Developing countries will struggle to raise funds to deal with the crisis, while bearing the brunt of capital flight, say Pierre-Olivier ...
GREATER PROBLEMS FOR EMERGING ECONOMIES
Where will that money come from? Some advanced economies, such as the US, can borrow much more at little extra cost. But some of that funding comes from foreign investors seeking financial safety, and some from US private investors liquidating their foreign holdings. The losers will be the world’s Mexicos. In fact, such countries will be doubly damned: not only will they be unable to raise funds to deal with the crisis, but capital will also move away, as it has already started to, precisely because of borrowing by the US, China, and European countries.
To avoid a catastrophic outcome, the world urgently needs strong collective action. The IMF estimates that emerging economies’ funding needs total US$2.5 trillion, but this figure seems low. The moratorium would suspend all sovereign-debt repayments to private and public creditors by emerging and developing economies that requested such a freeze, and would remain in place until the health crisis passed.Our estimates suggest that a one-year debt moratorium could free upwards of US$1 trillion, or 3.
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