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The Stunning Resilience Of Emerging Markets
Contrary to many analysts ’ expectations , emerging markets have not spiraled into a debt crisis . By Kenneth Rogoff
AS FINANCE MINISTERS AND CENTRAL BANKERS convened in Marrakesh for the International Monetary Fund and World Bank annual meetings October 9-15 , they faced an extraordinary confluence of economic and geopolitical calamities : wars in Ukraine and the Middle East , a wave of defaults among low- and lower-middle-income economies , a real-estate-driven slump in China , and a surge in long-term global interest rates — all against the backdrop of a slowing and fracturing world economy .
But what surprised veteran analysts the most was the expected calamity that hasn ’ t happened , at least not yet : an emerging-market debt crisis . Despite the significant challenges posed by soaring interest rates and the sharp appreciation of the U . S . dollar , none of the large emerging markets — including Mexico , Brazil , Indonesia , Vietnam , South Africa and even Turkey — appears to be in debt distress , according to both the IMF and interest-rate spreads .
This outcome has left economists puzzled . When did these serial defaulters become bastions of economic resilience ? Could this be merely the proverbial calm before the storm ?
Several mitigating factors come to mind . First , although monetary policy is tight in the United States , fiscal policy is still extremely loose . The U . S . is poised to run a $ 1.7 trillion deficit in 2023 , compared with roughly $ 1.4 trillion in 2022 . And , excluding some accounting irregularities related to President Joe Biden ’ s student-loan forgiveness program , the 2023 federal deficit would be close to $ 2 trillion .
China ’ s deficits , too , have been soaring ; its debt-to-GDP ratio has doubled over the past decade , and the IMF expects it to exceed 100 % in 2027 . And monetary policy is still loose in Japan and China .
But emerging-market policymakers deserve credit as well . In particular , they wisely ignored calls for a new “ Buenos Aires consensus ” on macroeconomic policy and instead adopted the far more prudent policies advocated by the IMF over
DECEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 49