With the Fed raising interest rates again this past week, a war raging in Ukraine, and China opening up – we wondered about the global economy. So we asked Kristalina Georgieva, the Bulgarian economist who heads the International Monetary Fund. The IMF is a lending institution with a pool of a trillion dollars that it uses to bail out countries drowning in debt. It also issues quarterly reports that world leaders and bankers rely on, analyzing the economic health of nearly 200 countries. The last IMF report in October painted a dire picture of the global economy.
Managing Director Georgieva was making gloom-and-doom predictions of a dark future. But the IMF’s new report on 2023, issued this past week, has her optimistic. Somewhat.
Kristalina Georgieva: The biggest surprise is that the picture, while it remains very concerning, is less dire than it was just two months ago. We are still going for a year of slowing growth. We’re still going to have interest rates relatively high because inflation hasn’t evaporated. So it is not much better. It is just less bad.
Lesley Stahl: The report says we’re gonna go down, generally, the world, and then we’re gonna ease up?
Kristalina Georgieva: This is what we are expecting to see that inflation globally would shrink from 8.8% in 2022 to just slightly over 4% in 2024.
Lesley Stahl: So tell us about the prediction for the U.S. economy.
Kristalina Georgieva: The U.S. economy is also going to slow down this year. But, at least based on the data we have today, we think U.S. would be able to go through the year narrowly avoiding falling into recession.
Lesley Stahl: Does that mean a soft landing?
Kristalina Georgieva: That means a possibility for a soft landing for the United States.
Lesley Stahl: What about employment?
Kristalina Georgieva: Our expectation towards the end of year is to see somewhat weaker labor markets. But let’s be very clear, we are not scared of some big unemployment wave swiping through the United States.
Lesley Stahl: So what is your advice to the U.S. Fed? Should they continue raising rates?
Kristalina Georgieva: Our advice to the Fed is to stay the course until core inflation starts turning down.
Lesley Stahl: Now, this is extremely important what you’re saying because the Fed, like all the other financial institutions, rely on the IMF reports.
Kristalina Georgieva: The Fed has to be very careful not to start easing financial conditions prematurely.
Lesley Stahl: What about American politics? I’m speaking of the debt ceiling specifically. Sure you’ve factored that in. Are you assuming that the United States could go into default because Congress refuses to lift the debt ceiling?
Kristalina Georgieva: A default of the US would cause significant damage to the global economy. But if you look at history, usually after a lot of back and forth, a solution is being found. So I put my hope and trust that history would be repeated.
Lesley Stahl: So your assumption is that the unthinkable won’t happen.
Kristalina Georgieva: COVID has taught us to be more open minded, that the unthinkable can happen. Even more-so the war in Ukraine. And this is why it is very important for everybody concerned to take this conversation very seriously. It will be very damaging for U.S. consumers if the U.S. defaults, that would push interest rates up. And if people don’t like inflation today, they’re not going to like at all what may happen tomorrow.
Kristalina Georgieva is the first IMF director from an emerging market, having grown up here in Sofia, Bulgaria, under communism. Today, the old Lenin monuments have been removed to a remote garden museum. But she refused to go see them with me.
Lesley Stahl: When you were growing up, high school, were you a committed communist?
Kristalina Georgieva: Absolutely not.
Lesley Stahl: Oh, even then?
Kristalina Georgieva: Absolutely not. My family was not party member family.
Life was hard: at 15, she started working in Sofia’s main food market, still there today.
Kristalina Georgieva: My very first duty was cabbage, to clean it and put it on display to be attractive.
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The family had little but she remembers a happy childhood.
Kristalina Georgieva: I would be coming home from school. We lived on a first floor. And the windows would be open and I would hear my father and my mother singing.
She and her brother, Stefan, still remember the words. Tough as it was under communism, things got even worse when the Soviet Union collapsed.
Kristalina Georgieva: Nothing in the stores. Nothing. I would get up at 4: 00 in the morning to queue to buy milk for my daughter. And in the mid ’90s, inflation became so bad that ultimately, it went to 2,000% a year.
Lesley Stahl: Oh my God.
Kristalina Georgieva: It wiped out people’s savings.
She learned economics at the Karl Marx Institute in Sofia. But as the Soviet grip loosened, she was free to commit to capitalism, winning a scholarship to study in London, then MIT. She joined the World Bank as an economist, rising to CEO, and in 2019, head of the IMF.
For her, the war in Ukraine is a chilling echo of the past, as Russia once again menaces one of its neighbors. Georgieva had a personal reason to worry: her brother was living in Kharkiv.
Kristalina Georgieva: I would be calling him and I can hear that bombs are falling. I can hear it on the phone.
Lesley Stahl: What was it like?
Stefan (Translation): It is so difficult to explain. It is like describing to somebody who is blind what the color red is.
The IMF has lent Ukraine $2.7 billion and she says is finalizing a program to send more.
Kristalina Georgieva: Ukraine lost a third of its economy and Ukraine will continue to be struggling because of this unprovoked invasion.
Lesley Stahl: When you did your report how did you factor in the war?
Kristalina Georgieva: We expect that the war would continue but the most significant impact of the war, that was food and energy prices jumping up, is going to be felt less in 2023. Europe has done an excellent job to free itself from dependency on Russian oil and gas and by doing so, they reduced the premium on prices that comes from uncertainty.
But the war has sent food, fuel, and fertilizer prices way up on four continents. The IMF warns this is a disaster on top of a disaster for many developing nations, as they borrowed excessively during COVID and a growing number just can’t pay it back.
Kristalina Georgieva: We risk to get to a point when country, after country, after country falls off the cliff. And that creates conditions for a debt crisis. This is becoming a very pressing issue. 60% of low-income countries are at or near debt distress. 60%!
Lesley Stahl: So we have the U.S. dollar extremely strong right now. How much is that feeding into the problem of debt?
Kristalina Georgieva: Very difficult for emerging markets and developing economies. Their currencies depreciate. So imagine you have high level of debt that is dollar-denominated. Interest rates go up, and your currency goes down.
And so, their debt payments are higher. But the biggest creditor of these developing nations isn’t the U.S. — it’s China, which has handed out a trillion dollars in loans to almost 150 countries to build roads, ports, and so on.
Lesley Stahl: China over the years has been reluctant to negotiate on their loans, and– forgive loans.
Kristalina Georgieva: You’re absolutely right. China has to proactively seek restructuring of these debt obligations.
Lesley Stahl: Now, there’s something called “the China Debt Trap.” And it has been thought that China liked to keep countries indebted to them so that they can apply political pressure and make them beholden to China.
Kristalina Georgieva: China has to change its policies because low income countries cannot pay. This is when debt restructuring becomes a top priority. What we are working towards is to bring all creditors, the traditional creditors from advanced economies, new creditors like China, Saudi Arabia, India, as well as the private sector, and put them around the table with the debtor countries. We are going to be in Bangalore in India in the end of February.
Lesley Stahl: Has China agreed to attend?
Kristalina Georgieva: China is going to participate at the level of minister of finance and the governor of People’s Bank of China.
Georgieva traveled the world, meeting China’s premier and other leaders to arrange this historic debt roundtable – a big win for the head of the IMF because, as the new report points out – the world is fragmenting.
Lesley Stahl: This organization was founded after World War II. It was in operation through the Cold War and then through globalization. Are we in the midst of deglobalization? And is it destabilizing?
Kristalina Georgieva: This is really problematic for our future because a fragmented world is both poorer and less secure. We did an assessment, how much would be the loss. Just trade, if we trade less with each other, if we break into blocs, that would take away $1.5 trillion from the world year after year.
Lesley Stahl: Do you consider fighting deglobalization as your number one priority?
Kristalina Georgieva: I do consider making the case for an integrated economy our main priority today. But let me be very fair to your question. Globalization as we have built it over the last three decades wasn’t perfect. And we were slow to admit that there were winners, but there were also losers. Unless we fix that, unless we pay attention and we are honest, who benefits, who doesn’t and correct it, globalization would have its enemies.
Lesley Stahl: Is it a plus that you came from behind the Iron Curtain? How does it help you?
Kristalina Georgieva: I learnt the cost of bad policies and how devastating they are to ordinary people, and how you can change a course of economy with good policies. This is what I apply today in my job.
Produced by Shachar Bar-On. Associate producer, Jinsol Jung. Broadcast associate, Wren Woodson. Edited by Richard Buddenhagen.
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