The Center for Global Development is holding a panel discussion, on December 14, 2011, to discuss different viewpoints on the IMF perspective regarding global risks faced by Low Income Countries (LIC).
Earlier, the IMF published, in September 2011, a paper on managing another possible downturn in global growth and further commodity price shocks. The study found that growth in most LICs has rebounded strongly after the global crisis in 2008. However, these countries have enjoyed less success in creating macro-economic buffers, partly due to their pro-poor policies and inadequate resources. Consequently, they are now more vulnerable to external shocks than they were before the crisis.
The outlook for the world economy is negative at present and LICs face substantial risk in the event of a double-dip recession. Should a negative scenario fructify in the end, the scope of a fiscal stimulus would be more restricted than in 2009, given the weaker fiscal condition of poor nations and limited aid packages from developed countries and the IMF. Yet, if the doomsayers prove to be correct, then many LICs would be in need of a greater quantum of concessional funding.
Subsequently, in October 2011, the IMF released another study regarding the role of various financial instruments in helping LICs cope with external shocks. The focus of this paper was on the usefulness of external financing arrangements (such as, contingent lines of credit, hedging, debt instruments and insurance). The IMF found, however, that demand and supply factors pertaining to limited resources (such as inadequate supply and first-mover disadvantage) restrict the availability of contingent facilities to LICs.
With regard to the issue of high exposure of LICs to volatile commodity prices, the IMF stated that market-based hedging of a few critical commodities would greatly curtail risk for these nations.
Despite the volatile nature of many LIC economies, many multinational companies derive significant volume of business in these countries. Fast moving consumer goods makers, Procter & Gamble Co. ( PG ) and PepsiCo, Inc. ( PEP ), are two examples.
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