IMF wary of global economic and financial vulnerability

The IMF, World Bank, and representatives of major industrialized nations are concerned about the vulnerability of the global economic and financial markets due to the continuing euro zone and US fiscal crises. We asked our international Zintro experts to discuss the potential impact as weaknesses spread into emerging markets.

Charles Krakoff, an international export and investment advisor, says that the Euro zone and US fiscal crises are likely to have only a limited effect on most emerging market economies. “Countries highly dependent on energy or other commodity exports will experience contraction as demand slows in the major industrialized nations, though these effects will be mitigated in part by a stronger dollar, which means that dollar-denominated exports are worth more in local currency terms,” he says. “Slower growth in China’s economy and commodity imports will have a greater effect than the crisis in the industrialized economies.”

Thomas Ward, a strategic financial economist, says that The Bretton Woods Intuitions were created in the wake of WWII with the World Bank’s mission to provide infrastructure rehabilitation development assistance and the IMF’s to function as a central bank in support to sovereign states’ macroeconomic stability, namely currency and inflationary challenges. “Their functions have evolved to a global stage as well as in their missions. The world has faced global financial contagion challenges in the 90s from Asia to Russia to Brazil and Mexico, and the world faces one again from the mid 2000s to today,” says Ward. “The presidency of the World Bank has been lead by the US and the Asian Development Bank by Japan, whereas the IMF’s managing director has been historically European; therefore, it may be in its best interest to support the challenges across the Euro zone.”

Ward explains that a shift of focus from the IMF/World Bank’s traditional lending recipients and members could solidify means to address the EU crises; however, the resources of the World Bank and IMF are limited. “Any focus on the EU and US could shift resources away from addressing challenges across the emerging markets and similarly across Africa. I see a need for a strategic shift of focus and lending to ensure sustainable, integrated financing with impacts from traditional project financing of outputs globally,” says Ward.

Jay Nelson, founder of a globally-oriented business information company, says the IMF is right to be concerned. “Not only is the Euro zone slowing and the US facing a fiscal cliff and debt questions of its own, but those problems are slowing the export-oriented BRIC economies, especially China, which will present even more problems in the next six months,” explains Nelson. Nelson sees Japan’s economy as holding its own and possibly succeeding in this latest global financial crisis.

By Maureen Aylward

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