IMF head warns of ‘biggest test since second world war’

The head of the IMF has warned at the start of the World Economic Forum in Davos that the global economy faces perhaps its “biggest test since the second world war”.

Kristalina Georgieva, IMF managing director, said Russia’s invasion was “devastating lives, dragging down growth and pushing up inflation”, and urged countries not to “surrender to the forces of geo-economic fragmentation that will make our world poorer and more dangerous”.

Georgieva’s warning came as Ukraine stepped up its bid to give its citizens hope of a brighter future, if the war can be won, with a $1tn package of reconstruction support, financed from confiscating frozen Russian assets.

Speaking to the Financial Times from the Ukraine House, which has taken over the centre of Davos, Switzerland, Natalie Jaresko, a former finance minister, said the world should support Ukraine’s ideas for reconstruction because “Putin has attacked us all”.

Delivering the message of Ukraine in Davos, the US-born Jaresko, who ran the finance ministry in Kyiv in 2014-16, warned that everyone in the world would soon feel the economic effects of Russia’s invasion.

“From the poorest nations with a food crisis, to the US and EU through oil and gas prices, and to all those wanting to stop climate change, we need Ukraine to prevail,” she said.

She said Ukraine needed hope that reconstruction was possible. “We need to shed the final vestiges of our Soviet inheritance, replacing energy inefficient buildings and communities not built for the people who live there, and build the best urban structures,” Jaresko said in a mission that would take “decades”.

There needs to be a “Marshall plan plus”, she said. “The key issue is to persuade the US and the EU to confiscate the Russian assets that have been frozen along with seeking reparations for the war.”

“I know this is not automatically legal, but we need to start the process now,” she said.

Jaresko has since been the executive director of the Financial Oversight and Management Board for Puerto Rico, helping to finance rebuilding after Hurricane Maria in 2017.

She said that with bombs raining down every night across Ukraine, the rebuilding costs were likely to be higher than Kyiv’s current estimates of $560bn to $600bn. “I’m putting this at £1tn,” she said.

It was vital to give Ukrainians hope that a decades-long process of renewal to build a different country would emerge from the violence of the past three months, she said.

In recent days, increasing numbers of economists have become alarmed that the world is sliding towards a recession, with Chinese production falling sharply as it battles coronavirus, Europe suffering from a cost of living crisis, the US moving from boom to bust and emerging markets facing food shortages.

Georgieva urged all countries to lower barriers to trade, help countries in debt distress and modernise cross-border payments systems. But she warned, “there is no silver bullet to address the most destructive forms of fragmentation”.