International Monetary Fund Managing Director Kristalina Georgieva praised the strength of the U.S. economy but warned its current level of deficit spending was not sustainable and could crimp U.S. and global growth if it’s not brought under control, in remarks Monday at the Milken Institute Global Conference.
Servicing the U.S debt — now roughly $34 trillion — consumes more than 17% of federal revenue, compared to under 7% in 2015, Georgieva said in an interview that kicked off the annual conference at the Beverly Hilton, which draws thousands of businesspeople, investors and professionals from around the world.
“It cannot go like this forever, because the … burden on the U.S. is going to cripple spending that is necessary to make for servicing the debt. To pay 17-plus percent in debt service is just mind-boggling,” Georgieva said. “There is opportunity cost to this money … it doesn’t go to emerging markets where it can finance jobs and business opportunities for American companies.”
The IMF is composed of 190 member nations and is one of the leading global economic institutions, providing lending to economies in distress.
Georgieva said the U.S. needs to address its entitlement spending but said its economy is strong and remains a pillar of the world economy given its innovation, strong labor market and position as an energy exporter.
She also said she did not believe that the trend toward deglobalization was leading to the disintegration of the global economy, but warned that trade sanctions and industrial policies taken by many nations will only lead to lower growth rates — with the primary question being how much.
“We are measuring that just trade restrictions can cause the world economy to lose between 0.2% and 7% of GDP,” she said, comparing the high-end figure to removing Japan and Germany from the world economy. “So it is really costly.”
However, calling herself an “eternal optimist,” Georgieva said she expected “policymakers to take a course correction when they see that where they are headed is, you know, falling off a cliff.”
She envisioned that this decade will see advanced economies like the U.S. do well, while others will stagnate and lower-income countries continue to fall behind.
“So very likely we will have a world in which some economies transform, some economies stagnate and some parts of the world are in perpetual turbulence,” she said.
Milken Institute President Richard Ditizio introduced the IMF managing director, telling the audience that this year’s 27th annual conference, which ends Wednesday, will feature more than 200 sessions and more than 1,000 speakers.
The theme of this year’s conference is “Shaping a Shared Future,” a reference to finding common ground amid the complex issues that have arisen in the post-pandemic world, including war, the emergence of artificial intelligence and the need to create a sustainable economy amid climate change.
After the IMF managing director’s remarks, Brad Lightcap, chief operating officer of OpenAI, spoke about the San Francisco company’s artificial intelligence products — a technology that Georgieva said the world will need to rely on for growth and productivity gains.
Lightcap said that 92% of Fortune 500 companies are using the company’s ChatGPT enterprise product. He cited Moderna as an example of a business use: the Cambridge, Mass.-based maker of one of the leading COVID-19 vaccines is using the company’s AI for drug development. And the OpenAI chatbot of Swedish mobile-payments company Klarna is replacing the work of 700 customer support agents, he said.
However, Lightcap maintained that artificial intelligence will create job demand in areas that can’t be predicted, and that advancement of the technology is so rapid that in the next 12 months “the systems we use today will be like laughably bad.” He envisioned a not-distant future where “it’ll be foreign to anyone born today that you can’t talk to a computer the way you talk to a friend.”
All public panels are being livestreamed on the institute’s website. Argentina President Javier Milei and Elon Musk are scheduled to speak later in the day.