Author: Gordon Platt
The International Monetary Fund’s new short-term lending program and Federal Reserve swap lines could help ease currency and interest rate pressures in eligible emerging market countries but may be no panacea for the exodus of private funds from the EM asset class.

“An air of despair has permeated the ranks of emerging market equity investors,” says Howard Handy, chief economist at Saudi Arabia-based Samba Financial. Outflows from dedicated EM funds have reached record levels, he says.

Although emerging market economies have so far remained fairly resilient, signs of weakening have become evident in countries with large exposure to external credit markets or heavily dependent on commodity exports, Handy says.

The IMF’s quick-drawdown facility will provide three-month funding for up to five times a country’s quota but will be available only to countries deemed to have sound economic policies. Meanwhile, the Fed made available up to $30 billion each in swap lines with Brazil, Mexico, South Korea and Singapore.

The new funding does not address uncertainties about losses in corporations from derivatives and currency speculation, according to an analysis by Citi global markets. Nor does it affect the process of deleveraging by global banks and investors.
Gordon Platt