(Bloomberg) — Investors are turning their focus to the world’s top finance ministers and central bankers assembling this week in Washington, looking for fresh clues on the outlook for everything from interest rates, banking stability and debt relief to oil prices and the testy US-China relationship.
(Bloomberg) — Investors are turning their focus to the world’s top finance ministers and central bankers assembling this week in Washington, looking for fresh clues on the outlook for everything from interest rates, banking stability and debt relief to oil prices and the testy US-China relationship.
Major central banks including the Federal Reserve and European Central Bank have signaled that stemming inflation remains their top priority despite last month’s banking woes, which raised the specter of wider economic risks.
The April 10-16 Spring Meetings hosted by the International Monetary Fund and World Bank will also see a raft of related meetings, including the Group of 20 finance chiefs. The G-20 will face another contentious attempt to craft a joint statement on their prognosis for the global economy, after having failed to do so in February thanks to disputes over Russia’s Ukraine invasion.
Cross-border banking woes and a deteriorating economic outlook had previously spurred greater cooperation at these gatherings. But “fragmentation” is now the order of the day, a key risk IMF Managing Director Kristalina Georgieva warned about last week when she gave a gloomy global forecast. It’s unclear whether the week will feature any tete-a-tete between top US and Chinese officials amid a broader breakdown in their bilateral engagement.
“The fundamental question is how can the IMF and World Bank operate effectively if the world’s two largest economies don’t really want to work together,” said Josh Lipsky, a former IMF adviser who is now a senior director at the Atlantic Council.
The IMF will release its World Economic Outlook report Tuesday morning, with revised global growth forecasts, and co-host a debt roundtable Wednesday. The G-20 wraps up its meetings on Thursday. Here’s a rundown of some of the top issues in focus this week:
Interest-Rate Pressures
The misreading of inflation in 2021 by the Fed, ECB and others continues to reverberate. Silicon Valley Bank failed last month after its bond holdings depreciated in the wake of aggressive US interest-rate hikes to rein in consumer prices, a collapse that unleashed broader banking woes.
Read more: JPMorgan’s Dimon Sees Bank Crisis Near End Even If More Fail
China’s central bank last month said the SVB incident showcased the hazards of rapid rate hikes. And India is among those unhappy with how advanced nations have handled the inflation challenge. Sanjeev Sanyal, an economic adviser to Prime Minister Narendra Modi, last month called on the US and euro zone to hold off on further monetary tightening after the banking troubles, and criticized developed nations for excessive fiscal stimulus during the pandemic.
Oil Shock
The surprise move recently by Saudi Arabia, Russia and other members of OPEC+ to slash output by more than 1 million barrels a day shocked markets and policy makers. US Treasury Secretary Janet Yellen called the step “unconstructive,” but some of her counterparts in major producing countries will see it helping bolster their balance sheets as global economic growth is set to weaken. Oil prices on Friday capped a third straight weekly gain after the unexpected supply cut.
Debt Distress
The IMF in recent weeks approved bailouts for a number of struggling economies, including $15.6 billion for Ukraine — the first first-ever loan to a nation at war — and $3 billion for Sri Lanka. Meanwhile, other nations in debt distress, including Zambia, are struggling to negotiate restructurings with their creditors, with China pushing to reschedule payments rather than take losses and asking multilateral development banks to accept haircuts.
The G-20’s so-called Common Framework, a roadmap to speed up the debt-restructuring process, has faced repeated delays. An April 12 meeting convened by the IMF, World Bank and current G-20 chair India will to try to reach greater consensus.
Time is of the essence. About 15% of low-income countries are already in debt distress and another 45% face high debt vulnerabilities, and the list is growing. Outgoing World Bank President David Malpass said debt relief is vital to avoid a “lost decade” of development and plans this week to push reforms for the process.
Read more: World Bank to Advocate for Changes to Speed Debt Restructuring
Climate Finance
Yellen is among those pushing for a revamp of multilateral development banks to leverage their financing ability and take on a range of global challenges, including climate change. A plan for the World Bank could see lending boosted by $50 billion over the next decade.
Ajay Banga — a former Mastercard Inc. chief executive and US-chosen successor for Malpass as the World Bank president — has embraced such vision.
But South Africa is among those nations warning about the World Bank taking on too many mandates, in a way that could undermine the lender’s focus on helping poor nations reduce poverty and accelerate development. Also under scrutiny is any move to ramp up its leverage in way that puts at risk its top AAA credit ratings.
The Dollar
After the shock US-led move to freeze Russia’s access to its central bank reserves, a number of emerging markets have raised questions about the wisdom of deep reliance on the dollar in cross-border trade and finance. While US officials see little risk to the greenback’s dominance in the global financial system, a variety of moves are afoot to increase the use of other currencies.
One such initiative came from India last month, when it offered its own currency as an alternative for trade to countries that are facing a shortage of dollars.
The Washington meetings could also see updated outlooks on central bank digital currencies and policymakers’ views on the woes in the cryptocurrency world.
Japan’s Bernanke
Dubbed as Japan’s Ben Bernanke for moving from academia into central bank stardom, Kazuo Ueda is expected to appear on the global stage in Washington days after taking the helm of the Bank of Japan. The international investment and policymaking community will be keen to hear any hints about how he intends to shape monetary policy in the world’s No. 3 economy, amid widespread expectations that he will scale down the BOJ’s still-ultra-stimulative stance.
Russia-Ukraine
Russia’s war in Ukraine war, now in its second year, continues to generate fallout in commodity and energy trade. The absence of high-level Russian representatives also will be notable. Officials from Group of Seven nations staged a walkout from a G-20 meeting in Washington that took place one year ago, just weeks after President Vladimir Putin’s invasion.
–With assistance from Tina Davis and Rich Miller.
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