Resilience of some emerging nations will not last: G20 finance chief

TBS report

October 13, 2022, 10:10 a.m.

Last modified: October 13, 2022, 10:17 am

Indonesian Finance Minister Sri Mulyani addresses the G20 Finance Ministers and Central Bank Governors Meeting in Nusa Dua, Bali, Indonesia on July 15. Photo: Bloomberg

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Indonesian Finance Minister Sri Mulyani addresses the G20 Finance Ministers and Central Bank Governors Meeting in Nusa Dua, Bali, Indonesia on July 15. Photo: Bloomberg

Emerging and developing nations face a “hurricane” of risks from rising energy costs and food insecurity, and any resilience some countries may have will not last long, the chair of the finance ministers’ forum told Bloomberg. of the Group of 20.

The comment came from Sri Mulyani Indrawati, who remained the World Bank’s No. 2 official for more than five years before returning to Jakarta in 2016 to serve as Indonesia’s finance minister.

Despite the turmoil of inflation fueled by the Ukraine war, many emerging economies are stronger and more resilient than they were during the past crises of 1997 and 2008, thanks to tighter regulation, flexible exchange rates, and a deeper market in dollar-denominated debt. local currency.

However, there would be enormous pressure on emerging countries’ balance sheets to attend to adequate energy supplies and food security, amid record interest rate hikes by the US central bank to control inflation. for Americans.

Among others, countries like Indonesia, India, Vietnam, and Russia are doing much better now than even many of their developed peers, but the picture is rapidly darkening.

The “hurricane for developing countries is definitely very strong,” Indrawati said in an interview with Bloomberg News in Washington.

These difficulties, added to inflation, the strength of the dollar and the rise in interest rates, “will put many emerging and developing countries in a very serious and difficult situation.”

With the Federal Reserve embarking on the most aggressive rate hike campaign in a generation to secure its credibility and tackle inflation, “the consequence is not good for emerging and developing countries” and will make it harder for them to issue bonds, Indrawati said.

About 15 developing countries hold dollar-denominated government bonds that pay at least 1,000 basis points more than U.S. Treasuries, which is above the threshold for the debt to be considered distressed, according to data compiled. by Bloomberg. That’s double the number of countries since the start of the year.

Indrawati was in the US capital for the annual meetings of the International Monetary Fund and the World Bank. On Wednesday he will chair the fourth meeting of G20 finance ministers and central bankers this year, and the first since a meeting in Bali in July, after officials from the US, Canada and several European nations walked out of a summit in April as a Russian representative began to speak.

While some economies are showing resilience, that won’t last long, and more nations are likely to need to turn to the IMF for bailouts, Indrawati said. Last month, the fund approved the creation of a “food crisis window” of emergency financing to help meet countries’ needs.

Indrawati said he expects 2023 to be “very, very difficult” for many economies, a view he shared at meetings with bond investors in New York and Boston in recent days. Countries that cannot get fertilizer today will face food shortages in six months, just as the winter a year from now is likely to be harsher than next winter in terms of rising energy prices.

In this difficult context, Indrawati stressed the importance of Indonesia hosting the G20 and continuing to include Russia. The G20’s advantage over the Group of Seven, a smaller forum of rich countries, is that it has the breadth to decide global issues, she said.

The elimination of any nation would risk a fragmentation of the global economy that would increase the difficulty of solving the world’s most pressing problems, such as climate change, promoting financial inclusion or reaching an agreement on debt relief for the poor nations, he said.

“The true asset and true value of the G20 is that regardless of what is happening today, the world will need this kind of cooperation, and this premier economic forum as the G20 is worth continuing, maintaining and preserving,” he said. .

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