This paper addresses a critical flaw in the international financial system: the failure to address the inherent asymmetry between countries that issue reserve currencies and those that do not, leaving the latter vulnerable during systemic liquidity crises. We propose an IMF-managed Emerging Market Fund (EMF) to confront these crises in emerging markets and developing economies. The EMF would be able to make temporary purchases of sovereign debt in secondary markets when financial contagion is not justified by economic fundamentals. Unlike typical IMF tools, the EMF focuses on stabilizing bond markets rather than providing country-specific loans. The EMF would independently determine when and how to intervene, as well as which basket or index of countries would be subject to intervention. Crucially, countries would not need to request activation, avoiding the stigma of seeking IMF support. At the end of the paper, we answer “Frequently Asked Questions” to clarify key elements of the proposal.
This document was jointly produced by CLAAF committee members:
Laura Alfaro, Warren Albert Professor, Harvard Business School; former Minister of National Planning and Economic Policy, Costa Rica.
Guillermo Calvo, Professor Emeritus, University of Columbia; 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, the World Bank; former Governor, Central Bank of Ecuador.
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 of CERES and 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 Minister of Finance, Chile.
