Emerging markets aren't out of the woods yet

Extract of an article by Mr Agustín Carstens, General Manager of the BIS, and Mr Hyun Song Shin, Economic Adviser and Head of Research of the BIS, in the magazine Foreign Affairs, published on 15 March 2019.

Emerging markets had a bumpy 2018. Over the summer, Argentina and Turkey saw their currencies fall sharply as their economies ran into trouble. Argentina had to turn to the International Monetary Fund for a $57 billion loan. Commentators sharpened their pencils, ready to draw parallels with the wave of financial crises that swept over emerging markets in the late 1990s.

Yet most emerging-market economies came through the summer's turbulence more or less unscathed. That is largely thanks to big improvements in economic and financial management since the last major wave of crises in the 1990s. Most countries that succumbed to crises then have moved from pegged exchange rates to largely floating exchange rates and have adopted sounder monetary policies. Most also now have more resilient banking systems, the result of a general shift away from risky short-term bank funding in favor of long-term funding from bond markets.

Perhaps the most remarkable change since the crises of the 1990s has come in the way emerging-market countries finance their debt. Governments now borrow much more in their own currencies than in foreign ones, making them less vulnerable to runs and currency crises. But risks remain. Developing countries still have work to do if they are to shield themselves from the vicissitudes of global financial conditions.

Click here to read the full article published in the magazine Foreign Affairs.