While Kenneth Rogoff took his lumps last year due to an
enormously inexcusable excel error, this former Chief Economist for the IMF and co-author of This Time Its Different: Eight Centuries of Financial Folly is still a voice to be reckoned with. As part of Project Syndicate’s cleverly-titled-no-pun-intended “Submerging Markets” series, Rogoff gives his two cents on the fragility of emerging markets.
Rogoff is not quite ready to jump on the blame train for US monetary policy:
- “…the Fed’s role is almost certainly overblown.
For one thing, the Fed’s retreat partly reflects growing confidence in the US economy, which should mean a stronger export market for most emerging economies. Moreover, the Fed’s modest tightening is being matched by a trend toward looser monetary policy in the eurozone and Japan; so, overall, advanced-country monetary policy remains highly accommodative.”
Reflecting similar sentiment held by other commentators, he believes that the Emerging Markets should look in the mirror when assigning blame:
- “At the core of emerging-market problems, however, is policy and political backsliding…In Brazil, the government’s efforts to weaken the central bank’s independence and meddle in energy and lending markets have harmed growth…
Turkey is suffering acute challenges to its democratic institutions, as well as government pressure on the central bank…In India, central-bank independence remains reasonably strong, with the Reserve Bank of India now mulling a move to an inflation-targeting regime. But a sustained period of populist policies has weakened trend growth and exacerbated inflation.”
He thinks that a few countries are in a strong position to capitalize:
- “Aside from Mexico, countries such as Chile, Colombia, and Peru are well positioned to gain from investments in institution-building.”
Finally, Rogoff believes current Emerging Markets are better prepared for difficulties moving foward, but major obstacles remain.
“Unlike in the 1990’s, when fixed exchange rates were widespread, most countries now have shock-absorbing flexible rates…The real question is what will happen when the turmoil moves [from equity markets] to debt markets.”
Whether you agree or disagree with him, Rogoff is a good barometer to keep tabs on as the situation develops.