IMF honing tools to rescue EMs from China spillover, MD Lagarde says

IMF's Lagarde: Do not expect China hard landing
IMF's Lagarde: Do not expect China hard landing

China can avoid a "hard landing" if Beijing pursues reforms to state enterprises and sticks to a more market-driven and well-communicated exchange rate policy, International Monetary Fund Managing Director Christine Lagarde said on Thursday.

But Lagarde said spillovers from China's transition to a slower, more sustainable growth rate would continue to pressure oil and commodity exporters around the globe, increasing demands for financing help from the IMF and other international institutions.

She told an online media briefing that the IMF wanted to be ready to handle any emerging market difficulties with new and improved financing tools.

"China is going through that massive, multi-faceted transition and we do not expect a hard landing of China as has been talked about for many years," Lagarde said.

She noted that China's transition will still be difficult and create market volatility, however. Oil and metals prices, now two thirds below their most recent peaks in 2014, will likely stay low for some time.

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As a result, the international financial safety net "needs to be strong and needs to be readily available to face any circumstances," Lagarde said.

The IMF will be working in coming months to improve existing financing instruments, such as credit and liquidity lines, as well as new instruments to address their situations.

Lagarde's remarks came as several oil and commodity exporters, including Peru, Nigeria, Angola and Azerbaijan, are in talks with the World Bank on financing to cope with widening budget deficits.

In a speech earlier on Thursday at the University of Maryland, Lagarde said a larger and more robust financial safety net would reduce the need for many emerging market countries to hold large foreign exchange reserves, freeing up funds for investments in infrastructure and education.

Lagarde said advanced economies should take steps to support growth through accommodative monetary policy and infrastructure spending, while emerging economies can help by boosting non-commodity revenues and allowing more flexible exchange rate policies.

One area where emerging markets could help ease fiscal pressures was to take advantage of low oil prices to reduce or eliminate fuel subsidies and replace them with more targeted programs to aid the poor, she said.