Rodrigo de Rato, the IMF
managing director, has reiterated that growth
deceleration in the US, and the knock-on effects in
emerging markets, are central concerns, in an interview with
Emerging Markets. He also highlighted the danger from
The recent credit crisis
has had a limited impact up to now on emerging
economies finances, he said. In many cases spreads,
currencies and equity markets have come back and are even
higher. But downside risks have increased.
These have different
origins, de Rato said. One could be a growth
deceleration, linked to a higher-than-expected deceleration in
the US. Right now we dont see a recession in the US,
although the real estate and housing market is very weak, and
the rest of the economy is not. We see it because of the
evolution of the dollar and the strength in exports.
There is, though, a risk that
the worst scenario [i.e. recession] will materialize, and
that will have an impact on world growth and will affect
exporters and commodity prices, the main engines of growth in
the developing world. The other danger for emerging
economies is that financial tightness in industrial countries
will spread into the world economy, de Rato added.
Inflation is also worrying, said
the outgoing IMF head because of tight labour
market conditions and output gaps, because energy continues to
be very expensive and food is becoming a challenge in many
countries, and because of higher commodity prices.
Two other risks are
protectionism, following the breakdown of the multilateral
trade negotiations, and an evolution of global imbalances.
Asked whether the resurgence of
the yen carry trade is a concern, de Rato said: The
difference in interest rates, and low expectations of abrupt
changes in currency values, make investors take more aggressive
strategies. [...] One-way bets on currencies is a very risky
business. Things can change very quickly. But it seems that
people come back and come back.
On IMF reform, de Rato said that
the quota package agreed at the annual meetings in Singapore
last year would be implemented next year, not this year.
It is not by chance that
no other multilateral organization is facing the change in
governance that we are, he said. These meetings
will be able take stock of the willingness of countries not
only to give more voice to emerging economies as a whole
because it is now very clear that, irrespective of what happens
to this or that country, that emerging economies as a whole
should have more voice but also how it will be done,
i.e. whether on a GDP or PPP basis.
It has also been agreed
that this is the crucial issue. That may sound very technical,
but it has strong political implications.