Article Review 4

The International Monetary Fund (IMF) is hosting its yearly meetings in the next week and they are likely to focus on issues of emerging economies, which reflects a movement away from focusing on the response of developed countries to the financial crisis. Emerging economies are now exhibiting a majority of the signs of impending financial crises, including a slowdown in economic growth and, more importantly, hidden debts. By their very nature these are difficult to detect and deal with until they pile up and lead to disaster, as was seen in the 1994-1995 peso crisis that resulted from Mexico's central bank's off-books borrowing. There are several other examples where the magnitudes of various countries' currency crises have been obscured by various monetary tricks of their central banks. It is difficult to expose the current hidden-debts before they balloon into crises, especially given the lack of transparency associated with China and its financial dealings. China has long financed infrastructure projects in other developing countries. Because Chinese development banks tend not to report their lending to the Bank for International Settlements, it is likely that many countries owe far more to China than has been reported. If the debts of developing countries are understated, the decline in capital inflows (and, in some cases, capital outflows) that have occurred recently become even more significant and may cause a real crisis.