The reason for the seasonal gloom is that the IMF and World Bank regularly raise capital from their shareholders to fund concessional lending. This year, the IMF is asking donors to stump up more than $6 billion of additional contributions before the multilateral lenders' annual meeting in October.
Over the last twelve months, emerging-market currencies and bonds have passed two important tests. The first was the U.S. Federal Reserve hiking interest rates. Historically, monetary tightening in the United States has been kryptonite for emerging-market investors. Yet this time was different. Emerging-market currencies have been remarkably resilient over the past twelve months. The median major currency has weakened only around 2% against the U.S.
One reason for this resilience is that investors never cut these governments much policy slack in the first place. Unlike their counterparts in the developed world, less wealthy countries have not benefited from a decade and a half of near-zero interest rates. They could not rely on central bank bond-buying to help fund pandemic spending. Most important of all, many emerging-market central banks learned the lesson of previous cycles and raised rates early.
Yet if the surprisingly smooth navigation of the past year is noteworthy, the deeper structural changes in emerging countries are even more remarkable. The main reason emerging-market governments were so vulnerable to financial crises in the 1990s was their inability to develop local currency debt markets and their resulting reliance on dollar-denominated borrowing. This, coupled with chronic current account deficits and high levels of government indebtedness, invited periodic disaster.