It is fashionable to blame the International Monetary Fund for the wave of financial turmoil that has swept emerging markets since Mexico's ``Tequila crisis'' of 1994. By bailing out countries in trouble time and again, the IMF allegedly encouraged investors to take unwarranted risks, plowing money into countries without properly assessing whether they could ever pay it back. According to IMF critics, bailouts allowed leaders from Brazil to Turkey to avoid painful but necessary reforms, with the perverse effect of making crises inevitable.
This argument - an example of what economists call ``moral hazard'' - is easy on the mind, but it has feet of clay. In fact, foreign investment in emerging markets already started to subside after 1995, then plummeted with the Asian crisis of 1997, and has remained low ever since - even as the IMF orchestrated many of the bailouts that allegedly distorted investor behavior in the first place!
Moreover, foreign investment in emerging markets shifted after 1994 to factories, real estate, service industries, and so forth. Unlike foreign bondholders, who could cut and run after the IMF guaranteed that they would be paid, these direct investors suffered major losses when crisis struck--and thus can hardly be said to have benefited from bailouts.
To continue reading, register now.
Subscribe now for unlimited access to everything PS has to offer.
Following the latest G20 summit, the G7 should be thinking seriously about deepening its own ties with more non-aligned countries. If the Ukraine war drags on, and if China continues to threaten to take Taiwan by force, the G20 will be split between friends of the BRICS and friends of the G7.
sees the grouping as increasingly divided between friends of the G7 and friends of China and Russia.
To prevent catastrophic climate change and accelerate the global transition to a net-zero economy, policymakers and asset owners urgently need to rethink how we channel capital at scale. The key is to develop new financial instruments that are profitable, liquid, and easily accessible to savers and investors globally.
explain what it will take to channel private capital and savings toward sustainable development.
It is fashionable to blame the International Monetary Fund for the wave of financial turmoil that has swept emerging markets since Mexico's ``Tequila crisis'' of 1994. By bailing out countries in trouble time and again, the IMF allegedly encouraged investors to take unwarranted risks, plowing money into countries without properly assessing whether they could ever pay it back. According to IMF critics, bailouts allowed leaders from Brazil to Turkey to avoid painful but necessary reforms, with the perverse effect of making crises inevitable.
This argument - an example of what economists call ``moral hazard'' - is easy on the mind, but it has feet of clay. In fact, foreign investment in emerging markets already started to subside after 1995, then plummeted with the Asian crisis of 1997, and has remained low ever since - even as the IMF orchestrated many of the bailouts that allegedly distorted investor behavior in the first place!
Moreover, foreign investment in emerging markets shifted after 1994 to factories, real estate, service industries, and so forth. Unlike foreign bondholders, who could cut and run after the IMF guaranteed that they would be paid, these direct investors suffered major losses when crisis struck--and thus can hardly be said to have benefited from bailouts.
To continue reading, register now.
Subscribe now for unlimited access to everything PS has to offer.
Subscribe
As a registered user, you can enjoy more PS content every month – for free.
Register
Already have an account? Log in