforms that heed the issues highlighted above.  

Amin Mohseni-Cheraghlou is a macroeconomist with the GeoEconomics Center and leads the Atlantic Council’s Bretton Woods 2.0 Project. He is also a senior lecturer of economics at American University in Washington, DC. Follow him on X (formerly known as Twitter) at @AMohseniC.

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Women and civil society are indispensable as first responders in the ongoing war. They must also be central to the planning, distribution, and oversight of funds in reconstruction efforts. As the German and Ukrainian governments recognized, the physical reconstruction of Ukraine needs to be paired with a comprehensive social, human-centered recovery. Women, who represent the majority of the highly educated and skilled workforce in Ukraine, are well-positioned to strengthen anti-corruption measures, modernize the energy sector, and drive Ukraine’s reform agenda. All of these components are essential for an effective recovery. In addition, these efforts can help Ukraine meet the conditions for its accession to the European Union (EU).

The record to date for women’s inclusion in recovery efforts has not been what it needs to be. Policymakers must continue to ensure that Ukrainian women leaders will have the opportunity to meaningfully and fully participate in Ukraine’s recovery. Ukraine can only recover if women and civil society are fully involved in its reconstruction.

Where do women fit in the Ukraine recovery agenda?

Held in Lugano, Switzerland, in July 2022, the first recovery conference resulted in the adoption of the “Lugano Declaration,” which includes guiding principles for Ukraine’s recovery process. At the 2023 conference in London, the EU announced the creation of a new Ukrainian facility that would provide a total of fifty billion euros to Ukraine over four years. From this total amount, thirty-nine billion euros will be allocated to the state budget to support macroeconomic stability. Another eight billion euros will go toward a special investment instrument that will cover risks in priority sectors. This year’s conference in Berlin aimed to attract private-sector investment in Ukraine, including in human capital. The agenda included the explicit goal of investing in women and youth. This was a positive development and should encourage international financial institutions and private donors to continue to invest in women-owned and -led businesses in Ukraine, as well as to train Ukrainian women to take on jobs in Ukraine’s critical sectors.

How to unleash Ukrainian women’s economic potential

Invest, train, and enable Ukrainian women. Women in Ukraine and elsewhere have traditionally had limited access to credit, markets, and training opportunities. They have also struggled to balance responsibilities in the workplace and their primary caregiver responsibilities. These challenges must be overcome if women are to fulfill their economic potential.

The World Economic Forum notes that one solution for improving women’s access to credit is to not necessarily demand collateral, because women often do not own private property. Moreover, many women (as well as men) in Ukraine have lost their homes and properties to the war, so providing property as collateral is not likely to be an option for them. Therefore, adopting alternative ways to determine women’s creditworthiness could encourage more women to apply for business loans.

Ukrainian women, with the support of Western companies and institutions, have already stepped up to launch their own startups. These should be scaled up. Since the start of Russia’s invasion, an increasing number of Ukrainian women have founded tech startups, benefitting from improved access to investors outside Ukraine, as well as programs sponsored by the EU, international organizations, and private companies. For example, VISA launched its “She’s Next” program in Ukraine in 2020, and it has since hosted gatherings where Ukrainian women presented their business proposals and received funding and training at business schools. More Western companies should team up with women-led Ukrainian nonprofits to create opportunities for funding female-led startups and give them access to education and training.

Train Ukrainian women to fill workforce gaps in critical sectors. Now is an important time to train Ukrainian women in two critical sectors that will play a key role in rebuilding Ukraine’s economy: finance and cybersecurity. Ukraine has consistently ranked as one of the most corrupt countries in Europe in Transparency International’s global Corruption Perceptions Index. Although Ukraine has made significant progress in the fight against corruption since 2014, it remains a problem and a concern for the United States and other foreign partners. The cost of complete reconstruction is currently estimated to be around $750 billion, but international donors are concerned about the potential misappropriation of funds put toward reconstruction.

Reform of its financial sector is essential for Ukraine to secure financial aid for reconstruction, as well as to meet the requirements for joining the EU. The urgent need for financial system reform coincides with women playing a much larger role in the financial system, both within the government and private sector. By transferring the knowledge of, for example, the best anti-money laundering (AML) practices to Ukrainian women, the West would create a generation of AML experts in Ukraine who are capable of detecting suspicious money flows and preventing corruption and money laundering within the Ukrainian financial system.

At the same time, equipping Ukrainian women with cybersecurity skills would help them defend Ukrainian banks and the financial system from Russian intrusions. Ukrainian banks were one of the primary targets of the cyberattacks that Russia initiated right before launching its full-scale invasion of Ukraine in February 2022. More recently, at the end of 2023, Monobank, one of the largest Ukrainian banks, reported a massive hacker attack. While the bank has not publicly attributed this attack to any specific threat actor, Russia has been suspected due to its history of backing cybercrime groups attacking Ukraine. The persistent threat of Russian cyberattacks against Ukrainian banks should be countered by training Ukrainian women in cybersecurity and digital forensics.

Ukraine’s partners and allies can learn from and build on existing work to train Ukrainian women in cybersecurity. For example, the United Nations Institute for Training and Research organized a project that trained Ukrainian women evacuees in Poland in cybersecurity and data analytics. The project was held from October 2023 to March 2024 and was funded by the government and people of Japan. Private companies have also launched similar initiatives. For example, Microsoft is working with nonprofit organizations in Poland to train Ukrainian women refugees to enter the workforce in cybersecurity. Such projects need to expand to include more partners and reach more Ukrainian women.

Investing in Ukrainian women is smart economics

Leveraging Ukraine recovery conferences and other global convenings to encourage Western investment in Ukrainian women corresponds with the United States’ existing strategy of providing economic incentives to allies—also known as positive economic statecraft. The EU, United Kingdom, and other Group of Seven (G7) members are already heavily invested in Ukraine’s success. Directing investment toward the female workforce will strengthen an already existing strategy of ensuring Ukraine has the resources to minimize economic dependence on Russia. Investment in Ukrainian women will create a multiplier effect for the economy. It is well-known that women often spend their income on education, healthcare, and nutrition—all of which raise the standard of living. This is a force that moves economies forward but is often sidelined.

Finally, Ukrainian women can fill in global workforce gaps, too. Training Ukrainian women in cybersecurity would help address the global cybersecurity skills crisis. Private companies and policymakers often note that the world does not have enough cybersecurity professionals. Meanwhile, Ukraine has a highly educated population, especially in technical subjects. Cyber-trained Ukrainian women could defend not only Ukrainian banks but also businesses and governments around the world.

As policymakers and private sector actors adopt strategies for Ukraine’s reconstruction, it is crucial that they fully leverage the potential of Ukrainian women and help establish the groundwork for an inclusive and sustainable recovery.

Melanne Verveer is the executive director of the Georgetown Institute for Women, Peace and Security and a former United States ambassador-at-large for global women’s issues at the US Department of State.

Kimberly Donovan is the director of the Economic Statecraft Initiative at the Atlantic Council’s GeoEconomics Center and a former senior US Treasury official.

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Since Modi became prime minister in 2014, the Indian economy has grown by an average annual real rate of 6 percent to the latest fiscal year ending in March 2024—quite impressive against the backdrop of a slowing down of many major economies, especially China’s, since the COVID-19 pandemic. With annual GDP at around four trillion dollars, the Indian economy has become the fifth largest in the world, poised to overtake Japan and Germany in the foreseeable future to rank third after the United States and China. That growth has been attributed to the Modi economic model—heavy promotion of the information and communications technology (ICT) sector, in particular IT services and other service exports, and the “Make in India” campaign to encourage more manufacturing activity by streamlining administrative tasks, building up infrastructure, and improving banking and payment services.

However, it is important to keep in mind that the 2014-2024 period experienced a slowdown from the previous decade under Prime Minister Manmohan Singh, which had enjoyed an average annual real growth rate of almost 7 percent. The slight slowdown under Modi has preserved the basic features but exacerbated the fundamental weaknesses of the Indian economy. For several decades, the ICT industry has been the most dynamic. But although this sector represents 13 percent of India’s GDP, it relies on a very small number of highly skilled workers—accounting for less than 1 percent of India’s labor force of 594 million (according to the World Bank). And even within this privileged group, slow salary increases have been a cause of frustration for more junior workers.

Under the “Make in India” plan and its recent $24 billion of subsidies to chosen sectors, manufacturing employs 35.6 million workers, or about 6 percent of the labor force—even less than the United States. More importantly, the ratio of foreign direct investment to GDP has fallen to the lowest level in sixteen years. Private sector investment has also declined from more than 25 percent of GDP in the mid-2000s to less than 20 percent. Those declines have contributed to the fact that the share of manufacturing value added in Indian GDP has decreased from 17 percent in 2010 to 13 percent in 2022.

Essentially, even including the impact of consumption spending by workers in the ICT and manufacturing sectors on consumer-related businesses, the contribution of these two sectors to overall employment is relatively small. This could become even smaller if the declining trend in the manufacturing-to-GDP ratio cannot be reversed soon.

The Modi economic model has clearly spurred GDP growth. But its fruits have tended to accrue to a small percentage of the population, raising the number of billionaires to 271 in the process. Income inequality is considered worse than under British colonial rule, according to a new report from the World Inequality Lab. The pace of non-farm job creation has fallen from an average of 7.5 million new jobs a year in the decade prior to Modi’s premiership to about half of that during his time in office. Perversely, employment in the agricultural sector has risen by 56 million workers in the past five years—driven by COVID-related distress. This poor employment performance has thus failed to absorb nearly 12 million new entrants to the labor market each year. As a result, the unemployment rate remains high at more than 8 percent—and much higher at 17.8 percent for young workers compared with the world average of 14.3 percent. The economic and social ramifications for India are even worse than those unfavorable numbers appear to suggest.

India faces a double-edged sword of being the most populous country on earth with more than 1.4 billion inhabitants—75 percent of whom are of working age (15 to 64 years)— but with a labor force participation rate at 51 percent. The Asian average is 63 percent and China’s is 76 percent. Furthermore, only 23 percent of the workforce are salaried workers. The rest work in agricultural and informal sectors. This has made the goal of strong and inclusive growth intractable and difficult to achieve.

India’s huge working-age population can fuel strong growth if adequately and properly employed. However, if job creation cannot keep pace with labor force growth, what could have been a tremendous demographic dividend will turn into an economic and social crisis. The challenge to Modi in the next five years is to carry out a balancing act between maintaining the recent growth momentum and making it more inclusive by providing regular employment, especially for the millions of young entrants to the labor force. This probably means switching government priorities from supporting a few conglomerate national champions to helping the multitude of micro-, small-, and medium-sized enterprises, which provide the bulk of employment in India. Furthermore, government attention should be widened from a focus on advanced technological areas such as semiconductors and artificial intelligence to basic manufacturing and processing, which can create many jobs. Policy announcements in the weeks ahead will tell us how Modi intends to deal with this challenge.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

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Online Event Mon, June 3, 2024 • 1:00 pm ET

US Trade Representative Katherine Tai on the future for US-EU trade

An #ACFRONTPAGE Event—US Trade Representative Katherine Tai discusses how the United States and European Union should adapt the transatlantic trade relationship at the eightieth anniversary of the Bretton Woods system.

Economy & Business Europe & Eurasia European Union International Financial Institutions

Event transcript

Uncorrected transcript: Check against delivery

Speaker

Katherine Tai
United States Trade Representative

Moderator

Frederick Kempe
President and CEO, Atlantic Council

Introductory Remarks

Mark Gitenstein
US Ambassador to the European Union

MARK GITENSTEIN: Katherine, Fred, ladies and gentlemen, to those here in the room and those joining online, thank you for being with us today. 

This week, we mark the eightieth anniversary of what General Eisenhower called, quote, “the great and noble undertaking,” unquote—the allied invasions at Normandy. D-Day marked the beginning of the end for fascism and the victory of transatlantic democracies. The men and women fighting against autocracy in Europe were fighting for values that continue to cement the transatlantic relationship today. These values were outlined by President Franklin Roosevelt and Winston Churchill in the Atlantic Charter in 1941, which laid out allied war goals and hopes for the postwar world. 

Roosevelt and Churchill proclaimed the ultimate allied goal was that, quote, “all people in all lands may live out their lives in freedom from fear and want, and with the object of securing for all improved labor standards, economic advancement, and social security,” close quote. The Atlantic Charter was a powerful vision of transformation, a postwar world free from authoritarian tyranny and secure in peaceful economic prosperity. It was also a powerful recognition that economic security is inseparable from the health of our democracies. 

Today, eighty years later, the United States and Europe sit at a similar moment of transformation. Transformation in our economic security, as Russia’s full-scale invasion of Ukraine threatens the peace of Europe. Transformation in our economy as a new generation of green technologies, and manufacturing, and computing set a new standard for our economies. And perhaps most important, a transformation in our society as anger and economic inequality, and hollowed out industrial bases, fuel rising cynicism and disillusion with our democracies. 

On both sides of the Atlantic, populist leaders with easy answers to hard problems promote a new ideology hostile to democracy, aided by authoritarian leaders eager to weaken our societies. As European Commission President Ursula von der Leyen put it, quote, “a new league of authoritarians is working in concert to tear up the international rule-based order, to redraw maps across different continents, and to stretch our democracies to the breaking point,” close quote. As US Ambassador to the EU, I’ve seen the growing resolve of leaders in the US and the EU—the two largest democratic free market systems in the world—to respond to this new challenge. 

In this context, people in Brussels and here in Washington have told me the old orthodoxy about free trade and free markets must change. Our current policies show the old system is not working for ordinary citizens on both sides of the Atlantic. 

Indeed, discontent with that system is fueling populist anger and enabling authoritarians to influence and disrupt our societies. As Jake Sullivan pointed out in his speech at Brookings last year, quote, “This moment demands that we forge a new consensus,” close quote. If we are to strengthen our democracies we must change our oldest assumptions about trade policy. We do not have a choice. 

As Katherine has said many times, trade policy is not siloed from national security. It is a key part of ensuring not just prosperity for our citizens but the health of our democracy. As Jake said, this is about making long-term investments in sectors vital to our national well-being. 

This administration has outlined bold new steps for a twenty-first century economy that broadly benefits our citizens, strengthens our democracy, and works with our partners to do the same. 

In so doing we look back to a tradition outlined by FDR and Churchill four generations ago, a recognition that by ensuring economic prosperity we inoculate our societies from the temptations of authoritarian populism that then, as now, threaten to undermine democratic societies.

It is up to us to finish the work that FDR and Churchill started to create a new vision for a transformational world, one that leads us to renew strength for democracies on both sides of the Atlantic. 

That is what Katherine and I are hard at work on together in the European Union and in reshaping and modernizing the transatlantic bond, especially as it relates to trade policy. She is my sister in arms. 

FREDERICK KEMPE: Ambassador Gitenstein, thank you so much for that. 

The great noble undertaking a similar moment of transformation, a new league of authoritarianism. 

This is really rich material, Ambassador Tai, and thank you for being with us today. Ambassador Gitenstein’s remarks underscored what we’ve been trying to say at the Atlantic Council for a long time. We had Brian Deese here from the White House introducing the new industrial policy. We had, you know, Secretary Janet Yellen here from Treasury where she introduced the term friendshoring.

And a lot of this conversation is taking place here because from the very beginning we’ve seen geoeconomics and geopolitics as inseparable. They are two sides of the same coin. 

I want to greet some people who are here from our board: Kostas Pantazopoulos, George Lund, Ankit Desai, and Chris Fetzer. We have the Swedish and the Austrian and the Greek ambassadors here.

If I’ve missed any of you it is not meant to be a slight of your country or your board membership. But thank you for being here. 

Before I dive in I want to endeavor to get as many questions from the audience as possible both from our in-person group—and you’ll see a microphone over there. When I start calling for questions you can line up there on your left side of the—my right side of the room.

And from the audience online I’ve got that in front of me and you can put your question at AskAC.org. So AskAC.org.

And so my first question—let’s anchor this in history—we, the Atlantic Council, have been calling this a fourth inflection point period—at the end of World War I period, end of World War II, end of the Cold War and now, hopefully, at some point at the end of the war in Ukraine, et cetera.

We all know that we got a lot of things tragically wrong at the end of World War I. Ended up with fascism, millions of dead, the Holocaust, World War II. And at the end of World War II we got things more right than wrong building the institutions that serve us today, staying in places where we might have come home at a different time in history, working with our previous adversaries Japan and Germany to build a new world order.

So let’s start there. You wrote about that connection last week, and if you haven’t read this piece in the Financial Times it’s really—a really remarkable, powerful piece that invoked the Atlantic Charter. I think some were surprised by that connection. Some might be surprised why we’re talking to you a few days ahead of D-Day, I guess less surprising a few days ahead of the eightieth anniversary of Bretton Woods. But how does trade fit in with national security? And when you look at these other inflection points in history, how in your mind does trade tie with our shared history with our allies, which we didn’t get so perfectly after World War I, better after World War II, and right now up for grabs?

KATHERINE TAI: Well, thank you so much, Fred, and it’s wonderful to be here with you. And I want to thank Ambassador Gitenstein, my very good friend Mark, my brother in arms. That’s really a compliment. We have been working hard together on the transatlantic relationship.

I couldn’t be more pleased to be here with you, Fred, at the Atlantic Council. And the way that you’ve set up this question really reflects what a wonderful organization you run here and with the history, but provide context for this particular conversation and where we are today in the history that’s unfolding and being written every single day.

I am the trade representative. And to your point, it may be odd to be having this particular conversation on the eve of the D-Day eightieth anniversary and Bretton Woods, but I think that your introduction really does a better job than I could in making the case that as history unfolds, that everything is connected—that economics is connected to politics, which is connected to national security, which is connected to the relationship between countries, which is connected to the relationship between people and citizens with their governments.

And so to look at where we are today, and to assess the successes and the shortcomings of where we’ve come from, I think one of the successes is, undoubtedly, if you look at the World Bank data on GDP, growth, over these last several decades, you see the numbers going up and up and up around the world. But certainly, as of today, there is a sense of anxiety and insecurity and a lack of confidence that seems to be going through every economy here, in Europe, and around the world. So what’s going on?

To your question about how economics is connected to national security, what I would say is if we go back to, say—let’s just pick a date in the beginning era that you’ve identified—1933, Franklin Delano Roosevelt takes office as president of the United States. And it’s the spring of 1933 when German democracy comes to an end in that post-World War I period and fascism has risen and taken over.

FREDERICK KEMPE: And people forget this. March 1933, Hitler and Roosevelt both come to power within days of each other.

KATHERINE TAI: That’s right.

FREDERICK KEMPE: Yeah.

KATHERINE TAI: That’s right. And FDR has absorbed and has lived through the years of the Great Depression coming into the 1930s, and what is very much on his mind is that connection between economic depravation and the willingness of people in times and circumstances of despair to give up their freedoms and to abandon their democracy. And so you see FDR lead in the establishment of his New Deal policies. Over the course of his terms in office, you see as we go through—we go through the 1930s, we enter into World War II, he takes us out of World War II, that the approach that he’s taken—which is really to address the economic security of working people—that he starts to internationalize that through the Atlantic Charter and through the principles that are then applied to the negotiation of the Bretton Woods institutions. The original vision for trade in the Bretton Woods institutions went above and beyond the General Agreement on Tariffs and Trade, the GATT, which is what ended up making it across the finish line. The original vision to pair with the World Bank and the IMF was an International Trade Organization, the ITO charter, that had tariff pieces that were coupled with enforceable and meaningful worker standards based on a goal of full employment for all members, environmental equities, and also antimonopoly provisions—to address the fact that it’s not just the private sector companies that can behave as monopolies and distort economic opportunity, but entire countries. At the time you will also think about in the 1940s coming out of World War II the creation and the rise of the Soviet Union on the eastern front of Europe. 

So it’s through that lens that we are looking at the particular challenges that we’re facing today, and examining the tools and the means for accomplishing the goals that we need to set out for ourselves. Those goals are actually very similar if not the same goals that we had in the 1930s and the 1940s, that were embodied by the ITO charter combined with the Truman doctrine and the Marshall Plan. And it was based on a partnership and a collaboration between the United States and Europe across the Atlantic to build a world based on economic opportunity, fair competition, and democracy. 

FREDERICK KEMPE: What a rich opening. So, as you wrote in your piece, and I’ll quote this, the stakes are high. Quote: “The stakes are high. As Oxford historian Patricia Clavin has documented, democracies failed to find common ground on international economic issues in the 1930s, with devastating consequences.” To what extent do you think we’ve properly viewed and understood the dangers now? Do you think the dangers are as sharp as they were in the 1930s? And to what extent have we done enough thus far? 

KATHERINE TAI: I think absolutely. Now, I wasn’t around in the 1930s. But I think that this is an intergenerational project. For those who do remember the times of FDR, and the immediate legacy of the New Deal policies, those who remember World War II, those who have come through those years, I think that there is a collective project for us to properly put what we’re experiencing today in this historical context. And to remind ourselves of what helped us to succeed the first time around, where we may have gone off track—because I have a little bit of a diagnosis here to share with you—and how to get ourselves back on track. 

Because I think that for those leaders in the United States and in Europe who experienced the significant trauma and tragedy of the world wars, that what they won through those experiences was a depth of wisdom that even for us, having gone through the years of COVID, going through the Russian invasion of Ukraine, I think would really benefit from tapping into. And I think that it is that more holistic approach to domestic and international economic and security principles that can be very helpful to us on a transatlantic basis for imagining the bringing about of yet another new world order, as you’ve described in your introduction, that can correct for where we went wrong, but also harness the elements where we were successful. 

FREDERICK KEMPE: It’s really interesting. Because you’re really speaking to a danger we have right now, which is a deficit of that kind of memory because, of course, even Joe Biden was two years old at the end of World War II. And so the memory we have of what goes wrong, those who forget history are condemned to repeat it. We all know that. This is a year of elections across the world. You’ve also brought up the connection between trade and democracy. Could you explain that to us? 

And more than 50 percent of humanity is voting this year, representing nearly two-thirds of global GDP. And the ambassador in his opening talked about and quoted Ursula von der Leyen on a new league of authoritarianism. As something of a student of the 1930s, I look at the relationship with Hitler, Mussolini, the Japanese, not nearly as close as the relationship is right now of Putin, Xi, North Korea, Iran, interestingly enough. So talk about what role trade plays in this contest of democracy and autocracy. 

KATHERINE TAI: Wonderful. So here’s where I’ll get into a bit of our diagnosis in terms of where our successes have come up short. And I think that what I would do is go back to that original vision for the ITO charter. Understand that it was more than just the GATT. And imagine what would have happened if the ITO charter had made it across the finish line. Now, one historical note, the ITO charter in full didn’t succeed. And it was one Senator Taft who really put the spoke in the—spoke in the wheel. And was the same Senator Taft who had rolled back a lot of the New Deal worker protections that FDR had put into place. 

Now, what was left on the cutting room floor? The enforceable, meaningful labor standards, the environmental standards, and then also the antimonopoly rules. So instead, what you ended up with was a tariff program and a program of trade liberalization standing on its own, without the safeguards addressing the interests of working people, of the planet, and of ensuring a healthy and vital amount of economic opportunity that could happen within economies and between economies. 

So, over time what you have found is this era and this version of globalization, fueled only by a pursuit of trade liberalization, and the limits of what that trade liberalization has been able to accomplish. Now, I think it’s created a lot of efficiencies. It’s maximized on a lot of revenue, minimized on a lot of costs. But it’s incurred a different set of costs. One, when you look at the geopolitical, geoeconomic perspective—let’s look at supply chains. How incredibly fragile we now realize they are, how much concentration is reflected in certain supply chains in terms of single source, single country, single region supply, the leverage of certain regions, certain countries in dominating entire sectors or entire portions and links in a supply chain, and the kind of geopolitical tension that that’s fueling. So that’s one example. 

Another example is a shortcoming of this version of globalization, that is based only on economic liberalization, tariff liberalization, what we might call as a laissez-faire or neoliberal system, resulting in a competition between countries and jurisdictions that’s built on pitting our workers against each other, pitting our middle classes against each other, creating this kind of a zero-sum competition for economic and industrial growth opportunity. And the real question before us now is how do we move towards a future and a different form of globalization that preserves some of the positives of what we’ve experienced, while correcting for what is turning out to be a very unsustainable pathway on a geopolitical, geostrategic level, as well as on a human and a planetary level?

FREDERICK KEMPE: I’m going to come back to that, because I’m interested in what kind of trade agreements fit into that. But let me come back to that. Let’s shift first to our Bretton Woods 2.0 Project, where we’re thinking about what are the next eighty years going to look like. As you’re talking in really broad strokes about a fascinating, quote/unquote, “new consensus,” are the current institutions fit to purpose, from climate change, supply chain vulnerability that you talked about, nonmarket economy policies, labor rights? And so do the rules of the road, including those at the WTO, need to be changed? Do the institutions need to be changed?

KATHERINE TAI: I think they need to be—they need to be well-loved. And like those that you love a lot, they need to be improved—and supported in growing and realizing their full potential, which may require some revamping and some education and investment.

So, you know, all of the Bretton Woods institutions and the UN itself, they’re all showing their age. The world today versus the world when they were created is very, very different. Now, that doesn’t—

FREDERICK KEMPE: And let’s not forget Bretton Woods was drawn up during the war as the war was unfolding.

KATHERINE TAI: That’s right. That’s right.

FREDERICK KEMPE: This is a very different time, eighty years older. Yeah.

KATHERINE TAI: It is—it is a very different time. And the balance of powers is also very different. And also, the modern era is also different. You know, look at the urgency that we feel around climate and the impacts that we are starting to see on a—on a seasonal basis with respect to what’s happening on the planet. But then, also, the technological change that’s happening—which, by the way, there’s—there have been technological advancements all through history. And I think what we’re going through may echo some of what we’ve experienced before, but the pace of change and the type of change I think is—feels rather unique.

Now, in light of all of this, I think that these institutions still absolutely have an important role to play, if not an even more important role to play today than they did in the past. But certainly in terms of the detail and in terms of the specifics of the architecture of these institutions and the substance of the texts—the legal texts that hold them together, I think they absolutely need a lot of love and revisitation.

FREDERICK KEMPE: I think in the parlance of our day it’s called tough love. But where would you start? What would be your highest priority in taking this on?

KATHERINE TAI: So I’m the trade representative, so it’s—they say if you’ve got a hammer, then everything looks like a nail, sort of. So, you know, as the trade representative, I’m always going to start with the trade conversation.

But again, I think I’ll just bring this back, which is the trade conversation today is really imperiled if we only consider that we can talk about trade. Where I started this conversation was acknowledging, as is implied in your introduction, that everything is connected. And so I think that where you need to start is the breaking out of the siloization of policy, of institutions, so breaking down those silos and connecting the conversation. Which is why, as the trade representative, I’m really so delighted to be sitting here on the stage with you, not being a trade expert but being expert in so many other things.

Where to start? I think that we’ve already started in the Biden administration. And it’s the Biden administration’s approach to economics which is also, if you listen to President Biden talk, very much married up with his vision for America’s role in the world. So we start with a really robust and real program of investing in the United States, whether that’s through infrastructure, where we had mostly been coasting on the significant investments that were made during the Eisenhower administration; investing in ourselves and our infrastructure; investing in our industries, the CHIPS and Science Act; investing in our industrial growth and the industries of the future, the Inflation Reduction Act. Those types of investments, paired up with our trade program—which includes our tariff programs, where we’ve taken actions recently to ensure that the tariffs and the investments can work together to reinvigorate American industrial growth, manufacturing capacity—all right, so that’s one piece.

The second piece, investing in our people—and that’s our people as workers—empowering them, educating them. In trade as well, we talk about building out our middle classes, finding ways not to pit our workers against each other. In the US-Mexico-Canada Agreement, we’ve got a mechanism where that’s exactly what we’re doing. We’re working with Mexico to scrutinize individual facilities where we have reason to believe that worker rights of freedom of association and collective bargaining are being denied, and ensuring that Mexican workers can exercise the rights guaranteed to them by Mexican law and by the agreement itself. To this day, we have directly benefited more than thirty thousand workers in Mexico. By empowering those workers, we are helping to even the playing field with American workers.

And then I’d say the third piece of this is looking at the entire economic ecosystem here at home and also in the world context, and ensuring that there is broad-based, healthy economic competition—that there is economic opportunity that we are creating across the economy; that our commitment to taking on monopolies and recognizing that monopolies don’t just manifest as companies but also as countries. Taking us back to that FDR understanding, that postwar understanding, that one of the major challenges we would be facing is with the Soviet Union and the communist world, with those state-command economies having to compete against entire economies all at once. All of those pieces coming together in our trade policy as well, and understanding that taking on a foreign monopoly is about being consistent. You have to enforce competition here at home while you are also enforcing competition and opportunities around the world.

FREDERICK KEMPE: Fascinating. I’m going to ask—and this is really disciplining myself because I have a hundred questions I’d like to ask—I’m going to ask two more questions: one on digital trade, one on Europe. I’m sure in the Q&A we’ll get to some more on China as well. And then I’m going to turn to the audience. So I’ll look to this and I’ll look to this, and I already see a few coming in here.

So FDR didn’t need to deal with digital trade. Bretton Woods didn’t have to deal with digital trade. You’ve seen some significant shifts in US digital trade policy, including withdrawing proposals for digital trade chapters focusing on things like free flow of data in institutions like the WTO. One of the questions we got in from the audience was: What are you doing on the promote side of the trade agenda, particularly on digital and AI issues, where there is a hunger from many of our trading partners to align with the US? And this partner said that there is a perception of a US withdrawal on digital trade over the last year in Europe, Southeast Asia, Latin America, and Africa, where China continues to announce new projects on cross-border data transfers and AI partnerships. So that’s a big, broad question, but it’s really: What’s your view of where digital trade policy fits in here? And then what’s your answer to these criticisms?

KATHERINE TAI: Great. OK. So when we started negotiating things in this digital arena, we called them e-commerce provisions. And I think that the first e-commerce chapter dates back to Singapore, which we’re just celebrating the twentieth anniversary of the Singapore Free Trade Agreement. Now, if you think back to 2004 and you think back to what e-commerce was, in 2004 I think Amazon was still mostly just an online bookseller. So what we were doing in our trade agreements was—through a very traditional approach to traditional trade transactions of goods moving across borders, we were looking at what could you do in a trade agreement to help to ensure the facilitation of those traditional types of transactions. And that’s really how we thought about data flows—that, you know, the data that flows in an e-commerce transaction is the stuff that helps to facilitate the transaction: the information that needs to be sent from one place, maybe across a border, to another place; the economic information, the payments information; and then how to get it back—how to get the good across the border.

Fast forward twenty years. It’s 2024. When we’re talking about data, it’s not just about the bits and bytes that help to facilitate a traditional goods transaction anymore; data is the game itself. And that couldn’t have been more clear than with the advent of ChatGPT-4 a couple months ago, where suddenly people are wowed by, you know, please—I think there was an exercise for us where we were—we were asked to put prompts into ChatGPT-4. And so there were a number of us in the administration, and I said, oh, I know, I know; how about ask the generative AI to write a poem about Bidenomics in the style of e.e. cummings. And any of you who pay for ChatGPT-4 and the paid service, go ahead and try it. What comes out is kind of amazing and maybe even a little bit beautiful. It’s very, very eerie, right?

And so that started a lot of, I don’t know, just this incredible curiosity about what the heck is this thing and how was it made? And it turns out that it had—it had fed on basically all the data that has been created and was put out there in the internet since the beginning of the internet and maybe even before with, you know, published works, right? That is then processed through incredibly powerful computers that only a couple of companies are powerful and rich enough to have access to. 

And in the context of this awareness about data—and then you can get over to the data brokers and how much of your data you’re generating every day that’s available for others to buy and sell. And for those who are buying it, real questions about what they’re using it for. We start to realize that, wow, as we break out of our trade silo, we’re appreciating that our traditional approach to what we’re now calling digital trade actually has implications for so much more. Isn’t it time for us to hit pause on this, come back, reconnect with all of the other policy silos, break them down, talk to our Congress, talk to our industry, the bigs and also the littles, right? The companies and also the workers. The platforms, and also the creative content producers. And try to get our arms around what is actually happening here, and what is in the public interest?

Because that is not the question that has informed the proposals that we’ve developed over time. So what I would say is for all of those who are yearning for a leadership from the executive branch and USTR to tell everybody else what the answer is, my argument is the real leadership is in stepping back and saying: This is not an answer that is going to come from USTR alone. And that if that’s what you’re looking for, is the USTR-led answer to how we should be regulating tech and data, that is not going to be the right answer. This is, again, a project for our collective wisdom. And it’s only once we’ve achieved that wisdom—first here in the United States, and then with our trading partners—are we actually going to be assured of any kind of success that the world order we’re creating, that has rules for digital trade and technology, is going to support economic opportunity for working people and democracy. 

FREDERICK KEMPE: But, in short, hit pause at the moment on digital trade policy. Is that?

KATHERINE TAI: Pull back provisions that we already know are not fit for the times. And then engage, and learn, and talk to each other—including in forums like this—and put out the question, how should we be approaching this? And I’d say that, number one, it’s a domestic policy issue first. Before we bring it to the international realm, we’ve got to figure out what works for the United States. Also, what works for our democracy? At this moment in time, with all these elections going on and the amount of disinformation and active interference that’s happening through information systems that are being created by data and these distributional platforms, it is a really important time to be asking what is a pro-democracy approach to regulating technology?

FREDERICK KEMPE: So anyone in the audience who would like to see the Atlantic Council’s AI Code of Ethics in the voice of Shakespeare, I can send it to you—which I’ve worked on here. 

So quick, quick question on Europe. And then I’ve got a couple of questions here. And we’ll see if anyone stands up by the microphone. It’s a big question. I’m going to ask for a short answer. Which is, the overall status of US-European trade relationship. There’s tension over the Inflation Reduction Act still. There’s some frictions in US-EU trade left unresolved—steel and aluminum tariffs. One question here is, after an election, would that be something one could move on to? Some criticism of TTC that’s been long on tech but short on trade. What’s happening with the Europe-US relationship, the transatlantic relationship, that you’re happy with? What is you’re looking at and you’re saying, not very happy with that?

KATHERIEN TAI: OK. Great. So I know we’re right on the cusp of the eightieth anniversary of D-Day, which is really incredibly significant. In my service as US trade representative, we’re also coming on the third anniversary of President Biden’s first US-EU summit. So it happened in mid-June of 2021. It was the first summit he engaged in outside of the United States. He stopped in Cornwall for the G7 leaders meeting on his way to Brussels to meet with President von der Leyen and President Michel. And it was in the lead-up to that summit meeting that EVP Valdis Dombrovskis and I sat down and negotiated a truce on Boeing-Airbus. At that time, a seventeen-year-old set of disputes that really contributed to the breakdown of dispute settlement in Geneva, but also just a longstanding, very bitterly fought trade dispute between the United States and the EU. 

And we were gathered together at the summit waiting for the three presidents to emerge from their session, and getting to know each other. And EVP Dombrovskis and I were together with Secretary Raimondo and EVP Vestager. And Dombrovskis and I were feeling very good about what we had accomplished in creating space for the United States and the EU to come together to think about how we can be more strategic on large civil aircraft. And I asked—I remember, I asked that group of four. And I said, it’s really so important that we find a way to turn down the temperature between the United States and the EU, Washington and Brussels, and really focus on the fact that we have shared challenges, and we have a lot of shared and common values and principles. 

So how do we bring those values and principles to bear on working on those shared challenges together? And I said, you know, it’s something that’s really important for us to be able to communicate to everybody else. What do you think—how do we describe what’s at stake? And I think this goes to the conclusion in my FT op-ed also, which is the stakes are high. So what exactly are the stakes? And so, you know, we’re kicking around some ideas in terms of how do you message this, how do you communicate this? And it was Valdis who said, well, I think it’s—I think it’s very simple. What’s at stake is the free world. And I remember at the time having two slightly in tension reactions. 

One of them is, wow, he’s right. That is very simple and direct. It is the free world that’s at stake. But my second reaction was, oh, but, you know, “free world?” There’s such overtones of the Cold War that are baked into that. And I really hope that that’s not where we are. And, of course, many things have happened in the last three years, including the brutal and unjustified invasion of Russia into Ukraine, and so many other things that have happened. So many more complexities introduced into geopolitics. So many increased tensions on democracies here at home and abroad. 

And I look back on that conversation with Valdis Dombrovskis, a Latvian executive vice president of the European Commission, and I just marvel at how apt his suggestion remains today—even more apt than three years ago. That what is at stake is the free world. And so I think that what is going well is that that is where we started our relationship in June of 2021. What could use work is every single day in every engagement that we have in trade and otherwise, reminding ourselves that that is what is at stake.

FREDERICK KEMPE: Thank you. Thank you for that. 

So I’m going to turn to a colleague, David Wessel, formerly of the Wall Street Journal where we worked together, but now you can introduce yourself for the other—

DAVID WESSEL: David Wessel, at Brookings.

Ambassador, I wondered if you could tell us where your views overlap with those of Bob Lighthizer and where your views differ.

KATHERINE TAI: Well, thank you for asking about views, because I think early on I had been asked where he and I differ. And I like to say that I’m younger and better looking. But in terms of—Bob is a very nice-looking guy.

FREDERICK KEMPE: I think there may be a consensus in the audience.

KATHERINE TAI: So I am objectively younger. Where are—where our views are similar and where I find—where I find an alliance with Bob is a commitment to the fact that we have to change our approach to trade, that the world is significantly different, and that the benefits here in the United States are not inclusive enough. Those are my words, and that’s in my—very much my democratic vocabulary.

But I think that one of the really important and not foregone conclusions in the trade community internationally is that we do need to change. From my perspective, it’s that we need to evolve the way we do trade. And you can’t do that by yourself; you have to build that collective and that community to do it together. And I think that basing that community on a community of democracies is really important.

In terms of where our views are different, I hope that that’s obvious. And if it’s not, I would definitely take some feedback on how I can make that more obvious.

FREDERICK KEMPE: You want to throw out one example where it’s different? Maybe deal with China. Where do you think you’re the same or different on China?

KATHERINE TAI: On China, I think we share a lot of the same diagnoses. You know, I think one of the ways where Bob and I are most obviously different, again, is in rhetoric—although, you know, Bob inside the room versus Bob outside the room can be different, just like for all of us.

FREDERICK KEMPE: Yeah.

KATHERINE TAI: But you know, I think that one aspect of the Biden administration’s approach—and this very much reflects President Biden’s just innate internationalism—is this point of view that you have to build partnerships.

FREDERICK KEMPE: Yeah. So I saw a friend up a second ago. I was going to take the last two questions, and do them really quickly, and then come to a quick round. Is that all right with you?

KATHERINE TAI: Yeah. Absolutely.

FREDERICK KEMPE: Let’s do that. Please.

DAVID METZNER: Yes. Thank you, Fred. David Metzner with ACG Analytics.

I’d like to pull on the China string a little bit more. At the end of World War II, of course, China was an ally. China was in all the multinational organizations. Took a different turn in 1949. How do we think about China in the transatlantic context, particularly in trade? Europe will be releasing its report on electric vehicles, I think, in three weeks. We have—we just put tariffs on Chinese vehicles recently, I think, of roughly 95 percent. So how do we effectuate everything we want to do and strengthen the transatlantic relationship with China sort of orbiting outside and operating with capitalism with Chinese characteristics? So how do we—how do we think as transatlanticists on China?

FREDERICK KEMPE: That’s a great question, and we’ll pick up the last question. I think part of the answer to this question is also where do we differ transatlantically with regard to China, but—

FRANCES BURWELL: Fran Burwell, Atlantic Council and McLarty Associates.

You’ve spoken a lot about communities of democracy and shared values. You’ve also spoken a lot about institutions. Even the best of friends don’t always get on and agree on everything. So as you think about how the institutions should be reformed, what’s the role of the dispute resolution mechanism? How do you see that moving forward? What is the role of that in your new world of institutions? Thank you.

KATHERINE TAI: Great. OK. So let me try to distill those.

FREDERICK KEMPE: Please. Over to you.

KATHERINE TAI: So the question of China really I think deserves a whole separate session unto itself.

FREDERICK KEMPE: I know.

KATHERINE TAI: But let me put it this way. I think I—I actually think that the way you put the question about China is incredibly gentle. Capitalism with Chinese characteristics, actually, I’m not—or, I haven’t heard that term used in many, many years. At this point, I think it’s less diplomatic than just sort of ahistorical.

The China that we’re dealing with now, the PRC, is not a democracy. It’s not a capitalist, market-based economy. And so I think what might be useful in terms of shorthand in thinking about how we coexist and how we adapt to a world economy where the PRC has such an incredibly large footprint may go to revisiting how the negotiators and the founders of that post-World War II system and the ITO Charter thought about the possibility that the ITO Charter could have Soviet participation. At the beginning, it was—it was a possibility that the Soviet Union would be a member of the ITO Charter and I think that that’s where the labor standards, the environmental protections, the antimonopoly provisions really come in. 

So a lot more to say there, but let me just highlight that. 

On the second question, you’re absolutely right. I would say, you know, friends, when you’re different economies, different political entities, you’re never going to agree on everything, just like human friends don’t agree on everything. 

But there is a really important basis of mutual respect that you have to start from. I think that that question was really about the dispute settlement reform exercise at the WTO. We are entirely committed to the reform and the tough love that it’s going to take to reinforce the WTO and its role in the in the world economy. 

The dispute settlement system is one part of that. I think what I’d like to reflect on is the dispute settlement system that we had. The status quo ante was the same dispute settlement system that let or incentivized us to continue fighting for almost twenty years about state support for Boeing and Airbus that caused us to fight each other and pick at each other, their enormous cases, while the PRC built up its own civil—large civil aircraft industry under our noses.

And I think that that is really worth reflecting on, again, everything being connected, for us to think about dispute settlement in an organization like the WTO and how it doesn’t just become a giant litigation forum that you throw money and lawyers at to make a point against each other, to levy tariffs on each other, but how it can be a dispute settlement function that actually helps you resolve disputes with your friends and your competitors, who sometimes are the same alike. 

And that is a lot of what is informing our approach to dispute settlements reform at the WTO, which is how can it more effectively facilitate the resolution of disputes between significant trading partners and to prevent this ossification and political entrenchment that we have seen with our friends in the EU have—not just in this case. It had been many cases prevented us from coming together and focusing on things that really matter. 

FREDERICK KEMPE: Thank you so much for that. I think the work of our China Pathfinder Project and the GeoEconomics Center really underscores some of the things you’re saying.

What a rich conversation this has been. Thank you so much. 

I want to salute Josh Lipsky and his GeoEconomics team and the remarkable work they’re doing including the hosting of this event. Ambassador Dan Fried for playing the role that he’s done in bringing you to us, Ambassador Tai.

And I want to thank you for elevating this conversation on trade not just in the context of the anniversary of D-Day and the anniversary of Bretton Woods agreement, but in the context of the contest for the global future. So thank you so much, Ambassador Tai.

KATHERINE TAI: Thank you so much, Fred. Thanks to all of you.

Watch the full event

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Recent economic data and projections by international institutions, including the World Bank, reveal that the country faces considerable headwinds. Several notable social indicators, too, raise concerns that the country’s success story may be unraveling. Not coincidently, these shifts are taking place under a government that is less and less accountable to its citizens.

The worsening economy: The big picture

Published on April 2, the World Bank’s Bangladesh Development Update forecasted that the country’s gross domestic product (GDP) growth in fiscal year 2024 would be 5.6 percent. Within days of the World Bank’s forecast came a report from the Bangladesh Bureau of Statistics (BBS) that GDP growth in the second quarter of the current fiscal year, between October and December 2023, was 3.78 percent. This is a dramatic decline compared to the previous quarter’s growth, which stood at 6.01 percent. The numbers were far higher in previous years’ second quarters; in fiscal year 2022 it was 9.3 percent and in fiscal year 2023 it was 7.08 percent. The overall GDP growth projection of the World Bank sharply contrasts with the government’s initial projection for fiscal year 2024, which the Bangladeshi government revised down in January from 7.5 percent to 6.5 percent.

Analysts have described the government’s growth target as unachievable. Those who have been following Bangladesh’s economy were not surprised that the World Bank projected a rate below last fiscal year’s growth of 5.8 percent and well below fiscal year 2022’s growth of 7.1 percent. The country’s average GDP growth over the past decade, according to government statistics, was around 6.6 percent. The World Bank forecast suggests that Bangladesh’s economic growth has been on a downward trend for two consecutive years and that the projection for next year is not much different from this year.

The economic crisis in Bangladesh, which has been evident since the middle of 2022, didn’t appear suddenly due to external shocks. It was in the making for quite some time. Two years ago, Bangladesh reached out to the International Monetary Fund (IMF) and other international lenders to avert a meltdown. The government did secure new loans, but these have added to existing external loans. For the first time, external debt surpassed one hundred billion dollars in late 2023. As a result, the cost of servicing the debt is increasing at an unprecedented rate. In the first eight months of the current fiscal year, the country spent $2.03 billion making payments on this debt. The debt servicing, not only the foreign but domestic sources, is forcing the government to borrow to “repay a large part of its PPG [public and publicly guaranteed] debt obligations,” according to economist Mustafizur Rahman.

This is putting a serious dent in Bangladesh’s foreign exchange reserves, which have continued to slip. As of early April 2024, they stood below the IMF’s suggested $19.26 billion. Concurrently, nonperforming bank loans, which are about 10 percent of total outstanding loans, according to the central bank’s statement, are increasing. In the past fifteen years, the amount has increased six and a half fold. In a single year, it increased by more than 20 percent. Faced with pressure from the IMF to reduce the defaulting loans, the Bangladesh Bank has devised a stealthy way to do so—essentially, by cooking the books. The Bangladesh Bank has decided to relax the write-off policy that will wipe out a large amount of loans from the books but will hold nobody accountable—neither those banks which have allowed this to happen nor the businesses which have defaulted.

Instead, a recent amendment to the Bank Company Act will allow the sister companies of the defaulters to continue to borrow. In another controversial move, the Bangladesh Bank has decided to merge “weak banks” with “strong banks”  as part of its banking sector reform program. In April, the World Bank described this move as “counterproductive,” and experts have questioned its prudence. It will force the liabilities of weak banks onto the depositors of stronger banks. Many of the banks identified by the central bank as weak were approved in the past fifteen years for political considerations. The benefits enjoyed by those who established these banks and borrowed from various banks are now being paid by the public at large.

Economic woes of citizens

The broad economic crisis is having serious consequences for Bangladeshis, especially those in the middle class and poorer segments of society. While official statistics from February claim that inflation is below 10 percent, the prices of food and essentials in the market indicate a far greater number. Although food and fuel prices have fallen in the global market, Bangladeshis have not enjoyed the benefits of this. Instead, the government in March once again raised the price of electricity. In 2023 alone, the government raised the price of electricity and gas three times.

The plight of the common people can be gleaned from the data provided by a BBS survey conducted in the middle of 2023, “Food Security Statistics 2023.” The survey revealed that around 37.7 million people experienced moderate to severe food insecurity in the country. The report also noted that more than a quarter of families were taking out loans to cover the cost of daily necessities, including food. A survey by the South Asia Network on Economic Modeling, a think tank, shows that 28 percent of households resorted to borrowing money between April and November of 2023. The share of households borrowing money, largely from informal sources, has been on the rise for the past decade. According to a 2022 BBS survey, the average amount of loans per household in the country nearly doubled between 2016 to 2022, whereas the amount increased just 34 percent in the six-year period between 2010 and 2016. These numbers point to a difficult, perhaps even deteriorating, economic situation for many Bangladeshis.

Social indicators are showing strains

While the economic indicators alone are concerning, there are also disturbing developments in several social development indicators.

Bangladesh had been registering increases in life expectancy for decades. In 2020, it reached 72.8 years, the highest to date. But since then, the pattern of growth has been broken. In 2021, there was a decline, to 72.3 years. In 2022, a modest increase to 72.4 was reported by the BBS. But the Bangladesh Sample Vital Statistics-2023 (BSVS-2023), published by the BBS in March 2024, shows a reversal, to 72.3 years. Combined with the information that food insecurity has increased in the past year, it is worth asking what might be causing this decline.

The decline in life expectancy is in part a result of the increase of the death rate in children. The BSVS-2023 shows that the mortality rate for children under five years of age, newborns, and children under one year has increased. Nor was the increase a one-off incident. Take, for example, the mortality rate for children under one year of age. The number was 21 per 1,000 five years ago, while in 2022 it increased to 25 and in 2023 it reached 27. The death of children below one month has reached 20 per 1,000 live births, up from 16 in 2022. Five years ago, the death rate of this age group was 15. The death rate of children under five years was 33 per 1,000 in the past year, an increase from 31 in 2022 and 28 five years ago. The BVS-2023 identified other troubling trends in social indicators as well. For instance, child marriage has increased significantly in recent years—from 31.3 percent in 2020 to 41.6 percent in 2023.

Two aspects of education and employment are noticeable in the statistics provided in the BSVS-2023 and a survey conducted by the Bangladesh Bureau of Educational Information and Statistics (BANBEIS). First, there has been a drop in students at the secondary-school level and an increase of NETT (not in employment, education, or training) among the youth population. Over the past four years, the number of students at the secondary school level in Bangladesh has decreased by one million, according to the BANBEIS.

According to the BSVS-2023, the share of children between five and twenty-four years not in educational institutions has risen since the COVID-19 pandemic. In 2020, at the onset of the pandemic, 28.46 percent were out of educational institutions, while in 2023, the share reached 40.72 percent. On the other hand, BSVS reveals that 39.88 percent of youth between the age of fifteen and twenty-nine are neither in school nor in employment. The percentage was a little better than 2022, when it was 40.67 percent, but according to the labor force survey of 2016-2017, the NETT was around 30 percent. As such, this increase by almost ten percent in eight years reflects a pattern.

How did it happen?

These economic and societal shifts are happening neither abruptly nor in a vacuum of policy decisions. Instead, they are taking place incrementally and under a system of governance that has repeatedly claimed its legitimacy based on “development,” even at the expense of democracy and an inclusive political system.

The absence of accountable governance is allowing a crony system to flourish, even as it is holding back the economy. The government has created a clientelist network upon which it relies for survival and stability. Recent elections have been neither free nor fair, and they have resulted in an economy that is increasingly beholden to a small group of people who facilitate the victory of the incumbent.

This is not unexpected. The dire warnings that authoritarianism can burst the bubble of growth appear to be coming to pass. As the country’s system of governance has transformed from a hybrid regime to an autocratic system, especially after the 2018 election, social development has received less attention from the government, which relies less and less on a mandate from citizens. Regime survival is not contingent on public support, which tends to judge the incumbent based on performance. If these trends continue, then the optimism that accompanied the fiftieth anniversary of Bangladesh’s independence may soon seem like a distant memory.

Ali Riaz is a nonresident senior fellow at the Atlantic Council South Asia Center and a distinguished professor at Illinois State University.

The post Is the Bangladesh success story unraveling? appeared first on Atlantic Council.

Public Event Wed, April 24, 2024 • 3:00 pm ET

CEO Scott Nathan on DFC’s work on energy security and other strategic priorities

An #ACFRONTPAGE EVENT—Scott Nathan, chief executive officer of the US International Development Finance Corporation, discusses the agency’s role in US efforts to advance global energy security and other strategic US priorities.

Energy & Environment Energy Markets & Governance Geopolitics & Energy Security

The US International Development Finance Corporation (DFC) isn’t “directly competing” with China, according to its chief executive officer Scott Nathan, but it is “offering an alternative.”

Nathan spoke at an Atlantic Council Front Page event hosted by the Council’s Global Energy Center on Wednesday, explaining that the DFC is different from Chinese development banks or Chinese investment initiatives (such as the Global Development Initiative and Belt and Road Initiative) because it supports the private sector directly. The DFC doesn’t lend money to governments for “big and also sometimes bloated” projects that aren’t “appropriate for local laws and conditions,” he said, alluding to China’s investments that have pushed countries into deep debt.

The DFC head recalled how foreign government officials have told him that “they don’t want to be dependent on one country for their source of finance.”

“Good development is good foreign policy,” he explained. “That’s in our national interest.”

Here are more highlights from the conversation, moderated by Amelia Lester, executive editor of Foreign Policy.

Standing out in the marketplace

• How exactly does the DFC differ from China’s investment engines? Nathan said it’s in part because “we maintain the highest standards possible” when it comes to “environmental, social, [and] labor” practices. It is “critical,” he added, not only to support economic development but also to “promote . . . values.”
• One important area is in internet connectivity—in which China is investing heavily, particularly in the Indo-Pacific. The DFC, meanwhile, is supporting projects that push forward secure equipment and networks that protect privacy, Nathan said, highlighting specific DFC-supported projects in Australia and Africa that are offering an alternative to China’s services. “This is critical for growth,” he said, adding that infrastructure is “not just energy, airports, and railways. You need the infrastructure of the twenty-first century for economic development.”
• Nathan explained that the DFC was created by Congress in 2018 due to a “strong sense” among both Republicans and Democrats that the United States needed to improve its economic-diplomacy game. “We needed to show up in the developing world and offer an alternative to what was being offered by authoritarian governments and our strategic competitors,” he said.
• The DFC is due to be reauthorized by Congress in 2025. “There is a strong demand signal for us to do more to show up,” Nathan said. “That requires us being reauthorized; it requires continuous funding.”

Showing up for Ukraine

• Nathan explained that the DFC has provided nearly $500 million in financing to businesses in Ukraine and has offered political risk insurance—which includes coverage for war-related risks—that has catalyzed more investments in Ukraine’s private sector.
• The most critical tool to support Ukraine’s private sector, however, is “solid air defense,” Nathan said. It’s “hard to make decisions around investment and capital expenditure in an environment of such high insecurity.”
• Nathan explained that the United States has had a long history of providing political risk insurance. Since the Overseas Private Investment Corporation (DFC’s predecessor) started offering the insurance, he said, the United States has “done over $50 billion. . . of political risk insurance” and has had “just over a billion dollars of claims.” The institutions have covered 97 percent of those claims, he added. “So it’s not only been very important for economic activity. . . but it’s been very profitable.”
• Working in Ukraine, Nathan said, has shown him how important it is for the DFC to work closely with its peers, including the European Bank for Reconstruction and Development, International Finance Corporation, and European Investment Bank.

A diversified system

• Earlier this year, the DFC provided a $500 million loan to US company First Solar to build a new solar panel manufacturing facility in Tamil Nadu, India. Nathan said that the plant, which will use cadmium telluride sourced from India instead of China, “fits into the [DFC’s] supply chain diversification goals. . . We need to make sure that we’re not dependent on one country or one company for the inputs of the industries of the future.”
• “If we can do this kind of thing elsewhere in the world to make sure that supply chains are broadly diversified, that helps with resilience,” he argued, adding that the United States must not “replace dependency on oil” with dependency on “a couple of nations,” as that would bring “all sorts of strategic vulnerabilities.”
• “Having countries be able to be self-reliant, to have the energy they need for economic development, that promotes stability. . . that’s good for our security,” he said.
• On critical minerals, Nathan highlighted several projects underway in Africa, including one on graphite in Mozambique. And, he added, as the DFC invests in that project, it will also be working with the US Department of Energy, which has loaned a company in Louisiana funds to expand its capacity to produce graphite-based materials for batteries. “It’s critical to start with the sourcing of the minerals,” Nathan said. “But there’s a whole value chain” to support.

Katherine Walla is an associate director on the editorial team at the Atlantic Council.

Watch the event

The post How the US is pitching a development finance ‘alternative’ to China’s initiatives, according to Scott Nathan appeared first on Atlantic Council.

Faye’s impressive first-round win over his main challenger and former Prime Minister Amadou Ba was met with messages of congratulations from international partners such as France, the United States, and the United Kingdom, with French President Emmanuel Macron even tweeting in Wolof, the most prominent of Senegal’s national languages. Macron’s overture was widely seen as an outstretched hand from a country that was often on the receiving end of Faye’s campaign rhetoric.

It is true that some in Faye’s coalition of self-styled left-wing pan-Africanists have called for Senegal to break from its traditional relationship with France. Faye himself has promised to renegotiate oil and gas contracts with foreign operators to reach more favorable terms, which has garnered attention in Western diplomatic circles.

Yet, early indications suggest that fears about Senegal severing its relationship with its foreign partners may have been overblown, as Faye has emphasized the importance of maintaining strong international relationships while focusing on domestic priorities.

In one of his first public appearances as president-elect, Faye called upon the countries that seceded from the Economic Community of West African States (ECOWAS) at the start of the year—Niger, Mali, and Burkina Faso—to return to the regional economic union. In his inaugural speech, Faye promised once more that Senegal would remain a friendly country for international partners rather than a confrontational one.

This complex reality has opened a window for countries in the West to establish more tightly knit relationships with Senegal and the region—but only if they’re willing to create equitable partnerships that foster development and stability.

Embracing change: Senegal’s transformation and Western relations

Faye’s victory clearly reflects frustration among the youth in Senegal, where high unemployment rates have been a pressing issue. According to data from 2023, youth unemployment in Senegal stood at around 4.2 percent. But with 84 percent of employment in the informal sector, many people under age thirty-five live in a precarious situation, with very little access to education, formal employment, or basic necessities.

This is why Faye’s determination to reform the economy, introduce anti-corruption measures, and promote national companies to enhance Senegal’s control over its natural resources has struck a chord with young people in urban areas, the disenfranchised, and older intellectuals who always viewed Senegal’s friendly relationship with the West as problematic. These policy goals address the demands of citizens for a fairer and more transparent system that can provide them with better prospects for economic stability and good governance based on merit, accountability, and integrity.

This represents a golden opportunity for Western countries to redefine their engagement strategy in Senegal and help stem the hostile narrative against them in the region. By supporting the fight for transparency, job creation, and the growth of a strong national private sector through technical and financial cooperation, the West can demonstrate its commitment to a more equitable partnership that benefits both Senegal and the Western countries involved.

Moreover, the windfalls from Senegal’s newly discovered oil and gas reserves will, from this year onward, completely transform the economic and social outlook of the country. Through constructive dialogue on issues such as natural resource management and sustainable development, Western interests can actively support a mutually beneficial partnership with Senegal.

The mining industry serves as a cautionary tale for how Western economic engagement with Senegal can lead to anti-Western backlash when the needs of locals are not considered. The expansion of the mining industry has caused forced evictions and damaged livelihoods. Over the past decade, local communities have led a number of protests, some turning violent and deadly, over the practices of these mining companies. This highlights the importance of ensuring that foreign economic activity respects the rights and livelihoods of local communities if anti-Western sentiment in Senegal is to recede.

Opportunity to reshape alliances in the Sahel

Initially met with apprehension abroad due to his antiestablishment stance, Faye’s presidency gained acceptance as his commitment to transparency, humility, and anti-corruption measures became evident, prompting a shift in the international community’s perception of him.

As further proof of this increased confidence, the price quoted on Senegal’s bonds due in 2048 rose by 1.4 cents to 75.88 cents on the dollar on the day following the election, the best performance for that day among sovereign dollar-debt issuers in emerging markets. This postelection bounce suggests a new cautious optimism from investors about the governance and economic outlook under Faye’s leadership.

This optimism could translate to acceptance of Faye’s positions on regional diplomacy: advocating a sovereigntist ideology; calling for Niger, Burkina Faso, and Mali to return to ECOWAS; promoting African integration; and challenging the use of the CFA franc. These positions starkly contrast with former President Macky Sall’s approach of seeking ECOWAS consensus before defining Senegal’s position on regional issues.

Faye also demonstrated his commitment to regional integration by exclusively inviting key African dignitaries to his inauguration, including Nigerian President Bola Tinubu, Moroccan Prime Minister Aziz Akhannouch, and Guinean Interim President Mamadi Doumbouya.

This shift in diplomatic strategy under Faye’s leadership presents an opportunity for Western countries to collaborate closely with Senegal on issues of African integration to reset and reshape relations with the countries that have distanced themselves from ECOWAS. Such partnerships would improve stability and economic cooperation in a region increasingly marked by great power politics.

Faye’s brand of left-wing pan-Africanism not only aligns with his vision for Senegal’s national sovereignty and economic empowerment but also presents an opportunity for Western countries to engage in a more equitable partnership that fosters development and stability in Senegal and the broader Sahel. As Senegal navigates this transition, the international community has the chance to prove it is serious about meeting this administration halfway. If it does, a new era of cooperation and shared prosperity in the region is a real possibility. If it doesn’t, then the West’s declining popularity in the region is likely to become a permanent trend.

Mayecor Sar was a 2016 Millennium Leadership fellow with the Atlantic Council. He is currently a senior policy advisor in strategy, citizen-centric delivery, and government transformation in Africa. Mayecor is also the founder of a think tank called Initiative pour un développement endogène de l’Afrique (IDEA).

The post Senegal’s new political landscape offers a new start for the West appeared first on Atlantic Council.

In partnership with the Policy Center for the New South, the Africa Center is proud to present a joint report, “The Reform of the Global Financial Architecture: Toward a System that Delivers for the South,” by Otaviano Canuto, Hafez Ghanem, Youssef El Jai, and Stéphane Le Bouder.

This report issues specific and urgent calls for reform, including more representative global governance, increasing the World Bank’s operational and financial capacity, prioritizing programs that would integrate Africa into the global economy, connecting the continent’s critical infrastructure and trade routes, and increasing participation and collaboration with bilateral public and private lenders and investors, such as China, sovereign wealth funds, and multinationals.

2024 marks eighty years of the Bretton Woods system. It is crucial to implement extensive reforms and substantial policies to support African nations’ efforts and maximize their chances to unleash their immense economic potential.

These recommendations presented during the 2024 IMF-World Bank Spring Meetings reflect the urgency of both operational and more inclusive reforms for the African continent.

About the authors

Otaviano Canuto
Senior Fellow
Policy Center for the New South

Biography

Otaviano Canuto is a senior fellow at the Policy Center for the New South, principal at the Center for Macroeconomics and Development and a nonresident fellow at the Brookings Institute. Canuto is also a former vice president and executive director at the World Bank, executive director at the International Monetary Fund and vice president at the Inter-American Development Bank. He was also deputy minister for international affairs at Brazil’s Ministry of Finance, as well as professor of economics at University of São Paulo (USP) and University of Campinas (UNICAMP).

Hafez Ghanem
Senior Fellow
Policy Center for the New South

Biography

Hafez Ghanem holds a PhD in economics from the University of California, Davis and is a senior fellow at the Policy Center for the New South. Ghanem is a development expert with a large number of academic publications, and more than forty years’ experience in policy analysis, project formulation and supervision, and management of multinational institutions.  He has worked in more than forty countries in Africa, Europe and Central Asia, the Middle East and North Africa, and South East Asia.

Youssef El Jai
Economist
Policy Center for the New South

Biography

Youssef El Jai works at the Policy Center for the New South as an economist. He joined the center in 2019 after earning a master’s degree in Analysis and Policy in Economics from the Paris School of Economics and the Magistère d’Economie from the Sorbonne.

Stéphane Le Bouder
Nonresident Senior Fellow
Africa Center

Biography

Stéphane Le Bouder is a nonresident senior fellow at the Atlantic Council’s Africa Center and the chief operating officer of MiDA Advisors, a global advisory firm specializing in facilitating institutional investments and trade in Africa and other emerging markets.

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

Learn more

Report Apr 3, 2024

The case for African social infrastructure

By Tom Koch

Investment in African social infrastructure can be defined as African real estate that serves an essential societal purpose.

Africa Economy & Business

Report Mar 3, 2023

Critical connectivity: Reducing the price of data in African markets

By Aubrey Hruby

This report analyzes the current state of the digital transformation in Africa and outlines how affordable and accessible data is imperative for further development.

Africa Digital Policy

Issue Brief Oct 9, 2023

Reimagining Africa’s role in revitalizing the global economy

By Amin Mohseni-Cheraghlou

The African continent potential to revitalize the world economy and reverse the downward trend in global growth. However, for this to materialize, it needs substantial investments in its physical and social infrastructure.

Africa China

The post Delivering results for the South: The Bretton Woods system we need appeared first on Atlantic Council.

For well over a year, DPI discussions have simmered in capitals around the world, drawing in policymakers, diplomats, and development experts alike. As a quick primer on DPI, think of it as the digital equivalent of laying down highways and bridges, but for the virtual world. Just as physical infrastructure drives economic growth, investing in DPI can propel inclusive development at a societal scale. Identity, payments, and data exchange platforms are often cited as the core building blocks of DPI, mirroring the multilayered structure of India’s famous homegrown technology stack.

India has been a trailblazer in deploying DPI at home and globalizing the DPI model. With its Group of Twenty (G20) presidency in 2023, New Delhi championed DPI on the world stage, securing political buy-in for the concept at the highest levels. G20 digital ministers endorsed a framework to govern the design, development, and deployment of DPI last August. And with the unanimous endorsement of G20 leaders, the New Delhi Leaders’ Declaration from last November set the stage for accelerated DPI development in 2024.

However, as the G7’s foray into the DPI arena reveals, the conversation is far from over. There are still different views of what DPI is and ought to be, as well as how it should shape the way markets function. Contrasting the G7 and G20 ministerial texts on DPI reveal three important areas of contention.

Differing visions

First, there’s the question of scope and purpose: Should DPI focus on enhancing public service delivery by governments or seek to restructure markets and delivery of private services? The G7 ministerial text opts for a narrower focus, solely emphasizing DPI’s role in enhancing citizen access to public services delivered by governments, while the G20 imagines a more expansive canvas, where DPI serves as a conduit for “equitable access” to both public and private services. This distinction is not merely academic; it gets to the core of what makes DPI novel and contested.

What does it mean to use DPI to enable equitable access to private services at a societal scale? It’s an evolving concept, but the basic thrust is to leverage the design, deployment, and governance of DPI to “dynamically create and shape new markets” and advance policy goals. For example, with a market-shaping DPI in place, a system operator, often the state itself, can define technical standards for private service providers to ensure interoperability. It can cap market share to give force to its vision of competition policy. It can influence pricing and business strategies through system rules and design features, with the DPI operator playing the role of “market orchestrator.” This is a different paradigm for the digital economy than a traditional market-led model—and to DPI champions, that’s precisely the point.

Second, consider the motivations for deploying DPI: Should these include advancing competition policy objectives? When describing the objectives for deploying DPI, G7 ministers borrow from the G20 framework but make a notable omission: There is no reference to “competition” as a core rationale for DPI. This omission is fully consistent with the G7’s vision of DPI, narrowly focused on public service delivery by governments. For the G7, the task of building competitive markets for the private sector is left to national regulators and antitrust authorities, not DPI builders and operators.

By contrast, the G20’s framework invokes the role of DPI in promoting competition twice, and that’s no accident. All governments want competitive digital ecosystems, but some see overexposure to Western tech giants as compounding the risks posed by pure market concentration alone. In this context, deployment of DPI serves two related purposes: disrupting entrenched incumbent positions while increasing state capacity to offer core digital services that reduce reliance on Western tech firms.

Third, what about design principles? Should DPI require open-source tech and open standards? The G7 ministerial statement omits all specific references to open source or open standards; instead, it vigorously defends the role of the private sector in building interoperable elements of DPI, presumably using open or proprietary technologies. In comparison, the G20’s DPI framework pointedly and repeatedly emphasizes the need for open software, open standards, and open application programming interfaces (APIs). Ultimately, however, the G20 statement hedges on this question, stating that DPI can be built on “open source and/or proprietary solutions, as well as a combination of both.”

Nevertheless, speak to DPI theorists shaping G20 and Global South thinking on DPI, and it’s clear they see “openness” as a defining principle of well-built DPI, citing the role open architectures, open-source tech, and open APIs play in enabling transparency, scale, interoperability, and reduced risk of vendor lock-in. Still, fuzziness around the term “openness” and its application in some of the largest DPI systems deployed to date suggests there is much left to unpack.

How will the G7 engage with DPI going forward?

It’s clear that the G7’s vision for DPI differs from the G20’s in at least three important areas. The question that remains is what comes next: How will the G7 (or its member states) assert their point of view?

The G7’s ministerial text offers some early clues. It acknowledges that G7 members will have “different approaches to the development of digital solutions, including DPI” and notes that the upcoming G7 Compendium on Digital Government Services will collect “relevant examples of digital public services from G7 members.” The compendium would also summarize factors that have led to “successful deployment and use of digital government services, such as national strategies, investment, public procurement practices, governance frameworks, and partnerships.”

Developing the compendium is a good start. But looking ahead, G7 members will need to weigh in this year at fast-moving multilateral discussions during Brazil’s G20 presidency, for instance, or within the United Nations’ multiple DPI workstreams. In each case, G7 perspectives on corporate governance, privacy, market disciplines, and regulatory best practices will strengthen discussions and outcomes, just as the G20’s and the Global South’s focus on inclusion, competition, and openness help ground the conversation in public interest concerns. The push and pull of the different visions for DPI could yield a better outcome for all—that’s the optimistic case.

A pessimist may insist that the gaps between the G7 and G20 views on DPI are tough to bridge. And it’s true, there is a real difference between a DPI scoped for public service delivery and one intended to shape the structure of digital markets and digital services offered by the private sector. If the latter view of DPI holds, G7 member states may need to find new ways to constructively participate in global DPI discussions. This could involve promoting individual layers of the DPI stack, as the G7 is already doing with digital ID governance, and emphasizing the need for sustainable public-private partnerships for DPI build-out. 

Ultimately, time will tell how the G7 chooses to lean into the global DPI debate. The only certainty is that the G7’s active engagement isn’t optional anymore—it’s essential.

Anand Raghuraman is a nonresident senior fellow at the Atlantic Council’s South Asia Center, where he leads research initiatives on US-India digital cooperation and publishes expert commentary on Indian data governance and digital policy initiatives. He is also director of global public policy at Mastercard.

Mastercard, through its Policy Center for the Digital Economy, is a financial supporter of an Atlantic Council project on digital public infrastructure.

The views expressed in this article are the author’s and do not necessarily reflect those of Mastercard.

The post What should digital public infrastructure look like? The G7 and G20 offer contrasting visions. appeared first on Atlantic Council.

The second half of the twentieth century experienced significant economic integration. International trade, cross-border migration, capital flows, and technological diffusion increased per capita incomes across countries and reduced global poverty.1 However, events such as the global financial crisis of 2007 to 2009, Brexit, and the COVID-19 pandemic—all against the backdrop of escalating great power rivalry and tensions between the United States and China—have demonstrated the rise of geoeconomic fragmentation (GEF). Since the 2022 Russian invasion of Ukraine, a growing numberof world leaders have addressed the impacts of GEF on global energy and agricultural markets. For one, higher and increasingly volatile food and energy prices have made it increasingly difficult for developing nations to prioritize environmental concerns and implement sustainable development initiatives.

The International Monetary Fund (IMF) describes GEF as a pattern of “policy-driven reversal of global economic integration” that threatens capital flows to low-income countries, hinders innovation in emerging markets, and discourages cooperation on international crises. Stemming from the prioritization of national security objectives, GEF takes the form of policies that reduce reliance on other countries by incentivizing domestic production and employment. In our increasingly fragmented world, nations have focused on reshoring essential goods and supply chains, including minerals crucial for green technologies, semiconductors, and military hardware due to concerns over national security and geopolitical motives. These transformations are in direct opposition to the founding principles of the Bretton Woods institutions (BWIs)—the International Monetary Fund, the World Bank, and the World Trade Organization (WTO)— which collectively seek to promote free trade, globalization, unified and competitive exchange rates, and the reorientation of public expenditures to achieve reductions in global poverty and increased economic prosperity for developing nations.

The costs of GEF are far-reaching and include higher import prices, segmented markets, diminished access to technology and labor, reduced productivity, and lower living standards. A June 2023 article in the IMF’s Finance & Development magazine points to diminished output in a scenario where countries must align with either a US-EU as 2.3 percent of global gross domestic product (GDP). Advanced economies and emerging markets could face permanent losses of between 2 percent and 3 percent, while low-income countries are at risk of losing more than 4 percent of their GDP. These losses could deepen risks of debt crises, exacerbate social instability, and increase food insecurity. The most vulnerable nations, heavily dependent on the imports and exports of key commodities, will find it particularly costly to adapt to new suppliers under fragmented trade conditions. Moreover, a 2023 IMF paper with a comprehensive analysis of GEF and its potential effects on the future of multilateralism found that increasing international trade restrictions could lead to a long-term decline of up to 7 percent in global economic output, or approximately US$7.4 trillion. Building on these findings, an October 2023 IMF blog, titled “Geoeconomic Fragmentation Threatens Food Security and Clean Energy Transition,” argued that disruptions in the global trade of goods induced the spike in inflation experienced globally in 2022, heightened food insecurity in lower-income nations, and contributed to a deceleration in global economic growth. In addition, GEF is posing a threat to food security and the clean energy transition, namely by impacting the trade of essential minerals and agricultural goods, according to the blog co-authors.

GEF also risks short-circuiting the multilateralism needed to coordinate climate change mitigation and sustainable development in the years to come. An IMF policy report, titled “Geo-Economic Fragmentation and the Future of Multilateralism,” noted signs of GEF including:

• Formation of regional economic blocs.
• Declivities in cross-border capital flows.
• Prioritization of resilient supply chains over and above efficiency.
• Growing income inequality.
• Rising geopolitical tensions.
• Increasing discontent associated with a free trade system.

Among the goals of the BWIs is to achieve global net-zero emissions by 2050; however, GEF has limited these organizations’ abilities to work with governments, businesses, civil society organizations, and other stakeholders to mobilize resources and accelerate the transition to a low-carbon economy. Policymakers and scholars have raised growing concerns, suggesting that increased GEF will have implications for sustainable development outcomes. However, there remains a paucity of research on the impact of GEF on net-zero targets specifically. This report builds on previous scholarly work to examine the impacts of GEF on the ability of nation states to attain their net-zero targets to combat climate change.

In conclusion, the paper calls for a democratized governance structure in the BWIs, emphasizing the need for reevaluating quota allocations and diversifying leadership roles. By addressing these foundational challenges, the BWIs can navigate the complexities of today’s global economic landscape more effectively, fostering trust, representation, and robust leadership. The authors also argue persuasively that BWI reform can not only reinforce the legitimacy of the IMF and World Bank but also indirectly help the soft and hard power of the states most hesitant to reform the international monetary system.

Shirin Hakim is a Senior Fellow at the Center for Middle East and Global Order and a former Bretton Woods 2.0 Fellow with the GeoEconomics Center.

Amin Mohseni-Cheraghlou is the macroeconomist with the GeoEconomics Center and an assistant professor of Economics at the American University in Washington, DC. He leads GeoEconomics Center’s Bretton Woods 2.0 Project.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

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But central bank governors and finance ministers who met in Washington this week grappled with more than the question of when their countries will be “landing” after a period of high inflation: They also looked to manage how their countries recover, aiming for a soft landing that avoids recession.

With so much at stake, we dispatched our experts to IMF and World Bank headquarters in Foggy Bottom to decode the institutions’ plans to navigate the turbulence of the global economy.

• Dispatch from IMF-World Bank Week: Your cheat sheet on progress made

• This week in one word: Clarity

• Côte d’Ivoire’s Nialé Kaba on the future of World Bank leadership: Why not an African?

• The Polish finance minister on his country’s “U-turn” toward European values

• See day five analysis

Watch all our conversations with central bank governors, finance ministers, and experts

IMF-World Bank Week at the Atlantic Council

WASHINGTON, DC APRIL 21-25

The Atlantic Council hosts a series of special events with finance ministers and central bank governors from around the globe during the 2025 Spring Meetings of the World Bank and International Monetary Fund (IMF).

Dispatch from IMF-World Bank Week: Your cheat sheet on progress made

This week, the world’s finance ministers and central bankers came together in force for the first time since the “Marrakesh miracle,” that was the annual meetings last year—at least in the words of former IMF Managing Director Christine Lagarde—which finally resulted in progress on quota reform and a debt restructuring deal for Zambia.

But I doubt this week will go down in history as the “Washington wonder.” Tepid global growth, difficulty recovering from the pandemic (among developing countries), US-China competition (with Washington’s threat of new tariffs), and war cast a long shadow. Still, the officials were able to make real progress on both sides of 19th Street.

Yesterday, my colleague Martin outlined the IMF’s successes: The Fund adjusted its lending policy, allowing it to step in to support countries in debt distress, and called attention to the risks of large fiscal deficits.

But there are, after all, two sides to 19th Street. And on the World Bank side, countries including the United States, Japan, and the United Kingdom pledged $11 billion for some of the Bank’s guarantee instruments, which make its programs less risky—and more attractive—for private investors. The added firepower complements restructuring within the Bank to streamline the guarantee system. Hopefully, these changes will encourage private investors to fill countries’ funding needs for the green and digital transitions.

The G20 finance ministers and central bank governors also met this week, with Brazil’s Fernando Haddad giving the group homework: Find agreement on a wealth tax by the time the ministers meet again in Rio de Janeiro in July (the Atlantic Council will be there too).

Later today, as officials and their delegations start heading home, the security barriers will come down and 19th Street will open again. For the ministers, the hard work begins when they get home—and we will be watching closely to analyze whether the financial leaders make meaningful progress before the annual meetings in the fall.

This week in one word: Clarity

As the spring meetings drew to a close and leaders made their final statements, a few points became clearer.

Even though the global economy can feel hyper-interdependent at times, it is now becoming clearer just how muddled the economy is by divergence, inequality, and fragmentation. “Winners” and “losers” are seeing the economic gaps between them widen. There’s a heightened sense of uncertainty, with the threat of another political, economic, or natural shock looming.

What some may have seen as mission creep in finance—addressing energy transition challenges, the inclusion of gender and youth, and fragility—has become mission critical as macroeconomic stability and growth have become more dependent on, or disrupted by, these factors.

As a result, the timeframe for analysis—and more importantly action—has shrunk as spillovers, impacts, and risks from debt, inflation, conflict, and climate change have brought more urgency. On top of that, fiscal space has tightened, and capital flows stream away from where they are needed most. New research shows that countries in the Global South are paying out more in debt service than they are bringing in grants or loans—to the tune of fifty billion dollars. The United Nations’ annual Financing for Development report, released just before the spring meetings, reveals a more than four-trillion-dollar annual shortfall in funding to meet the Sustainable Development Goals, as I discussed this week with Assistant Secretary General Navid Hanif. 

While the World Bank and IMF have introduced reforms to optimize balance sheets, quotas, and capital adequacy to increase available financing, those changes are necessary but insufficient; that makes the World Bank announcement on Friday (that eleven countries have pledged eleven billion dollars to support the Bank’s hybrid capital and guarantee instruments) a welcome step.

Another thing that is clear after this week: the role regional multilateral development banks and international financial institutions (beyond the Bretton Woods institutions) play in addressing today’s challenges. This role isn’t new; I wrote about their role in COVID-19 response and recovery a few years ago. But there is again a need for private capital and philanthropic funding in a revamped international architecture that meets the moment.

And while more resources are key, it has become even clearer that more consideration needs to be paid to how funds are actually disbursed and delivered. As UN Undersecretary General and UNOPS Executive Director Jorge Moreira da Silva noted in our conversation, more than half of existing IDA funds have yet to be allocated. Furthermore, while analysis and policies are important, implementation matters and warrants additional attention.

Leaders across the global economy must ensure that even as they drive supply, they don’t forget about demand—from bankable projects to business environments, and from building capacity to domestic resource mobilization. This is the macro- and micro-challenge of the road ahead.

Côte d’Ivoire’s Nialé Kaba on the future of World Bank leadership: Why not an African?

On Thursday, Côte d’Ivoire’s Minister of Economy, Planning, and Development Nialé Kaba sat down with Rama Yade, senior director of the Atlantic Council’s Africa Center, to discuss the country’s economic priorities—among them, fostering sustainable growth. The two, conversing in French, spoke at an event that took place at the Atlantic Council’s IMF broadcast studio.

Côte d’Ivoire’s economy is predicted to rank fifth this year among the fastest-growing economies in Africa. Kaba said that the country would continue to make economic reforms to “enhance competitiveness, attractiveness, and economic performance.”

Kaba touched upon the IMF’s support to Côte d’Ivoire, which includes $3.5 billion under the Extended Fund Facility and Extended Credit Facility, in addition to a newly agreed upon 1.3 billion through the Resilience and Sustainability Facility. The minister also noted the importance of reform efforts at the Bretton Woods institutions, pointing to changes in how the IMF and World Bank select their leaders. “Perhaps one day the World Bank could be led by an African. After all, why not?”

Kaba also discussed topics closer to home. On Côte d’Ivoire’s agricultural sector, the minister said she’ll be looking to focus on the “local transformation of our raw materials.” Côte d’Ivoire is the world’s leading producer of cocoa, and Kaba said there is a need for investors to “settle and employ local labor.”

Touching on more global matters, Yade asked about the relationship between Côte d’Ivoire and China—specifically how a decrease in Chinese investments in Africa would affect the economy. Kaba was clear in her position that while China has been a primary investor, Côte d’Ivoire remains “strongly connected to Europe and also to the United States.”

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The Polish finance minister on his country’s “U-turn” toward European values

“Poland is back to Europe… we’ve made a ‘U-turn’ from what I call a ‘Hungarian path,’ which is out of the European values,” Andrzej Domański, minister of finance for Poland, argued at an Atlantic Council event on Friday.

Domański gave his remarks in discussing how Poland’s economy—which has proven resilient after avoiding recession in periods of mounting global economic challenges—fits within the greater European economy.

When analyzing the reasons why Poland’s economy recovered relatively quickly after the pandemic and after the initial wave of impacts from Russia’s full-scale invasion of Ukraine, Domański pointed to Poland’s economic diversification. “We don’t have one sector that would be overwhelming the whole economy. I believe this is one of the factors that is behind our resilience.”

Following that, when discussing Poland’s plan for the energy transition, Domański said that Poland can take “two obvious directions: one of them is renewables, and the second one is nuclear energy.”

Domański also discussed the ongoing priorities of the Polish government in further bolstering the economy. On the topic of security, Domański vowed that Poland “will not cut spending on defense” and that it will “will not stop helping [its] Ukrainian friends.”

Watch the event

• Dispatch from IMF-World Bank Week: What will this week’s legacy be?

• Paolo Gentiloni on how the war in Ukraine is impacting Europe—and how the EU can help fill Kyiv’s “financial gap”

• Is the global financial system fit for climate change?

• The South African finance minister’s plans to champion an African perspective during its 2025 G20 presidency

• “Congo is open for business,” argues DRC Minister of Finance Nicolas Kazadi

• See day four analysis

Dispatch from IMF-World Bank Week: What will this week’s legacy be?

There were plenty of reasons for a dour mood to spread across the spring meetings this week.

One such reason is that higher-than-expected inflation readings in the United States dampened expectations of Federal Reserve rate cuts, driving up long-term rates around the world. The Financial Times even spoke of relegating the low-interest period of the 2010s to the dustbin of history. Countries are beginning to realize that they may not have the means to service their debt, support their aging populations, pay for the green transition, help Ukraine, and finance military rearmament all at the same time.

The dour mood was reinforced by the Israel-Iran exchange of direct attacks and Russia’s destructive air campaign in Ukraine. Higher oil prices and further supply-chain disruptions consequently topped the IMF’s downside risks to the forecast. Calls from the Biden administration to triple aluminum and steel tariffs provided a reminder of the risk of future trade conflicts and increasing economic fragmentation.

Less discussed, but similarly mood-souring, was the topic of the stronger dollar, which might have negative consequences for emerging and developing countries with growing fiscal deficits.

The International Monetary and Financial Committee chair released a statement today that was among the most bland in recent history, repeating well-known positions about the IMF’s role in the global economy and committing to the implementation of recent decisions, but falling well short of new initiatives.

But when determining this week’s legacy, there are reasons for a better mood to prevail. The IMF did propose a tweak to its debt policies, allowing the Fund to lend to countries even if they’re still in debt restructuring negotiations with big bilateral creditors (think China). The IMF also, in its World Economic Outlook, finally zeroed in on the “significant risks” that large countries’ fiscal deficits pose to the global economy. And there are signs of momentum ahead: Liechtenstein is on track to join the IMF as member number 191, in a year marking the eightieth anniversary of the Bretton Woods institutions. Whatever mood the delegates are in when they depart Washington, their work will carry on.

Paolo Gentiloni on how the war in Ukraine is impacting Europe—and how the EU can help fill Kyiv’s “financial gap”

In a discussion at the Atlantic Council on Thursday, Paolo Gentiloni, the European Commissioner for Economy, expressed a surprisingly positive outlook about the European economy, as the European Union (EU) continues to face post-pandemic and security challenges. 

In discussing the IMF’s latest World Economic Outlook, which slightly downgraded forecasts for the eurozone, the former Italian prime minister said he sees “the conditions for an acceleration of the economic activity for the second part of this year, and probably more in 2025.” His conviction rests, he said, on “better-than-expected” declining inflation, shared “strong labor markets” across the Atlantic, and an increase in purchasing power in several European countries “not impacting inflation, but consumption, which would trigger a better level of growth.” The EU’s goal was ultimately to “avoid a recession and major energy crises.”  

When assessing Europe’s economic-rebound prospects, Gentiloni urged to not “compare the impact of the Russian invasion in Ukraine, in Europe, with other parts of the world,” highlighting its disproportionate impact on “Europe and the Global South.” Russia’s invasion “disrupted part of the European business model” reliant on “cheap gas” and exports, which particularly affects Europe’s largest economy, Germany. The geopolitical risk remains “the largest risk” threatening Europe, he said, while there is no “substantial risk from a financial stability point of view” or “divergences in level of growth among different European countries.” Gentiloni said he is “quite optimistic that [Europe is] out of the most difficult part” of its “economic situation.” 

Amid the growing debate about Europe’s future competitiveness, Gentiloni said that the topic fits into wider discussions on “how the model we built the European Union [on] in the last decades should be probably transformed.” To achieve its ambitions, Europe must “find common funding” beyond the NextGenerationEU (which is expiring in 2026) to further attract private investments and complete the green transition, “avoiding the idea that slowing down or taking a different direction will solve our problems, because the global competition on clean tech is there,” Gentiloni said.  

Drawing on a quote from former European Commissioner Pascal Lamy, Gentiloni remarked how “the EU cannot be the only herbivore in a world of carnivores” and argued that the “solution is to compensate economically, socially those that are most affected and to win the battle of the cultural narratives.”

Watch the event

Is the global financial system fit for climate change?

We know what the future is set to look like: By 2040, according to the Intergovernmental Panel on Climate Change, we will be living in a 1.5 degrees warmer world, with consequences that are already being predicted by science. That’ll be the case unless extraordinary action is taken.

The private sector is now waking up to this reality. Industry is beginning to recognize that climate risks raise financial risks. Homeowners are finding it harder to insure their houses. Water levels are rising, disrupting ports that play a large role in the global economy. Outdoor workers cannot work safely in heat waves, which are striking with alarming frequency.

The economic costs of inaction cannot be postponed and passed on to future generations.

There must be a new ambition for adaptation and resilience finance. Currently, progress on catalyzing investments in climate solutions is often slow and scattered, and it also often lacks scale. The solution: Redefining the economic and financial order.

To begin imagining what that new order should look like, we sat down with climate finance experts, who helped us spread our Call for Collaboration between the public and private sectors that we launched at COP28 last year. Catch up on that conversation, held on the sidelines of the IMF-World Bank Spring Meetings, below.

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The South African finance minister’s plans to champion an African perspective during its 2025 G20 presidency

South African Minister of Finance Enoch Godongwana joined the Atlantic Council’s IMF Broadcast studios on Wednesday to outline his country’s economic priorities, including its vision for the Group of Twenty (G20) agenda during its presidency in 2025.

In the conversation with Atlantic Council Africa Center Senior Director Rama Yade, Godongwana said that South Africa is focused on being not the biggest economy but the strongest. “What we must focus on is that we are the most industrialized economy on the African continent, and to what extent we can build on that, to build competencies, that makes us the strongest economy on the African continent,” he said. Sharing his optimism about economic growth on the African continent, Godongwana cautioned that a slowdown in growth in South Africa’s trade partners, such as China, may lead to a spillover effect not only on South Africa’s economy but that of the South African Development Community region.

Regarding South Africa’s upcoming presidency of the G20, the minister said that South Africa is developing an agenda that will include some of Brazil’s current priorities—and others from previous presidencies—and that South Africa “will inject an African perspective into that agenda” after consultation with countries on the African continent.

Turning to South Africa’s membership and ambition within the BRICS group, the G20, and the IMF and World Bank, the minister argued that there is no tension for South Africa within these groupings, but that they have been helpful in addressing challenges that the country faces. Responding to a question about a possible BRICS currency, the minister stated that there “is no document from the BRICS that talks about a BRICS currency in our declarations.” Godongwana stated that there is a push, regionally in Southern Africa and within the BRICS, to accept local currencies and to use alternative payment systems beyond the dollar when conducting international trade. But BRICS, he said, is not about undermining the current system—but changes in the current system are needed.

Speaking during the IMF-World Bank Spring Meetings, Godongwana discussed reforms he’d like to see the Bretton Woods institutions make, including governance and funding changes at the IMF and the World Bank. The minister argued for a change in the selection of heads of the IMF and World Bank and called for non-American and non-European candidates to be considered for the top leadership positions of the organizations. Speaking to investors, Godongwana stated that he welcomed investment into South Africa and the African continent that respected countries’ sovereignty and geopolitical strategies.

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“Congo is open for business,” argues DRC Minister of Finance Nicolas Kazadi

DRC Finance Minister Nicolas Kazadi joined the Atlantic Council’s IMF broadcast studios on Wednesday to outline his country’s economic priorities, including its intent to create more opportunities for investment.

Kazadi argued that “Congo is open for business” and “the mining sector specifically is driven by foreign investment.” In March this year, the Congolese government began to implement a 2017 law requiring all subcontracting companies to be majority Congolese-owned. The minister explained that while Congo encourages investment, the country wants to ensure that private investors share the prosperity with local partners and build local capacity. “We don’t even need a law for that, it is a matter of principle” to help local Congolese businesses grow, argued Kazadi.

In the mining sector, the finance minister said that Congo is looking for investments along the full energy value chain, “trying to raise awareness in our youth, support them as they invest in the ecosystem that we are trying to build in partnership with the big private sector,” he said. Kazadi said that “Congo is trying to bring more transparency along the value chain to raise the standards” to avoid situations in which products do not meet international environmental, social, or governance standards that can impact the image and business environment of the country. He said that he hoped companies working in the Congo would help charge a “local transformation of critical minerals” that would change the economy “completely,” bringing the gross domestic product “from billions to trillions,” he said.

Speaking during the IMF-World Bank Spring Meetings, Kazadi discussed Congo’s upcoming sixth review of its Extended Credit Facility program and reforms he’d like to see the Bretton Woods Institutions make, including changes to the channeling of Special Drawing Rights. He expressed a readiness to work with international financial institutions on addressing the development challenges facing his country.

Watch the event

• Dispatch from IMF-World Bank Week: The issues we haven’t heard about—yet

• European Investment Bank president urges multilateral cooperation on Ukraine’s reconstruction and climate financing

• “The role that digitalization plays for Ukraine, especially now, is critical,” says Olga Zykova

• The Global South’s reform agenda for the IMF and World Bank

• See day three analysis

Dispatch from IMF-World Bank Week: The issues we haven’t heard about—yet

IMF headquarters was abuzz today following the announcement of Managing Director KristaIina Georgieva’s new global policy agenda, outlining the economic challenges of the day and what the IMF plans to do about them.

The three priorities she chose for the Fund to tackle: rebuilding fiscal buffers, after public debt edged upward to 93 percent of GDP; reviving medium-term growth, which has deteriorated since the global financial crisis; and renewing its commitment to its members, with more quota resources to go around.

All of the above are worthwhile things to do. But, at least from where I was watching in the IMF HQ1 Atrium, Georgieva didn’t seem to mention anything about two of the most pressing issues of the day when she presented the global policy agenda this morning.

The first issue is China’s industrial overcapacity and its global impacts. The EU has launched or is expected to soon launch anti-subsidy investigations looking into Chinese electric vehicles, wind turbines, and medical devices. But the news that really spread like wildfire at the spring meetings was that, just a couple blocks away, the White House announced an investigation into China’s shipbuilding practices. President Joe Biden also called for tripling tariffs on Chinese steel and aluminum products, the starting gun for more protectionist measures to come—and a major risk to global growth.

The second issue is the divergent monetary policies being put forth by the US Federal Reserve and the European Central Bank, pushing up the dollar’s value in foreign-exchange markets. The topic did come up during the G20 press conference following the group’s meeting of finance ministers and central bank governors today. A strong dollar will undermine low-income countries’ growth prospects—something the IMF must pay attention to.

The silence on these risks to global growth shows the Fund should pay more attention to the issues at the core of its mandate to coordinate members’ economic policies as they are being shaped and implemented. Doing so early—rather than reactively helping countries deal with the fallout of poor international cooperation—would avoid negative spillovers on the global economy.

European Investment Bank president urges multilateral cooperation on Ukraine’s reconstruction and climate financing

On Thursday, Nadia Calviño—who this year took over as president of the European Investment Bank (EIB)—spoke to the Atlantic Council at the IMF-World Bank Spring Meetings, where she talked about the EIB’s priorities, including encouraging investment in Ukraine for reconstruction, rallying climate financing, and helping the European Union achieve its strategic priorities.

Calviño explained that the EIB is working with other multilateral institutions and with local Ukrainian partners to identify Kyiv’s rebuilding priorities—including infrastructure projects and support to small and medium-sized enterprises—to “make the most of Europe’s money.” She added that the EIB is working with the European Bank for Reconstruction and Development, the World Bank, and the United Nations Development Programme to ensure that “the experts that are on the ground are providing the most efficient service… to all of us.”

Calviño said that the EIB is proud to have garnered a reputation as “the climate bank,” with over 50 percent of its investments being in green projects and having supported the development of innovative technologies. “The green agenda is really ingrained in everything we do, inside and outside the EU,” she said. She argued that the investments being made in less-developed countries were strategic in nature and critical for Europe’s future priorities.

Calviño additionally said that there’s a sense of a “shared responsibility” across the Global North in addressing climate financing needs and deconflicting those efforts. She added that a North-South dialogue is “very important” and “needs to be accompanied by facts, not just words.”

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“The role that digitalization plays for Ukraine, especially now, is critical,” says Olga Zykova

In the bustling IMF headquarters on Tuesday, I sat down with Ukrainian Deputy Finance Minister Olga Zykova to talk about the role of digital development in post-war reconstruction.

Ukraine had been busy taking many of its public services digital, even before the outbreak of the war in 2022. Zykova, who became deputy finance minister a few months into the war, told me that Ukrainian citizens have used technologies, such as the Diia app, to do everything from travel to access healthcare to buy war bonds for financing. She told me (and also Candace Kelly from the Stellar Development Foundation and Kay McGowan from Digital Impact Alliance, who also joined the expert panel) that she believes Ukraine’s efforts can be a successful example for other war-torn economies looking to rebuild their digital infrastructure.

The conversation then turned to the importance of open-source infrastructure, as the panelists discussed the collaborative advantages of open-source technological solutions which can provide developers the flexibility to adapt technologies to fit their needs across countries and situations.

We also discussed the need for a robust evaluation and impact assessment of the funding of these programs and the technologies themselves, to ensure that they reach their full potential. This call for robust impact metrics has been a consistent theme of this week, echoed by multilateral development banks, the private sector, and civil society.

Zykova also outlined Ukraine’s priorities for the IMF-World Bank Spring Meetings, calling for the creation of a sustained plan to equip Ukraine with the means to meet its reconstruction demands. She encouraged countries to not lose focus, even with lingering uncertainties about funding in Ukraine, and reiterated the importance of building resilient networks as the EU approaches its elections.

Reconstruction in Ukraine represents many of the existential questions ahead for the World Bank and IMF this decade—how to shore up democratic resilience, build consensus across an increasingly fracturing global order, and use technology to reduce inequality and achieve lasting prosperity.

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The Global South’s reform agenda for the IMF and World Bank

International media has until now paid little attention to statements of the Group of Twenty-Four (G24). The committee represents developing countries within the IMF and World Bank, playing a similar role to the Group of Seventy-Seven, a coalition of developing countries that comes together at UN gatherings. As Global South countries have become more vocal in their demand for reforms of the Bretton Woods institutions, the G24’s statements have become more important. The group should be considered counterparts to the Group of Seven (G7) in discussions about changes, especially in the context of the International Monetary and Financial Committee (IMFC)—an important body in the governance of the IMF.

On April 16, the G24 met and issued a communiqué summarizing the positions of developing countries on many issues on the reform agenda.

Regarding the IMF:

• The G24 welcomed the equi-proportional increase in quota but stressed the need for a quota realignment to reflect involving realities of members. (Developing countries in aggregate have increased their weight in the global economy but feel underrepresented in the Fund’s quota and voting-share distribution.)
• It urged the Fund to eliminate the surcharge on its base lending rate which has resulted in high borrowing costs to members in need of substantial IMF support.
• It proposed considering sales of IMF gold to increase the financial resources of concessional lending facilities such as the Poverty Reduction and Growth Facility.

Regarding the World Bank:

• The G24 acknowledged the Bank’s efforts in implementing the Evolution Roadmap, sponsored by the Group of Twenty to optimize its balance sheets and increase its financing capability and efficiency.
• However, the G24 cautioned that the commitment to allocate 45 percent of annual financing to climate-related projects should not be at the expense of financing for basic development challenges like combating poverty and hunger.
• It called for a capital increase for the World Bank and multilateral development banks in general—especially a strong replenishment of the resources of the International Development Association (providing grants and low-interest loans to low-income countries) in its twenty-first round of funding, which is currently underway.

In the view of many in developed countries, the demands articulated by the G24 may resemble a wish list containing many items difficult to command sufficient agreement to be adopted—for example, the quota reform. Nevertheless, developed countries should take these demands seriously and engage constructively with developing countries to find a reasonable way forward. Failure to do so would undermine the legitimacy and effectiveness of the IMF and World Bank—institutions that should play important roles in sustaining global growth and supporting less-developed countries.

• Dispatch from IMF-World Bank Week: A tale of two headquarters

• Mixed developments on sovereign debt restructuring

• The Spanish minister for economy outlines his country’s economic trajectory—including a predicted 20 percent drop in its debt-to-GDP ratio

• Despite the IMF’s revised growth forecast for Russia, the Russian economy is not doing well

• Finance Minister Muhammad Aurangzeb outlines Pakistan’s path to economic reform and stability

• Back to the basics: High turnover rates for central bank governors do not help with inflation

• Spooking the spirit of Bretton Woods

• See day two analysis

Dispatch from IMF-World Bank Week: A tale of two headquarters

In many ways, the story on day three of these spring meetings feels like a tale of two headquarters: Both style and substance differ between the boisterous World Bank on one side of 19th Street and the more buttoned-up IMF on the other.

The Bank’s atrium has been decorated with hundreds of colorful drawings by staff members’ children, depicting a “livable planet”—the newly added objective to the Bank’s vision statement. The Fund’s atrium, on the other hand, hosts an interactive “let’s grow together” board where delegates can affix stickers to the types of training and institutional strengthening they need. Both spaces strive to inspire and provoke thought, but the vibes are quite different.

Substantively, the Bank is abuzz with chatter about its “evolution,” touting progress such as a new guarantee platform, the corporate scorecard, and the series of reforms initiated last year to improve its impact. People at World Bank HQ are also energetically making the case that the Bank’s “money and knowledge” are vitally needed now, as a “great reversal” in development—explained in a new report—has resulted in one in three low-income countries becoming poorer than they were on the eve of the pandemic.

At the Fund, it’s about “resilience amid divergence” (as I discussed this afternoon with my fellow World Economic Outlook ‘decoders’ from the Atlantic Council): cautiously celebrating the fact that better-than-expected resilience in the US economy, coupled with stronger labor markets and cooling inflation in many places, is driving steady global growth. But that celebration doesn’t paper over the fact that debt, higher-for-longer interest rates, and conflict are undermining growth and impeding recovery in many developing countries.

Where Bankers, Funders, delegates, and guests seem to be speaking the same language is around “leverage” (the need to use the Bretton Woods institutions’ funding to crowd in additional financing) and “demographics” (with certain population trends raising macroeconomic and social-development pressures and opportunities, which I’ll be talking about at the IMF on Friday).

PS: If you’re wondering which of the headquarters has the better store for some spring meetings swag, it’s the World Bank’s.

Mixed developments on sovereign debt restructuring

This was a big week for those working to help vulnerable middle- and low-income countries overcome debt crises. For years now, there has been a slow-moving discussion about how to improve the framework for sovereign debt restructuring. And on that front, there has been both good news and bad news in recent days.

First, the good news: Three years or so since Zambia defaulted on its international bonds, it has just reached a restructuring deal with its bondholders which has been accepted by the official bilateral creditors. However, Zambia is not out of the woods yet. It still has to negotiate debt deals with its commercial creditors—basically international banks including many Chinese stated-owned banks such as the China Development Bank, Industrial and Commercial Bank of China, etc. It is not clear if this problem will hold up the actual implementation of the agreed debt restructuring measures—highlighting the complexity of the sovereign debt restructuring process.

The second piece of good news is that the IMF Executive Board has just approved some adjustments to the Fund’s Lending into Official Arrears (LIOA) policy—basically allowing the Fund to lend to a member in distress even though that member is in arrear in servicing its debt to an official bilateral creditor. The just-approved adjustments would give the Fund more flexibility in making use of the LIOA policy when a creditor country (i.e. China) has not been forthcoming in the restructuring process, delaying its timely conclusion. The key outstanding question is whether a low-income debtor country would be prepared to go along with the idea of activating the LIOA vis-à-vis China—especially those who have relied on China for trade and investment via the Belt and Road Initiative.

Then there’s the bad news. A piece of proposed legislation is moving through the New York State Legislature that would amend the state’s creditor and debtor law. Basically, the amendments would unilaterally impose a restructuring regime, for example compelling bondholders to accept a restructuring deal managed by an overseer appointed by the governor of the state of New York. As about half of international sovereign bonds have been issued under New York law, and the other half under English law, this legislation would, if passed and implemented, introduce a huge element of uncertainty to the sovereign bond market. It could potentially disrupt its smooth functioning and raise borrowing costs for emerging market and developing countries. And it could short circuit international efforts, such as the G20-sponsored Common Framework and the Sovereign Debt Roundtable, which are trying to develop international agreements to improve the sovereign debt restructuring framework.

All three stories highlight the complexity of debt restructuring negotiations. But the summary of the week’s news on that front: two steps forward, one step back.

The Spanish minister for economy outlines his country’s economic trajectory—including a predicted 20 percent drop in its debt-to-GDP ratio

Spain is positioning itself as a “growth engine” in the eurozone, argued Spanish Minister of Economy, Trade, and Business Carlos Cuerpo.

He said that in 2023, Spain “grew five times the euro area average.” That, coupled with his prediction of a 20 percent drop in the country’s debt-to-GDP ratio (with respect to the peak post-pandemic), “[configures] a good way forward” for Spain, Cuerpo said, with sustainable growth likely ahead in the medium term.

Cuerpo said that Spain is hopeful about its economic prospects, as foreign direct investment has grown, indicating “confidence of world investors in the Spanish economy.”

Cuerpo spoke with GeoEconomics Center Senior Director Josh Lipsky at Atlantic Council headquarters during the IMF-World Bank Spring Meetings. They discussed Spain’s path forward utilizing NextGenerationEU funds and its role in the conceptualization of new EU fiscal rules. Cuerpo reflected on the transformation of primary themes of discussion over the EU’s fiscal rules, beginning with the green transition, pivoting to strategic autonomy, and now focusing on economic security. “There is a common denominator [within] those discussions, which is the need for investment,” he said.

Cuerpo pointed to Spanish investment in green hydrogen, semiconductors, and battery-related initiatives through the NextGenEU funds. A midterm evaluation from the European Commission found that the Spanish GDP level increased by 1.9 percentage points in 2022, when compared with a hypothetical Spanish economy without the NextGenEU funds present. “It’s not just an opportunity for the Spanish economy,” Cuerpo said. “The impact of the plan is already a reality.”

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Despite the IMF’s revised growth forecast for Russia, the Russian economy is not doing well

You’ve heard it before. Gross domestic product, or GDP, is not the best indicator to understand Russia’s economic performance under sanctions. Nor is the exchange rate. Yet, the IMF’s decision this week to revise Russia’s growth forecast for this year upwards to 3.2 percent after another upward revision in January is one of the most talked-about findings of the World Economic Outlook. And while the widening fiscal deficit and rapid inflation remind us that the Russian economy is still under strain, it’s important to acknowledge that, at the start of Russia’s full-scale invasion, sanctions policymakers thought they could reasonably hope to plunge Russia into a prolonged recession. And in April last year, when the IMF predicted the Russian economy would grow in 2023, most thought this was wrong, but it did indeed grow by 3 percent.

How are they pulling this off? It’s not just about oil and gas export income, though higher oil prices help. Combined disclosed and undisclosed military and domestic security spending exceeds 30 percent of GDP—and therefore represents a major boon for overall GDP figures. The Ministry of Finance had to reach into its savings more than expected at the end of 2023, taking the liquid part of the National Wealth Fund down from $150 billion to $130 billion. The weak exchange rate and labor shortages are also working together to keep inflation very high, at almost 8 percent.

It’s wrong to say the Russian economy is doing well. The problem is that it has enough resources to keep funding the war.

Finance Minister Muhammad Aurangzeb outlines Pakistan’s path to economic reform and stability

On Monday, Pakistani Finance Minister Muhammad Aurangzeb emphasized the country’s need for structural reforms over a span of two to three years. In an Atlantic Council conversation with the South Asia Center’s Kapil Sharma, Aurangzeb outlined Pakistan’s strategy, arguing that efforts shouldn’t merely focus on financial stabilization: They should also lend focus to sustainable growth and inclusivity. 

“The crux of our strategy with the IMF involves not just temporary relief but laying the groundwork for enduring stability and economic resilience,” Aurangzeb said. He underlined the importance of understanding and implementing long-term policies that have been on the nation’s agenda for decades. The minister argued that the time for action on these reforms is now, especially with the looming end of Pakistan’s three-billion-dollar Stand-By Arrangement with the IMF, currently set for late April. 

Pakistan reportedly intends to ask for a larger and extended program from the IMF to support its economic reforms. To that end, Aurangzeb argued that when it comes to these economic reforms, Pakistan doesn’t need more policy prescriptions: It needs implementation. 

“Ensuring macroeconomic stability is not merely about stabilization; it’s fundamentally about inclusive growth and addressing climate impacts,” said Aurangzeb. He noted that the financial and structural reforms would help Pakistan mitigate the adverse effects of climate change and promote financial inclusivity, especially among vulnerable groups, including women. 

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Back to the basics: High turnover rates for central bank governors do not help with inflation

Inflation is front and center at the spring meetings. Reducing it is crucial for any inclusive growth and development strategy because, after all, inflation is a regressive tax on the poor, who lack the real assets to effectively hedge against inflation.  

While the global median headline inflation has declined to 2.8 percent in 2024 and many central banks have been successful in their fight against inflation—particularly the Federal Reserve (known as the Fed), Bank of England (BoE), and European Central Bank (ECB)—many developing and emerging economies are still suffering from high inflation rates, sometimes with rates higher than 20 percent. Several factors continue to contribute to these rates: rising energy and food prices; increasing sovereign debts; higher policy rates in the ECB, UK, and Fed (and thus larger capital inflows to these economies); and growing budget deficits—partly because of the higher cost of energy and of servicing debt due to higher interest rates.

An often ignored but equally or even more important factor is the independence and reputation of central banks. While the majority of countries suffering from inflation rates higher than 20 percent claim that their central banks are independent and their policies are not influenced or dictated by their central governments, in practice the so-called “independence” of these central banks is severely undermined by the high turnover rates of their top bosses.

Available data suggests that over the past decade, the median tenure of a central bank governor or president in the twenty economies with the highest inflation rates has been a mere two years. Over the past ten years, a number of central bank governors have come and gone: Seven in Argentina, eight in Turkey, six in Venezuela, and five in Iran. Just to put this in perspective, during the same period, the median tenure of the leadership in the Fed, ECB, BoE, and Bank of Japan has been five years, and these institutions have each changed leadership only once in the past decade.  

Such a high turnover rate for the central bank leadership is a clear sign of its lack of independence. It also severely undermines the most important asset of a central bank: its reputation and credibility. Economic actors, markets, and consumers in an economy look to the central bank and its leadership for direction on the future of the economy and directly equate high turnover in a central bank leadership to policy uncertainty, demolishing the reputation and policy credibility of a central bank. A central bank lacking reputation and credibility is like a chef without a kitchen.

In fighting inflation, it’ll be important to go back to the basics: religiously protecting the reputation and independence of central banks and aggressively rebuilding any losses on these fronts. After all, reputation is extremely hard to build but very easy to lose. And that is the most important tool a central bank has to fight inflation.

Spooking the spirit of Bretton Woods

It was supposed to be a week of multilateralism, breaking down barriers between borders, and preventing “fragmentation” (as the IMF often likes to say). But the United States had different ideas.

Following US Treasury Secretary Janet Yellen’s recent trip to China where she hammered home the risk of Chinese manufacturing overcapacity, the Biden administration today called for a tripling of tariffs on Chinese steel and aluminum. As if that wasn’t enough, the Office of the United States Trade Representative is beginning an investigation into Chinese unfair trade practices on shipbuilding and maritime logistics, per a White House announcement this morning.

Couple this with the European Union’s ongoing anti-dumping investigation on Chinese electric vehicles (as we’ll discuss with EU Commissioner for the Economy Paolo Gentiloni tomorrow), and suddenly the spirit of Bretton Woods is looking a little spooked. That’s one reason why the understated warning in the IMF’s World Economic Outlook yesterday about downside risks may already feel out of date.

• What the World Economic Outlook left out

• What should be done with Russia’s blocked reserves?

• Dispatch from IMF-World Bank Week: IMF report launches keep it dull

• The IMF warns the United States to get its fiscal house in order

• How much can multilateral development banks crowd in private capital? It’s not looking like much—so far.

• When it comes to trade relationships, North America comes first, argues Mexico’s secretary of finance

• Read day one analysis

What the World Economic Outlook left out

The just-released World Economic Outlook (WEO) has a nice subtitle that sums up very well its key messages—”steady but slow: resilience and divergence.” Resilient because economic activity in advanced countries has been solid and precipitated a 0.2 percentage point upgrade in the IMF’s growth forecast, to 1.7 percent this year. Divergent because low-income countries (LICs) have had their growth estimates cut by 0.2 percentage points to 4.7 percent this year. They have absorbed most of the $3.3 trillion loss in global economic output relative to the pre-COVID trend. They’ve also built up onerous levels of debt so that many are in debt distress and now have to use more than 14 percent of their government budget to pay interest, crowding out other important and necessary expenditures.

Unfortunately, the outlook for the LICs looks to be even worse than the WEO’s forecast, thanks to the Iranian attack on Israel over the weekend, as well as recent upticks in US inflation data.

Going forward, the heightened risk of war following Iran’s direct attack on Israel will likely keep oil prices elevated, having risen by some 12 percent since the beginning of the year. Meanwhile, higher-than-expected inflation will delay any easing by the Federal Reserve. That has caused a renewed uptick for the dollar. The combination of elevated oil prices and a strong dollar is bad for many countries, but it is particularly devastating for LICs because most LICs have to import oil—so high oil prices coupled with a depreciating currency against the dollar represent a double whammy, undermining growth. Also hurting LICs is the fact that a strong dollar increases their debt and debt servicing burdens, and it also tends to trigger capital outflow exacerbating the stress.

These two news events will push LICs even further behind in the convergence process. In short, global economic disparities will likely increase with unfavorable social implications for the world. The WEO has not paid sufficient attention to this risk.

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What should be done with Russia’s blocked reserves?

Since February 2022, Western sanctions have blocked roughly $300 billion in Russian reserves. Thanks to high interest rates, these reserves have been generating income for their custodians, the largest of which is Belgium-based company Euroclear. The question Group of Seven (G7) members will be discussing this week is how to use that interest income.

Bloomberg’s Viktoria Dendrinou and the Council on Foreign Relations’ Brad Setser joined the Atlantic Council GeoEconomics Center’s Charles Lichfield to compare the two primary proposals: 1) Tax almost all the interest income and use the windfall as a funding source for Ukraine or 2) pull forward some of the interest income stream to provide funding more quickly, maximizing its value through financial engineering.

Although the United States wants to come to an agreement by June, Dendrinou explained that things are moving more slowly on the European side due to the greater risks posed by Russian retaliation, as Europe has more assets in Russia. This adds to fears of knock-on effects on the euro’s role as a reserve currency.

Still, Setser came back with ambitious plans to generate even more interest income by actively managing the funds. “If you put this in deposit accounts and you had access to the full $300 billion,” he said, a reasonable estimate “is nine to ten billion dollars per year.”

Dendrinou and Lichfield expressed skepticism about the feasibility of doing this from a legal perspective, as it may require changing the ownership of the assets. Looking to the future, Dendrinou tentatively suggested that there’s “probably going to be some kind of financial engineering in place” by next year’s spring meetings.

Setser, on the other hand, boldly predicted that by June, the G7 will “agree to a facility that pulls forward some, not all, future interest income so that the current sum that flows to Ukraine this year is more than the three to four billion that is currently being discussed.” G7 outcomes from this week may provide some early signs about a realistic timeline for using the interest income.

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Dispatch from IMF-World Bank Week: IMF report launches keep it dull

Each year at the spring and annual meetings, participants like me count down to the launch of the IMF’s most important flagship publications—the World Economic Outlook (WEO) and Global Financial Stability Report (GFSR). The launches are typically the high point of the week, often receiving more media attention than pronouncements from the finance ministers and central bank governors that come later on.

The GFSR unveiling has always been a jargon-laden affair. While the WEO press conferences have become increasingly staid over the years, they were once known for public debate and even sarcasm.

The most memorable launch happened in the aftermath of the 1997 Asian financial crisis, when the IMF came under fire for its tough policy prescriptions. Then IMF Chief Economist Michael Mussa had firmly defended the Fund against the attacks—which especially rankled when they came from then World Bank Chief Economist Joseph Stiglitz. At the September 1998 WEO launch, Mussa declared that “those who argue that monetary policy should have been eased rather than tightened in those economies are smoking something that is not entirely legal.”

But today’s launch events at IMF headquarters hewed to the new status quo. IMF Economic Counsellor Pierre-Olivier Gourinchas, who heads the Fund’s Research Department, offered the WEO’s case for optimism—with global growth forecast at 3.2 percent in 2024 and 2025—arguing that “the global economy remains remarkably resilient” although progress to reduce inflation has “stalled.” Notably, he called on China to address its property downturn and “lackluster” consumer demand. IMF Financial Counsellor Tobias Adrian then elaborated on the financial sector risks hanging over China at the GFSR press conference.

Mentioned only in passing were global geopolitical fragmentation, the divergence of fortune between advanced and low-income countries—the latter an important theme of this WEO—and the stalled progress in restructuring developing country debt. These uncomfortable issues were left to another day.

The IMF warns the United States to get its fiscal house in order

Unlike last year, the IMF’s World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) were not derailed by events happening a few days before publication. Last October, the Hamas terrorist attack on Israel the weekend before the Marrakesh meetings rendered the Fund’s forecasts outdated by the time they appeared.

Iran’s large-scale attack on Israel, by contrast, has not yet led markets to a fundamental reassessment of geopolitical developments, although the situation remains extremely fragile. The IMF’s spring reports therefore deliver a timely message about the factors behind a more somber medium-term outlook. With the inflation shock gradually diminishing, the Fund’s forecasters are on more solid ground assessing the challenges facing the IMF’s member countries, with fiscal pressures front and center in this year’s reports.

These are also depicted in an excellent article by Pierre-Olivier Gourinchas, the IMF’s chief economist. The degree of fiscal adjustment needed to stabilize medium-term debt ratios for many countries is striking, including the United States. The US fiscal stance is raising “short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy,” as Gourinchas put it. In other words, US fiscal policy poses a risk both to US disinflation and to global long-term interest rates unless the United States gets its fiscal house in order.

“Something will have to give,” concludes Gourinchas, an ominous reference to a long list of downside risks that are listed in the two reports. However, the good news is that the GFSR is less alarmist about financial sector developments this time, focusing instead on how to manage the “last mile of disinflation,” a considerable change in tone compared to the discussions only a year ago when the United States was on the verge of a major banking crisis.

As always, the IMF as a multilateral institution needs to be careful how it depicts geopolitical events, and there are well-calibrated references to commodity price developments and supply chain disruptions caused by ongoing conflicts. The reports, however, cannot elaborate on the precarious situation caused by Russia’s war in Ukraine and the ongoing conflict in the Middle East.

But these conflicts may increase pressures on government finances, including from rearmament needs, fiscal spending during an election cycle, and lower tax revenues due to mediocre growth rates. As a result, the advocated fiscal adjustment may remain elusive. Still, the IMF’s staff has done its duty by pointing out the underlying risks.

How much can multilateral development banks crowd in private capital? It’s not looking like much—so far.

In redefining its mission as striving for a world without poverty on a livable planet, the World Bank—under President Ajay Banga—has drawn attention to the need to mobilize capital resources to help developing countries close the climate action funding gap: A gap that currently amounts to the difference between the $100 billion committed annually by donor countries and the over $2.4 trillion needed per year by 2030.

It is clear that developed countries and multilateral development banks don’t have the capital resources to meet much of the investment gap. As a consequence, the Bank has put much effort into finding ways to catalyze, or crowd in, private capital by providing risk-sharing and guarantee facilities. With private institutional investors and asset managers holding more than $400 trillion of assets under management, the Bank hopes to draw in multiples of private capital to stretch its project dollars.

However, research by the Institute of International Finance has found that in recent years, multilateral development banks collectively managed to mobilize just fifteen dollars for every one hundred dollars committed—or one-fifteenth, decidedly not significantly multiplying the amount it has put up in its commitments.

While it is truly important and laudable for the Bank to find ways to catalyze private capital, it is better to be realistic about the potential outcome and impact of such efforts, so as not to set the stage for later disappointment. By presenting realizable targets—at least for the foreseeable future—the Bank can focus on the tremendous climate action investment gap that needs to be filled, continuously urging the international community to rise to the occasion to help meet the challenge before it is too late.

Of course, developing countries can help themselves by implementing structural reforms, especially in governance, to make themselves increasingly investable in the eyes of both domestic and international investors, attracting the needed investment flows.

When it comes to trade relationships, North America comes first, argues Mexico’s secretary of finance

Mexico’s Secretary of Finance Rogelio Ramírez de la O joined the Atlantic Council’s studios on Monday to outline his country’s economic priorities, including its relationship with the United States.

Ramírez de la O argued that Mexico is “one of the most open economies in the world for both trade and capital,” thanks in part to the country’s exports, which are reported at over 35 percent of gross domestic product. The secretary of finance said that the country benefits from its level of openness, which he stated is comparable to certain European countries—but it’s also one that “fewer economies in Latin America have.”

Last year, Mexico surpassed China as the biggest exporter of goods to the United States. Mexico is committed to North American integration because “it’s where the core of our exports activities [lie],” Ramírez de la O argued. “This doesn’t mean that anything else comes secondary, but it comes next.” Looking ahead toward the USMCA renewal in 2026, the secretary of finance reassured members about product traceability—a demand rising from concerns over Chinese products. “We’re trading mainly and foremost North American content,” he said.

Speaking on the first day of the IMF-World Bank Spring Meetings, Ramírez de la O discussed reforms he’d like to see the Bretton Woods Institutions make, including correcting current account imbalances to revisit the world trade rules architecture and advocated for revisiting financial assistance for Latin America. He expressed readiness to engage with the Group of Twenty and multilateral development fora to define a global tax framework.

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