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Urgent Reform Needed to Boost the Relevance of the IMF
WASHINGTON—A group of leading Latin American economists and former government officials today implored the International Monetary Fund (IMF) to adopt critical reforms to ensure it can rapidly respond to future emerging markets crises and improve the credibility of its programs.
The new analysis issued by the Latin American Committee on Macroeconomic and Financial Issues (CLAAF by its Spanish acronym) explains that the IMF currently lacks the tools, financing and flexibility to address a financial contagion, which could spill over to healthy countries in an unsettled global economy.
“Emerging markets were pummeled during and after the pandemic. While we’re through the worst of it for the moment, the lesson of the pandemic is that the IMF needs more firepower to be prepared for the next crisis or global shock,” said Liliana Rojas-Suarez, chair of the CLAAF group and director of the Latin America Initiative at the Center for Global Development.
CLAAF members, including former finance ministers, central bank governors, academic experts, and other senior officials from across Latin America, propose the creation of a new fund within the IMF equipped with new resources and a mandate to avoid financial contagion by engaging in temporary purchases of sovereign debt of a group of countries with strong fundamentals that are facing new global economic threats.
The proposed fund would:
- be managed by the IMF, but have its own balance sheet;
- be capitalized with $300 billion, a sum equal to approximately 20% of the total outstanding sovereign international debt from emerging markets;
- intervene only in situations when the probability of a systemic sudden stop of capital inflows to emerging markets is very high.
“Too often the IMF’s hands are tied in the face of a financial crisis. This new fund would allow it to perform the functions of an international lender of last resort and quickly provide the liquidity emerging markets need—mimicking the role played by the Fed or other central banks to assist high-income countries,” said Rojas-Suarez.
Based on recent lessons learned in Argentina and concerns about debt levels in emerging markets, CLAAF experts recommended that IMF loans issued under failed programs, where a country repeatedly had not hit reform targets, should be refinanced without requiring a new program rather than continuing to provide waivers. The economists also called for different classes of debt to be treated differently under the G20 Common Framework, the current agreed-upon framework for sovereign debt relief, allowing for the exclusion of domestic debt.
The full communique is available at https://www.cgdev.org/publication/imf-must-reform.
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Note to editors: The Latin American Committee on Macroeconomic and Financial Issues (CLAAF) is composed of top Latin American economists, highly recognized by their expertise on Latin American financial issues and markets. This statement was produced by:
- Laura Alfaro, Warren Albert Professor, Harvard Business School; former Minister of National Planning and Economic Policy, Costa Rica.
- Guillermo Calvo, Professor Emeritus, Columbia University; former Chief Economist, Inter-American Development Bank.
- José De Gregorio, Professor of Economics, University of Chile; former Governor of the Central Bank and former Minister of Economy, Mining and Energy,Chile.
- Augusto De La Torre, former Chief Economist for Latin America and the Caribbean, World Bank; former Governor, Central Bank of Ecuador.
- Roque Fernandez, Economics Professor, UCEMA University; former Minister of Finance, Argentina.
- Pablo Guidotti, Professor of the Government School, University of Torcuato di Tella; former Vice Minister of Economy, Argentina.
- Enrique Mendoza, Presidential Professor of Economics, University of Pennsylvania.
- Ernesto Talvi, Senior Fellow, Real Instituto Elcano, Madrid; former Executive Director, CERES; former Minister of Foreign Relations, Uruguay.
- Liliana Rojas-Suarez, president, CLAAF; Senior Fellow and Director of the Latin American Initiative, Center for Global Development; former Chief Economist for Latin America, Deutsche Bank.
- Andrés Velasco, Dean of the School of Public Policy, London School of Economics, UK; former Finance Minister, Chile.