RUSSIA FORUM BUZZ. What have the emerging markets learned from the current crisis?

Christopher Granville: Flexibility to survive the storms is the key at present. Russia’s decision to take a very conservative view on the crisis is vital, as is its decision to use its reserves over two years instead of one, and to allow weak companies to go under. Russia is thus well placed.

Raghuram Rajan: Exports have been damaged and capital flows have stopped across the world. This has caused runs on banks worldwide and weaker currencies, which in turn has damaged domestic demand and deflated housing bubbles. Countries with large current account deficits have been most hurt. Commodity exporters are damaged, as are countries with high foreign debt. The flow of capital is unlikely to return any time soon. Support for reform is likely to weaken. Governments lack safety nets, as well as the capacity to use fiscal stimulus, and there will be more unrest. Countries that have allowed their currency to fall, that have large reserves or that can cut rates have the capacity to resist the pressure. Emerging markets have many people who were never part of the global economy, so they will suffer less. Inflationary pressures and a lack of new supply will help commodity prices. We still do not know when growth will return. It is a mistake to think that China alone can prop up global growth; the upside is that China will shift from export-led growth to domestic growth and a greater focus on the internal provinces.

Ian Bremmer: We need to wait for normality to return before we really see who is least exposed. This is now a G20 world, but this is hard to coordinate. Deep social discontent and more radicalism are highly likely in the emerging markets, and many may decide not to engage with the global system and encourage reform. Ukraine and Mexico are examples of countries that have political problems and where reforms may stall. China, Brazil and the Gulf states have a lot of political stability and political capital.

Hernando de Soto: The West has no monopoly on truth and does not even understand how deep the financial problems are. The West has proved a poor teacher of capitalism, as many countries are as poor as they ever were. Emerging markets have lived through crisis before and have better experience of it. The West is fortunate in having hard currencies, and this will help them to emerge from crisis first. Less-globalized countries may be damaged by the crisis less. There may be wars to come.

Hugh Hendry: Too many experts. Iceland is the poster child of everything that has gone wrong. The IMF advice is totally incorrect. Contrarians want to be bullish, but downturns tend to last a very long time. Europe is very fragile thanks to the euro and will descend into anarchy. The euro reduces the capacity of countries to resolve their problems. The forint will certainly devalue thanks to excess foreign debt. The US is becoming an emerging market. The big issue is how the political class behaves during a boom: it must be more restrained.


Christopher Granville, Managing Director, Trusted Sources
Raghuram Rajan, Professor of Finance, University of Chicago Booth School of Business
Ian Bremmer, President, Eurasia Group
Hernando de Soto, President, Institute for Liberty and Democracy
Hugh Hendry, Co-founder, Eclectica Asset Management

Troika Dialog

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