Emerging Economies Need New Finance, Not Moratoriums

MAURICIO CÁRDENAS in an interesting commentary highlighted the implications of growing debt moratorium with an increasing need for finance in emerging economies, potential risks with less likely V-shaped recovery & deteriorating credit profiles.

Key Points:

• Need for Central Banks(CBs) to establish a special-purpose vehicle (SPV) that would act as a bridge between abundant global liquidity on one side and growing need for finance in emerging economies.

• CBs issuing reserve currencies can address the problem in coordination with IMF and MDBs.

• Instead of focusing on new financial infrastructure, the focus should remain on the existing system in place.

• Establishing SPV will not require legislative intervention which will be time-saving.

Notes:

What is SPV?

Special purpose vehicle—a temporary public entity tasked for a specific purpose, namely to facilitate new working capital loans to small and mid-sized firms. (Kang and Rhee, IMF, 2020)

References

CÁRDENAS. M. (2020, May 13). Emerging Economies Need New Finance, Not Moratoriums-commentary. Project Syndicate.

(Kang K. and Rhee C.(April 23, 2020).A Post-Coronavirus Recovery in Asia—Extending a “Whatever it Takes” Lifeline to Small Businesses. IMF Blog.