INSUBCONTINENT EXCLUSIVE:
You can do the right thing and still be punished, at least for a while.
When most of the big powers are tightening the reins, emergingmarket
economies are going to suffer
It’s true for the frugal nations as well as the profligate
In the short term, global factors and broader capital market tides always matter more than national discipline.
The European Central Bank is
tapping the brakes, and the Federal Reserve is raising interest rates further and faster than anyone else
This siphons investors away from emerging markets
Compounding their pain: The manufacturing-supply chains on which they built their economic models are threatened by the White
House.
Emerging markets are rarely masters of their own destiny
This reality is conveniently overlooked during bouts of emergingmarket mania.
They aren’t powerless, though
Countries can make decisions that limit the pain when sentiment sours and that position them well for the inevitable rebound.
Alternatively,
emerging economies can be cavalier in good times, which aggravates the next downturn for them and sows the seeds for more lasting problems
Argentina, with fiscal mismanagement and a plea for international aid, would be Exhibit A from recent headlines
Turkey’s President Recep Tayyip Erdogan only harmed his nation by putting relatives in key economic jobs and railing against shadowy
forces intent on higher rates.
Emerging markets, as a whole, have made great strides since their financial crises in the late 1990s
They account for 70% of global growth, their citizens are the dominant consumers, and their capital markets dwarf the size they once were,
notes Jorge Mariscal at UBS Wealth Management.
Surely enough for Fed Chairman Jerome Powell and ECB President Mario Draghi to take notice
Yes, but not sufficient for a change in direction by the big guys
As individual nations, emerging markets (with the possible exception of China) just don’t exert much gravity on the major central
banks.
So what’s a responsible nation to do Don’t panic, and keep patient.
The Fed is still increasing rates, but is closer to the end
The ECB is wrapping up its quantitative easing, though a rate increase before the middle of next year is unlikely
With the global expansion slowing, the ECB may miss its window for an increase altogether
The Bank of England and the Bank of Canada aren’t powerful enough to make an impact on their own.
That ought to give some succor to
Indonesian Finance Minister Sri Mulyani Indrawati, who fairly complained last week that her country is doing the right thing, compared with
its haphazard and violent approach during the Asian financial crisis, and nonetheless getting burned.
