Facility shopping is fanning financial risks
By Adam Triggs
Argentina has announced that it is seeking financial support from China to help manage its currency crisis. It is engaging in a process that has become known as ‘facility shopping‘. Countries facing an economic crisis now have plenty of options for where they can get financial assistance. The goal of facility shopping is to obtain the largest amount of financial assistance possible without having to undertake difficult economic reforms in return.
While facility shopping might be appealing for the country facing a crisis, it is a worrying trend for the global economy and could have profound implications for the international geopolitical landscape.
If a country suffered a crisis back in 1980, there was only one person the finance minister needed to call: the managing director of the IMF. The IMF would assess the financial shortfall, analyse the root causes of the crisis and offer financial support, provided the country’s finance minister was willing to undertake the economic reforms prescribed by the IMF.
Today it is a different story. Embattled finance ministers have many more options. The IMF often plays a smaller role. Ministers could go to a regional financing mechanism, such as the European Stability Mechanism or the Chiang Mai Initiative Multilateralization. They could go to a development bank, such as the Asian Development Bank. They could seek a bilateral currency swap line from the central bank of another country. Or they could go to the finance ministry of another country for a bilateral loan.
The loan Argentina is seeking from the People’s Bank of China is the latest example of facility shopping. Mongolia sought similar assistance from China over the last several years to deal with its own crisis. Indonesia <a target="_blank" rel="nofollow" …read more