NUSADUA, Indonesia (Reuters) – Creditor countries must do more to support global demand as interest rates rise, making it more expensive for debtors to pay their dues, European Central Bank policymaker Pablo Hernandez de Cos said on Thursday.
Rising rates in the United States have squeezed debtors in emerging economies from Argentina to Turkey and the euro zone has some issues of its own with borrowing costs surging in Italy due to worries about the new government’s plans to raise its deficit.
Hernandez de Cos, Spain’s central bank governor, was presenting a study on the risks associated with higher central bank rates at an event on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Bali, Indonesia.
“These results support the recommendations to creditors to increase their contribution to global demand in order to support adjustment of global disequilibrium,” de Cos said.
“On the debtors’ side the lack of automatic adjustment through exchange rate shifts suggests the need to boost competitiveness through structural reforms.”
Higher rates in developed economies, particularly in the United States, is pressuring emerging markets as funds get sucked out. That has seen a selloff in emerging market currencies, raising financial risks in countries with current account deficits.
(Reporting By Francesco Canepa; Editing by Shri Navaratnam)