SAN FRANCISCO: International Monetary Fund Managing Director Kristalina Georgieva has said this week’s meeting between US President Joe Biden and Chinese President Xi Jinping is a badly needed signal that the world needs to cooperate more.

“It sends a signal to the rest of the world that we must find ways to cooperate on those challenges where no country on its own can succeed,” Georgieva told Reuters on Friday in an interview on the sidelines of the Asia-Pacific Economic Cooperation summit.

The Biden-Xi meeting is “important at a time when geo-economic fragmentation has indeed deepened with negative consequences for the prospects for accelerating growth,” Georgieva said.

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Biden and Xi agreed on Wednesday to open a presidential hotline, resume military-to-military communications and work to curb fentanyl production, showing tangible progress in their first face-to-face talks in a year.

The meeting did not alter a growing array of national security-driven trade and investment restrictions between the world’s two largest economies, but Georgieva said the resumption of communications was important at a very uncertain time for the global economy.

Georgieva said the US-China thaw had a positive effect on leaders at the APEC summit, where her key takeaway was that “the spirit of cooperation is demonstrably stronger. And the world does need it.”

Georgieva said revived US-China communications will also help foster cooperation on global challenges, especially climate change, with the COP28 climate conference due to start at the end of November.

US-China engagement also will be an important factor on negotiations over World Trade Organisation reform, including restoration of its dispute settlement system. WTO ministers are due to meet in February in the United Arab Emirates.

Gaza war impact

Israeli war on Gaza continues to be “devastating” for the population and economy of Gaza, with “severe impacts” on the West Bank’s economy, Georgieva said as well.

It is also putting pressure on the neighbouring economies of Egypt, Lebanon and Jordan, which are seeing reduced tourism and higher gas costs, she said.

Israel, too, will see an economic slowdown, as nearly 8pc of its workforce has been diverted to military service, she said.

For Egypt, the IMF is “seriously considering” a possible augmentation of the country’s $3 billion loan programme due to economic difficulties posed by the Israeli war on Gaza. An IMF staff team is currently holding virtual consultations with Egyptian authorities on the programme.

The war has had “a very, very limited impact” on the global economy as an initial run-up in energy prices was not sustained, but impacts could grow if there’s an “accident” that widens the conflict or it is prolonged, Georgieva said.

“We are already seeing the impact of antisemitism and Islamophobia, raising their ugly heads all over the world. The sooner this war ends, the better,” she said.

IMF shareholding reforms

US Treasury Secretary Janet Yellen said during meetings last week with her Chinese counterpart that a key outcome of US-China economic engagement was Beijing’s support for a 50pc increase in IMF quota-based resources, without an immediate rise in shareholding for China.

Georgieva said it was important for the IMF to start quickly on revamping its shareholding formula to boost the representation of fast-growing developing economies: “The world needs an IMF that is financially strong, and that is also legitimate.”

Published in Dawn, November 19th, 2023