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IMF admits price-asset bubbles tells Latam financial sector ‘to keep their guard up’

Thursday, April 18th 2013 - 02:47 UTC
Full article 4 comments
Jose Viñals warned about ‘disruptive capital flows’ but offered no definitive solution Jose Viñals warned about ‘disruptive capital flows’ but offered no definitive solution

The International Monetary Fund (IMF) stated on Wednesday that both financial and banking sectors in Latin America “should keep their guards up” before the recent and fast growth of the credit, though the lender doesn’t see any overheat of the region’s economy.

During a press conference in which the latest Global Finance Stability report was presented, the IMF’s Director for Monetary Affairs, José Viñals, indicated that “Though there’s been a significant growth of the credit availability during the past years in Latin America, it would be convenient for the banking sector to be alert as it could lead to slowness in paying in a near future, something that had already occurred in the past as consequence of a fast credit expansion.”

Likewise, the IMF official explained that a large debt leaves countries defenceless before brusque cash flow variations.

The easy monetary policies have been “essential” to support the economies but, if they are used over a long time, they could create “excessive risk-taking and asset bubbles,” Viñals said.

“Borrowing in international markets by corporations in emerging markets has been growing at a rapid pace, exposing them to currency risk and leverage,” he said.

“Emerging markets need to keep their guard up against deteriorating bank asset quality and disruptive capital flows” Viñals added. “They should prevent the build-up of excessive leverage and the build-up of asset price bubbles.”

But he did not encourage the use of capital controls, a measure preferred by many policymakers in emerging countries, saying that flexible exchange rates, the level of foreign exchange reserves, adjustments in the monetary and fiscal stances and macro-prudential policies could be used instead, to counteract the negative effects of capital flows.

“Let's also remember that capital flows bring benefits” Viñals said. “Admittedly sometimes if there is too much capital coming too quickly it may pose problems in terms of overheating.”

The IMF, which before the crisis regarded capital controls as anathema, has changed its position since, and now believes that if they are targeted and temporary capital controls could be used to ensure financial stability.

Asked whether there were signs of a bubble forming in Latin American assets, Robert Sheehy from the IMF Monetary and Capital Markets Department said: “there are some hot spots, but we don't see any generalized bubble or signs of overheating.”
 

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  • Think

    TWIMC

    Article says.....:
    “Emerging markets need to keep their guard up against deteriorating bank asset quality and disruptive capital flows” Viñals added........

    I say....:
    Like in Argentina during the 90's?
    When the Buenos Aires Chicago Boys together with their New York Chicago Boys chums and their London Chicago Boys pals designed the cunning plan of........:
    1) Issuing State Guaranteed Private Dollar Denominated Debt Bonds?
    2) Issuing State Guaranteed Private Dollar Denominated Debt Bonds with an interest rate three times higher than the going international rate?
    3) Issuing State Guaranteed Private Dollar Denominated Debt Bonds under the jurisdiction of foreign courts and organizations?

    Is that what you are warning us against Sr. Viñals ???

    Apr 18th, 2013 - 04:32 am 0
  • Conqueror

    @1 No. He means CFK and her cronies stealing and lying. How many illicit millions has she salted away now? Are YOU getting your share?

    Apr 18th, 2013 - 12:07 pm 0
  • yankeeboy

    And who can the Rgs blame for the last decade of failure?
    The USA has stayed well away
    Who's gonna bail them out this time
    BCRA reserves are under U$40B by their own overly generous accounting
    Leak rate 9.1/1 and falling
    Real Estate transactions are non-existent
    Crops...eh
    but certainly not enough to pay for the fuel they need this year

    Apr 18th, 2013 - 01:15 pm 0
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