Some EM resilience won’t last: G20 finance chiefs

Emerging and developing economies face the risk of a ‘hurricane’ from rising energy costs and food insecurity, the chairman of the G20 Finance Ministers Forum told Bloomberg.

The comment came from Sri Mulyani Indrawati, who was a second World Bank official for more than five years before returning to Jakarta to serve as Indonesia’s finance minister in 2016.

Despite the inflationary whirlwind caused by the Ukraine war, many emerging economies are stronger and more resilient than they were during the past crises of 1997 and 2008. This is based on stronger regulation, flexible exchange rates and a deeper market for local currency debt.

However, as the US central bank raises record rates to keep inflation under control for the American public, emerging market balance sheets will come under significant pressure to meet adequate energy supplies and food security.

Countries such as Indonesia, India, Vietnam and Russia, among others, are currently doing much better than many developed countries, but the outlook is rapidly bleaking.

“Hurricanes are definitely very strong for developing countries,” Indwati said in an interview with Bloomberg News in Washington.

These difficulties, combined with inflation, a strong dollar and rising interest rates, “will put many emerging and developing economies in a very serious and difficult situation.”

With the Federal Reserve (Fed) having the most aggressive rate-hiking campaign of a generation to ensure its credibility and combat inflation, “the results are good for emerging and developing economies. Indwati said it would be more difficult to issue bonds.

Dollar-denominated government bonds in about 15 developing countries outperform U.S. Treasuries by at least 1,000 basis points, according to data compiled by Bloomberg. This is twice his number of countries since the beginning of the year.

Indrawati was in the US capital for the annual meetings of the International Monetary Fund and the World Bank. On Wednesday, she will chair her fourth meeting of G20 finance ministers and central bankers this year. It was the first time since the meeting in Bali in July that the Russian representative began speaking after officials from the United States, Canada and several European countries attended her April summit. rice field.

While some economies are showing resilience, it won’t last long and perhaps more countries will need to turn to the IMF for relief, Indrawati said. Approved the creation of a “food shock window” for emergency financing to meet needs.

Indwati said she expects 2023 to be “very difficult” for many economies, speaking of a vision she shared at meetings with bond investors recently in New York and Boston. Just as a country that cannot enter the country is likely to experience food shortages six months from now, just as the winter one year from now is likely to be actually worse than the winter to come in terms of rising energy prices. will face

Against this difficult background, Mr. Indwati emphasized the importance of Indonesia hosting the G20 and continuing to include Russia. The advantage of the G20 and the G20, he being a small forum of developed countries, the G20 has the breadth to decide global issues.

Excluding any country increases the difficulty of solving some of the world’s most pressing problems like climate change, promoting financial inclusion, or reaching agreements on debt relief for poor countries. , would endanger the fragmentation of the global economy.

“The true asset and true value of the G20 is that no matter what happens today, the world needs this kind of cooperation, and this major economic forum like the G20 is worth continuing, maintaining and preserving. There is ”.