Malaysia has announced a relief package with a face value of over 16% of GDP. Not many other emerging economies can enact anything similar
global financial crisis struck emerging economies in 2008, two kinds of exodus ensued. Footloose capital fled their financial markets and migrant labour left their cities for the bosom of their hometowns and villages. Since the “coronacrisis” struck, the first exodus has recurred on an unprecedented scale: foreigners took over $83bn out of emerging-market shares and bonds in March, according to the Institute of International Finance, a banking association, the largest monthly outflow on record.
All countries have spared “essential” goods and services from restrictions. But what counts as essential? India’s list, derived from a law passed in 1955, at first failed to mention feminine-hygiene products, causing confusion. South Africa scrambled to add toothpaste and baby products to a list of “basic goods” that had omitted them. There have been errors of inclusion too.
Whereas previous crises have imposed a financial constraint on economic activity, this disaster has imposed a “physical constraint”, points out Alberto Ramos of Goldman Sachs, a bank. He expects Latin America to suffer its worst contraction since the second world war, exceeding even its debt crisis of the 1980s. Much depends on how long the lockdowns last.
But no emerging market, almost by definition, can afford to ignore its exchange rate entirely. Russia’s central bank, for example, recently refrained from cutting interest rates because the rouble has tumbled so dramatically in the wake of the country’s oil-price war with Saudi Arabia. The tussle caused oil prices to dip below $20 a barrel this week, according to America’s benchmark, for the first time since 2002.
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