IMF warns risk of securing supply chain pushes new Cold War

The question is, can we be more determined to increase supply security but not push the world to the extent that we are in a second Cold War?

WASHINGTON ( – International Monetary Fund (IMF) Managing Director Kristalina Georgieva on Thursday (13/4/2023) warned policymakers of a new Cold War danger as they step up efforts to secure their industrial supply chains amid geopolitical tensions between the powers big power.

“The question is, can we be more determined to improve supply security but not push the world to the extent that we are in a second Cold War?” Georgieva said at a press conference at the spring meetings of the IMF and World Bank in Washington. “I believe it is possible.”

Georgieva, who grew up in Bulgaria during the Soviet era, says she experienced the Cold War and its effects in cutting talent out of the world economy, and doesn’t want to see that repeat.

Also read: IMF Chair: 44 countries are interested in long-term concessional loans

On Wednesday (12/4/2023), Group of Seven (G7) finance leaders pledged to give low and middle-income countries a bigger role in diversifying supply chains to make them more resilient and sustainable.

Their communiqué did not mention China by name, but the language of the supply chain fits in with the “propagating a friend” efforts by US Treasury Secretary Janet Yellen and other Western leaders to trade more with allies and become less dependent on Asian manufacturing powerhouses for batteries. minerals, semiconductors, and other strategic goods.

The IMF has warned that rising geopolitical tensions and the consequent global economic fragmentation could increase risks to financial stability and potentially reduce global economic output between 0.2 percent and 7.0 percent.

It’s one of the main reasons why the IMF predicts the global economy will remain mired in a low-growth mode for years.

Georgieva said policy makers may have to accept that developing new, more segregated supply chains will involve some costs.

“Supply security and the reliable functioning of global supply chains take a new place, a higher priority in economic discussions,” he said, citing the impact of the COVID pandemic and the war in Ukraine. But he warned against going overboard and damaging global trade flows.

“If we fail to become more rational, then people everywhere will be worse off. The middle class in every country will pay the price,” said Georgieva. “So being a bit more level-headed will lead us away.”

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The IMF has long warned about the rising costs, the economic friction associated with a global economy splintering into geopolitical blocs, with a US-led democracy on one side and China and other autocratic states on the other.

This can lead to reduced competition in technology and trade systems. A new IMF working paper shows that heightened tensions can also encourage cross-border capital outflows, including direct investment from countries, with very high risks for countries. emerging markets and growing.

But French Finance Minister Bruno Le Maire said it was important for France, the European Union and the United States to secure the supply chains of essential goods such as electric vehicle batteries and reduce their dependence on China. But he draws a distinction between China’s “de-risking” and “de-coupling” supply chains.

“I think we need to engage China if we are to craft a response to the biggest challenges of the 21st century, including climate change and debt relief,” he said.

Also read: IMF Chair: Global growth hit its lowest point this year

A senior US Treasury official said that China also contributes to fragmentation by keeping vast sectors of its economy out of the confines of foreign competition.

“They’re moving in a direction that shuts out the world and separates themselves from things like market-oriented policies that allowed them to scale up so fast,” the official said of China.

The IMF predicts a strong recovery in China in 2023 given its opening post-COVID, and will account for about a third of global growth this year, said Georgieva.

Translator: Apep Suhendar
Editor: Nusarina Yuliastuti


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