Bad Debt in Emerging Markets: Still Early Days

by John Caparusso, Yingyuan Chen, Evan Papageorgiou and Shamir Tanna

(Versions in 中文, PortuguêsРусский, and Español)

Emerging markets have had a great run. The fifteen largest emerging market economies grew by 48% from 2009 to 2014, a period when the Group of Twenty economies collectively expanded by 6%.

How did emerging markets sustain this growth? In part, they drew upon bank lending to drive corporate credit expansion, strong earnings, and low defaults. This credit boom, combined with falling commodity prices and foreign currency borrowing, now leaves emerging market firms vulnerable and financial sectors under stress, as we discuss in the latest Global Financial Stability Report.

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Plato & the Incas: Overheard at the IMF’s Annual Meetings

By iMFdirect

According to Plato, you do not really know something unless you can give an account of it.  Otherwise, you have just an opinion and not real knowledge.  The seminars that took place during the IMF’s Annual Meetings in Lima, Peru would have made Plato proud.

Our editors deployed their pens and notepads and brought back these themes and highlights.

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The Quest for Robust and Synchronized Growth

Maurice Obstfeld2By Maurice Obstfeld

(Versions in Españolعربي, 中文Français, Русский and 日本語)

Today, we released the October 2015 World Economic Outlook.

Our forecasts come at a moment when the world economy is at the intersection of at least three powerful forces.

First, China’s economic transformation – away from export- and investment-led growth and manufacturing, in favor of a greater focus on consumption and services. This process, however necessary and healthy in the longer term, has near-term implications for China’s growth and its relations with its trade partners.

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Emerging Market Corporate Debt in Foreign Currencies

By Selim Elekdag and Gaston Gelos

Debt held by firms in emerging market economies in a currency other than their own poses extra complications these days. When the U.S. Fed does eventually raise interest rates, the accompanying further strengthening of the U.S. dollar will mean an emerging market’s own currency will depreciate against the higher value of the U.S. dollar, and would make it increasingly difficult for firms to service their foreign currency-denominated debts if they have not been properly hedged.

In the latest Global Financial Stability Report, we find that firms in emerging markets that have increased their debt-to-assets ratios have generally also increased their overall sensitivity to changes in the exchange rate—commonly called exchange-rate exposure.

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Inequality’s Toll on Growth

by iMFdirect

Inequality is one of the defining issues of our time, so you may want to tune in to this interview with the authors of a new study that shows that  higher inequality leads to lower growth.  You can also read their blog here.

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Taper Tantrum or Tedium: How U.S. Interest Rates Affect Financial Markets in Emerging Economies

By Alexander Klemm, Andre Meier, and Sebastián Sosa

(Version in Español)

Governments in most emerging economies, including in Latin America, have reduced their exposure to U.S. interest rates over the past decade, by issuing a greater share of public debt in domestic currencies.

Even so, sudden changes in U.S. interest rates still have the power to roil financial markets in emerging economies. Witness last year’s “taper tantrum”—when the Fed hinted at the possibility of tapering its bond purchases sooner than previously expected, causing bond yields to rise sharply. Continue reading

The Time is Nigh: How Reforms Can Bring Back Productivity Growth in Emerging Markets

By  Era Dabla-Norris and Kalpana Kochar

(Version in Español)

The era of remarkable growth in many emerging market economies fueled by cheap money and high commodity prices may very well be coming to an end.

The slowdown reflects not just inadequate global demand, but also structural factors that are rendering previous growth engines less effective, and the fact that economic “good times” reduced the incentives to implement further reforms to enhance productivity. With the end of the period of favorable global financing and trade conditions, the time is nigh for governments to make strong efforts to increase productivity—the essential foundation of sustainable growth and rising living standards. Continue reading


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