Early April in Washington coincides with two rituals: the National Cherry Blossom Festival and the fact that a few blocks north, IMF officials can be heard talking to visiting finance ministers, central bankers, and financial institution leaders about the dire economic outlook for emerging markets. . The cherry blossoms were spectacular this year. And this too IMF upset. IN Global Financial Stability Report, reports that a dozen emerging market governments are already in financial trouble, and another twenty foreign-currency bonds are trading at levels that have threatened their creditworthiness in recent history. Director General of the IMF Kristalina Georgievawent further, warning that at least sixty countries risked a serious debt problem.

The reason for this sinister approach is that the IMF and the World Bank regularly raise funds from their shareholders to finance soft loans. This year, the IMF is asking donor countries to raise more than $6 billion in additional contributions before its annual meeting in October. IMF officials are fresh in the memory of the dire situation of the early 2000s, when activities and funding were cut to the point that the international institution was forced to lay off 15 percent of its staff. Generally speaking, it is never in our best interest to paint an overly rosy picture of the prospects for emerging markets. However, the reality is that, after several years of low yields, emerging market government debt has emerged as one of the most profitable asset classes in 2022. Over the past twelve months, emerging market currencies and sovereign bonds have been put to the test. was the increase in interest rates by the US Federal Reserve Bank (FRS). Historically, monetary tightening in the United States has always been a catalyst for those who invest in developing country assets.

However, this time it was different. Emerging market currencies have been extremely resilient over the past twelve months. The Mexican peso, for example, rose 10% against the dollar. Finally, bonds are doing even better.