After a week of discussions here, bankers and policy makers agreed that stemming the rush of investments from emerging markets was one of the most important challenges facing the global economy. But there was little agreement on how to actually do that.
On official panels, in closed-room sessions and over drinks in Lima restaurants, market participants struggled to come to grips with the persistent flows of money escaping emerging-market stocks and bonds in search of safer investment shores.
"We have never seen something like this," said Hung Tran, a senior executive at the Institute of International Finance, a trade group for global banks. Tran said that he was expecting net outflows from emerging markets to be around $800 billion for this year and next - by far the largest amount since institutions began investing in these markets in the late 1980s.
The fear is that these numbers could increase substantially, especially if China's currency weakens further. That could result in a rolling series of emerging-market crises.
At the root of the debate has been whether the Federal Reserve's decision last month to hold interest rates near zero has increased investor confidence in emerging markets or hurt it.
The International Monetary Fund, the host of the week's meetings and the first line of defense in bailing out emerging-market nations that run short of cash, has said that the Federal Reserve should refrain from an interest rate increase in light of the weak global economy.
And Gary D Cohn, the president of Goldman Sachs, said at a panel discussion on Saturday that if you had just awakened from a year long slumber and had to make a decision about raising rates, you would most likely choose not to do so.
"We have a global economic growth problem," Cohn said.
But those on the front lines of the outflows of funds from the emerging markets - central bankers in countries like Brazil, Turkey, Malaysia and Mexico - are beginning to say that the Fed's decision to hold back has actually made their job more difficult. That is because instead of staying put, or making new investments, investors are rushing out all the faster, spooked that the Fed has larger fears about China and other emerging markets.
"I heard time and again this week from governors of emerging-market central banks that it's not the hike itself that worries them," said Jacob A. Frenkel, the chairman of J.P. Morgan Chase International and the former head of Israel's central bank. "It's how much and when it occurs."
Frenkel is a member of a coalition of bankers, economists and policy makers called the Group of Thirty that released a paper on Sunday criticising the continuation of loose central bank policies. He and his colleagues who wrote the report urged the central banks - not least the Fed - to return to a more conventional approach to markets by gradually increasing interest rates.
Some experts argued that money would continue to flow out of China, the emerging market that most worries investors, regardless of whether the Fed raised rates.
For years, Chinese savers were happy to keep their wealth in the renminbi because they knew it would keep its value, said David Lubin, head of emerging-market economics at Citigroup. Now, with the renminbi expected to devalue more, "they are looking to shift into dollars," Lubin said.
This trend will continue regardless of what the Fed does, he said.
The mantra, from the I.M.F. on down, has been that emerging-market governments need to regain the confidence of investors by keeping budget deficits under control and not letting their currency declines run out of control.
"Emerging-market countries have to put their own house in order," said Ariosto Revoredo de Carvalho, a senior executive at Brazil's central bank. "There is no cavalry here - no external help coming from China or the Fed. That puts more pressure on governments to do their own work."
And while there have been a few calls from economists for countries most vulnerable to outflows to impose capital controls to make taking money out of these economies more difficult, most central bankers at the Lima meetings rejected such an option.
"The first thing an investor asks when he comes in is where is the exit," said Agustín Carstens, the head of Mexico's central bank, who was speaking on a panel about monetary policies in Latin America. "If he does not know where it is, he won't come in."
As an open economy, Carstens said, Mexico depends too much on these investors for its financing needs to scare them away with such policies.
Over the last week, emerging-market currencies and stock markets have experienced a bounce of sorts - halting what had been a deep slide.
But analysts are not convinced that financial stability can return to these markets without a greater sense of certainty about what the Fed plans to do.
"Delaying an increase in rates only increases volatility and uncertainty in emerging markets," said David Fernandez, a currency and bond specialist at Barclays in Singapore. "Emerging markets will continue to see outflows."
The I.M.F.'s public stance in support of the Fed has provoked some criticism here - especially because the fund, more than any other institution, is aware of how dangerous the combination of uncertainty and volatile capital flows can be for emerging-market economies.
"When I travel around the world, I find hardly anyone supporting the Fed's policy on interest rates," said a senior European official, who did not want to be publicly identified criticizing the I.M.F. "The fund has become very short-term-oriented."
Some also saw the fund's support of the Fed as going beyond its mandate, which is to keep an eye on the financial health of its member countries.
"The I.M.F. has no real role in commenting on monetary policy," said Axel A. Weber, a former senior official at the European Central Bank who is now chairman of the investment bank UBS.
The fund has heard the criticisms.
David Lipton, the No. 2 executive at the I.M.F., said the fund was aware that this liquidity had adverse side effects. But, he argued, if lower rates were needed to keep the United States economy healthy, then that should be the course of action.
For the time being, emerging markets will keep playing a waiting game.
©2015 The New York Times New Service
