MercoPress. South Atlantic News Agency

IMF pounds at emerging and developed countries, but forgets self-criticism

“Hard landings” and “asset bubbles” in IMF’s forecasts

The IMF criticized developing countries for not responding strongly enough to the surge of hot money into their markets, saying the result could be a hard economic landing.

After meeting in Washington DC, the IMF said in a note to G20 major economies that huge inflows of speculative capital had sped up economic growth in emerging markets, but also pushed up inflation and the response by developing country governments had “been insufficient to address these rising pressures, portending risks of a hard landing.”

It said while capital flows to emerging markets have moderated, and in some cases been reversed, they remained high and volatile.

The IMF said emerging market economies have tried to slow the flows through a combination of macroeconomic policies as well as capital control measures, but are delaying further macroeconomic responses such as raising interest rates.

In Brazil, the IMF said there was scope to continue monetary policy tightening, while in China there should be less reliance on quantitative limits and reserve requirements and more focus on raising interest rates.

The IMF warned last week that overheating pressures were growing in fast-growing emerging market economies and leading to asset bubbles.

Countries such as Brazil have pushed back, blaming near zero interest rates in the United States for sending investors elsewhere in search of returns, and telling the IMF to pay closer attention to the source of the flow. Brazil has resisted efforts to restrict the use of capital controls.

Meanwhile, the IMF said the recovery in advanced economies was moving too slowly. In the United States, improvements in the housing and labour markets have been slow and without an increase in exports, growth will remain subdued.

The IMF said the US dollar was on the strong side of fundamentals, and a further depreciation of the U.S. unit against undervalued currencies would help to cut the U.S. current account gap.

The IMF repeated that the Chinese Yuan was “substantially undervalued,” while the values of the Euro and Japanese Yen are broadly in line with fundamentals.

The IMF said the risk of a near-term spike in oil prices back to 2008 peaks, when prices went close to 150 USD a barrel, has ”increased materially”.