"Imagine for a moment that you are the chief policymaker in a successful emerging-market country. You are watching with legitimate concern (and a mixture of astonishment and anger) as Europe’s crippling debt crisis spreads and America’s dysfunctional politics leave it unable to revive its moribund economy. Would you draw comfort from your country’s impressive internal resilience and offset the deflationary winds blowing from the West; or would you play it safe and increase your country’s precautionary reserves?
That is the question facing several emerging-market economies, and its impact extends well beyond their borders. Indeed, it is a question that also speaks to the increasingly worrisome outlook for the global economy.
The very fact that we are posing this question is novel and notable it its own right. You can add this to the list of previously unthinkable things that we have witnessed lately. That list includes, just in the last few weeks, America’s loss of its sacred AAA rating; its political flirtation with a debt default; mounting concern about debt restructurings in peripheral European economies and talk about a possible eurozone breakup; and Switzerland’s dramatic steps to reduce (yes, reduce) its safe-haven status.
The answer to the emerging markets’ question would have been straightforward a few years ago. It is not today.
In the world of old, the West’s economic malaise already would have pulled the rug from beneath most emerging-market countries. Indeed, the conventional wisdom – supported by many painful experiences – was that when the industrial countries sneezed, the emerging world caught a cold.
Today, however, several (though not all) emerging-market countries are benefiting from years of considerable efforts to reduce their financial vulnerability by accumulating huge amounts of international reserves. They have also paid back a significant share of external debt and converted much of what remains into more manageable local-currency liabilities..."
at http://www.project-syndicate.org/commentary/elerian9/English
That is the question facing several emerging-market economies, and its impact extends well beyond their borders. Indeed, it is a question that also speaks to the increasingly worrisome outlook for the global economy.
The very fact that we are posing this question is novel and notable it its own right. You can add this to the list of previously unthinkable things that we have witnessed lately. That list includes, just in the last few weeks, America’s loss of its sacred AAA rating; its political flirtation with a debt default; mounting concern about debt restructurings in peripheral European economies and talk about a possible eurozone breakup; and Switzerland’s dramatic steps to reduce (yes, reduce) its safe-haven status.
The answer to the emerging markets’ question would have been straightforward a few years ago. It is not today.
In the world of old, the West’s economic malaise already would have pulled the rug from beneath most emerging-market countries. Indeed, the conventional wisdom – supported by many painful experiences – was that when the industrial countries sneezed, the emerging world caught a cold.
Today, however, several (though not all) emerging-market countries are benefiting from years of considerable efforts to reduce their financial vulnerability by accumulating huge amounts of international reserves. They have also paid back a significant share of external debt and converted much of what remains into more manageable local-currency liabilities..."
at http://www.project-syndicate.org/commentary/elerian9/English
