IMF Calls on Emerging Markets to Bolster Economic FundamentalsIan Katz and Kasia Klimasinska
The International Monetary Fund said some developing countries need to take action to “improve fundamentals” as emerging-market stocks extended their worst start to a year since 2008.
“The turbulence also underscores the need for vigilance among central banks over liquidity conditions in international capital markets,” the IMF said in an e-mailed statement today.
Emerging-market stocks declined today as signs of a Chinese slowdown and worse-than-estimated Russian economic data bolstered concern the global recovery will falter. The MSCI Emerging Markets Index retreated 0.2 percent to 934.50 at 12:34 p.m. in New York, bringing this year’s slide to 6.8 percent.
About $1.8 trillion has been erased from the value of equities worldwide this month after China’s manufacturing contracted, the Federal Reserve tapered monetary stimulus and political unrest in Ukraine escalated. Russia’s economy grew at less than half the previous year’s pace in 2013, missing forecasts as investment declined, data today showed.
Treasury Secretary Jacob J. Lew said today the U.S. is following the situation “very closely.”
“We’re seeing very significant differentiation between the experience in different countries based on the policies that they’ve had in effect,” Lew said to reporters in Disputanta, Virginia. “We’re watching it, and in each of these countries they are managing to get through the situations that they are in.”
The volatility in emerging markets “highlights the need for coherent macroeconomic and financial policies, good communication, and, in some cases, the need for urgent policy action to improve fundamentals and policy credibility,” the Washington-based IMF said. “Several emerging countries have responded forcefully in recent days,” and many countries have “solid fundamentals with high reserves, fiscal space and inflation under control.”
While it is difficult to pinpoint “a single trigger” for the emerging markets selloff, “the turbulence underscores the challenging situation that many countries face as a result of tighter external financing conditions, slower growth, and softer commodity prices,” the IMF said.
India central bank Governor Raghuram Rajan yesterday warned of a breakdown in global policy coordination after the Fed cut stimulus, weakening emerging-market currencies from the rupee to the Turkish lira.
“International monetary cooperation has broken down,” Rajan, 50, said in an interview in Mumbai with Bloomberg TV India, noting how emerging markets helped pull the global economy out of crisis starting in late 2008. “Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment.”
Rajan raised interest rates this week along with central bankers from Turkey to South Africa as the Fed pressed on with a reduction in monthly bond purchases put in place to speed a recovery from the worst recession since the Great Depression.