September 13, 2006

IMF is enyoying the calm in the eye of the hurricane.

Sir, in his “Why bad news for the Fund is excellent news for its clients” September 13, Martin Wolf tells a story of countries that have finally learned that there is such thing as a limit to the inflows to your economy that can be productively digested but, since they do not want to stop these inflows by allowing an appreciation of their currency, as this would make them lose job-creating competitiveness in a global world, they instead accumulate foreign reserves. Does this mean that the problem is solved and that IMF is no longer needed? Of course not! The only thing that is happening is that instead of spreading around the imbalances around the world we are now putting them all in the same basket, the US and clearly when that unsustainability is not longer sustainable, and then IMF will be just too much back in business. Let us pray that IMF does not use this calm in the eye of the hurricane to diversify into other businesses but to build up their forces and their spirit to confront the perfect storm when it arrives.