Extended Interview: Kristalina Georgieva

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1:23We're in an incredible moment right now. How do you calculate the economic shock from this Mideast war? We look at the size of the impact and the duration of impact. And what I can tell you is that this shock is large. 13 % of oil, 20 % of gas that would have flown in the world is now stuck for five weeks and counting. It is global. Everybody uses energy. Everybody feels the pinch of prices going up. And it is asymmetric. It affects different countries differently. If you are in the vicinities of the conflict, it's a big hit on you. If you are an oil importer, it is a big hit on you. If you have no reserves to protect yourself, you're in a very tough situation.

2:27We are running scenarios depending on the duration of the war. Now we have hopes for peace that would improve the conditions for everybody. But we are also looking at impact on infrastructure. A lot has been damaged and it would take time to bring back to full operation. So let's pull that apart a little bit. It appears like Asia bore a lot of the economic impact here. South Korea, they've got a big computer chip industry. They have called on their citizens to conserve energy. India, they're rationing energy. The Philippines had a national energy emergency. The Australian gas stations are running out of fuel.

3:17It seems like there's a large part of the planet that's really in pain. Oh, yes. People are hurting. They're hurting because of sheer lack of quantities. If you are in the Philippines, you're queuing the same way people were queuing here in the 70s to fill your tank. They are hurting because they may be in need of helium for semiconductors or for MRIs. And that comes out of Qatar, out of the Middle East. That comes out of Qatar and now it is cut to size. They may be hurting because of fertilizers. Now is the planting season. If you are not getting fertilizers or not getting them at a reasonable price, we may see spike in food prices coming.

4:16They're hurting because of remittances. Just think how many people live in the Gulf, work in the Gulf, send money home to places like India and Bangladesh, and this money is not coming. They're hurting because of transportation. I'll tell you, my heart goes for Sri Lanka, a country that is coming out of a big shock. They were now affected because a third of flights to Sri Lanka go through the Gulf. Now tourism is going to be hammered. So for many, many reasons, countries are affected. And when you look at the size of the impact, it depends on how much your reliance on imports is, but it also depends on what is your fiscal position.

5:09Do you have capacity to absorb the shocks? Guess who has least capacity? Poor, vulnerable countries. Whether they are in Asia or in sub-Saharan Africa, they're being hammered dramatically. And when we discuss our response, we will zero in on these highly vulnerable countries. So the United States, here, Americans, they're still spending, they're still driving, but they have seen inflation go up, prices at the gas pump. Right. I mean, the U.S. is in the category of countries that are somewhat less impacted because U.S. is energy exporter. But as I said, everybody feels the pinch of prices going up.

5:55Why? This is a negative supply shocks. You have less energy, but the demand is still the same. What happens? Prices go up. And here in the United States, people have not quite yet seen inflation going down to target. We were projecting this to happen by early 27. Now that may be somewhat delayed. And what does it mean? It means that people experience a tax on their income. Who is most affected? Of course, low-income part of the population. Well, at one point, oil prices surged nearly 50 % because of this war in Iran. And you called it the largest disruption to global energy markets in modern history.

6:48As increases, as you said, to fertilizer, to other prices that are going to push up food. Do you see this impact stretching through 2026, even if we get a ceasefire that sticks? So the impact is baked in because already the tankers that should have arrived in Asia have not arrived. So we already have that impact. But then on top of it, we have the infrastructure impact. 72 energy facilities have been hit. One third of them, severe damage. You take the gas field in Qatar, it would take three to five years to reach its full capacity. That has significance. And then we have other infrastructure impacts like refineries.

7:45If they don't receive oil on a regular schedule, they have to shut down. When they shut down to restart, that is with delay. So yes, we are going to see some drag of this crisis over the year. But if we have peace, of course conditions are likely to improve faster. Above all, because confidence is going to benefit from the knowledge that there is a resolution of the fighting. Before, something that is very important to recognize, the world economy has been incredibly resilient. We have been hit by one shock and another and another. we were actually projecting a small upgrade for growth in 2026, had it not been for this war.

8:42Now we are going to have a downgrade, and the size of this downgrade will depend on these two things, duration and speed with which everything can come back to the same level of production that we had before. Well, but just to put a fine point on it, when people look at the effort to get even a ceasefire or some kind of peace deal, if they think, well, if this works, my prices are going to go back to where they were on February 27th, the day before this war began, you're saying, no. Not right away. It's going to take a while in 2026. It would take some time, yes. And it would take more time for locations that are experiencing higher degree of disruption.

9:30And that's why we need to remember the asymmetry of this shock and spare a thought for these destinations where it would be still a matter of scarcity of supplies for some time. And we're hearing from European airlines issues with access to jet fuel. You're talking about Asia there. People are going to see their airline ticket prices elevated. They're going to experience this for some time. Yes. The one good thing that we need to remember is that whenever we have an energy shock, we improve. Every energy shock in the past would lead to two things. More energy efficiency and more diversification of energy supplies.

10:18More green energy. More green energy. We can show how that goes up. You get the shock and then you say, wait a minute, what can I do to reduce the impact? That would come. The problem is it would take a year, a year and a half, two years. In the meanwhile, people and businesses will be hurting. So what is the IMF doing right now to soften the blow of this crisis for those who are hardest hit? Well, the first thing we do is to give good advice to countries. At the moment like this, everybody rushes to take action. And sometimes it's good and sometimes not so good. Don't impose restrictions on your trade with petrol products.

11:10Why? Because if we make the situation worse, prices would go up even more. We are telling countries, if you are to be helping people and businesses, do it in a targeted manner. Do it carefully, because the world has a problem with fiscal space. All these shocks have led us to borrow more, and it has increased the cost of this borrowing on budgets. So if you are to help, help the most vulnerable, target your support and do it on a temporary basis. So we have seen so many shocks, as you said, two major military actions in Iran. You've got the war in Ukraine still going on. You have the trade war, all of this still just coming out of COVID.

11:58Have you been surprised that we are not in a global recession and the United States is not headed for recession? We were not so surprised for one reason. What we have seen over these last shocks is that the world is building resilience to it. And the resilience is a product of three things. Number one, across the world, governments have pulled out of managing the economy, managing companies, and let the private sector do the job. Private sector is more agile, more adaptable. So when we are hit, the response is faster and more efficient. Two, we have seen over the last decades many countries, emerging market economies, taking actions to strengthen their fundamentals.

13:00Independent central banks, fiscal councils, that leads to good policies that protect countries, especially at the time of a shock. And number three, innovation. Look at the technological transformation that is taking place in the world. It's incredible. So all these two things have buffered our world against recession. Now, we are not immune against recession, Margaret, so we still have to be careful to follow good policies and to keep our institutions in good health to protect us. Well, the world's two largest economies are set for a meeting next month, mid-May, President Trump and President Xi.

13:46Do you think that that trade war is cooling off? How concerned are you? It is very good that the two largest economies found a way to reduce trade frictions. We see it in the performance of both. And when they do well, they are positive spillovers for the rest of the world. So in this sense, we very much encourage discussions that lead to reducing the trade tensions between these two large economies. But also they set up a good example for the rest of the world. A trade war has no winners.

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15:10So stop in or shop online and get wow-worthy pieces for less, only at Bob's. Do you think that global economists really overestimated the negative impact of the Trump tariffs? Ah, very good question. So the fund, when the tariffs came, was among the very few institutions that were not projecting recession. We did project some slowdown in growth. We did see some slowdown in growth. Should it be somewhat disruptive? We thought it would be somewhat disruptive. It was somewhat disruptive. But then what happened was an adjustment, adjustment in the United States with agreements that have reduced the pressure that tariffs would put here and on the rest of the world.

15:59And we saw the rest of the world saying, okay, let's see how we can trade more with each other. Massive increase in trade agreements, more attention to regional trade. If you look at a place like... You're saying turning away from the U.S. Well, the U.S. is saying we want to have an economy that is mostly based on investing at home, having manufacturing at home. That's a choice that the country is making. other countries are looking into their economic future. Small, open economies, they have no choice. They have to find ways to trade with each other because otherwise it would be very costly for their people.

16:43So the developments are relatively calming in a sense that we see trade like water. You put an obstacle, it goes around it. Well, it's interesting because when we were speaking recently to the head of the European Central Bank, Christine Lagarde, who used to run the IMF, she told us the attraction of the dollar has eroded. She said you need geopolitical credibility, rule of law, strong institutions and a strong military and the volatility fueled by the Trump administration. She said it hasn't been helpful. Would you agree with that? You see an erosion in the trust and confidence in the American dollar?

17:29What we see is that the huge amount of transactions are in dollars. We see assets in dollars. We actually see the rest of the world rushing to the United States to invest here. Why? Because of the high productivity growth and the strength of the U.S. economy. At the same time, the world is more multipolar. There are more centers of economic significance. And as a result, naturally, we see some shift towards diversification of reserves that countries are holding. And I believe that given the depth of the U.S. capital markets, given the strength of the U.S. economy, the attractiveness of the U.S.

18:24economy, 75 percent of financial assets are here. That means that the role of the dollar is and remains quite significant. Because we've seen like the Wall Street Journal, for example, talk about Iran charging tolls for, you know, boats that go through the Strait of Hormuz. They're charging cryptocurrency or the Chinese currency to avoid our sanctions. Of course, we are going to see in a world that has multiple centers of gravity. We are going to see different choices when we have the evolution or actually the revolution of digital money. Of course, they would be shifting that direction. The question is, how big is the size?

19:12And does it mean that somehow we would wake up tomorrow, you and I, and we'd say, oh, what happened? You know, our savings are in dollars. Should we worry about that? Don't worry. I want to come back to technology because you raised it, and I want you to clear up that point. You've said with the growth of AI, artificial intelligence, in advanced economies in particular, it looks like a tsunami about to hit the labor market. That's a scary thing for a lot of people to digest. How disruptive is this going to be to our way of life? And digest we must because AI is happening. I'm telling my staff at the fund, AI or die.

19:57It is transforming the way we all work. It is very significant. and frankly, I don't think that we are ready. When we look at the impact of AI on labor markets, what do we find? We find that already one in 10 jobs here in the United States requires new skills and it pays more. When it pays more, what do people do with the money? They go out and spend in restaurants, in gyms. that increases demand for low-skilled labor. But the middle, the jobs that are routinely starter jobs for young people, this middle is shrinking fast. The new college graduates. The new college graduates. So when we crank the numbers, the total employment actually went slightly up, but because of low-skilled jobs.

20:59So are young people dreaming to be baristas? I don't think so. How can we prepare young people to be entrepreneurs, to be agile, to change the labor market? How can we change the mindset, including in our education system for a world of constant learning and permanent change. That requires attention. And here is my big worry. What I see in the world today is attention deficit disorder. We cannot halt on a topic long enough. And AI is this topic. Unless we concentrate on understanding labor market impact, how we need to change education, how we need to change the business environment, I think we would find ourselves with winners, big time, and many, many losers.

22:01The ability of AI to increase inequality, to open up this accordion of opportunities widely is very significant, both within countries and across countries. So we better focus. Get ready. Get ready. CBS has learned that there was an urgent meeting held by the Treasury Secretary and the Fed Chair just a few days ago with Wall Street leaders to discuss specifically AI and this new model from Anthropic, there's deep concern. Are you concerned? Why are they scared? Well, because we get into cybersecurity and the risks have been growing exponentially. Yes, we are concerned. We are very keen to see more attention to the guardrails that are necessary to protect financial stability in a world of AI.

23:02Those don't really exist right now. We don't have the ability to, as a world, to protect the international monetary system against massive cyber risks. We have to work on that. We have a responsibility at the fund. We are actually working with our members to bring that common understanding of what the risks are, how they can be managed, because time is not our friend on this one. No, but you need institutions like the Fed and the central banks to figure out how to manage the risk of cyber attacks, of hacking, as people would know it. And we do need the key institutions for financial stability.

23:50And of course, major central banks are among those. We need them to be very attentive. And we also need them to work together. Because, yes, this is an issue that has been addressed here in the United States. But it is an issue that easily can present itself in other parts of the world. and that is why we need people to cooperate. To cooperate. Well the president of this country continues to question the value of multilateral institutions. The IMF is one of those created out of the ashes of World War II. Do you think that the global financial order does need to be rebooted a little bit because you're talking about a small portion of it but is there truth to that idea that we need to really reboot these systems, these international institutions, to meet the moment?

24:45The world is changing very rapidly, and change is unstoppable. Therefore, institutions like the IMF, we have to lean forward, and we need to take the responsibility to be at par with this change. What does it mean for us? It means to identify key risks and opportunities for the world economy and then bring our membership to work on those. Let me make a simple point. Yes, we need to upgrade the international monetary system. While we do that, we also have to protect the assets we have. So what is our asset proposition? We are the only institution that makes the pulse of each and every economy on this planet, big, small, rich, poor, and then presents a picture of what is happening in the world for everybody to see.

25:54And we are the only institution that can rescue countries in trouble. we can come up with large financial support on a dime and we have done it we will continue to do it in a world of more frequent shocks we need an anchor of stability and this is what the fund is when it was created the world was a calmer place now it is not you think the world was a calmer place back when this was created well when it was created remember people traveled on ships to come to the annual meetings. The speed of change. Okay. Now we are in a much, much more rapidly changing world. And in this world, you need even more to have an anchor, an institution that protects you.

26:47And of course, an institution that works with others, not on its own to deliver that stability in a sea of constant change. I very often, Margaret, I very often feel like a captain on a ship in rough waters. And rough waters we will have. Quickly on that, the war in Europe, in Ukraine, the IMF has helped Ukraine quite a lot. You're the second largest foreign donor behind the United States. Kiev's having some problems, though getting their own domestic political order under control what can you do to help them because they are about to run out of money let me start recognizing that they have done a lot this is a country fifth year in the war that collects in tax revenues 34 to gdp just imagine how very few countries collect even half of this in the middle they are not in a war so we we are standing with ukraine because they have proven to be responsible partner so they earn the financial support they get when i look into this year it is a very critical year hopefully peace negotiations would bring a positive outcome.

28:13With or without that outcome, the country would continue to need international support. And for this reason, we have a new program for Ukraine. We are working with Ukraine so they can continue on this path of reforms that gives them the credibility to earn massive financial support from the rest of the world, especially from Europe. I can tell you that I was there in the midst of very cold winter, minus zero degree Fahrenheit. And the country is functional. People get up, they go to work in the freezing weather. They show determination to keep their society strong. They deserve to be supported by the rest of us.

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29:50Found is a financial technology company, not a bank. Banking services provided by lead bank member FDIC. CBS Monday. It's the final season of The Neighborhood with an all-new episode. Then, you may not love going to the DMV. but you'll love a new episode of the hilarious comedy DMV. And the laughs turn into a night of justice. The hit drama FBI is new, followed by CIA, a high-stakes new series from the team behind FBI, starring Nick Gelfis and Tom Ellis. All new all night. CBS Monday starting at 8, 7 central and streaming on Paramount+.