MercoPress. South Atlantic News Agency

IMF chief warns indebted countries on Fed's announced policy of higher rates

Speaking at the Davos Agenda virtual meeting last week Georgieva said higher US interest rates will make it more expensive for countries to service their debts

The IMF managing director warned that interest rate hikes by the Federal Reserve could have serious implications for counties with high levels of debt in dollars, “cold water” on already weak economic recoveries, or in the process of negotiating debts.

Speaking at the closing session of the Davos Agenda virtual meeting last week Kristalina Georgieva said higher US interest rates will make it more expensive for countries to service their debts and sent a strong message, “Act now, if you can extend maturities please do. If you have currency mismatches, now is the moment to address them”

In Argentina, some serious political and financial analysts, interpreted Georgieva's words as a message to Argentina to speed negotiations for an understanding with the IMF.

Anyhow the IMF Chief praised the Fed for anticipating its next steps, including at least three interest rate hikes in the next twelve month. The Fed is scheduled to make an announcement this week following on the Federal Open Market Committee meeting scheduled for 25/26 January, and the tapering measures will be crucial for markets.

Further on Georgieva mentioned that world economic recovery continues but with a lesser momentum and recalled her end of year message, that policymakers should apply “policy flexibility”

The IMF expects the global economic recovery to continue, Georgieva said, but stressed that it was “losing some momentum.”

“We are navigating an obstacle race, with risks such as rising inflation, the Covid 19 variants and the high debt levels”. In December IMF announced that global debt had reached US$ 226 trillion, the largest since World War II.

As to inflation the IMF chief said prices are rising at startling speeds in several countries, Euro Zone a record 5%, in UK, 5,4% well above the 2% target (Bank of England is expected to hike the basic rate to 0,5 in February 3) and a 30-year high, while consumer prices in the US ballooned at its highest since 1982.

She also pointed out that circumstances are different to those in 2020, which makes it more difficult and specific to each country.

“In 2020, we had similar policies everywhere because we were fighting the same problem — an economy in standstill. In 2022, conditions in countries are very different, so we cannot anymore have the same policy everywhere, it has to be country specific and that makes our job in 2022 so much more complicated.”