Rich Countries Are Now on Front Lines as World’s Risk Map Shifts

(Bloomberg) -- Typically called into action when poor countries get mired in debt, the International Monetary Fund will be confronted this week with mounting signs of trouble in the wealthiest ones.

Governments in America, Europe and Japan have seen their borrowing costs soar to multi-decade highs as the US war on Iran drives inflation up. That means they have to shell out more to service historically large debts – which in turn pushes them to borrow even more. It threatens to become a vicious circle.

All of this makes for an upside-down backdrop to the annual meetings of the IMF and World Bank in Bangkok, where finance ministers and central bank chiefs will gather starting Monday.

The host nation was once ground zero for a major emerging-market crisis. The host institutions were preoccupied until lately with the post-Covid struggles of weaker economies. Now the focus is on problems that stem from the developed world — the "worst offenders" on the debt front, according to IMF chief Kristalina Georgieva — but might not stay confined there.

When borrowing costs rise at the core of global finance, like the US Treasuries market, there's usually a knock-on impact for consumers, businesses and governments everywhere else. When the Federal Reserve or the Bank of Japan hike interest rates, as they've been doing in the face of $100-a-barrel oil, there's pressure on their emerging-market peers to follow suit or risk capital flight.

Georgieva says debt and energy — along with an AI boom that's turbocharging some economies but bypassing most — are top of this week's agenda. Earlier in the Iran war she was emphasizing the world's resilience, but lately the combo of rising energy prices, inflation and interest rates has gotten her sounding rattled. "In normal times, that would not be a giant problem," she said last month. "But these are not normal times, because we have debt levels in advanced economies at historic highs."

What's more, the IMF chief warned, governments that have to pay bigger interest bills will struggle to afford other things, like helping their citizens with the high cost of living. "We should prepare for people being more unhappy," she concluded. "Maybe on the street."