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Coronavirus: IMF chief calls for massive rescue spending

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Countries around the world must respond with “very massive” resources to economic disruptions stemming from the coronavirus pandemic to lay the groundwork for a strong recovery, the head of the International Monetary Fund told Reuters on Friday.

IMF Managing Director Kristalina Georgieva said she was particularly concerned about emerging markets and developing countries which had seen $83 billion in capital outflows and predicted they would need upwards of $2.5 trillion in financial resources to recover from virus-related disruptions.

IMF member countries had encouraged the Fund to focus its efforts on steps that could be done quickly, including a doubling of emergency financing to $100 billion and creation of a new short-term liquidity facility, she said in an interview.

Asked whether the global economy needs more than the $5 trillion in new rescue spending pledged by G20 countries on Thursday, Georgieva said: “Our advice is go big.”

“This is a very big crisis and it's not going to be sorted out without a very massive deployment of resources," she said, noting that low interest rates made it easier for countries to provide significant fiscal support.

The G20's $5 trillion pledge is equal to what was spent in 2009 during the global financial crisis, although economists say this crisis could be far worse.

Plunged into recession

Georgieva on Friday said the pandemic has already plunged the world into recession and it will be worse than during the last crisis, which caused a 0.7 percent drop in global output in 2009.

She welcomed a $2.2 trillion aid package approved by the US Congress on Friday to cushion the blow to consumers and businesses -- more than double what it pledged in 2009.

“The size matters. What matters perhaps even more is well-targeted measures,” she said, citing the need to focus stimulus efforts on health systems, income for workers who have lost jobs and keeping companies out of bankruptcy.

Emerging markets will likely need more than $2.5 trillion in resources, although some of this will come from their internal reserves, and some from domestic borrowing markets, she said.

“I do believe this number is on the lower end, because we are yet to see the full unfolding of this crisis in many emerging markets and developing countries,” she said. “It is hitting countries one after another, and it's like a domino falling until your turn comes.”

The IMF could approve additional emergency financing and creation of a new short-term liquidity facility when it meets for its now-virtual Spring Meetings in April, said one source familiar with the process.

Georgieva told Reuters it would take longer and more consultation with members to move forward on her proposal to allow countries to draw on their Special Drawing Rights, the currency of the IMF, as was done in 2009 during the global financial crisis.