Thursday, July 28, 2011

EM expert says Europe focus harms IMF’s credibility

Chris Sloley

Emerging markets are increasingly losing faith in the International Monetary Fund due to its overtly European focus and questionable handling of the ongoing sovereign debt crisis, Ashmore’s head of research Jerome Booth has said.

Speaking to Citywire Global, Booth said that growing disillusionment among managers of emerging market funds was valid given the IMF’s recent activity.

Most notably, the IMF has agreed to pledge €78.5 billion to Greece, Ireland and Portugal through to 2014 and, earlier this month, it was also involved in thrashing out the €109 billion rescue package for Greece.

Although it has not stated how much it intends to contribute to the second Greek bailout.

Commenting on its involvement, Booth said: ‘The IMF risks its credibility by putting more money into Greece and arguably it should not have participated anyway in the existing bailout programme. The criticism is that it is now throwing good money after bad and I think that is an extremely valid concern.’

Booth’s comments come in the wake of suggestions of IMF board members representing the BRIC regions allegedly taking umbrage with the IMF’s perceived European-bias, which, they claim, is exemplified by its extensive work on the eurozone debt crisis.

‘I think the IMF has a credibility issue relating to the situation in Greece and it is finally being raised at the board level of the IMF,’ said Booth. ‘But, it has been said for a while, so it is something of a belated suggestion from the emerging market board members.’

And, while Booth claimed that the board members are growing frustrated with the fund, he said that representatives of emerging markets have begun to question the relevance of the IMF.

He said this could be traced back to French finance minister Christine Lagarde being elected as former IMF managing director Dominic Strauss-Kahn’s successor ahead of Mexican candidate Agustin Carstens, the governor of the Bank of Mexico.

‘One of the issues was that Carstens didn’t get any momentum among emerging market members voting for him because lots of emerging markets see the IMF as having little relevance,’ said Booth.

‘And, if the Europeans want to capture the IMF and use it to print money at the expense of its credibility, the emerging markets will not stop them. I think the Brazilians, for example, want a permanent seat on the UN and to be head of the FAO, so having a Latin American or emerging market head of the IMF is not as important.’

Representatives from Brazil, Russia, India, China and South Africa had previously voiced disquiet at being ‘consistently overlooked’ for the lead role at the IMF, criticising the standing tradition of having a European at the helm of the fund.

Help Us Transmit This Story

    Add to Your Blogger Account
    Put it On Facebook
    Tweet this post
    Print it from your printer
     Email and a collection of other outlets
     Try even more services

No comments:

Post a Comment