We went through a terrifying moment back in the fall of 2008. The financial system in the United States was imploding. It was impossible to predict how the effects would ripple through the rest of the world, but one outcome seemed inevitable: Developing economies were going to take a terrible hit. There was just no way they could escape the maelstrom without seeing millions of their citizens impoverished.
COMMENTS (0)
More...
Many emerging-market countries did experience sharp drops in GDP. Their capital markets tanked. Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), sounded downright apocalyptic: "All this will affect dramatically unemployment, and beyond unemployment for many countries it will be at the roots of social unrest, some threat to democracy, and maybe for some cases it can also end in war." The Economist recently noted, "The Institute of International Finance (IIF), a think-tank in Washington, DC, forecast that net private capital flows into poor countries in 2009 would be 72% lower than at their peak in 2007, an unprecedented shrinkage." Virtually everyone expected to see the countries that had benefited so dramatically from growth in the years leading up to the crisis to suffer disproportionately in its wake.
An entirely rational assumption -- except it hasn't turned out that way at all. To be sure, there were far too many poor people in the world before the crisis, and that still remains the case. Some 3 billion people still live on less than $2.50 a day. But the global economic crisis hasn't added appreciably to their ranks.
Just take China, India, and Indonesia, Asia's three biggest emerging markets. Although growth in all three slowed, it never went into reverse. China's robust growth through the crisis has been much publicized -- but Indonesia's, much less conspicuously. Those countries, as well as Brazil and Russia, have rebounded dramatically. The Institute of International Finance -- the same people who gave that dramatically skepticism-inducing estimate earlier -- now says that net private capital flows to developing countries could reach $672 billion this year (double the 2009 amount). That's less than the high point of 2007, to be sure. But it still seems remarkable in light of the dire predictions.
In short, the countries that have worked the hardest to join the global marketplace are showing remarkable resilience. It wasn't always this way. Recall what happened back in 1997 and 1998, when the Thai government's devaluation of its currency triggered the Asian financial crisis. Rioting across Indonesia brought down the Suharto government. The administration of Filipino President Joseph Estrada collapsed. The turbulence echoed throughout the region and into the wider world, culminating in the Russian government default and August 1998 ruble devaluation. Brazil and Argentina trembled. The IMF was everywhere, dispensing advice and dictating conditions. It was the emerging markets that bore the brunt of that crisis.
So what's different this time around? The answers differ from place to place, but there are some common denominators. Many of the BRICs (Brazil, Russia, India, China) learned vital lessons from the trauma of the late 1990s, hence the IMF's relatively low-key profile this time around. (The fund has been most active in Africa, where they still need the help -- unless you count Greece, of course.)
Many emerging economies entered the 2008-2009 crisis with healthy balance sheets. In most cases governments reacted quickly and flexibly, rolling out stimulus programs or even expanding poverty-reduction programs. Increasingly, the same countries that have embraced globalization and markets are starting to build social safety nets. And there's another factor: Trade is becoming more evenly distributed throughout the world. China is now a bigger market for Asian exporters than the United States. Some economists are talking about "emerging market decoupling." Jonathan Anderson, an emerging-markets economist at the Swiss bank UBS, showed in one recent report how car sales in emerging markets have actually been rising during this latest bout of turmoil -- powerful evidence that emerging economies no longer have to sneeze when America catches a cold.
SUBJECTS:
(0)
HIDE COMMENTS LOGIN OR REGISTER REPORT ABUSE