IMF bails out emerging markets

IMF has given $2.1 billion to Iceland and is about to give $16.5 billion to Ukraine and is in talks with Hungary. Dani Rodrik says IMF needs to step up and has to act as a global lender of last resort to emerging markets. Though he feels pity for the emerging markets but there is little choice now:

Emerging markets have every right to say that they are being swept under by a crisis that is not their own doing. But the real reason the rest of the world needs to move on this front is naked self-interest. Combine a deep recession in the advanced countries with an uncontrolled depreciation of emerging-market currencies, and the pressure to erect trade barriers in the U.S. and Europe will be impossible to withstand.  A vicious cycle of unemployment and protectionism feeding on each other a la 1930s could transform the deep recession everyone is already expecting into a second great depression. It can get worse…

Apart from this there are concerns in Korea, Pakistan, Belarus as well (Read the IMF statements linked).

Korean won has depreciated substantially and is facing a currency crisis. Korean must be feeling dejavu as current events similar to what happened in South East Asian Crisis as well. In that too, Korea went down suddenly. The Korean central bank has recently reduced interest rates by 75 bps as well. Now, I don’t even understand this. If it lowers interest rates, the pressure on Korean Won would be more and would depreciate further. How do you balance it? This is actually going to be a problem for all emerging economies.

Pakistan is not really hurt by the global crisis but because of home grown political instability.

Belarus case is also quite interesting. Recently, Doing Business Blog pointed that Belarus has undertaken numerous reforms to make doing business in Belarus easier. In Doing Business 2009 report, it is the 4th global reformer in 2007-08 and has jumped from 115 ranking to 85 ranking! This should lead to more prosperity in Belarus but this crisis has simply led to a reversal of sorts. What do you really do as a policymaker?

Krugman in his blog says that we are going to see a mother of all currency crises. Expect more fireworks in emerging economies going ahead.

Another important point is IMF itself is not in a good financial shape. So, it will be interesting to see hopw it fares in this crisis.

2 Responses to “IMF bails out emerging markets”

  1. Interest Rates » IMF bails out emerging markets Says:

    […] Read the rest of this great post here […]

  2. Europe on the brink of currency crisis meltdown | G.O.O.D Says:

    […] IMF bails out emerging markets […]

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