Developed Markets Act, Emerging Markets Suffer

The world has evidenced many eco-political tussles since the inception of economic development practices. The trend is not new when a developed country makes some adjustments in its policy and the direct effects are seen in the interlinked ones. One significant economically strategic era belonged to “Four Asian Tigers – Hong Kong, Singapore, South Korea and Taiwan” known as “Asian Miracle”. It is termed as a miracle because these countries were able to maintain an economic growth rate of over 7 percent for more than 25 years which very easily graduated them to the advanced and high income economies. What did they do?

Three major changes in policy measures: budget deficit, external debts and exchange rates. All the four nations kept their budget deficit within the standard limits set by OECD. Besides South Korea, no other nations had much of external debt which also made the threat of destructive impacts of Asian Financial Crisis higher for South Korea compared to other nations. And their exchange rates were converted from the fixed rate to the flexible rate regimes. Hong Kong and Singapore, because of smaller economic size, adopted the financial intermediation liberalization whereas South Korea and Taiwan went for the export-based policies. Going through the miracle period, was coined the famous Washington Consensus which has specifications for crisis-busted developing countries. Later, during the Asian Financial Crisis – the economic recovery package of the developed countries increased: unemployment rates, population under absolute poverty, food scarcity which compelled the crisis-fed countries to repel the packages and induce the outsourced investment-led economic growth strategies.

BRIC was coined in 2001 which consists of economic juncture of Brazil, Russia, India and China. They are the speedily emerging economies in the world and developing as a big threat to the competitive developed countries in the globe. In this regard, the cutting of stimulus by Fed in the USA has thrashed the currency stability of most of the emerging economies in the world including South Africa and Turkey. The easing policy of the Fed is to get trimmed down which has raised economic threats to the emerging economies as USA and the markets in USA is supposed to be the investment hub for most of the monetary authorities across the globe. The bond-buying by Fed is to decrease by $10 billion which has induced the multiplier effects in emerging countries.

After the news, the South African Rand has fallen to five year low versus the USD and the central bank has hiked the interest rates to compensate the loss. Russian shares have also suffered badly getting dragged to lowest since September ’13 which will add to the monetary policy pressures there too. Turkish markets have also slumped doubting if their monetary authority could tackle the threat. The Indian market is also portraying similar tendency. These incidents limn the requirement of aggressive strategies for the economic competitiveness. 

Note: This article was published in Perspectives of The Himalayan Times