Question

1. Why do governments prefer to avoid excessive current account surpluses? Or, why are growing domestic claims to foreign wealth ever a problem?

2. What are the main objectives of IMF? What is IMF conditionality? How does IMF promote flexibility in external balance adjustment?

Answer 1

As per Chegg guidelines, first question is answered.

Kindly ask rest of the questions in a separate post.

1.

Current account surplus occurs when a country has invested more money in foreign assets and thus its net foreign assets held is higher.

It is a point of concern for the country because it means the country has most of its money invested in foreign assets and its value of investment depends entirely on the value of those assets. Since too much money is being invested in foreign markets, a slight recession or instable conditions in any one country would affect the value of their assets held greatly and can also lead to a fall in its net investment value. It is a risky affair since the value of such investment is not in the investing country’s hands and the tables can turn anytime.