Published on Wednesday, October 26, 2022

Global | The IMF gets serious

At the meetings just held in Washington, the International Monetary Fund (IMF) has raised strong concerns over the rampant levels of inflation, the interest rate hikes that may be needed to keep it in check and the risk to the financial system, which has long been accustomed to low rates.

Key points

  • Key points:
  • The meetings ended with the “scare” that a storm is approaching, that the worst is yet to come, and that for many 2023 will be seen as a recession. The IMF’s managing director remarked that when monetary policy puts a foot on the brakes, it is important at least for fiscal policy not to step on the accelerator.
  • The IMF also warns that higher interest rates and the appreciation of the dollar will punish emerging economies, urging those that can to arrange liquidity lines with central banks in developed countries, or request such lines from the IMF itself.
  • If the problems are more entrenched, the countries concerned should seek the support of the IMF in restructuring their debt, although they have yet to propose tools to facilitate this process.
  • The IMF has also called on emerging countries not to waste their reserves by defending their currency’s exchange rates if this is not supported by economic policy.
  • It is not that difficult to achieve a good equilibrium two years ahead, with growth and inflation close to 2% or slightly above, provided that the kind of measures recommended by the IMF are put in place; but it is more likely to be achieved if the authorities walk away scared.

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