Welcome to Copy Time, a podcast series on Markets and Economies from D BS Group Research. I'm Tare, chief Economist. Welcoming you to our 122nd episode.

Welcome to Copy Time, a podcast series on Markets and Economies from D BS Group Research. I'm Tare, chief Economist. Welcoming you to our 122nd episode.

Today we will discuss global macro and development multilateralism. Our return guest is Martin Mhn, a non-resident, senior fellow at the Atlantic Council's Geo Economic Center. Prior to the Council, Martin spent several decades at the International Monetary Fund in various senior capacity. And his last position there was director for the Department of Strategy Policy and Review Martin Mizen. A warm welcome back to COVID time.

Today we will discuss global macro and development multilateralism. Our return guest is Martin Mhn, a non-resident, senior fellow at the Atlantic Council's Geo Economic Center. Prior to the Council, Martin spent several decades at the International Monetary Fund in various senior capacity. And his last position there was director for the Department of Strategy Policy and Review Martin Mizen. A warm welcome back to COVID time.

Thank you, Tamo. It's great to be back and congratulations on the great run of your show.

Thank you, Tamo. It's great to be back and congratulations on the great run of your show.

Thank you very much Martin. I think if I'm not mistaken, you and I did exactly half the number of episodes ago back when it was like in the sixties.

Thank you very much Martin. I think if I'm not mistaken, you and I did exactly half the number of episodes ago back when it was like in the sixties.

That's right. Yeah. Although, you know, it doesn't feel that long ago and you know, we haven't grown that much older, right? It sounds like, oh, back in the sixties.

That's right. Yeah. Although, you know, it doesn't feel that long ago and you know, we haven't grown that much older, right? It sounds like, oh, back in the sixties.

No. And in fact, you and I met in person just a week ago uh in Washington DC. You're kind enough to take me out to lunch. Uh, Martin, let's start with that. Some takeaways from the IMF meetings for you.

No. And in fact, you and I met in person just a week ago uh in Washington DC. You're kind enough to take me out to lunch. Uh, Martin, let's start with that. Some takeaways from the IMF meetings for you.

Yeah, the IMF meetings. It was a great show as always. Um, you know, all the, the tents were erected and, uh, the meetings were announced and the words were spoken but one could not come away from the meetings, um, with the sense of, well, you know, there isn't really much that people can agree on and by people, I mean, the whole world community, um it's not just the two big um countries that are kind of um

Yeah, the IMF meetings. It was a great show as always. Um, you know, all the, the tents were erected and, uh, the meetings were announced and the words were spoken but one could not come away from the meetings, um, with the sense of, well, you know, there isn't really much that people can agree on and by people, I mean, the whole world community, um it's not just the two big um countries that are kind of um

you know, being declared geopolitical, you know, rivals, I mean, talking China and Russia, of course, they would have resisted a lot of the language on, on the politics, usually ahead of a communique.

you know, being declared geopolitical, you know, rivals, I mean, talking China and Russia, of course, they would have resisted a lot of the language on, on the politics, usually ahead of a communique.

Um but also, um you know, within Europe um within the development community and the finance community, it's no longer the old multilateralism, there's a lot at stake in various ways, but it doesn't lead to multilateral outcomes. The real show is going on elsewhere, I think now having said that um obviously, there was some kind of small steps forward on issues where everybody has an interest.

Um but also, um you know, within Europe um within the development community and the finance community, it's no longer the old multilateralism, there's a lot at stake in various ways, but it doesn't lead to multilateral outcomes. The real show is going on elsewhere, I think now having said that um obviously, there was some kind of small steps forward on issues where everybody has an interest.

Um uh First of all, just before the meeting started, um the managing director had been reappointed for another five years,

Um uh First of all, just before the meeting started, um the managing director had been reappointed for another five years,

uh which seemed to be a kind of a solution where everybody could agree on because deviating from it would have been a big mess. And um she had a lot of supporters but it wasn't really unanimous. Um uh at least at the beginning, I mean, the, the IMF always rallies around um in the board meetings usually. But um uh there was also some progress on the quota before. Of course, it's been a while already that the US agreed.

uh which seemed to be a kind of a solution where everybody could agree on because deviating from it would have been a big mess. And um she had a lot of supporters but it wasn't really unanimous. Um uh at least at the beginning, I mean, the, the IMF always rallies around um in the board meetings usually. But um uh there was also some progress on the quota before. Of course, it's been a while already that the US agreed.

And if you read the communique language, um there's a lot of talk about. Well, uh first of all, you know, we're going to implement this. So the US um obviously in the crosshairs here because they need Congress to act, but they were writing, they were supporting that language um that the, the, the actual quota gets uh legislated and uh uh uh appropriated

And if you read the communique language, um there's a lot of talk about. Well, uh first of all, you know, we're going to implement this. So the US um obviously in the crosshairs here because they need Congress to act, but they were writing, they were supporting that language um that the, the, the actual quota gets uh legislated and uh uh uh appropriated

and then paid in. Um There was some talk about how to switch between the quota and the arrangements to borrow in case quotas get delayed. So that's all like process. Um And um uh it's fine that it proceeds

and then paid in. Um There was some talk about how to switch between the quota and the arrangements to borrow in case quotas get delayed. So that's all like process. Um And um uh it's fine that it proceeds

some other stuff. Um Martin

some other stuff. Um Martin

before you move on, I just want to ask you one question just for the listeners. Um understanding uh explain the substance of the quota rearrangement. Does it mean a reduction in the voting power of the United States and European countries and by extension and increase in the voting power of emerging market economies?

before you move on, I just want to ask you one question just for the listeners. Um understanding uh explain the substance of the quota rearrangement. Does it mean a reduction in the voting power of the United States and European countries and by extension and increase in the voting power of emerging market economies?

Yeah. No. So that's the problem when you come out of the spring meetings. You're still stuck with the technicalities. OK, let's step back. Um

Yeah. No. So that's the problem when you come out of the spring meetings. You're still stuck with the technicalities. OK, let's step back. Um

um The quota is the IMF S capital. If you want, right? Um It's the paid in share capital uh of each member country and it also determines the vote. Um the voting power more or less. Um and um

um The quota is the IMF S capital. If you want, right? Um It's the paid in share capital uh of each member country and it also determines the vote. Um the voting power more or less. Um and um

what was agreed was not a real realignment of quotas which is a big demand by especially China also emerging markets. They feel underrepresented at the IMF um which they are, I mean, factually speaking, you know, the, the IMF always was supposed to have votes according to the size of its member economies and China is obviously undervalued at the moment.

what was agreed was not a real realignment of quotas which is a big demand by especially China also emerging markets. They feel underrepresented at the IMF um which they are, I mean, factually speaking, you know, the, the IMF always was supposed to have votes according to the size of its member economies and China is obviously undervalued at the moment.

Um No, it was instead a commitment by the US to increase its share

Um No, it was instead a commitment by the US to increase its share

uh or it's not, not its share, but it's, it's actual capital um which it did to solidify the finances of the IMF because a lot of the finances, a lot of the lending capacity of the IMF um is based on arrangements to borrow if needed from member countries and

uh or it's not, not its share, but it's, it's actual capital um which it did to solidify the finances of the IMF because a lot of the finances, a lot of the lending capacity of the IMF um is based on arrangements to borrow if needed from member countries and

to make the IMF more stable, the, the US agreed to raise its capital. Now, it only did that because it got the uh agreement from everybody else to also raise their capital share, but in the same proportion like the US. So in other words, the IMF gets more capital, great, but there's no realignment of votes not so great as some will say. Ok.

to make the IMF more stable, the, the US agreed to raise its capital. Now, it only did that because it got the uh agreement from everybody else to also raise their capital share, but in the same proportion like the US. So in other words, the IMF gets more capital, great, but there's no realignment of votes not so great as some will say. Ok.

And um it's still an important step um because it, it also demonstrates the US commitment to the IMF but um it's only kind of half the the issue. And it's kind of surprising that some other countries agreed.

And um it's still an important step um because it, it also demonstrates the US commitment to the IMF but um it's only kind of half the the issue. And it's kind of surprising that some other countries agreed.

But, you know, there we come to this geopolitical thing because it was a good move. And I think

But, you know, there we come to this geopolitical thing because it was a good move. And I think

if China had, for example, said, well, we don't agree to this unless we get a bigger vote, they could have been presented as someone who blocked an IMF kind of a good thing for the fund for their own parochial reasons. And why would they do that? Because the global South needs a lot of money. So the other way around, if the US had done nothing, they could have been accused of just ignoring the plight of these countries. So everybody had an interest to say, well, look, we support more capital for the IMF

if China had, for example, said, well, we don't agree to this unless we get a bigger vote, they could have been presented as someone who blocked an IMF kind of a good thing for the fund for their own parochial reasons. And why would they do that? Because the global South needs a lot of money. So the other way around, if the US had done nothing, they could have been accused of just ignoring the plight of these countries. So everybody had an interest to say, well, look, we support more capital for the IMF

so it can lend more. Um uh But uh that was kind of the, the, the lowest common denominator. And

so it can lend more. Um uh But uh that was kind of the, the, the lowest common denominator. And

what I was saying earlier is that now they need to implement that the Congress needs to legislate the money, other countries obviously too. But it's always the Congress that proves the sticking part. That's how it was in 2010. It took them six years I think to come around. Um And then of course, there's the lowest commitment to review

what I was saying earlier is that now they need to implement that the Congress needs to legislate the money, other countries obviously too. But it's always the Congress that proves the sticking part. That's how it was in 2010. It took them six years I think to come around. Um And then of course, there's the lowest commitment to review

the um the quota shares and the voting shares of the IMF and to find the process forward. Now, uh you know, I don't want to kind of bring up comparisons to Damocles, but it goes a little bit in that direction because there are so many interests interwoven um uh into that quota formula they even have um which is kind of a guideline. It's not, it's not deterministic but

the um the quota shares and the voting shares of the IMF and to find the process forward. Now, uh you know, I don't want to kind of bring up comparisons to Damocles, but it goes a little bit in that direction because there are so many interests interwoven um uh into that quota formula they even have um which is kind of a guideline. It's not, it's not deterministic but

kind of figuring out the relative kind of standings of various European countries within that quota arrangement, finding out the relative strength of say, Japan and China,

kind of figuring out the relative kind of standings of various European countries within that quota arrangement, finding out the relative strength of say, Japan and China,

um

um

figuring out how much vote to really give the developing countries. Although economically speaking, they're really, I mean, they're so small still, unfortunately that they're not really way out of line. It's more a political question. So how much votes should Africa have in the IMF it's a big political issue and, you know, they just got another board chair, the 25th board chair of the IMF goes to Africa.

figuring out how much vote to really give the developing countries. Although economically speaking, they're really, I mean, they're so small still, unfortunately that they're not really way out of line. It's more a political question. So how much votes should Africa have in the IMF it's a big political issue and, you know, they just got another board chair, the 25th board chair of the IMF goes to Africa.

So then I have three, which is good, I think, but figuring out how to kind of divide the political and the economic influence and fit it into a formula. If you ask me, they're gonna talk about that for ages and not making progress, which means that, you know, China will again, probably have to ask itself, do we still support this institution in a few years if nothing happens or what do we do? So so far they've been playing along constructively.

So then I have three, which is good, I think, but figuring out how to kind of divide the political and the economic influence and fit it into a formula. If you ask me, they're gonna talk about that for ages and not making progress, which means that, you know, China will again, probably have to ask itself, do we still support this institution in a few years if nothing happens or what do we do? So so far they've been playing along constructively.

But um it's, it's heightening the, the tension between what the IMF really is and what it's supposed to

But um it's, it's heightening the, the tension between what the IMF really is and what it's supposed to

be. Excellent, very, very useful. Thanks Martin.

be. Excellent, very, very useful. Thanks Martin.

Yeah. Um So the quota that, you know, the, the, the agreement was some way forward now, they, they commit to further process. Um

Yeah. Um So the quota that, you know, the, the, the agreement was some way forward now, they, they commit to further process. Um

uh the common framework uh as always is under debate. Um so, you know, low income and developing countries are over indebted.

uh the common framework uh as always is under debate. Um so, you know, low income and developing countries are over indebted.

There has been problems with countries like Zambia that

There has been problems with countries like Zambia that

needed to restructure its debt and they, you know, took them forever to do that in part because China not always China but often China was very slow in restructuring.

needed to restructure its debt and they, you know, took them forever to do that in part because China not always China but often China was very slow in restructuring.

Um They've been making progress on that one. The, the interesting thing here is that um the IMF came out with a policy paper just before the meeting started.

Um They've been making progress on that one. The, the interesting thing here is that um the IMF came out with a policy paper just before the meeting started.

Um and that's not, that's a very tactical paper and very difficult to read. I have to warn our, our uh all our, our listeners about um you know, delving into that paper, there's a lot of legalese in there, but it's, it's really important. The issue here is the follow Zambia had to wait for an IMF program for three years or so because the creditors could not agree on a restructuring

Um and that's not, that's a very tactical paper and very difficult to read. I have to warn our, our uh all our, our listeners about um you know, delving into that paper, there's a lot of legalese in there, but it's, it's really important. The issue here is the follow Zambia had to wait for an IMF program for three years or so because the creditors could not agree on a restructuring

under the old kind of rules if you want 1020 years ago when China was not yet a big creditor, but there was only the Paris Club. So the the advanced industrial economies

under the old kind of rules if you want 1020 years ago when China was not yet a big creditor, but there was only the Paris Club. So the the advanced industrial economies

um usually agreement in the Paris Club that they would take on this, this debt restructure and let alone agree on it yet was already enough for the IMF to say, ok, we're going to have a deal one day. So we move forward

um usually agreement in the Paris Club that they would take on this, this debt restructure and let alone agree on it yet was already enough for the IMF to say, ok, we're going to have a deal one day. So we move forward

with China that didn't work because there was no way of gauging whether China really was serious when they said, well, you know, we're going to engage and we're gonna talk and you know, it, it took a lot of years at the beginning, but that was due to in part internal issues in China. But

with China that didn't work because there was no way of gauging whether China really was serious when they said, well, you know, we're going to engage and we're gonna talk and you know, it, it took a lot of years at the beginning, but that was due to in part internal issues in China. But

I think the the international community has come to the point where they said, well, China has now done a few restructurings. They have participated not smoothly, mind you it's still a process with them, but

I think the the international community has come to the point where they said, well, China has now done a few restructurings. They have participated not smoothly, mind you it's still a process with them, but

there is something going on with China that we can say, ok, once they say they engage, we're most likely going to get to some point where we have an agreement with them and that should be enough for the IMF to go forward. And so that's one thing that's the assurances policy and there's a little kind of um you know, a little kind of tool that can threaten China if a country wants to,

there is something going on with China that we can say, ok, once they say they engage, we're most likely going to get to some point where we have an agreement with them and that should be enough for the IMF to go forward. And so that's one thing that's the assurances policy and there's a little kind of um you know, a little kind of tool that can threaten China if a country wants to,

to say, well, if China doesn't engage at all or not timely enough, but we've made all efforts to reach out. We made good offers to them

to say, well, if China doesn't engage at all or not timely enough, but we've made all efforts to reach out. We made good offers to them

that the IMF can say, well,

that the IMF can say, well,

China, too bad, you're not going to get paid um under, under our, under our IMF program.

China, too bad, you're not going to get paid um under, under our, under our IMF program.

Um You have to wait until you come to a debt agreement. In the meantime, the country gets IMF money but you will not get paid from it, we stop the payments to the country as soon as they even think of repaying you. So, in a way it's, it's defaulting on China keeping them in default.

Um You have to wait until you come to a debt agreement. In the meantime, the country gets IMF money but you will not get paid from it, we stop the payments to the country as soon as they even think of repaying you. So, in a way it's, it's defaulting on China keeping them in default.

Um, but the IMF goes ahead and that, that is something that used to be just impossible.

Um, but the IMF goes ahead and that, that is something that used to be just impossible.

Uh In the, in the eighties, nineties, two thousands, it got changed a little bit when Russia did its first Ukraine thing in, uh with the, with the Crimea and Donbas in 2000. Uh when was it 15 or 14, it got changed a little bit um to open the door slightly to be able to lend to Ukraine.

Uh In the, in the eighties, nineties, two thousands, it got changed a little bit when Russia did its first Ukraine thing in, uh with the, with the Crimea and Donbas in 2000. Uh when was it 15 or 14, it got changed a little bit um to open the door slightly to be able to lend to Ukraine.

And now it's, it's been even further widened the door. It doesn't mention China of course. But the so called policy of lending into official arrears is a big step for the fund. But still, I would

And now it's, it's been even further widened the door. It doesn't mention China of course. But the so called policy of lending into official arrears is a big step for the fund. But still, I would

see, for example, in the Ukraine context, Ukraine can default or not service its debt to Russia but still receive an IMF program disperse.

see, for example, in the Ukraine context, Ukraine can default or not service its debt to Russia but still receive an IMF program disperse.

Yeah, so back then, uh in short, um Russia held a 3 billion uh bond that it had uh

Yeah, so back then, uh in short, um Russia held a 3 billion uh bond that it had uh

kind of gotten from Ukraine in exchange for money. But under a regime in Ukraine, that was still kind of um you know, to Russia's liking.

kind of gotten from Ukraine in exchange for money. But under a regime in Ukraine, that was still kind of um you know, to Russia's liking.

And the Ukrainians after the change in power and that little green men invasion of Crimea said there's no way we're going to pay, in fact, to cost us so much damage. We're not going to pay.

And the Ukrainians after the change in power and that little green men invasion of Crimea said there's no way we're going to pay, in fact, to cost us so much damage. We're not going to pay.

And the international community said, well, if um if a predator like Russia is no longer relevant for program financing in the, in the future, which obviously it wasn't because they had become enemies by then.

And the international community said, well, if um if a predator like Russia is no longer relevant for program financing in the, in the future, which obviously it wasn't because they had become enemies by then.

Um The IMF can still go ahead while the debt is being sorted out provided that the country doesn't repay the debt. So in other words, if Ukraine doesn't pay Russia, we can move ahead.

Um The IMF can still go ahead while the debt is being sorted out provided that the country doesn't repay the debt. So in other words, if Ukraine doesn't pay Russia, we can move ahead.

So, um that was the lending into official arrears policy. And as I said, it has now been widened a little bit further, but it's a very kind of weak leverage against China because it's uh you know, tell me which country would like to default on China intentionally

So, um that was the lending into official arrears policy. And as I said, it has now been widened a little bit further, but it's a very kind of weak leverage against China because it's uh you know, tell me which country would like to default on China intentionally

and all the trade links, the financing links, the cross default clauses and God knows what. Um so it's very unlikely but it's there as a little tool to be used. But the real issue is the assurances policy. So that's a vote of confidence if you want in China, of, of them playing by the rules just very slowly, they need to still figure out a lot of the details and the internal coordinations very weak. Um So the IMF can then faster. So that's I think

and all the trade links, the financing links, the cross default clauses and God knows what. Um so it's very unlikely but it's there as a little tool to be used. But the real issue is the assurances policy. So that's a vote of confidence if you want in China, of, of them playing by the rules just very slowly, they need to still figure out a lot of the details and the internal coordinations very weak. Um So the IMF can then faster. So that's I think

uh you know, a good move. It's a marginal one. We'll have to see how it works out uh in the future. But that's one of the achievements of the board before the meetings. Um

uh you know, a good move. It's a marginal one. We'll have to see how it works out uh in the future. But that's one of the achievements of the board before the meetings. Um

We also got some news, I think just yesterday, again, not related to the meetings directly

We also got some news, I think just yesterday, again, not related to the meetings directly

that the African Development Bank seems to have come to a point with IMF shareholders that they can use SDRS that the fund is issuing,

that the African Development Bank seems to have come to a point with IMF shareholders that they can use SDRS that the fund is issuing,

um, to finance, to, to raise finance that they can only lend to Africa. So again, that sounds not such a big thing, but it has the seeds of something bigger,

um, to finance, to, to raise finance that they can only lend to Africa. So again, that sounds not such a big thing, but it has the seeds of something bigger,

um,

um,

that gets us deep into development finance. So the issue is that

that gets us deep into development finance. So the issue is that

um SDRS are being regarded by central banks as reserve currency, right? That's part of the deal of the IMF. Um As long as um the fund is using conditionality for its programs and is able of addressing countries balance of payments issues.

um SDRS are being regarded by central banks as reserve currency, right? That's part of the deal of the IMF. Um As long as um the fund is using conditionality for its programs and is able of addressing countries balance of payments issues.

The the the claims that central banks have on the IMF

The the the claims that central banks have on the IMF

because the IMF is financed by member country contributions way back in the bo gold and nowadays currency. So as long as that claim is of a very high quality, the banks, the central banks can say, oh look, you know, it's part of our reserves, ok?

because the IMF is financed by member country contributions way back in the bo gold and nowadays currency. So as long as that claim is of a very high quality, the banks, the central banks can say, oh look, you know, it's part of our reserves, ok?

Because the, the IMF owes them SDRS.

Because the, the IMF owes them SDRS.

Now say if the IMF would hand out SDRS to

Now say if the IMF would hand out SDRS to

institutions that are of not such great quality

institutions that are of not such great quality

and those institutions would then lend and make losses and the IMF would have to at some point record a loss on its books on its SDRS that would be passed on to the member countries and you cannot have losses on central bank reserves, right. It has to be absolutely safe, that asset. So that's the link here. That's so kind of complicated. Sometimes. The centerpiece here is IMF conditionality.

and those institutions would then lend and make losses and the IMF would have to at some point record a loss on its books on its SDRS that would be passed on to the member countries and you cannot have losses on central bank reserves, right. It has to be absolutely safe, that asset. So that's the link here. That's so kind of complicated. Sometimes. The centerpiece here is IMF conditionality.

Um

Um

And that's why this RST the resilience and sustainability trust that the IMF came up with um to lend to um poorer countries for climate purposes, um which was heralded, you know, all around the world as a major step forward. Well, it's actually a fairly small amount. It's big for some island countries. Yes. But,

And that's why this RST the resilience and sustainability trust that the IMF came up with um to lend to um poorer countries for climate purposes, um which was heralded, you know, all around the world as a major step forward. Well, it's actually a fairly small amount. It's big for some island countries. Yes. But,

and the rest of the scheme of things, it's in the bigger scheme, it's not so big. And the reason is because it's all funded on STR contributions and those have to be

and the rest of the scheme of things, it's in the bigger scheme, it's not so big. And the reason is because it's all funded on STR contributions and those have to be

reserves and extra reserves in these trust funds. And the conditionality has,

reserves and extra reserves in these trust funds. And the conditionality has,

you have a full fledged IMF program and you get some money from the trust fund and it's just complicated. It's a big mess bureaucratically and the, the outcome is not that great. So the African Development Bank now,

you have a full fledged IMF program and you get some money from the trust fund and it's just complicated. It's a big mess bureaucratically and the, the outcome is not that great. So the African Development Bank now,

oh,

oh,

with a bunch of guarantees from the UK and other countries to do exactly the same. But it doesn't require a full IMF program

with a bunch of guarantees from the UK and other countries to do exactly the same. But it doesn't require a full IMF program

because apparently it has sufficient guarantees from other countries to use these SDRS. So that's uh an un bureaucratic way of proceeding. And if it gains uh followers, it could also apply to others like L A DB and the Asia Development Bank and so forth. And that would open up new ways of financing. Um within limits, I would say still. But

because apparently it has sufficient guarantees from other countries to use these SDRS. So that's uh an un bureaucratic way of proceeding. And if it gains uh followers, it could also apply to others like L A DB and the Asia Development Bank and so forth. And that would open up new ways of financing. Um within limits, I would say still. But

it, it does away with this um IMF program requirement. That kind of is a conflict of interest for the IMF really and uh just creates unnecessary bureaucratic hurdles. So,

it, it does away with this um IMF program requirement. That kind of is a conflict of interest for the IMF really and uh just creates unnecessary bureaucratic hurdles. So,

uh you know, I've been going on to explain a lot of this and I'm, I'm sorry, I hope this is interesting for people, but you can see that the devil is in the details. First of all, and second, all these incremental

uh you know, I've been going on to explain a lot of this and I'm, I'm sorry, I hope this is interesting for people, but you can see that the devil is in the details. First of all, and second, all these incremental

kind of ways of making progress are really because there is no other ways forward. There's no big decision on the voting shares, there's no big decision on, you know, uh raising lots of money for the World Bank and this. So everybody is trying to, to tweak the existing system so that something comes out of it and they can claim it as a success,

kind of ways of making progress are really because there is no other ways forward. There's no big decision on the voting shares, there's no big decision on, you know, uh raising lots of money for the World Bank and this. So everybody is trying to, to tweak the existing system so that something comes out of it and they can claim it as a success,

right? Um I think uh I mean, a super helpful Martin. Uh but at the same time as you correctly say, these are uh on the margin, uh these are not uh seismic in terms of global development, finance or meeting any of the major lumpy needs of the developing world. And going back to the first point in terms of the voice and the quota in this international organization, certainly that crisis is not being resolved by these incremental changes.

right? Um I think uh I mean, a super helpful Martin. Uh but at the same time as you correctly say, these are uh on the margin, uh these are not uh seismic in terms of global development, finance or meeting any of the major lumpy needs of the developing world. And going back to the first point in terms of the voice and the quota in this international organization, certainly that crisis is not being resolved by these incremental changes.

Martin, I felt that, you know, the April meetings were not that different in terms of communication than the October 2023 meetings in Marrakesh. Although there was one word that was not mentioned at all in those meetings and are mentioned a lot these days and including in the three meetings is the word overcapacity. So the Americans are, you know, looking hard at China's industrial capacity and terming it as overcapacity with the risk of exporting deflation.

Martin, I felt that, you know, the April meetings were not that different in terms of communication than the October 2023 meetings in Marrakesh. Although there was one word that was not mentioned at all in those meetings and are mentioned a lot these days and including in the three meetings is the word overcapacity. So the Americans are, you know, looking hard at China's industrial capacity and terming it as overcapacity with the risk of exporting deflation.

Uh What do you think of this argument? And where do you think the IMF stands on this?

Uh What do you think of this argument? And where do you think the IMF stands on this?

Um more than the argument first. Um I think it reflects

Um more than the argument first. Um I think it reflects

um a very different view, a philosophical difference of the, the role of the state in China as opposed to a lot of parts of the rest of the world.

um a very different view, a philosophical difference of the, the role of the state in China as opposed to a lot of parts of the rest of the world.

Um The the private sector is kind of um an interesting entity in uh in China, right? The question is whether it ever existed or it has probably existed for a while. But then

Um The the private sector is kind of um an interesting entity in uh in China, right? The question is whether it ever existed or it has probably existed for a while. But then

in the last couple of years, they have clamped down like quite a bit on entrepreneurs because they saw um first of all

in the last couple of years, they have clamped down like quite a bit on entrepreneurs because they saw um first of all

growth of inequality in China. But I think more importantly, I think the leadership feared that the role of the party was being questioned. And so what I saw is that there was a lot of clamping down on private investment and private entrepreneurship

growth of inequality in China. But I think more importantly, I think the leadership feared that the role of the party was being questioned. And so what I saw is that there was a lot of clamping down on private investment and private entrepreneurship

um in the uh uh at least in the finance sector and to some extent, probably elsewhere, although don't get me wrong. I mean, obviously you have companies that are fairly independent in in China. But I think uh the overall notion that, that these, that these kind of operate independently of the party and the state is something that China wouldn't probably subscribe to as opposed to um Western liberal democracies where, you know,

um in the uh uh at least in the finance sector and to some extent, probably elsewhere, although don't get me wrong. I mean, obviously you have companies that are fairly independent in in China. But I think uh the overall notion that, that these, that these kind of operate independently of the party and the state is something that China wouldn't probably subscribe to as opposed to um Western liberal democracies where, you know,

you have to have a good reason for the state to interfere with your business. So I think China looks at its economy and says, well, it's part of the state broadly speaking. So what do we do? Um to first of all address the big slump that we've been facing because of our housing, our problems, our debt, our demographics, um we need to avoid um first of all, social uncertainty and social upheaval that threatens the rule of the party.

you have to have a good reason for the state to interfere with your business. So I think China looks at its economy and says, well, it's part of the state broadly speaking. So what do we do? Um to first of all address the big slump that we've been facing because of our housing, our problems, our debt, our demographics, um we need to avoid um first of all, social uncertainty and social upheaval that threatens the rule of the party.

And b um we need to prepare um especially given our demographics for the challenges of the next 1020 years.

And b um we need to prepare um especially given our demographics for the challenges of the next 1020 years.

And so they seem to have come to a conclusion that

And so they seem to have come to a conclusion that

um they need to find ways to support what they see as first of all, key industries and second uh key markets. So it's no accident. I think that China is doing a lot of business with the global South as we call it. Um because that's where the population growth sits over the next, you know, 2030 40 years. Um And it's no kind of surprise that they're trying to boost

um they need to find ways to support what they see as first of all, key industries and second uh key markets. So it's no accident. I think that China is doing a lot of business with the global South as we call it. Um because that's where the population growth sits over the next, you know, 2030 40 years. Um And it's no kind of surprise that they're trying to boost

industries that they think would be critical, like, you know, green energy um technology A I

industries that they think would be critical, like, you know, green energy um technology A I

EVs if you want. So

EVs if you want. So

um what happens is that, I think China which is inward, I think, uh you know, to a, to a, to a degree that we in the West can't really imagine uh a billion people that are very internally consumed with their own issues. They don't, I think, look so far out and if the Chinese say, well, we need this, who's going to stop us and that of course, brings them into that conflict with the US. Who as you said,

um what happens is that, I think China which is inward, I think, uh you know, to a, to a, to a degree that we in the West can't really imagine uh a billion people that are very internally consumed with their own issues. They don't, I think, look so far out and if the Chinese say, well, we need this, who's going to stop us and that of course, brings them into that conflict with the US. Who as you said,

things, this is overcapacity, they're manufacturing their way out of the crisis, they're being a burden on the rest of the world. And um that I think will lead us into even greater conflict if um there's a change of power in Washington.

things, this is overcapacity, they're manufacturing their way out of the crisis, they're being a burden on the rest of the world. And um that I think will lead us into even greater conflict if um there's a change of power in Washington.

Um but I think it's, it's rooted in this fundamental

Um but I think it's, it's rooted in this fundamental

difference of view of what the state is there for and the role of subsidies and all that.

difference of view of what the state is there for and the role of subsidies and all that.

So um I don't think it's gonna go away anytime soon. I mean, we hear from uh Secretary of State Lincoln being in China and being accused of speaking in two tongues about seeking greater um and better relations with China. But at the same time, of course, the US is preparing economic steps against China.

So um I don't think it's gonna go away anytime soon. I mean, we hear from uh Secretary of State Lincoln being in China and being accused of speaking in two tongues about seeking greater um and better relations with China. But at the same time, of course, the US is preparing economic steps against China.

Um it's, it's really causing the Europeans big difficulties because they rely much more. I think on China as an export market than the US and also of course, a trade partner on imports. Um and it's, it's adding to this sense that I felt during the spring meetings that, you know, really the the big powers can kind of have started to talk past each other to some sense and I don't know how it's going to play out.

Um it's, it's really causing the Europeans big difficulties because they rely much more. I think on China as an export market than the US and also of course, a trade partner on imports. Um and it's, it's adding to this sense that I felt during the spring meetings that, you know, really the the big powers can kind of have started to talk past each other to some sense and I don't know how it's going to play out.

I have to admit, but I don't think there's going to be any way the Chinese will stop subsidizing some of these companies, Europe and the US will probably try to raise tariffs and keep them out in other ways. But you know, the Chinese economy is still a big juggernaut and um

I have to admit, but I don't think there's going to be any way the Chinese will stop subsidizing some of these companies, Europe and the US will probably try to raise tariffs and keep them out in other ways. But you know, the Chinese economy is still a big juggernaut and um

uh to some extent, it's helpful, as you yourself said, a couple of times also in last week's interview with Alexis Crow, which was really good. Um you know,

uh to some extent, it's helpful, as you yourself said, a couple of times also in last week's interview with Alexis Crow, which was really good. Um you know,

is there really a problem if China supports a lot of green technology to the world that everybody needs.

is there really a problem if China supports a lot of green technology to the world that everybody needs.

Um one can have different views on that. I think that Western countries, the liberal democracies still want to have some capacity left to do it themselves because being dependent on another country,

Um one can have different views on that. I think that Western countries, the liberal democracies still want to have some capacity left to do it themselves because being dependent on another country,

as you know, especially in this time of geopolitical strife has been uh risky and the Russians to see from the other way around.

as you know, especially in this time of geopolitical strife has been uh risky and the Russians to see from the other way around.

So there is a there is a trend for

So there is a there is a trend for

on shoring reshoring and that applies to all kind of sectors and I don't see a way out right now, but it's a problem as we know and this deflationary impasse from China um may be with us, but so is probably a somewhat inflationary impulse from the US, given what they do on fiscal policy, which probably the Chinese will tell them. Well, you know, they bring your house in order. First, I could imagine.

on shoring reshoring and that applies to all kind of sectors and I don't see a way out right now, but it's a problem as we know and this deflationary impasse from China um may be with us, but so is probably a somewhat inflationary impulse from the US, given what they do on fiscal policy, which probably the Chinese will tell them. Well, you know, they bring your house in order. First, I could imagine.

Uh Martin, do you feel that the US Treasury's line of argument on overcapacity would be something that the IMF would be sort of forced to take up and there will be in their articles for consultation with China or elsewhere. This issue will become something that the IMF staff adopt.

Uh Martin, do you feel that the US Treasury's line of argument on overcapacity would be something that the IMF would be sort of forced to take up and there will be in their articles for consultation with China or elsewhere. This issue will become something that the IMF staff adopt.

You know, the IMF um that falls under IMF surveillance, right? Because they are not trade organization, but of course, they are responsible for exchange rates and the like

You know, the IMF um that falls under IMF surveillance, right? Because they are not trade organization, but of course, they are responsible for exchange rates and the like

the IMF surveillance has not been its strongest suit unfortunately, in recent years of the last five to be precise

the IMF surveillance has not been its strongest suit unfortunately, in recent years of the last five to be precise

um because the focus was elsewhere. And um

um because the focus was elsewhere. And um

if you have a business model where you need the big countries to provide funds for lending to small economies and poor economies, then you don't want to go up against Europe

if you have a business model where you need the big countries to provide funds for lending to small economies and poor economies, then you don't want to go up against Europe

biggest contributors. And, you know, I I've been really disappointed by the way in general that um that the fund has handled surveillance in recent years. It's been surprising that they've come back to the spring meetings by talking about the global economy almost exclusively in the curtain raiser almost without mentioning climate. Um It's not that climate isn't important, but they focused not enough on what they were supposed to do.

biggest contributors. And, you know, I I've been really disappointed by the way in general that um that the fund has handled surveillance in recent years. It's been surprising that they've come back to the spring meetings by talking about the global economy almost exclusively in the curtain raiser almost without mentioning climate. Um It's not that climate isn't important, but they focused not enough on what they were supposed to do.

So whether there's guts in the IMF to take on China on this one. We'll see, I think the recent staff reports have not been bad but on this particular issue, um we'll have to see the, the key report here if you ask me is the so called external sector report in June or July,

So whether there's guts in the IMF to take on China on this one. We'll see, I think the recent staff reports have not been bad but on this particular issue, um we'll have to see the, the key report here if you ask me is the so called external sector report in June or July,

where they go through global current account imbalances where they look at the exchange rate valuation and where they come to a a judgment whether um you know, there there is some, some, some policies that need to be adjusted.

where they go through global current account imbalances where they look at the exchange rate valuation and where they come to a a judgment whether um you know, there there is some, some, some policies that need to be adjusted.

Um I would imagine that the pressure from uh from uh across uh 19th street from, from the Treasury is big on writing something we'll have to see. I mean, you know, as an economist, I would say, as someone who's grown up in the, in the uh in, in, in market economies, I would say, well, of course, China is doing something that's patently unfair from a western sense of the world, but whether China is listening is a different story.

Um I would imagine that the pressure from uh from uh across uh 19th street from, from the Treasury is big on writing something we'll have to see. I mean, you know, as an economist, I would say, as someone who's grown up in the, in the uh in, in, in market economies, I would say, well, of course, China is doing something that's patently unfair from a western sense of the world, but whether China is listening is a different story.

So I would hope that the IMF is clear on it. They, they at least the China reports have been pretty good in, in the last few years. But whether the institutions comes up with a, with a tough call that gets through its board, we'll have to see. Um I think there's ample evidence that China is hurting in some areas uh competitors.

So I would hope that the IMF is clear on it. They, they at least the China reports have been pretty good in, in the last few years. But whether the institutions comes up with a, with a tough call that gets through its board, we'll have to see. Um I think there's ample evidence that China is hurting in some areas uh competitors.

But um you know, that's one part where we'll have to see whether the fund is really still powerful enough to send unpleasant messages to its members and it has to be matched by, by messengers on the US, which they've started.

But um you know, that's one part where we'll have to see whether the fund is really still powerful enough to send unpleasant messages to its members and it has to be matched by, by messengers on the US, which they've started.

That's right. So I want to talk a little bit about the US. Um But, but I, I'll start by referring something on the international front, which is that there was this US, Korea Japan trilateral finance dialogue. Uh right during the beginning of the meetings and the communique they issued, I I thought it was interesting because normally these are rather proforma importance of cooper operation, that sort of stuff uh that is mentioned. But in this one, there was explicit mention of the recent weakness in the yen and the one

That's right. So I want to talk a little bit about the US. Um But, but I, I'll start by referring something on the international front, which is that there was this US, Korea Japan trilateral finance dialogue. Uh right during the beginning of the meetings and the communique they issued, I I thought it was interesting because normally these are rather proforma importance of cooper operation, that sort of stuff uh that is mentioned. But in this one, there was explicit mention of the recent weakness in the yen and the one

uh so clearly, even at the rather so almost like diplomatic level, the exchange issue is now coming to the fore. So let me reverse it around and say that, you know, we could talk about yen and one later but the US dollar, I mean, what's your sense of the US dollar valuation? Uh And uh

uh so clearly, even at the rather so almost like diplomatic level, the exchange issue is now coming to the fore. So let me reverse it around and say that, you know, we could talk about yen and one later but the US dollar, I mean, what's your sense of the US dollar valuation? Uh And uh

what do you make of, you know, currencies like Yemen, one weakening, sharp Yemen. Are they just Correll of one another or it's about us being relatively so much stronger than the rest of the world, they can absorb high interest rates and maintain a US strong dollar. And it is the problem for the rest of the world, not a problem for the US.

what do you make of, you know, currencies like Yemen, one weakening, sharp Yemen. Are they just Correll of one another or it's about us being relatively so much stronger than the rest of the world, they can absorb high interest rates and maintain a US strong dollar. And it is the problem for the rest of the world, not a problem for the US.

Um Well, problems in the rest of the world also come around usually because cheaper exchange rates also mean that um are not cheaper but but but these kind of valuations of the exchange rate means that competitors will become more competitive and the US economy will become less competitive. So at some point, there's gonna be some further widening of the deficit in the US and some complaints about

Um Well, problems in the rest of the world also come around usually because cheaper exchange rates also mean that um are not cheaper but but but these kind of valuations of the exchange rate means that competitors will become more competitive and the US economy will become less competitive. So at some point, there's gonna be some further widening of the deficit in the US and some complaints about

how could other countries undercut them. Um Again, this has become, this would become a big problem. Um If you think about the next administration being from a different party, because then, you know, economics doesn't play such a big role. It's the numbers and how can they export so much to us out of the right.

how could other countries undercut them. Um Again, this has become, this would become a big problem. Um If you think about the next administration being from a different party, because then, you know, economics doesn't play such a big role. It's the numbers and how can they export so much to us out of the right.

Um The, the problem will then be that fiscal policy will probably not be tightened. Um It's rarely the case under populist governments. We're already talking about new tax cuts under the Trump administration possibly or an extension of current tax cuts. So, um right now, to be honest, um

Um The, the problem will then be that fiscal policy will probably not be tightened. Um It's rarely the case under populist governments. We're already talking about new tax cuts under the Trump administration possibly or an extension of current tax cuts. So, um right now, to be honest, um

if one, if one is a member of a Liberal Democratic state like Japan and Korea, are, they will understand that the US right now, especially the Biden administration is not going to commit political suicide by kind of talking about, you know, tax uh tax rises or expenditure cuts and the like.

if one, if one is a member of a Liberal Democratic state like Japan and Korea, are, they will understand that the US right now, especially the Biden administration is not going to commit political suicide by kind of talking about, you know, tax uh tax rises or expenditure cuts and the like.

So I think everybody needs to, I think, understand that right now, um the focus of the Biden administration is exclusively on November and you can see that in other measures as well when they came up with steel and aluminum tariffs on the Monday of the, of the spring meetings, a great move to get people all excited about bilateralism.

So I think everybody needs to, I think, understand that right now, um the focus of the Biden administration is exclusively on November and you can see that in other measures as well when they came up with steel and aluminum tariffs on the Monday of the, of the spring meetings, a great move to get people all excited about bilateralism.

But you know, they have elections to win and these elections in a way are critical for what's gonna happen, not just the next four years, but much longer. What's happened to

But you know, they have elections to win and these elections in a way are critical for what's gonna happen, not just the next four years, but much longer. What's happened to

geopolitical developments around the world. It's a question, I don't want to say war and peace, but it gets, it gets increasingly up there if you, if you have someone who is reasonable in the White House.

geopolitical developments around the world. It's a question, I don't want to say war and peace, but it gets, it gets increasingly up there if you, if you have someone who is reasonable in the White House.

Um So, um I mean, there's gonna be some talk, they'll think about how to respond on uh monetary policy in these countries, I'm sure,

Um So, um I mean, there's gonna be some talk, they'll think about how to respond on uh monetary policy in these countries, I'm sure,

but it's going to play out to the disadvantage eventually of the US, if there's some export competition that's heating up and then, you know, it plays in the hands of those who want more terrorists but that, that's a bit down the road, I think for the moment, uh I think the countries will have no choice but to keep up with it. Um The fed is, I think in my view, right? Not to um play politics. So they need to focus on their mandate, which means they may not cut uh anytime soon, who knows how long it's going to take

but it's going to play out to the disadvantage eventually of the US, if there's some export competition that's heating up and then, you know, it plays in the hands of those who want more terrorists but that, that's a bit down the road, I think for the moment, uh I think the countries will have no choice but to keep up with it. Um The fed is, I think in my view, right? Not to um play politics. So they need to focus on their mandate, which means they may not cut uh anytime soon, who knows how long it's going to take

and other countries will have to accommodate it. I mean, it's not their fault obviously, but um you know, if, if, if Japan and Korea feel that

and other countries will have to accommodate it. I mean, it's not their fault obviously, but um you know, if, if, if Japan and Korea feel that

um, the inflation targets are being threatened, well, they need to raise rates and it's going to be unfortunate. But, um, let's talk again in a year from time when, um, there's another, but there's the same administration still and then kind of getting really worried about fiscal trends which are clearly on a, on a path in the US that can go on much until after the uh once the elections are over.

um, the inflation targets are being threatened, well, they need to raise rates and it's going to be unfortunate. But, um, let's talk again in a year from time when, um, there's another, but there's the same administration still and then kind of getting really worried about fiscal trends which are clearly on a, on a path in the US that can go on much until after the uh once the elections are over.

Right? I mean, I never thought that I would see trillion dollar interest payment on the US fiscal accounts in 2023 2024. But that's where we are at. Martin. You spent a number of years covering Japan. I had the pleasure of working with you in Japan. So I will sort of, you know, end the Asian discussion with a little more discourse on Japan. Uh It's, it's a pretty remarkable situation where, you know, we had decades of deflationary dynamic and unconventional monetary policy

Right? I mean, I never thought that I would see trillion dollar interest payment on the US fiscal accounts in 2023 2024. But that's where we are at. Martin. You spent a number of years covering Japan. I had the pleasure of working with you in Japan. So I will sort of, you know, end the Asian discussion with a little more discourse on Japan. Uh It's, it's a pretty remarkable situation where, you know, we had decades of deflationary dynamic and unconventional monetary policy

and now we have the makings of inflation beginning to become an issue. Uh but more importantly, that extremely weak yen at any sort of reasonable measure, one would say it's substantially undervalued.

and now we have the makings of inflation beginning to become an issue. Uh but more importantly, that extremely weak yen at any sort of reasonable measure, one would say it's substantially undervalued.

What, what do you think of, you know, Boj and Governor, h I mean, does it make sense for them to uh you know, be fairly aggressive on monetary policy? Because you and I remember uh 23 years ago Japan tried to normalize monetary policy and it ended up being in recession.

What, what do you think of, you know, Boj and Governor, h I mean, does it make sense for them to uh you know, be fairly aggressive on monetary policy? Because you and I remember uh 23 years ago Japan tried to normalize monetary policy and it ended up being in recession.

Yeah.

Yeah.

So again, I said, you know, if, if they feel that inflation is getting a bit out of control then they need to do something. But to some extent it may be helpful for Japan. I don't know exactly the latest CP I readings. But, um, there's a, there's a reason they've gone off their zero interest rate policy, maybe they can absorb a little bit of that. Um, they've become, you know, almost like a post aging country now. It, it seems like they've gone through the worst of the aging process. And now, um,

So again, I said, you know, if, if they feel that inflation is getting a bit out of control then they need to do something. But to some extent it may be helpful for Japan. I don't know exactly the latest CP I readings. But, um, there's a, there's a reason they've gone off their zero interest rate policy, maybe they can absorb a little bit of that. Um, they've become, you know, almost like a post aging country now. It, it seems like they've gone through the worst of the aging process. And now, um,

I think there were some good pieces on Bloomberg the other day. Um, Bloomberg says, well, you know, the demographics are much worse now, in some other countries, Europe, Japan is actually not stabilizing, but it's not so bad anymore. So they're over to become.

I think there were some good pieces on Bloomberg the other day. Um, Bloomberg says, well, you know, the demographics are much worse now, in some other countries, Europe, Japan is actually not stabilizing, but it's not so bad anymore. So they're over to become.

And, um, they've been surprising everybody I think with their resilience and their inventiveness and that exchange rate will have, will help their companies, um, for a while. But, um, clearly there is a manpower constraint and, uh, you know, when once that kind of begins to bite too much into wages and competitiveness, I think BOJ will need to act.

And, um, they've been surprising everybody I think with their resilience and their inventiveness and that exchange rate will have, will help their companies, um, for a while. But, um, clearly there is a manpower constraint and, uh, you know, when once that kind of begins to bite too much into wages and competitiveness, I think BOJ will need to act.

So maybe it's becoming a bit more like, um normal country. But again, um, once the elections are over in the US and everything goes, um, as many people around the globe hope then there should be some, I would expect some correction on fiscal policy after that because you know, there's some very good economists in that administration and they know the trends just as much as we do. So I think these countries will give the USA little bit of the benefit of the doubt for a couple of months

So maybe it's becoming a bit more like, um normal country. But again, um, once the elections are over in the US and everything goes, um, as many people around the globe hope then there should be some, I would expect some correction on fiscal policy after that because you know, there's some very good economists in that administration and they know the trends just as much as we do. So I think these countries will give the USA little bit of the benefit of the doubt for a couple of months

and then we'll see um if nothing happens, then next year will be the the time for much more serious discussions about

and then we'll see um if nothing happens, then next year will be the the time for much more serious discussions about

global imbalances again. So

global imbalances again. So

Martin, in your view, consolidation in the fiscal side in the United States would lead to some degree of curtailing of demand, uh, which then ought to play into a weakening of the US dollar. And that should give some degree of breathing room for the Japan and the careers of the

Martin, in your view, consolidation in the fiscal side in the United States would lead to some degree of curtailing of demand, uh, which then ought to play into a weakening of the US dollar. And that should give some degree of breathing room for the Japan and the careers of the

world.

world.

Yeah, I think so. I mean, once the fed starts is able to start easing rates, I think then things should adjust a bit. I mean, a lot of what we're seeing now is being driven by, by fears about the unsustainable US fiscal position. Right. So 10 year yields are moving very fast again. Um, they hit last year's level and there's fear that there's going to be more so,

Yeah, I think so. I mean, once the fed starts is able to start easing rates, I think then things should adjust a bit. I mean, a lot of what we're seeing now is being driven by, by fears about the unsustainable US fiscal position. Right. So 10 year yields are moving very fast again. Um, they hit last year's level and there's fear that there's going to be more so,

you know, people, some, some, some capital is kind of coming into the yes and going like, great, we're going to use these rates. Um, others are more fearful. But I, I think there's a lot of it driven by uncertainty right now and I think that things will come down once we're back into some quieter um, waters hopefully.

you know, people, some, some, some capital is kind of coming into the yes and going like, great, we're going to use these rates. Um, others are more fearful. But I, I think there's a lot of it driven by uncertainty right now and I think that things will come down once we're back into some quieter um, waters hopefully.

Um, and also assuming that there's no financial accident in between. Right? And obviously the faster things change, the more risk there is that something goes up somewhere,

Um, and also assuming that there's no financial accident in between. Right? And obviously the faster things change, the more risk there is that something goes up somewhere,

right? I was plotting the GDP numbers that came out yesterday for the United States. And of course, along with the growth data and the national account data, you get all those different consumption expenditure deflator

right? I was plotting the GDP numbers that came out yesterday for the United States. And of course, along with the growth data and the national account data, you get all those different consumption expenditure deflator

the first quarter, consumer expenditure deflator and the core consumer expenditure deflate did not look good. Martin uh used the chart is sort of alarming that from mid 22 onward, you see this inflation going all the way to the end of 2023 and then there's a really unpleasant bumper for the first quarter of 2024.

the first quarter, consumer expenditure deflator and the core consumer expenditure deflate did not look good. Martin uh used the chart is sort of alarming that from mid 22 onward, you see this inflation going all the way to the end of 2023 and then there's a really unpleasant bumper for the first quarter of 2024.

Um So what if that baseline scenario which I think both you and I would like to see pan out which is some softening of demand, some softening of the inflation and then some rate cuts. Uh What if we don't get that? And we have all of 2024 without any rate cuts in the US? Are we then looking at some serious risk of emerging market crisis?

Um So what if that baseline scenario which I think both you and I would like to see pan out which is some softening of demand, some softening of the inflation and then some rate cuts. Uh What if we don't get that? And we have all of 2024 without any rate cuts in the US? Are we then looking at some serious risk of emerging market crisis?

Well, yeah, well, that's a different story. We haven't talked about it. Yeah. Um um because we were focusing, I guess in Japan and Korea. But yeah, and I mean, there's also a possibility the fed may raise again at some point. Although, and you've talked about that with um with your, with your counterparts, I think the last couple of times um there are some factors that

Well, yeah, well, that's a different story. We haven't talked about it. Yeah. Um um because we were focusing, I guess in Japan and Korea. But yeah, and I mean, there's also a possibility the fed may raise again at some point. Although, and you've talked about that with um with your, with your counterparts, I think the last couple of times um there are some factors that

may suggest that well, the long term or medium term downward glide path for inflation is still there like, you know, housing and the like, but I'm not a market analyst. So um you know, much more about that than I do. But yeah, there's a lot of uncertainty now, emerging markets um

may suggest that well, the long term or medium term downward glide path for inflation is still there like, you know, housing and the like, but I'm not a market analyst. So um you know, much more about that than I do. But yeah, there's a lot of uncertainty now, emerging markets um

have come through COVID rather well with all the market generations and

have come through COVID rather well with all the market generations and

supply cuts and inflation uh supply chain uh problems and, and uh inflation, many have been quite alert on the monetary policy front tightened early, were able to, to loosen up again, couldn't totally um

supply cuts and inflation uh supply chain uh problems and, and uh inflation, many have been quite alert on the monetary policy front tightened early, were able to, to loosen up again, couldn't totally um

uh avoid a peak in inflation, of course, but I think we're able to manage it in a very responsible way and kept stability and kept capital flows in check. So very good economic management. And I would expect that, you know, some of the large countries especially um

uh avoid a peak in inflation, of course, but I think we're able to manage it in a very responsible way and kept stability and kept capital flows in check. So very good economic management. And I would expect that, you know, some of the large countries especially um

in Asia that they will continue to do very well. They've just grown also so big and, and, and have gotten so good at managing their economies that um

in Asia that they will continue to do very well. They've just grown also so big and, and, and have gotten so good at managing their economies that um

barring some major shock somewhere else in the financial world, they should I think relatively well, but there's a big bunch of emerging markets um elsewhere that um may also have been jumping on the fiscal bandwagon and you may not see it yet, but coming you know, coming into next year may require a lot more financing, may have to, to, uh you know, roll over that

barring some major shock somewhere else in the financial world, they should I think relatively well, but there's a big bunch of emerging markets um elsewhere that um may also have been jumping on the fiscal bandwagon and you may not see it yet, but coming you know, coming into next year may require a lot more financing, may have to, to, uh you know, roll over that

and um may not have done this all in the local currencies and even if so maybe hit by some interest shocks because of, you know, what, what the US is doing. So, yeah, the potential is there. Um I wouldn't be surprised. Um

and um may not have done this all in the local currencies and even if so maybe hit by some interest shocks because of, you know, what, what the US is doing. So, yeah, the potential is there. Um I wouldn't be surprised. Um

I've been very worried before COVID when I was still at the fund about emerging markets and I've been proven wrong to some extent. Um So I wouldn't kind of buy wolf necessarily on emerging markets as a whole. I've learned my lesson there. But um

I've been very worried before COVID when I was still at the fund about emerging markets and I've been proven wrong to some extent. Um So I wouldn't kind of buy wolf necessarily on emerging markets as a whole. I've learned my lesson there. But um

for some countries, it's gonna get more and more difficult. I don't want to mention any names but um look at, look at fiscal paths in in emerging markets and then you'll then you'll see where maybe there are some problem candidates and we're not even talking about the Argentina of this world. Yeah.

for some countries, it's gonna get more and more difficult. I don't want to mention any names but um look at, look at fiscal paths in in emerging markets and then you'll then you'll see where maybe there are some problem candidates and we're not even talking about the Argentina of this world. Yeah.

Uh Martin, I have no problems mentioning names but even beyond the emerging market space. And going back to our early discussion on Japan and Korea, particularly Korea, I mean, you know, huge housing overhang, lots of debt issue, lots of short term, short duration risk. Uh and if rates do remain where they are in the US for the rest of the year, I do wonder if that makes life difficult for our former IMF colleague who's now heading the Bank of Korea

Uh Martin, I have no problems mentioning names but even beyond the emerging market space. And going back to our early discussion on Japan and Korea, particularly Korea, I mean, you know, huge housing overhang, lots of debt issue, lots of short term, short duration risk. Uh and if rates do remain where they are in the US for the rest of the year, I do wonder if that makes life difficult for our former IMF colleague who's now heading the Bank of Korea

Uh So, um, but you're right. Uh, we probably would have been convinced if two years ago somebody told us rates would be where they are now for a prolonged period, we would have predicted major rippling crisis in various parts of em. And DM. And so far the absorption capacity of the global economy has been pretty impressive.