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(Bloomberg) — Former Treasury Secretary Lawrence Summers predicted further financial troubles after the recent turbulence in the UK, and blasted global finance chiefs for doing little to address some developing nations getting shut out of the bond market.
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“There’s some fires burning, and the fire department is still mostly in the station,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “There’s a whole set of very important challenges with respect to developing countries and emerging markets, and I have to say that I don’t feel those challenges were really met this week.”
He said he was “disappointed” finance ministry and central bank officials gathering in Washington “don’t seem to be doing anything about the fact that many of these countries can’t even issue a bond today.”
Kenya’s central bank Governor Patrick Njoroge on Thursday warned that the cycle of interest-rate hikes by rich nations is leading some developing countries to get “shut out of the capital markets.” He spoke on the sidelines of semiannual IMF and World Bank meetings in Washington, where the Group of Seven and G-20 also held sessions.
Summers said he was reminded of the unwillingness of the US, as the Asian financial crisis began in the late 1990s, to deploy $1 billion of protective assistance for economies facing challenges. That decision — which he noted he participated in, at the US Treasury — ended up sowing disappointment about Washington in the region. In the end, far more aid was deployed as markets melted down.
“There’s some mistakes being made of that kind right now,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. It’s a “very, very difficult moment” for parts of Africa, Latin America and Asia, he said.
There are likely more land mines coming in the global financial system in the wake of the disruption in UK financial markets that forced newly installed Prime Minister Liz Truss to abandon parts of her fiscal program this week, Summers also said.
If global economic conditions had been more “normal,” the UK problems might not have been so serious, he said. “The kind of excesses we’ve had in the system mean we’re in very complicated territory.”
“I doubt we’ve seen the last mine go off. Some of them might be in the private sector. I think more of them may be international,” Summers said. He said he was struck by “countries reporting difficulty in getting market access” at this week’s meetings in Washington.
With regard to the UK, Summers said Friday’s developments — with Truss firing Chancellor Kwasi Kwarteng and scrapping a plan to freeze the corporate tax — aren’t likely to end the troubles.
“I’d be surprised if we were in the seventh inning of this particular set of challenges,” he said, in a reference to the standard nine innings in American baseball.
He reiterated his warning that the Bank of England was “asking for trouble down the road” by setting a deadline for its bond-buying program.
“This is probably going to be a textbook case of crisis creation followed by crisis mismanagement,” Summers concluded.
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