High Priests of Global Finance Stoke Emerging Market Fears
Two of the most important guardians of global finance, the IMF (International Monetary Fund) and the IIF (Institute of International Finance), gave their verdict on the current state of the global economy this week. And their message could not be clearer: beware the dreaded fate of emerging markets.
The World According to A Prestigious Club of Global Banks
The IIF warned this week that hot money is pouring out of emerging markets at a startling rate, primarily on the back of China’s crunching slowdown and rising fears of a looming US rate hike.
Before we go any further, here’s a caveat: The IIF is a prestigious “club of global banks.” After the Club of 30, it is arguably the most powerful financial lobby association on the planet. It is also one of the strongest proponents of self-regulation in banking, a major cause of the Global Financial Crisis. Could an organization like the IIF have ulterior motives?
This year capital outflows from emerging economies will surpass inflows for the first time since 1988. Residents sending cash out of the emerging markets has accelerated amid recent financial market volatility while at the same time foreign investment is set to nearly halve from $1,074 billion in 2014 to just $548 billion this year.
The countries most at risk are those with high current account deficits, pronounced levels of corporate debt denominated in foreign currencies, and extreme political uncertainty. Brazil, whose currency has suffered a 30% currency depreciation this year, and Turkey (15%) are among the nations “in this situation,” the report warns. The nation most at risk is Venezuela, which (according to estimates by US financial firms) is currently suffering annual inflation of 120%. The country’s risk of default is “extremely high” and could even happen as early as 2016, warns the IIF.
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