Speech

Why I Remain Optimistic About Global Economic Cooperation

May 27, 2024

President Mattarella, Governor Visco, Mayor Brugnaro; Professors Lippiello and La Malfa; Commissioner Gentiloni; all of you who have come here today: I am deeply grateful for your presence and for the honor of being the first recipient of the Ugo la Malfa Prize for International Cooperation from the Università Ca Foscari Venezia, the Enciclopedia Treccani, and the Fondazione Ugo La Malfa. I will cherish it and will work hard to serve our family of nations so as to be worthy of it.

Dear Ignazio, your meticulous laudatio deeply touched me. Grazie di cuore!

May I add to it a tribute to the person whose life we celebrate through this prize:

Ugo La Malfa: pioneer in the post-war Italian reconstruction and economic miracle. Parliamentarian from 1946 to 1979. Minister of transport, minister of foreign trade, minister of budget and the treasury, deputy prime minister. European visionary, having helped guide Italy into the EU.

And, during our earliest years, a respected figure in the IMF’s highest governing body—our Board of Governors—appointed as Italy’s very first alternate governor in 1947, renewed twice, serving until 1959.

To receive this prize in his name in this beautiful and historic city—a monument to international trade and cooperation—is a proud and unforgettable moment.

***

My brief remarks today tell the story of global economic cooperation since World War II, weaving in my own experiences—experiences that have made me an unwavering optimist.

***

Let me start in 1947—the year Ugo La Malfa joined our Board of Governors.

In 1947, the world was—how to say it simply—the world was a mess. Europe sat in the rubble of total war. Former allies were already pointing their guns at each other. Women, girls, and old men—so many of the young men were dead—lifted broken bricks by hand. In Italy, widespread devastation, including of priceless cultural sites. In Japan, cities reduced to ash. In India, partition. In China and elsewhere, hunger. Almost everywhere, millions of displaced people on the move.

And yet, three years earlier, as the Western Allies fought their way out of Normandy, as the Red Army waged vast battles in the east, and as the Nazi holocaust reached its terrible climax, a group of statesmen met at Bretton Woods, New Hampshire, to craft a new global economic order. Great economic progress would result.

Given the positive outcomes, it is doubly regrettable that, for the first 45 years, a large section of the globe—the Soviet bloc—would remain outside the Bretton Woods system. A world divided.

Step one in my life—Bulgaria.

Back in the 1950s, as Italy grew by 7 percent a year, I was a child growing up in the communist world. Looking back, and knowing what I know now, it was a cold place. Not everything was bad—education was free, women could study and work, there was basic healthcare—but, overall, life on the other side of the Iron Curtain was frugal and oppressive.

Central planning, we can now confidently say, was an experiment doomed to failure. A system where the party faithful decided how to allocate the people’s savings simply could not compete with the entrepreneurial energy of the West. First the Soviet system groaned. Then it broke.

***

Step two in my life—the leap from central planning to markets. 

When the Wall came down in 1989, I was one of the few Bulgarians to have been on the other side. When Gorbachev came to power and initiated Glasnost and Perestroika, we were allowed for the first time to apply directly for scholarships in the west—I won one of them and in the summer of 1987 went to the London School of Economics. The time I spent there equipped me with precious knowledge about the functioning of the market economy—and when at the end of 1989 the centrally planned system collapsed, I wrote the first microeconomics and macroeconomics textbooks for Bulgarian students, helping a whole generation to transition to a new world. 

I went on to teach economics in Fiji and later at the Department of Urban Studies at the Massachusetts Institute of Technology. And it was there that the World Bank found me and then hired me in 1993. It gave me a chance to support the plan-to-market transitions on a much larger scale. It was an exciting time—an historic injustice was being corrected, with the eastern bloc joining its former enemies. The full potential of Bretton Woods, one might have concluded, was finally within reach.

In the three decades since I first joined the Bank, a billion-and-a-half people have escaped abject poverty. The woman in rural China who used to walk miles a day for firewood now has a gas stove and a moped. The mothers and babies who died at childbirth, mostly they now survive. Schools built. Lives transformed. Mud roads paved. Cellphones for countless millions, linked directly to satellites in the sky. The internet, not just for the few, but for more and for play.

As I noted in a speech at Cambridge University two months ago, so much of what John Maynard Keynes, himself an optimist, predicted in 1930 has come true. In a hundred years, technological advancements and capital accumulation have delivered eight times higher income per capita, despite the quadrupling of the world’s population; despite wars, genocides, and divisions. The decades since 1930 have been defined by a long march of cooperation, trade, and innovation that has lifted productivity, growth, and living standards. And the best record of progress came in the years after the end of the Cold War—the decades that enjoyed a truly integrated global economy.

***

A loop back to my own journey.

The year was 2010. I had already served in a number of very noteworthy positions at the World Bank. It turned out my learning process was not over—far from it. My life was about to take another big turn, exposing me to new things. Again, inspiration and hope—but also human suffering, up-close and personal.

Step three for me—back to Europe.

Sometimes things just happen. Call it luck, call it destiny. As you know, every EU member state gets to send one commissioner to Brussels. In 2010, as President Barroso assembled his second European Commission, the Bulgarian nomination fell through. I was called to step in as the EU commissioner for humanitarian aid and crisis management. Just in time for the response to the Haiti earthquake, the famine in the Horn of Africa and the terrible civil wars in Syria and Libya.

I saw the children after their boat crossings. I met the men who had left their loved ones behind in search of jobs to send money home. It reminded me: human history is a history of migration. And I resolved—in this chapter at least—to let it also be a story of compassion and integration.

It was during my seven years in Brussels that I began to fully appreciate the Great European Experiment. In the years when the Bretton Woods institutions were finding their feet, western Europe had embarked on a journey of cooperation that would become a shining light for all.

Former enemies burying their traumas to become friends. Founding fathers like Adenauer, De Gasperi, and Schuman sitting together, carefully considering every detail. Treaties, laws, referenda. The democratic will of the people, driving ever-closer economic integration. In the 1980s, Spain joining. In the 2000s, the central and eastern European countries, including mine. Freedom of movement of goods, services, people, and money. A powerful engine of convergence at work. Prosperity in togetherness.

If ever there were an exhibit to international cooperation, the EU is it! Italy can be proud of having been involved right from the start. In my own small way, I am proud to have served the European project.

***

Finally, let me take you back to Washington for step four in my journey.

By the time I was chosen to lead the IMF in 2019, I had already long understood that the economic progress all around us could not be taken for granted. It requires sound fundamentals—good policies and strong institutions to secure economic and financial stability as preconditions for growth, jobs, and improvements in living standards. And for that, the IMF is there, to help countries do what is necessary to ensure these fundamentals are in place.

Most people know the Fund for its lending programs. Some hate the Fund for its lending conditions—essential medicine can be bitter. It may well be true that the role that makes the IMF unique is its balance-of-payments support, timelessly written into the Articles of Agreement in 1944.

But I think more people should notice the health check-ups it conducts with all its 190 member countries (soon to be 191 with Lichtenstein) and the capacity development it provides to help countries put in place the necessary responses to these check-ups. An annual policy consultation with the US authorities as well as technical assistance to clean up the banking sector in Spain? Only the IMF.

Very early in my term at the Fund, COVID‑19 arrived. We all remember the images of biochemical suits in Wuhan and then the human suffering, especially of the elderly, here in Italy and soon everywhere. What followed was not a recession—it was a total lockdown. In the rich countries, governments stepped in on an epic scale to support lives and livelihoods. In Africa, Latin America, and so many other places, governments lacked the resources to do so. We at the IMF were these countries’ only source of support: we were the first responders.

Two years later, just when we hoped the worst was over, Russia launched its invasion of Ukraine. One result: a global energy shock bigger than the oil shocks of the 1970s. Major disruptions to the supply of wheat and many other commodities. Europe, so reliant on Russian gas, hit very hard.

In both the pandemic and the energy shock, the IMF didn’t just sit back and watch the action. For 97 of our member countries—of which 57 are low-income countries—we were the action, lending a combined total of almost 370 billion dollars. And we provided a special drawing rights allocation of 650 billion—the largest in our history.   

To lead the Fund is my great privilege. To be asked to do so for not one five-year term, but two—essentially for the entire decade of the 2020s—is not only a great honor, it is a great responsibility.

***

Let me conclude with the main question: where to from here?

I see great cause for concern. In front of our eyes, wars in Ukraine and the Middle East. Climate disasters on all continents. Unprecedented speed of change and frequency and severity of shocks. Inequality rising within and across countries.

On many occasions I have spoken about the trade and financial fragmentation underway. I know intimately well the constraints under which the IMF, the World Bank, and the United Nations must operate. Nobody needs to tell me how difficult it is to get 190 countries to agree on common actions.

When the history is written, will it be said that after the golden age of global economic cooperation the world fell back into two hostile camps, not talking, as we saw during my childhood?

With the post-Soviet rapprochement at an end and new partnerships taking shape, this is certainly a major risk.

***

If so, how can I be optimistic?

Four reasons, by way of a summing up:

• First, international cooperation as conceived at Bretton Woods has delivered profound human progress. This is the essential point of my cursory historical review today.
• Second, technological progress, including artificial intelligence, and wealth accumulation, as predicted by Keynes, continue ever faster. And they do so in an immeasurably more intertwined and co-dependent world than in 1947. The process of integration may be slowing, but it has not gone into reverse—the social, economic, and political costs of that would simply be too high.
• Third, world leaders of every political hue and political system appear to pragmatically agree that no matter what happens, we benefit from having safe places where we can still talk. Places where you leave your trade wars, cold wars, hot wars, and proxy wars outside the front door. This is what I see every time we hold our Spring and Annual Meetings.
• Fourth, as I noted at the outset, we are coming to grips with the realization that we share the same home—our beautiful planet—and that climate change and environmental destruction are universal threats. Either we face these threats together or—like this beautiful and historic city of Venice—we will struggle to survive.

Respected friends and colleagues, here is my bottom line: even though the setbacks we see are very serious, I am deeply convinced that the zig zags of history take us up and forward. Global economic cooperation may face headwinds but is here to stay.

As a graduate of Karl Marx University in then communist Bulgaria, and now the head of the IMF, I am evidence that anything is possible.

Once more, my deepest, heartfelt gratitude!