The global response to the pandemic

We have just wrapped up a very intense and productive week of virtual gatherings in the context of the Spring meetings of the Bretton Woods institutions.

Finance ministers, international organisations and bodies have exchanged views on the economic outlook and how to tackle short-term challenges for growth and financial stability and also long-term environmental and social challenges.

We have confirmed the broad consensus on a shared agenda for a strong, sustainable and inclusive recovery and the commitment to a coordinated response throughout the different jurisdictions. We have also agreed to reinforce the multilateral safety net for most vulnerable countries. The new US administration has provided a much-needed impulse to the establishment of a global tax system fit for the XXI century.

Finally, we have unanimously agreed on the one priority that should be at the top of the economic policy agenda in the coming months: accelerating the vaccination process and extending it to all continents so that we can all be safe as soon as possible. If there is one lesson to learn from this pandemic, it is the strong interrelation between human and economic health.

There are three other lessons related to the world's economic and financial order. First, that we are stronger together, that global challenges require global responses and the multilateral network of institutions that underpins global economic governance since the 1940s, reinforced with other more recent organizations and fora such as the G20, can play a key role in coordinating policies and providing effective responses to current realities.

Second, that prevention is always better (and cheaper) than correction and healing: we have acted fast to respond to the economic impact of the health crisis and this has avoided massive damage to our economic and social tissues, as well as deeper fiscal imbalances and a more permanent scarring which would jeopardize the recovery.

And third, that going forward we need to make our economies and societies more resilient, not only from the economic and financial point of view, but also from a social and environmental perspective.

Indeed, actions taken since March 2020 at the global level have certainly been instrumental in preserving the financial stability needed for governments to take unprecedented measures to avoid a deep and long lasting recession. Thanks to a coordinated monetary and fiscal policy approach by different jurisdictions, and the provision of debt moratoria and fresh loans to less advanced economies, the economic outlook for 2021 and beyond is one of recovery throughout the world. Mechanisms have been set which will help the deployment of vaccines beyond advanced economies. Moreover, in parallel with the response to the health crisis, work has continued on the more long-term agenda for a greener and more social recovery; not only to grow but to build back better. Priorities which were very far from the international consensus only some years ago.

The multilateral architecture has played a key role in ensuring an effective response to the pandemic and this week’s meetings illustrate its relevance going forward to coordinate actions, to minimize financial risks, to provide a safety-net and to build global standards in key areas such as green financing and digital taxation.

The meeting of the Coalition of Finance Ministers for Climate Action held this week is a good example of this long-term agenda. This international forum, created in 2018 to accelerate the transition to low carbon economies, is gaining new members, the US is back at the table and there is a growing call for international coordination of action, for instance through common green taxonomies for sustainable finance and standards for green taxes and CO2 prices.

Green recovery is a top priority of the economic agenda of the Spanish government. We intend to devote close to 40 % of total investments of our Recovery Plan to the green transition – together with 30 % to digital transformation - and for the past three years we have already undertaken very ambitious reform processes, notably in the energy sector. But this is a global challenge and international coordination and action is imperative to achieve our goals. 

Likewise, at the G20 and IMF meetings, we had a rich exchange of views on economic outlooks, policy priorities and how to avoid particularly negative effects of the pandemic on the most vulnerable countries. There is a broad consensus on avoiding a premature withdrawal of support measures but also targeting them to most affected sectors and viable companies, which may have solvency vulnerabilities due to the duration of the pandemic. We agreed on an extension of the Debt Service Suspension Initiative (DSSI) to the end of 2021, as part of an overall package to support low-income countries. This will allow beneficiaries to mobilize more resources to help their population face the crisis. We also approved the common framework to address debt vulnerabilities beyond the end of the year. There is consensus as well on a new Special Drawing Rights (SDR) general allocation of USD 650 billion, to meet the long-term global need to supplement reserve assets. The key challenge here is to frame it in a way that ensures that resources reach the countries that need them the most. Consensus has also been reached at the Development Committee of the World Bank to anticipate the approval of a new IDA20 fund to support low Income countries for this year. Finally, discussions have also focused on international taxation, with a stronger commitment to reaching a global and consensus-based solution at OECD by mid-2021.

Spain has been very active in supporting these initiatives. Regarding debt relief and financial support to most vulnerable countries, we have advocated a reassessment on the concept of vulnerability. Inequalities are worsening and poverty rising in some middle-income countries, for instance in Latin America, and global resilience requires that we reinforce safety nets for all.

Furthermore, we strongly support the proposal made this week by US Treasury Secretary Janet Yellen to work on a minimum corporate tax at global level. We should press ahead with work at OCDE and reach a comprehensive agreement this summer on the two pillars, including an effective digital tax system tailored to the new parameters of our economies. This is even more urgent after Covid-19, since the response to the pandemic requires an unprecedented mobilization of public investment. Working together on a fairer, more sustainable and efficient tax system should be a priority.

Finally, we also strongly support policy coordination. First and foremost at European level, of course. The common response to this crisis on this side of the Atlantic is undoubtedly one of the key factors contributing to global financial stability. The deployment of the 750 billion Next Generation EU Recovery Plan will surely be a driver for international trade, growth and prosperity. And a key catalyst for a strong recovery of the Spanish economy.

Once vaccination expands, we leave the health crisis behind us and can meet again in person, international coordination and cooperation will be instrumental to implement an ambitious agenda towards a more resilient, sustainable, digital and more inclusive economy.

We are facing unprecedented challenges, uncertainty still marks our forecasts and we will continue to be in the world of exceptional measures for a while but there is one piece of good news we should not underestimate: the multilateral institutional system is a basic building block providing stability, prosperity and resilience throughout the world. Good that it was already up and working well before this pandemic!