MORE INTROSPECTION FOR THE IMF
Your interview with Christine Lagarde [TAR103 Sept. 2018] rightly highlighted the progress the IMF has made in re-examining its traditional orthodoxies and becoming more aware of the social impacts of its prescriptions. The fund, however, could use more introspection in its role creating moral hazard in the region; particularly the perceived “anchoring” effect that Fund programs can provide for governments who are then able to run up commercial debts that later turn out to be unsustainable. The rise of index investing in emerging market bonds means that it takes little policy credibility for a government to borrow in the external commercial markets. Countries that benefit from the implicit policy backstop of an IMF programme have found it particularly easy to borrow in the eurobond market, which is ironic given how often the proceeds have not been used for economically productive purposes.
Brian Holmes, Financial analyst, UK