The Yomiuri ShimbunThe money that flowed into emerging economies from advanced countries due to the latter’s monetary easing has started flowing back in reaction to rising interest rates in the United States. It will be important for various nations to closely cooperate in stabilizing financial markets.
With its economy continuing to expand for more than eight years, the United States is going ahead with an interest-rate increase to end its large-scale monetary relaxation. Last month, long-term interest rates in the United States temporarily exceeded 3 percent for the first time in four years and three months.
The Argentine peso is sharply falling against the U.S dollar. The situation finally prompted Argentina to ask the International Monetary Fund for assistance last week.
The IMF is poised to supply funds for peso-buying and dollar-selling by the Argentine authorities. The move is aimed at countering the persistent peso-selling pressure in the market.
Many emerging nations, such as Turkey, Brazil and India, are faced with a sharp decline in their currency values. Although they have successively adopted a policy of raising their interest rates to raise their currency values, the defensive measure solely taken by each country is less decisive in achieving the goal. There is no wiping out the uncertainty regarding the Chinese economy, either.
At a meeting of the finance ministers and central bank governors from the Group of 20 major economies last month, some pointed out there are concerns that the U.S. interest-rate hike could destabilize the global financial environment.
If financial markets are hit by a violent shock, recovery will be no easy task. It is important for major nations and the IMF to make such efforts as timely financial assistance.
Flexibility needed on loans
During the Asian currency crisis in the 1990s, confusion in Thailand and South Korea spread to other parts of the world. Some criticized the IMF for forcing these nations to adopt an austere fiscal policy in exchange for loans, saying the move only served to exacerbate the situation.
Currently, there is the Chiang Mai Initiative, a framework under which Japan, China, South Korea and the Association of Southeast Asian Nations facilitate mutual financing arrangements in an emergency.
The emerging countries have largely been eager to increase their foreign exchange reserves. The IMF is gradually shifting to a flexible stance on lending operations. Such efforts should be further promoted, thereby raising the stability of the world economy.
As for financial markets, the U.S. Federal Reserve Board is expected to certainly implement an additional interest-rate increase in June.
In making policy decisions, the Fed not only needs to analyze the U.S. economy but to pay sufficient attention to the impact of these decisions on emerging countries, whose economic bases are fragile.
Fed Chairman Jerome Powell, who took up the post in February, needs to carefully explain the direction of his monetary policies based on prospects for the world economy.
What is worrying is the protectionist policy of U.S. President Donald Trump.
Import restrictions imposed through high tariffs could raise import prices in the United States, thereby prompting the Fed to accelerate an interest-rate hike. If foreign trade involving the United States stagnates, the emerging and other economies would be dealt a double blow.
If the global economy is battered, the United States would also be dragged into it. Trump should not persist in his myopic policies.