Geopolitical turmoil is set to dominate this week’s IMF-World Bank spring meetings in Washington. Iran’s drone and missile attack on Israel is top of mind, but it’s not the only global conflict that finance ministers, central bankers and Wall Street leaders are having to navigate. Historic violence in the Middle East, the Russia-Ukraine war, U.S.-China tensions and the potential upheaval of American policy come November are set to permeate discussions. "Even if geopolitics is the last thing the ministers want to be discussing, they may not have a choice," Atlantic Council GeoEconomics Center senior director Josh Lipsky wrote Sunday. As Institute of International Finance President and CEO Tim Adams put it to MM, what were once “pretty quiet” meetings have taken on a new level of activity and buzz. Leaders are trying to figure out whether the world is “at an inflection point from a historical perspective.” “When people call me over the months and say, hey, during the spring meetings, can you set up a lunch or dinner or a roundtable on X, it would have been about flexible exchange rates,” said Adams, a former Treasury undersecretary for international affairs in the George W. Bush administration. The ask now? “Help us think about a very dangerous world. How dangerous is it, and how do we prepare for it?” But it’s not as if traditional economic concerns don’t pose their own huge challenges. The post-Covid economy continues to surprise markets and policymakers. U.S. economic strength is defying expectations, but the outlook isn't as bright for other economies, including Europe. IMF managing director Kristalina Georgieva set the stage for this week’s meetings with a speech warning about a decade of “tepid” growth and global risks including inflation, depleted fiscal buffers and growing debt. A potential divergence of U.S. and European monetary policy is poised to unfurl in the months ahead, thanks to America’s stickier inflation. “It could be the Fed is going to be on hold for a lot longer than thought,” said Mark Sobel, U.S. chair at the Official Monetary and Financial Institutions Forum and a former U.S. representative to the IMF. “This no-landing scenario is looking increasingly possible, while the situation in Europe will augur for cuts starting in the summer. You could get kind of a de-synchronization or divergence in the relative postures of the U.S. and Europe. That could have knock-on effects for financial markets and volatility.” Goldman Sachs’ Geoffrey Okamoto, who previously served as the IMF’s first deputy managing director and Treasury’s acting assistant secretary for international affairs, told MM that “the macroeconomic backdrop matters going into these meetings.” “A year ago, the conversation was very much on regional bank issues and the rescue of Credit Suisse,” he said. “Now, there's more of a stocktaking of where we are in the broader macro setting. We're living in a higher interest rate world with central banks contemplating when to begin cutting. We're also living in a more indebted world ... both in advanced economies but also in emerging markets and low-income countries.” Okamoto said it raises fundamental questions about “what do you want to do when the primary instruments or tools of the IMF and the World Bank are lending instruments." "For a country to take on more loans from the IMF, the bar for growth-oriented reforms necessarily has to be higher in a higher-rate world and if you're more indebted,” he said. “For a country to take on more World Bank loans, the bar for the growth orientation of the project and the accompanying reform needs to be similarly raised." One storyline playing out amid the chaos is the very-much expected re-appointment of Georgieva to a second term as the IMF’s leader. The Bulgarian economist ran unopposed, and the IMF’s executive board signed off Friday. House Republicans have spoken out against her returning to the role, raising fresh questions about how the IMF would interact with the U.S. if there were a Trump administration 2.0. “I don’t think it matters too much which administration it is so much as it matters how good the dialogue is between Treasury and Capitol Hill,” said Okamoto, who played a key role in this area at Trump’s Treasury. “Is there trust there? Do the appropriators believe that the administration is negotiating with all their effort on Congress’s policy priorities, whatever they may be? … That’s an art. Some Treasury departments end up doing that better than others.” What does the U.S. want to get done at this week’s meetings? A Treasury spokesperson said Secretary Janet Yellen will discuss ways to bolster the global economic outlook and try to deepen bilateral economic relationships with allies and partners and emerging markets. On the geopolitics front, Treasury said Yellen will try to advance U.S. work on holding Russia accountable and try to address the human and economic consequences of fighting in the Middle East. One relevant issue playing out across town will be potential congressional action on aid for Israel and Ukraine, including new authority to seize Russian assets. How to proceed with tapping Russian assets — a question that’s driving a rift between the U.S. and Europe — will be top of mind for global leaders in Washington this week but is not expected to be resolved. Want to keep up with the most important intel? Stay tuned to MM and subscribe to this week’s IMF-World Bank editions of Global Playbook, which kicked off Friday. It’s tax day — MM would love to hear what you’re watching and learning around the IMF-World Bank meetings. Send tips to zwarmbrodt@politico.com.
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