Lessons from the Global Financial Crisis in the Age of COVID-19

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By Ms. Kristalina Georgieva

Today’s topic of Lessons from the Global Financial Crisis is a reminder that even as we are focused on tackling an unprecedented crisis today, we are better off because we have learned from yesterday. And that gives us hope for tomorrow.
The Global Financial Crisis helped us all realize that the banking system ought to be more resilient. So we worked to reform it, to our great benefit today. Even in the midst of the worst recession since the Great Depression, we have largely maintained financial stability.

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This financial resilience we have built up since the Global Financial Crisis – and then we coupled it with nearly $12 trillion of fiscal policy support from governments and a massive injection of liquidity from central banks. Those two things have helped us put a floor under the global economy.
Global financial conditions have eased for many sovereign borrowers. A number of emerging economies with strong fundamentals have been able to return to international capital markets and raise money at relatively low costs.

What does this tell us?

One: it is vital to maintain policy support in a crisis. Exceptional fiscal and monetary measures have gone a long way toward helping people and businesses survive the pandemic. And strong fundamentals in the policy framework enhances a country’s ability to act. Going forward, it will be critical for countries not to withdraw support prematurely, and importantly, to continue to target the measures in a way that helps the most vulnerable.
Two: regulatory reforms to strengthen resilience pay off. The actions taken after the Global Financial Crisis helped ensure that banks entered this crisis with much stronger capital and liquidity positions. As we look forward to the world after the pandemic, we should consider what we can do to ensure that we are once again more resilient when we face the next shock – especially the looming climate crisis.

We have to expand this concept of resilience to concentrate on three things: resilient people – educated, healthy, with strong social protection; resilient planet – one in which we protect it for the future generations and we diminish the risks of the climate crisis; and resilient finances. We continue to expand what we have done with the banking sector towards the nonbanking financial institutions.
Three: international cooperation in all this is critical. We were able to implement reforms after the Global Financial Crisis so quickly and effectively for one big reason: we worked together. Through the G20, we supported financial regulatory reforms that strengthened the system over the past decade.
In this current crisis, too, we can be much more effective together.

This crisis has demonstrated the great value of learning the lessons of the past – and implementing them in concrete ways so we are more resilient in the face of future shocks.
And now, the question before us is this: can we make 2021 a year where we build forward toward a better world after the pandemic? Will we once again emerge more resilient after a crisis?
Today, I believe we can learn from yesterday. We can build hope for tomorrow. We can do it together.

Editor’s note: Remarks by IMF Managing Director at the Conference on Lessons from the Global Financial Crisis in The Age of COVID-19. The conference was held on November 23, 2020

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