The Federal Reserve has moved to partly fill the void, including opening up dollar liquidity swap lines with Brazil, South Korea and Mexico. Sheets said it should do the same with India, Indonesia and Chile.
The IMF also has to step up and be willing to set its aside its traditional playbook for dealing with countries in trouble, in which it demands economic reforms in return for financial assistance.
“This is much more of an exogenous shock,” said former U.S. Treasury official Mark Sobel, now at the Official Monetary and Financial Institutions Forum, a think-tank focused on economic policy and central banking. “There needs to be some recalibration by the IMF to provide far more liberal and fast liquidity to members.”
The fund seems to be trying to do just that.
It’s looking at the use of precautionary short-term loans to get cash to countries, as well other funding options like the increased use of reserve assets called special drawing rights, steps that would require the approval of rich nations.
One problem with the IMF stepping up, said ex-IMF official Taimur Baig: Many countries don’t like turning to the organization because they fear being tarred as a nation in trouble.
Repayment Pause
“Drawing on to IMF resources has an element of stigma and it is still seen as the last resort of a crisis-hit nation,” said Baig, who’s now chief economist at DBS Bank in Singapore.
For some emerging economies with balance of payment challenges, the “more expedient” currency-stabilizing measure is to draw on swap lines or repurchase agreements, as Indonesia has done, said Baig, questioning why the IMF doesn’t also offer those facilities.
In the 2008-09 crisis, the G-20 banded together to come up with an action plan.
That’s been more difficult this time for a group riven by rivalries -- the U.S. and China over trade, Saudi Arabia and Russia over oil, and the U.K. and the European Union over Brexit.