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    World’s Growth Cools and the Rich-Poor Divide Widens

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    The International Monetary Fund says the persistence of the coronavirus and global supply chain crisis weighs on economies.As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.The overall growth rate will remain near 6 percent this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96 percent of people in low-income countries are still unvaccinated.“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report.The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the work force.A street in São Paulo, Brazil, in July. Poverty in many nations is on the upswing.Mauricio Lima for The New York TimesIn the United States, weakening consumption and large declines in inventory caused the I.M.F. to pare back its growth projections to 6 percent from the 7 percent estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Ms. Gopinath said. The I.M.F. lowered its 2021 global growth forecast to 5.9 percent, down from the 6 percent projected in July. For 2022, the estimate is 4.9 percent.The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Mr. Daco said, raising costs of raw materials that reverberate through the production process.The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A Covid outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken won’t have shoes and sweaters to sell.South Africa has sent a train with vaccines into one of its poorest provinces to get doses to areas where health care facilities are stretched.Jerome Delay/Associated PressThe I.M.F. warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by $5.3 trillion over the next five years.The worldwide surge in energy prices threatens to impose more hardship as it hampers the recovery. This week, oil prices hit a seven-year high in the United States. With winter approaching, Europeans are worried that heating costs will soar when temperatures drop. In other spots, the shortages have cut even deeper, causing blackouts in some places that paralyzed transport, closed factories and threatened food supplies.In China, electricity is being rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have dropped to dangerously low levels.And over the weekend, Lebanon’s six million residents were left without any power for more than 24 hours after fuel shortages shut down the nation’s power plants. The outage is just the latest in a series of disasters there. Its economic and financial crisis has been one of the world’s worst in 150 years.Oil producers in the Middle East and elsewhere are lately benefiting from the jump in prices. But many nations in the region and North Africa are still trying to resuscitate their pandemic-battered economies. According to newly updated reports from the World Bank, 13 of the 16 countries in that region will have lower standards of living this year than they did before the pandemic, in large part because of “underfinanced, imbalanced and ill-prepared health systems.”Other countries were so overburdened by debt even before the pandemic that governments were forced to limit spending on health care to repay foreign lenders.A power outage on Monday in Beirut. Lebanon’s economic and financial crisis has been one of the world’s worst in 150 years.Agence France-Presse — Getty ImagesIn Latin America and the Caribbean, there are fears of a second lost decade of growth like the one experienced after 2010. In South Africa, over one-third of the population is out of work.And in East Asia and the Pacific, a World Bank update warned that “Covid-19 threatens to create a combination of slow growth and increasing inequality for the first time this century.” Businesses in Indonesia, Mongolia and the Philippines lost on average 40 percent or more of their typical monthly sales. Thailand and many Pacific island economies are expected to have less output in 2023 than they did before the pandemic.Overall, though, some developing economies are doing better than last year, partly because of the increase in the prices of commodities like oil and metals that they produce. Growth projections ticked up slightly to 6.4 percent in 2021 compared with 6.3 percent estimated in July.“The recovery has been incredibly uneven,” and that’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to global economic function.”The outlook is clouded by uncertainty. Erratic policy decisions — like Congress’s delay in lifting the debt ceiling — can further set back the recovery, the I.M.F. warned.But the biggest risk is the emergence of a more infectious and deadlier coronavirus variant.Ms. Gopinath at the I.M.F. urged vaccine manufacturers to support the expansion of vaccine production in developing countries.Earlier this year, the I.M.F. approved $650 billion worth of emergency currency reserves that have been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit poor countries that have been struggling the most with the fallout of the virus.“We’re witnessing what I call tragic reversals in development across many dimensions,” said David Malpass, the president of the World Bank. “Progress in reducing extreme poverty has been set back by years — for some, by a decade.”Ben Casselman More

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    Debate Looms Over I.M.F.: Should It Do More Than Put Out Fires?

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    As the International Monetary Fund gets set for its annual meeting, economists ask if it’s time to update its mandate as the world’s financial crisis responder.Lopsided access to vaccinations, extreme economic inequality, rising food prices and staggering debt are on the agenda when the International Monetary Fund and the World Bank gather for their annual meetings in Washington next week.A pressing issue not in the official program is the controversy that has been swirling for weeks around the chief of the I.M.F., Kristalina Georgieva, threatening her leadership.An investigation last month accused Ms. Georgieva of rigging data to paint China as more business friendly in a 2018 report when she was chief executive at the World Bank. Ms. Georgieva has denied any wrongdoing.The scandal has focused on the bank’s credibility — billion-dollar decisions can be made on the basis of its information — as well as Ms. Georgieva’s culpability.But lurking behind the debate over her future are foundational questions about the shifting role of the I.M.F., which has helped guide the planet’s economic and financial system since the end of World War II.Once narrowly viewed as a financial watchdog and a first responder to countries in financial crises, the I.M.F. has more recently helped manage two of the biggest risks to the worldwide economy: the extreme inequality and climate change.Some stakeholders, though, have chafed at the scope of the fund’s ambitions, and how much it should venture onto the World Bank’s turf of long-term development and social projects. And they object to what’s perceived as a progressive tilt.“There is a modernizing streak here running through major financial institutions which is creating a kind of tension,” said Adam Tooze, a historian at Columbia University and the author of “Shutdown: How Covid Shook the World’s Economy.”Other pressures weigh on the agency as well. Washington is still home to the I.M.F.’s headquarters, and the United States is the only one of the 190 member countries with veto power, because it contributes more money than any other. But its dominance has been increasingly challenged by China — straining relations further tested by trade and other tensions — and emerging nations.The willingness of the Federal Reserve and other central banks to flush trillions of dollars into the global economy to limit downturns also means that other lenders, aside from the I.M.F., have enough surplus cash on hand to lend money to strapped nations. China has also greatly expanded its lending to foreign governments for infrastructure projects under its ambitious Belt and Road Initiative.At the same time, long-held beliefs like the single-minded focus on how much an economy grows, without regard to problems like inequality and environmental damage, are widely considered outdated. And the preferred cocktail for helping debt-ridden nations that was popular in the 1990s and early 2000s — austerity, privatization of government services and deregulation — has lost favor in many circles as punitive and often counterproductive.The debate about the role of the I.M.F. was bubbling before the appointment of Ms. Georgieva, who this month started the third year of her five-year term. But she has embraced an expanded role for the agency. A Bulgarian economist and the first from an emerging economy to head the fund, she stepped up her predecessors’ attention to the widening inequality and made climate change a priority, calling for an end to all fossil fuel subsidies, for a tax on carbon and for significant investment in green technology.She has argued that however efficient and rational the market is, governments must step in to fix built-in flaws that could lead to environmental devastation and grossly inequitable opportunity. Sustainable debt replaced austerity as the catchword.When the coronavirus pandemic brutally intensified the slate of problems — malnourishment, inadequate health care, rising poverty and an interconnected world vulnerable to environmental disaster — Ms. Georgieva urged action.Here was “a once in a lifetime opportunity,” she said, “to support a transformation in the economy,” one that is greener and fairer.The I.M.F. opposed the hard line taken by some Wall Street creditors in 2020 toward Argentina, emphasizing instead the need to protect “society’s most vulnerable” and to forgive debt that exceeds a country’s ability to repay.I.M.F. headquarters in Washington, where Republicans have bristled at Ms. Georgieva’s agenda.Daniel Slim/Agence France-Presse — Getty ImagesThis year, Ms. Georgieva managed to create a special reserve fund of $650 billion to help struggling nations finance health care, buy vaccines and pay down debt during the pandemic.That approach has not always sat well with conservatives in Washington and on Wall Street.Former President Donald J. Trump immediately objected to the new reserve funds — known as special drawing rights — when they were proposed in 2020, and congressional Republicans have continued the criticism. They argue that the funds mostly help American adversaries like China, Russia, Syria and Iran while doing little for poor nations.Ms. Georgieva’s activist climate agenda has also run afoul of Republicans in Congress, who have opposed carbon pricing and pushed to withdraw from multinational efforts like the United Nations Framework Convention on Climate Change and the Paris climate agreement.So has her advocacy for a minimum global corporate tax like the one that more than 130 nations signed on Friday.In July, Laurence D. Fink, who runs BlackRock, the world’s largest investment management company, and was at odds with the I.M.F.’s stance on Argentina, called the fund and the World Bank outdated and said they needed “to rethink their roles.”The investigation into data rigging at the World Bank focused on what is known as the Doing Business Report, which contains an influential index of business-friendly countries. WilmerHale, the law firm that conducted the inquiry, said various top officials had exerted pressure to raise the rankings of China, Saudi Arabia, the United Arab Emirates or Azerbaijan in the 2018 and 2020 editions.The law firm reported that Ms. Georgieva was “directly involved” with efforts to improve China’s rating for the 2018 edition. She said WilmerHale’s report was inaccurate and rejected its accusations. The I.M.F. executive board is reviewing the findings.The United States, which is the fund’s largest shareholder, has declined to express support for her after the allegations. Ahead of a meeting of the I.M.F. board on Friday, Ms. Georgieva maintained strong support from many of the fund’s shareholders, including France, which had lobbied hard for her to get the job in 2019. Late Friday, the I.M.F. released a statement saying the board would “request more clarifying details with a view to very soon concluding its consideration of the matter.”In Congress, Republicans and Democrats called for the Treasury Department to undertake its own investigations. A letter from three Republicans said the WilmerHale inquiry “raises serious questions about Director Georgieva’s ability to lead the International Monetary Fund.”Several people sprang to her defense, including Shanta Devarajan, an economist who helped oversee the 2018 Doing Business Report and a key witness in the investigation. He wrote on Twitter that the law firm’s conclusions did not reflect his full statements, and that the notion that Ms. Georgieva had “put her thumb on the scale to benefit one nation is beyond credulity.”“It was her job to ensure the final report was accurate and credible — and that’s what she did,” Mr. Devarajan added.In an interview, he said critics had used the investigation to discredit Ms. Georgieva. The problem, he said, is “how people may have chosen to read the findings of the report and use that to criticize Kristalina’s credibility and leadership.”Mr. Devarajan was not the only one to make the case that the controversy was functioning in some ways as a proxy for the contest over the I.M.F.’s direction. Jeffrey Sachs, director of the Center for Sustainable Development at Columbia, wrote in The Financial Times that Ms. Georgieva was receiving “McCarthyite treatment” by “anti-China forces” in Congress.Whatever role one might prefer for the I.M.F. — traditional, expanded or something else entirely — the scandal is both a distraction and a threat.Nicholas Stern, a British economist who formerly served as the chief economist and senior vice president of the World Bank, said this controversy could not come at a worse moment.“The coming few years are of vital importance to the future stability of the world economy and environment,” he wrote in a letter to the I.M.F. board in support of Ms. Georgieva. “This is as decisive a period as we have seen since the Second World War.”Alan Rappeport More

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    As Lebanon Collapses, Riad Salameh Faces Questions

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    People can’t get their money from banks, the currency has crashed and Riad Salameh’s reign at the central bank is facing allegations of fraud.BEIRUT, Lebanon — For decades, Riad Salameh, Lebanon’s central bank chief, was lauded at home and abroad as a financial wizard who kept the economy running and the currency stable despite wars, assassinations and frequent political turmoil.Not anymore.This country at the crossroads of the Middle East is suffering from a collapse of historic proportions: Its banks are largely insolvent, unemployment is soaring, its currency has crashed and many Lebanese blame Mr. Salameh for shortages that have left them struggling to afford food, scrambling to find medication and waiting in long lines to fuel up their cars.Now, Mr. Salameh is being accused of a perhaps more unforgivable sin: enriching himself and his inner circle through years of corruption. Paris anticorruption judges opened an investigation this month into criminal allegations that Mr. Salameh, one of the world’s longest-serving central bank chiefs, fraudulently amassed an outsize fortune in Europe by abusing his power. The judicial investigation follows a preliminary inquiry by the French National Financial Prosecutor’s Office.Prosecutors in Switzerland have asked Lebanese authorities for help with a separate investigation into suspected embezzlement and money laundering linked to Mr. Salameh and his associates.The allegations have caused a sensation in a country enduring a crisis that the World Bank said recently could rank in the top three worldwide over the last 150 years, a “brutal” economic contraction of a magnitude “usually associated with conflicts or wars.”Despite the meltdown, Mr. Salameh, the architect of Lebanon’s monetary policy since 1993, has faced no serious calls for his ouster, even though he oversaw a strategy that required ever more borrowing to pay existing creditors, what some critics have called the world’s largest Ponzi scheme.Riot police officers stood guard in front of the Lebanese central bank in March during a rally against power cuts after two power plants shut down.Wael Hamzeh/EPA, via ShutterstockWhat shields Mr. Salameh from scrutiny at home is his central role in Lebanon’s complex sectarian and often corrupt web of business and political interests. More than 20 interviews with Lebanese, Western and monetary officials, economists and former colleagues of Mr. Salameh’s paint a picture of a brilliant and shrewd yet secretive operator who built an empire inside the central bank and used it to make himself essential to rich and powerful players across Lebanon’s political spectrum.“He is no longer the head of the central bank. He is the accountant for this mafia,” said Jamil al-Sayyed, a member of Parliament and former head of Lebanon’s General Security agency, the body that oversees domestic security and issues identity cards and passports. “He protects them, and in protecting him, they protect themselves.”But the investigations in France and Switzerland pose new threats to his standing.The French judges are investigating a complaint by Sherpa, a French anticorruption group, that accuses Mr. Salameh, his brother Raja Salameh, other relatives and Marianne Hoayek, who heads the central bank’s executive office, of illicitly sweeping funds from Lebanon into Swiss banks and then laundering millions in France through high-end real estate purchases, including luxury property near the Eiffel Tower. The judges have broad powers, which include seeking cooperation from the Lebanese authorities and freezing assets if the origin of their funding appears illegal.Mr. Salameh’s lawyer in France, Pierre-Olivier Sur, said Mr. Salameh disputed the entirety of the allegations.Separately, the Swiss attorney general’s office is examining a web of bank accounts from Switzerland to Panama that it says Mr. Salameh and his brother may have used to shelter the “possible embezzlement” of central bank funds and to “carry out money laundering.”Swiss prosecutors say documents show that Mr. Salameh hired Forry Associates, a brokerage firm owned by his brother, to handle central bank sales of government bonds, and that from 2002 to 2015 the bank transferred at least $330 million in commissions to the firm’s Swiss account. Mr. Salameh has said that the contract was legal.Large sums in the Forry account were moved to Swiss accounts held by Mr. Salameh, and a portion of the money was ultimately used to buy millions of euros’ worth of real estate in France, Germany, Britain and Switzerland, Swiss prosecutors said.At Heaven’s Joy in Beirut, a center for the elderly and people in need. More than half of the country’s 6.7 million people may be living below the poverty line, the World Bank said.Diego Ibarra Sanchez for The New York TimesBeyond the real estate, Swiss prosecutors are looking into allegations that Raja Salameh transferred over $200 million from Forry’s Swiss account to his accounts in Lebanese banks with powerful political ties. Among them was Bankmed, owned by the family of Rafik Hariri, the former Lebanese prime minister who appointed Mr. Salameh as central bank chief, and whose son Saad Hariri is the country’s most prominent Sunni Muslim politician.Neither Mr. Salameh nor his brother or associates have been charged by Swiss or French prosecutors. It is unclear how long the investigations will take.Talk of self-dealing by Mr. Salameh has circulated for years. In the WikiLeaks diplomatic cables, a former U.S. ambassador to Lebanon, Jeffrey Feltman (now special envoy for the Horn of Africa), described Mr. Salameh in 2007 as having “whiffs of rumored corrupt behavior, a penchant for secrecy and extralegal autonomy at the Central Bank.”Mr. Salameh, 70, declined to be interviewed for this article, did not respond to written questions and has denied any wrongdoing. He has repeatedly said he accumulated a personal fortune of $23 million during a 20-year career as a banker at Merrill Lynch before being tapped to head the central bank. Raja Salameh could not be reached for comment.Riad Salameh told CNBC last year before the investigations were announced that he would not resign over Lebanon’s financial troubles because he had a “strategy to get out of this crisis.” He defended his record, saying he had kept Lebanon “afloat while it lived wars, assassinations, civil strife and so on.”“It is really unfair to judge Lebanon as if it was Sweden,” he said.But some Lebanese question how Mr. Salameh can remain at the helm of the central bank. Inflation has surged to 80 percent, overseas investors have left and more than half of the country’s 6.7 million people may be living below the poverty line, the World Bank said.“He is responsible for monetary policy, and it has failed dramatically,” said Henri Chaoul, a former adviser to Lebanon’s minister of finance who resigned last year. “Under what rules of law and governance is he still around?”Rafik Hariri, center, the former Lebanese prime minister who appointed Mr. Salameh as central bank chief.Jamal Saidi/ReutersA polished, canny political operator who is a Lebanese-French dual citizen, Mr. Salameh has been enmeshed in Lebanon’s politics since Rafik Hariri named him central bank governor in 1993. Mr. Salameh had been Mr. Hariri’s private banker at Merrill Lynch.Mr. Hariri was trying to rebuild Lebanon after a disastrous 15-year civil war, and Mr. Salameh set out to stabilize the currency and reel in foreign investment.Mr. Salameh fixed the Lebanese pound at about 1,500 to the dollar, a peg that would underpin the economy for more than 20 years but required a constant stream of dollars to stay sustainable.The system was fragile because it risked collapse if the money ran out. But every time Lebanon faced new crises, external help kept coming. The assassination of the elder Mr. Hariri in 2005 and a destructive war between the Lebanese militant group Hezbollah and Israel in 2006 brought inflows of international aid. Wealthy members of the Lebanese diaspora continually sent foreign currency home.Mr. Salameh’s supporters hailed him as a skilled savior for keeping the economy stable in a country where nothing else seemed to be. As governments came and went, running chronic budget deficits, Mr. Salameh held fast to the money reins.In Lebanon’s sect-based political system, the president must be a Maronite Christian, which Mr. Salameh is, and his reputation as a financial mastermind at one point made him a contender for the country’s highest office. He once told a businessman who asked about his economic plans, “Get me the presidency and I’ll tell you.”Mr. Salameh also used his post to do favors for power brokers in Lebanon’s political system, according to former central bank employees and foreign officials who spoke on the condition of anonymity. Sons of prominent officials got jobs at the central bank. Businessmen, politicians and journalists producing favorable coverage allegedly benefited handsomely from central bank-subsidized loans and other financial arrangements that most likely would have raised red flags with regulators in other countries.But after decades of relative stability, Mr. Salameh’s system began to unravel. By 2015, Lebanon’s ratio of debt to economic output — a measure of debt’s burden on a nation’s economy — was the third highest in the world, at 138 percent; when Mr. Salameh took office, it was 51 percent, ranking 97th. Next door, a civil war was raging in Syria, raising fears of instability.Protesters last month in Beirut took to the streets, angered by deteriorating living conditions and government inaction.Bilal Hussein/Associated PressCommercial banks, saddled with risky Lebanese sovereign bonds, had been required to keep 15 percent of foreign currency deposits in the central bank to shore up its reserves, and Mr. Salameh attracted further deposits with even higher interest rates.Interest rates on dollar deposits at commercial banks also rose, in some cases to 20 percent or higher, to attract dollars in what some analysts describe as a Ponzi scheme, in which new money was always needed to pay creditors.In late 2019, the system came crashing down. Banks imposed limits on withdrawals and the central bank began dipping into its reserves, which included large amounts of depositors’ money, to maintain the currency’s peg to the dollar. Antigovernment protesters set fire to A.T.M.s, and banks locked their doors.“As long as the system was working, no one cared,” said Dan Azzi, a former Lebanese banker. “Now that it has failed, everyone is angry.”The government’s default on a $1.2 billion bond payment in March 2020 underscored the collapse. “Our debt has become greater than Lebanon can bear,” Prime Minister Hassan Diab said in a televised speech.The coronavirus pandemic and a huge explosion in the port of Beirut last August further devastated the economy.Estimates put the central bank’s losses at $50 billion to $60 billion. The International Monetary Fund has offered assistance, but Lebanese officials accuse Mr. Salameh of blocking an audit sought by the United States and other countries that would unlock I.M.F. aid, as well as a separate investigation into alleged fraud at the central bank.Most Lebanese have said goodbye to whatever savings they had while the currency has crashed, reducing salaries once worth $1,000 a month to about $80. The central bank is burning through its reserves, spending about $500 million per month to subsidize imports of fuel, medicine and grain.“Lebanon has been living on borrowed time, and now the chickens have come home to roost,” said Toufic Gaspard, a Lebanese economist and former adviser at the I.M.F. “The whole banking system has collapsed, and we have become a cash economy.”The crash has soured many Lebanese on their once celebrated central banker.“I can’t say anything good about Riad Salameh,” said Toufic Khoueiri, a co-owner of a popular kebab restaurant, while having lunch with a friend in Beirut. “Our money is not stuck in the banks, but simply stolen.”His friend, Roger Tanios, a lawyer, said he had once admired Mr. Salameh for keeping Lebanon financially stable but had changed his mind.Mr. Salameh, he said, had gone spectacularly off course.“Every country has its mafia,” Mr. Tanios said. “In Lebanon, the mafia has its country.”Ben Hubbard reported from Beirut, and Liz Alderman from Paris. 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