INVESTING
the past two decades , which amount to a thoughtful refinement of the Washington Consensus .
One notable innovation has been the accumulation of large foreign-exchange reserves to fend off liquidity crises in a dollar-dominated world . India ’ s forex reserves , for example , stand at $ 600 billion , Brazil ’ s hover around $ 300 billion , and South Africa has amassed $ 50 billion . Crucially , emerging-market firms and governments took advantage of the ultra-low interest rates that prevailed until 2021 to extend the maturity of their debts , giving them time to adapt to the new normal of elevated interest rates .
But the single biggest factor behind emerging markets ’ resilience has been the increased focus on central-bank independence . Once an obscure academic notion , the concept has evolved into a global norm over the past two decades . This approach , which is often referred to as “ inflation targeting ,” has enabled emerging-market central banks to assert their autonomy , even though they frequently place greater weight on exchange rates than any inflation-targeting model would suggest .
Owing to their enhanced independence , many emerging-market central banks began to hike their policy interest rates long before their counterparts in advanced economies . This put them ahead of the curve for once , instead of lagging behind . Policymakers also introduced new regulations to reduce currency mismatches , such as requiring that banks match their dollar-denominated assets and liabilities to ensure that a sudden appreciation of the greenback would not jeopardize debt sustainability . Firms and banks must now meet much more stringent reporting requirements on their international borrowing positions , providing policymakers with a
Emerging markets never bought into the notion that debt is a free lunch , which has thoroughly permeated the U . S . economic-policy debate , including in academia . clearer understanding of potential risks .
Moreover , emerging markets never bought into the notion that debt is a free lunch , which has thoroughly permeated the U . S . economic-policy debate , including in academia . The idea that sustained deficit finance is costless due to secular stagnation is not a product of sober analysis , but rather an expression of wishful thinking .
There are exceptions to this trend . Argentina and Venezuela , for example , have rejected the IMF ’ s macroeconomic policy guidelines . While this earned them much praise from American and European progressives , the results have been predictably catastrophic . Argentina is a growth laggard grappling with runaway inflation , which exceeds 100 %. Venezuela , following two decades of corrupt autocratic rule , has experienced the most profound peacetime output collapse in modern history . Evidently , the “ Buenos Aires consensus ” was dead on arrival .
To be sure , not every country that spurned macroeconomic conservatism has collapsed . Turkish President Recep Tayyip Erdoğan has kept a lid on interest rates despite soaring inflation , firing every central-bank head who advocated rate hikes . Even with inflation approaching 100 % and widespread predictions of an imminent financial crisis , Turkey ’ s growth has remained robust . While this shows that there is an exception to every rule , such anomalies are unlikely to last indefinitely .
Will emerging markets remain resilient if , as one suspects , the period of high global interest rates persists into the distant future , thanks to rising defense spending , the green transition , populism , high debt levels and deglobalization ? Perhaps not , and there is huge uncertainty , but their performance so far has been nothing short of remarkable .
KENNETH ROGOFF , Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics , was the chief economist of the International Monetary Fund from 2001 to 2003 . He is co-author of This Time is Different : Eight Centuries of Financial Folly ( Princeton University Press , 2011 ) and author of The Curse of Cash ( Princeton University Press , 2016 ). © Project Syndicate
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