IMF’s Sobering Warning to Countries in Greatest Debt if They Don’t Get their Houses in Order

Posted on June 18, 2011

“If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States,” [Jose Vinals, director of the IMF’s monetary and capital markets department] said. [AlJazeera]

Europe is next on the list.  But on a companion list are the BRIC nations – the fastest growing – that have been warned to cool their race to economic dominance or run afoul of inflation and from their end, put world markets in turmoil.

Robust economic growth and rising inflation have caused emerging economies to tighten monetary policy with higher interest rates and reserve requirements, even as many developed nations keep policy ultra-loose to try to boost anemic growth.

The IMF warned that many emerging markets still need more tightening. In China, for example, the high inflation rate means negative real interest rates.

Some emerging markets have been reluctant to tighten too far, fearful of derailing growth or attracting speculative investment flows that could push their currencies ever higher.

It appears that the current global economic picture has made strange bed fellows.  Natural disasters and continued wars have detracted from global emergence from the current fiscal uncertainty.  If the largest markets – Europe and the US go under – it will not be long before the rest follow into the vortex.  I would be a hollow BRIC victory in any event.


Read the remainder of the AlJazeera article here.