Yellen says more work needed to shore up weaknesses revealed by pandemic

© Reuters. FILE PHOTO: U.S. Treasury Secretary Yellen attends economic briefing at the White House in Washington

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said a rapid U.S. economic recovery would boost overall global growth, but more work was needed to shore up weaknesses the global covid-19 crisis exposed in the non-bank financial sector, supply chains and social safety nets.

Yellen on Tuesday told leaders of the IMF and the World Bank that the Biden Administration had decided to “go big” with its covid-19 response to avert the negative “scarring” impact of long-lasting unemployment, adding that she hoped the U.S. economy would return to full employment next year.

Speaking during the International Monetary Fund and World Bank spring meetings, the former Federal Reserve chair said the crisis had dealt a huge blow worldwide, and it was the responsibility of advanced economies to ensure that years of progress in reducing poverty were not reversed by the crisis.

“We are going to be careful to learn the lessons of the (global) financial crisis, which is: ‘Don’t withdraw support too quickly,'” Yellen said, “And we would encourage all those developed countries that have the capacity… to continue to support a global recovery for the sake of the growth in the entire global economy.”

The IMF on Tuesday said unprecedented public spending to fight the covid-19 pandemic, primarily by the United States, would push global growth to 6% this year, a rate unseen since the 1970s.

Yellen said she hoped global finance officials made progress on approving a new allocation of the IMF’s emergency reserve, or Special Drawing Rights, during the meeting, and said it was critical to tackle global debt issues exacerbated by the crisis.

It was critical to ensure the world was better prepared for the next global health crisis, she said, citing the need to improve the resilience of supply chains and social safety nets around the world.

She said the core banking sector had been strengthened after the 2008-2009 financial crisis, but some areas in the non-bank financial sector “showed tremendous stress” during the pandemic and would require attention.

CLIMATE FRONT AND CENTER

Yellen, who met earlier on Tuesday with the Coalition of Finance Ministers for Climate Action, also underscored the Biden Administration’s commitment to tackling climate change at home and ensuring the needed “transfer of resources” to enable similar actions in developing countries.

“We need to make sure that we help developing countries meet their climate goals along with their development objectives. And the availability of green finance is critical to that,” she said, noting that addressing climate change would also bring opportunities for investment to the private sector.

IMF Managing Director Kristalina Georgieva said climate risks were a growing threat to economic and financial stability, and said the IMF was stepping up its efforts to standardize reporting of risks, carry out stress testing and look at the role of supervisory authorities.

The Fund was also integrating climate-related risks in its financial sector assessments, while working with other organizations to increase data on carbon intensity and other climate risks in quarterly macroeconomic reports.

It was also working with countries to help them speed up their ability to integrate climate in their macroeconomic policies, she said.

World Bank President David Malpass said the bank was finalizing a new climate change action plan that includes a big increase in spending, building on record climate financing over the past two years.

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