Kristalina’s heat level: Her arrival blazes up the IMF

  • + Kristalina’s discussion paper is blazing – climate change is the focal issue.
  • + But social and political unrest could bring down the plan. 
  • + Will future IMF policies be implemented with the environment in mind?
Kristalina Georgieva / Kacper Pempel/Reuters

On October 1st 2019 the International Monetary Fund (IMF) announced its new leader-Kristalina Georgieva. European, just like all her predecessors since 1944 and subject to the United States overwhelming 16.52% voting shares, Kristalina’s arrival does not promise to change much.

Addressing the elephant in the room

Yet, Kristalina’s arrival has brought about one underlying shift. After decades of efforts to introduce environmentalism within the IMF’s policies, Georgieva is the right person to do so. In her first speech itself, she already addressed the cause, stating that “the IMF is playing catch-up after years when it paid lip service to environmental concerns”.  By recognising that the IMF has historically never prioritised the environment over economic growth, she has taken the first step to propel change.

Moreover, Georgieva’s first major discussion paper at arrival tackles the procedures governments can follow to slow global warming. Although an unpopular idea, the IMF sustains that with a world average fossil-fuel carbon tax of $75 a ton by 2030, we could stand a chance to curb global warming. The goal is both to de-incentivise carbon consumption and to re-invest proceedings in alternative clean-energy sources. However, it’s a heap from the current $2 a ton.

A great example to prove its feasibility is Sweden. With a $127 per ton tax, contamination has reduced by 25% since 1995, while securing a 75% economic growth. With the support of an investment fund that handles $16 trillion attributively, Georgieva will push to mimic Sweden’s achievements worldwide, with a hopeful agenda that includes tackling climate change and rising inequalities. This must not come across as a surprise, given her environmentally committed trajectory in the EU Commission and in the World Bank. The IMF might soon undergo very awaited changes. Her arrival brings hope that all IMF policies will now be executed with not only profitability in mind but also the environment.

But can these policies be implemented?

Nonetheless, the simplicity in policymaking might end here. It is estimated that with such an increase in the carbon tax, the average household’s energy expenditure will increase by 43% after inflation, which can lead to serious political turmoil. One must be careful what to wish for. Not long ago, the Jillets Jaunes occupied the streets of Paris; tax increases sparked protests across Chile and Lebanon. Since the underlying cause is income inequality, Georgieva ought to reinvest in the worse-off parts of society to redistribute wealth if she desires to push forward her energy tax. Combined with the predicted economic downturn, the rising inequality gap is the greatest competitor to strict climate change action, requiring $2.5tr per year to solve it.  However, there is hope, because Georgieva’s agenda is prepared to tackle both issues. Expectations have been set high.

Luis J. Martinez

Team member of Project Development