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Emerging market crisis: A perspective
Thu, 13 Feb Pre-Open

There was a time when emerging markets used to be apple of investors' eyes. So much so, that a separate term 'BRICs' was coined for them. When the global financial crisis in 2008 struck, while the big economies were brought to their knees, the emerging markets showed surprising resilience. However, if current economic scenario is anything to go by, the emerging markets seem to be failing on the expectations that were once held of them.

These markets benefited in the post crisis periods. The foreign money, owing to low interest rate environments and poor returns in developed economies found its way in the emerging markets. But now, as the US economy is showing signs of recovery and Fed has announced tapering worth US$ 10 bn per month, these emerging economies are suddenly facing a crisis like situation with more and more foreign money outflows and depreciating currencies. Some are even wondering if there will be a recap of the Asian financial crisis that was witnessed in 1997.

It would not be completely wrong to say that US has almost exported its crisis to the emerging markets. While we can understand the feeling of victimized, should emerging markets expect any help from Fed to cushion the impact of the blow?

As the article in Livemint suggests, it will be naive to expect Fed to come to emerging market's rescue. Afterall, it has just started showing some signs of recovery. And we believe it is too preoccupied to deal with its own economic concerns. Infact, if history is anything to go by, US monetary policies have been the trigger to the financial crisis in emerging markets. That said, it would be wrong to completely shift the blame on US policies. What is more at fault for the economic mess in emerging nations are the internal issues and lack of effective governance and fiscal indiscipline. Take for example the case of India. Rampant corruption, huge subsidies, lack of infrastructure and loose policies has taken a toll on the economy. Hence, instead of crying foul, focus should be on effective governance and policies, not just in emerging but developed economies as well.

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