IMF warns global financial weakness could affect emerging markets – 02/04/2019

Washington (Correspondent) .- Just days before the arrival of finance ministers from around the world in Washington for the Spring Assembly of the International Monetary Fund, the director of the organization, Christine Lagarde, has warned that the global economy is in a "delicate moment" trade tensions and the tightening of financial conditions. Still, he does not expect a global short-term recession.

In a speech to the US Chamber of Commerce on Tuesday, the IMF Managing Director reviewed the global situation before the beginning of the meeting of officials, who will begin arriving next Wednesday in the capital. . In her message, Lagarde focused on the themes on which the meetings will focus.

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"A year ago, I said, let's repair the roof now that the sun is shining." Six months ago, I reported that storms were coming. Today, the weather is more and more "unstable"Lagarde warned that global growth, even if it is "reasonable" (3.5%, according to forecasts for this year), is in decline.

The director pointed out that the world economy is in crisis. "Delicate moment"And explained that" global growth has slowed, largely because of rising trade tensions and tighter financial conditions in the second half of 2018. "

However, Lagarde emphasized the positive or negative effect of the Fed's decision not to raise rates. "Global economic activity should benefit from the more patient pace of monetary normalization of the major central banks – led by the US Federal Reserve – and an increased recovery, for example in China." These policy responses have favored the easing of financial conditions and increased capital flows to emerging markets, where currencies have strengthened against the US dollar "

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But, warns Lagarde, "It should be noted that the expected recovery in global growth at the end of this year is precarious. It is vulnerable to various downside risks, including uncertainties related to countries such as Brexit and wider uncertainties such as the high level of debt in certain sectors and countries, the tensions around politics, the feeling of unease on the financial markets ".

And he cited, as an example, an alternative that could have an impact in countries like Argentina: "If the tightening of financial conditions is more pronounced than expected, this could create serious difficulties for many governments and businesses in terms of refinancing and debt service, which could amplify exchange rate fluctuations and currency corrections. financial markets. "

The director warned that before this scenario and to avoid mistakes, it is necessary to take some "adequate" policies. First, he noted that the macroeconomic policies of the countries "Should aim to strengthen growth and stability". And he said that in terms of monetary policy, "in the necessary cases, it is important to use exchange rate flexibility to help absorb shocks".

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"High levels of public debt and low interest rates have left a limited leeway when the next downturn will occur, which will inevitably happen," added the official.

Lagarde also rose to the challenge of avoiding a trade war. "Trade barriers are clearly detrimental to investment and employment. This conclusion is particularly relevant now, at a time when trade tensions could further impede investment and at a time when investment is already weak. So, again, we are in a delicate moment and we have to be careful. In particular, we badyzed what would happen if tariffs on all goods traded between the United States and China increased by 25 percentage points. This in itself would reduce annual GDP by 0.6% in the United States and 1.5% in China. These are injuries that can inflict injury and should be avoided, "he complains.

Lagarde emphasized the spirit of "cooperation" of the agency to help clean up the economy of some countries and mentioned the recent programs in Egypt, Tunisia, Jordan, Ukraine and Argentina. For our country, the Fund has allocated a pending loan of $ 57.6 billion. This Friday, the board is considering approving the disbursement of another tranche of the loan, amounting to 10,800 million euros.

Finally, Lagarde has raised global challenges, including demographic factors, migration, cyber risks and the threat of climate change. He also mentioned corruption: "The annual cost of bribes alone accounts for more than US $ 1.5 trillion, or about 2 percent of global GDP", revealed and warned: "Corruption reduces growth, increases inequality, nourish mistrust."