Policy Brief 47, June 2018

Renewed crises in emerging economies and the IMF ‒ Muddling through again?

As recognised by the International Monetary Fund (IMF), the global financial safety net including international reserves, Fund resources, bilateral swap arrangements, regional financing arrangements is “fragmented with uneven coverage” and “too costly, unreliable and conducive to moral hazard”.  Given the aversion of emerging economies to the IMF and unilateral debt standstills and exchange controls, the next crisis is likely to be even messier than the previous ones.  Some countries may seek and succeed in getting bilateral support from China or some reserve-currency countries according to their political stance and affiliation.  In such cases, crisis intervention would become even more politicised than in the past and a lot less reliant on multilateral arrangements.  By failing to establish an orderly and equitable system of crisis resolution, the IMF may very well find its role significantly diminished in the management of the next bout of crises in emerging economies.  In other words, multilateralism, however imperfect, could face another blow in the sphere of finance after trade.

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Renewed crises in emerging economies and the IMF