How complementary - or substitute - will be movements in interest rates and central bank balance sheet downsizing? What are their likely consequences on capital flows to emerging markets?

“the death of globalization was an exaggerated announcement”

Pandemic, war and death in Ukraine, and droughts in the last 2 years… Such a combination looks apocalyptical. Now it is adding global hunger risks, because of the food price crisis.

New recent jumps made the increase in energy prices in the last two years the biggest in the last fifty years.

Last March, a proposal of dollarizing Argentina’s economy arrived at its Congress.

Emerging market and developing economies face a common set of external shocks but the impacts have been heterogeneous

The relative dominance of the dollar appears to be declining but at a very gradual pace.

The war in Ukraine is bringing substantial financial, commodity price, and supply chain shocks to the global economy

As in a boxing match, the expectation is that sanction blows to the opponent can knock them out, despite the exposure on the punching side.

Last Friday, announcements of understanding between Argentine government authorities and the IMF staff about a new support program were made from both sides. Meanwhile, in addition to the payment of an amortization due on Friday, another payment is also expected this week, both referring to the previous package, approved in 2018 and substantially disbursed afterward. Non-payment could sour relations at a critical moment for a new program to be approved by the IMF's board of executive directors in time for disbursements to cover larger obligations due in March.

Is the growth slowdown with tightening financial conditions in advanced economies likely to be disastrous for emerging markets, with landing becoming a hard one in their case?

The pandemic has accelerated history by reinforcing some previous trends, leading the world to a “great reset”. Among the enduring consequences of the pandemic, four of them are here highlighted: digital transformation has been speeded up; globalization will be reshaped; higher public debt will be a legacy from the crisis; and some economic scarring from the pandemic in labor markets may be expected.

Accelerating the transition toward low or net-zero carbon emissions is necessary to keep global warming at theoretically safe levels. That will likely bring price shocks associated with rising metal prices, energy costs, and carbon taxes – what has been called “greenflation”. Greening the economy will also require public spending and redistributive policies.

The decade after the Great Financial Crisis of 2007–09 brought significant changes in the volume and composition of capital flows in the global economy. Portfolio investments and other non-bank financial intermediaries are responsible for an increasing share of foreign capital flows, while banking flows have shrunk in relative terms. This paper considers the implications of such a metamorphosis of finance for capital flows to emerging market economies (EMEs). After examining capital flows from the global financial crisis to the 2020-21 pandemic crisis, we analyze the extent to which a normalization of monetary policies in advanced economies may lead to shocks in those flows, as well as why exchange rate fluctuations between the U.S. dollar and other major currencies can affect capital flows to EMEs. Finally, we assess the range of policy instruments that EME policymakers tend to resort to manage risks derived from capital-flow volatility.

The last year has seen some good news for Latin American economies. The region’s recovery has been stronger than expected, and growth forecasts by the World Bank and IMF have improved since six months ago. Vaccination campaigns and fiscal support have sparked an economic rebound since the second half of last year, despite an apparent loss of momentum in the third quarter of this year. But the future looks uncertain. Latin America is caught between two major global forces that threaten the region’s growth: a potential drop in capital flows from the U.S. as pandemic stimulus tapers off; and decreasing growth in China, where an energy crunch is hitting just as the country’s exhausted property markets begin to go into reverse. To weather the storm, countries in the region will have to target their fiscal support and signal that medium-term frameworks will be followed, while doing what it takes to ensure a private-sector recovery can compensate for policy contraction.

Most countries are now forecast to have lower GDP in 2024 than projected in January 2020 before the pandemic