In its latest Financial Stability Report, the IMF has warned of greater global financial risks. It highlighted rising public and corporate debt levels in many nations and capital outflows in emerging economies.
In its twice-annual assessment of global financial stability, the International Monetary Fund (IMF) said conditions remained broadly conducive to economic growth, but were at risk of worsening should emerging markets continue to underperform and should trade tensions escalate.
"New vulnerabilities have emerged, and the resilience of the global financial system has yet to be tested," the IMF said.
It worried that market players "appeared complacent" about the potential dangers which could be produced by a sudden, sharp tightening of conditions such as rising interest rates or declining access to capital.
The IMF specifically mentioned the situation in Argentina and Turkey — two countries with heavy external debt. Both nations had to raise interest rates sharply in recent months. Argentina had to seek financial aid from the IMF, including the latest deal for a $57 billion (€49.5 billion) loan.
How to curb capital outflows
The report recommended emerging economies take steps to insulate themselves from a further exodus of funds from investors.
It said that would include boosting foreign currency reserves to be used in a crisis as well as working with local bond markets to build a domestic investor base, rather than relying on financing from abroad.
"While foreign investors play a critical role in financial deepening in emerging market economies, excessively high levels of participation may increase the sensitivity of emerging asset markets to external shocks," the IMF warned.
hg/jd (AFP, Reuters, dpa)