Wednesday, July 8, 2009

IMF Issues Debt!

The IMF will issue debt soon according to the FT. The latter rises some interesting questions. How will IMF's debt affect economic variables? Will prices in countries be distorted? If so, in which countries lenders or borrowers? To what terms would be issued? John Cochrane explains how can long term debt be useful for a government trying to exchange present for future inflation. Will effects like this lack of importance?

It sounds like some details should be discussed, one thing for sure is that the US will stop receiving savings from surplus countries, if the dollar depreciates, trade deficit in the western hemisphere will fall, still, trade surplus in Asia will not necessarily fall.

Another interesting feature is that if the IMF's absorbs saving excess, the consumption and investment components of aggregate demand in rich countries will suffer. There are a few untied ends of the proposal, but it is probably in the right direction. A popular direction at present.


Salvador Rodrigue said...

I think a crucial factor will be the size of this market and the guidelines of the financial managment policy of this financial innovation.

To have a real impact in the world I think the market should have at least the size of the US debt market and employ another lending criteria as macroeconomic indicators to evaluate effectivly sovereign risk and avoid the failures that has done the risk rating agencies as Moody's and Standar and Poor's.

Salvador Rodrigue said...
This comment has been removed by the author.
Salvador Rodrigue said...

Improve the risk analyisis on lending criteria based on macroecomic analysis is important to make the financial resources redistribution possible and create incentives to keep good practices in public finance and promote economic growth to those countries that requiere the resources.

Juan Ramon Hernandez said...

I agree, it seems that so far risk analysis for agencies such as Standard & Poors and alike are only based in accounting rules. Macro factors may be useful assessing risk in the future.