News / Economy

Emerging Market Woes Follow US Fed Taper

Emerging Market Woes Follow US Fed Taperi
X
February 05, 2014 12:35 AM
The slowdown in emerging economies and the U.S. central bank’s decision to scale back monetary stimulus have many investors worried about the state of the world’s economy. Some blame the U.S. Federal Reserve for trimming its easy money policies too quickly, while others insist some emerging economies were unprepared for it. But as Mil Arcega reports for VOA, economists say the reasons for market turmoil are as varied as the countries involved.
— The slowdown in emerging economies and the U.S. central bank’s decision to scale back monetary stimulus have many investors worried about the state of the world’s economy. Some blame the U.S. Federal Reserve for trimming its easy money policies too quickly, while others insist some emerging economies were unprepared for it. Economists say the reasons for market turmoil are as varied as the countries involved.

When the U.S. central bank started pumping billions of dollars into the economy to stimulate growth, investors took advantage - investing money in fast growing economies and countries where interest rates were higher.  But amid signs of a strengthening U.S. economy, the Federal Reserve began scaling back monetary stimulus.

As a result, in the World Bank's global economic report, economist Andrew Burns said investments are flowing back into advanced economies as interest rates begin to rise.

“The analysis that we do in the report suggests that capital flows to developing countries, in a smooth transition to higher interest rates in the United States, are likely to decline as a percentage of developing countries GDP,” said Burns.

Slowing economies

The exodus of capital comes at a bad time; growth in developing countries from Brazil to India has slowed.   

When its currency declined sharply last month, Turkey’s central bank tried to discourage capital flight - doubling interest rates to attract investors.

That briefly raised the value of the Turkish lira, though economist Ozlem Demirci says the cost is too high.

“Of course we will see some negative impact of this rate hike decision over growth, especially GDP growth, because the credit rate will probably increase, borrowing costs will increase,” said Demirci.

Meanwhile, Argentina’s central bank chose not to intervene - resulting in the Argentine peso’s biggest depreciation in more than a decade. The contagion spread quickly to other emerging markets, leading some economists to call it the "biggest sell off in emerging market currencies since 2009."

Multiple causes, ongoing issue

William Cline at the Peterson Institute said you can’t blame all of it on the Fed's taper.

"In Argentina, they had domestic inflation that was running very high and was disguised by the official figures in Turkey, the political scandals and the very large trade deficit," he said.

Given country-specific issues, Cline said the recent market turmoil may be a necessary correction. One example he cites is Brazil.

"After all, it was fairly recently that the Brazilians were complaining about a currency war, and they were saying that this wall of money coming at them because our interest rates were so low were making them uncompetitive. Now I think that their currency is more appropriately valued," said Cline.

On the other hand, China, the world's fastest growing major economy has been largely unscathed, perhaps owing to its large dollar reserves.

Given the interconnected nature of commerce, though, economists say the turmoil in emerging markets isn't over yet.

You May Like

At Khmer Rouge Court, Long-Awaited Verdict Approaches

First phase of trial, which is coming to an end, has focused on forced exodus of Phnom Penh in 1975 - and now many are hopeful justice will be served More

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities More

Video Information War Rages Alongside Real One in Ukraine

Downing of Malaysian airliner, allegations of cross-border shelling move information war in war-torn country to a new level More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Information War Rages Alongside Real One in Ukrainei
X
Al Pessin
July 31, 2014 8:13 PM
The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video Information War Rages Alongside Real One in Ukraine

The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict in Gaza, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities. Probably the most important destination is the local bakery. VOA’s Scott Bobb reports from Gaza City.
Video

Video US-Funded Program Offers Honduran Children Alternative to Illegal Immigration

President Obama and Central American leaders recently agreed to come up with a plan to address poverty and crime in the region that is fueling the surge of young migrants trying to illegally enter the United States. VOA’s Brian Padden looks at one such program in Honduras - funded in part by the United States - which gives street kids not only food and safety but a chance for a better life without, crossing the border.
Video

Video 'Fab Lab' Igniting Revolution in Kenya

The University of Nairobi’s Science and Technology Park is banking on 3-D prototyping to spark a manufacturing revolution in the country. Lenny Ruvaga has more for from Nairobi's so-called “FabLab” for VOA.
Video

Video Gazans in Shelled School Sought Shelter

Israel's air and ground assault against Hamas-led fighters in Gaza has forced many Palestinians to flee their homes, seeking safety. But safe places are hard to find, as VOA’s Scott Bobb reports from Jabaliya.
Video

Video Rapid Spread of Ebola in West Africa Prompts Global Alert

Across West Africa, health officials are struggling to keep up with what the World Health Organization describes as the worst ebola outbreak on record. The virus has killed hundreds of people this year. U.S. President Barack Obama and other world leaders are watching the developments closely as they weigh what actions, if any, are needed to help contain the disease.
Video

Video Michelle Obama: Young Africans Need to Embrace Women's Rights

U.S. first lady Michelle Obama urged some of Africa's best and brightest to advocate for women's rights in their home countries. As VOA's Pam Dockins explains, Obama spoke to some 500 participants of the Young African Leaders Initiative, a six-week U.S.-based training and development program.
Video

Video Immigrant Influx on Texas Border Heats Up Political Debate

Immigrants from Central America continue to cross the U.S.-Mexico border in south Texas, seeking asylum in the United States, as officials grapple with ways to deal with the problem and provide shelter for thousands of minors among the illegal border crossers. As VOA's Greg Flakus reports from Houston, the issue is complicated by internal U.S. politics and U.S. relations with the troubled nations that immigrants are fleeing.
Video

Video Study: Latino Students Most Segregated in California

Even though legal school segregation ended in the United States 60 years ago, one study finds segregation still occurs in the U.S. based on income and race. The University of California Los Angeles Civil Rights Project finds that students in California are more segregated by race than ever before, especially Latinos. Elizabeth Lee reports for VOA from Los Angeles.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.