As the owners of this blog has rightly pointed out, emerging economy problems could lead to political unrest and upheaval in Singapore, South Korea, Mexico, or Brazil seems like the last thing the US would want to see happen.

On the other hand, I have to say that as an American I take some perverse enjoyment in watching Hugo Chavez sweat out lower oil prices in Venezuela and I do hope that our “friends” in Russia will be less bold in their military/political advances now that their economy is on less sound footing.

These are the kinds of distinctions that are helpful if we are to consider the effects on emerging markets. We should not forget that in the pre-financial meltdown world, there were serious geopolitical issues caused largely by a decline in the dollar and food/energy price inflation. Some of those issues have abated now but newer, seemingly more serious ones have arisen.

Perhaps some additional texture is needed to more clearly understand the downstream emerging market effects of the crisis?

Thanks,
Eugene

(1) The IMF and the FED (and hence the existing global lending of last resort arrangement) have revealed what their balance sheet and governance constraints allow them to put on the table: an approximate, combined US$60 billion for each pre-qualified EM. This is not going to be sufficient, if one of these economies ends up in serious trouble, as the scale of government interventions in advanced economies shows;

(2) There is a need for a multilateral swap-line arrangement from EMs in surplus of foreign financing to EMs in actual or potential deficit, e.g., a mechanism to transfer FX liquidity within the BRICs.

(3) China is willing to help, as the deal with Russia indicates, but seems to be wanting to impose its own, peculiar to say the least, energy-obsessed conditionality: not really what Walter Bagehot had in mind!

(4) The BIS is the place to start to set up a realistic and effective global LOR framework for prequalified EMs. BIS is a multilateral institution where China and other systemic important EMs already dealing with each other, within a less distorted and constraining governance framework.

============================================
Alessandro Rebucci, Senior Research Economist
Inter-American Development Bank, E-1003
1300 New York Avenue, 20577 Washington DC
Phone (Office): +1 (202) 623 3873
Phone (Mobile): +1 (202) 251 2106
Fax (Office): +1 (202) 623 2481
E-mail: alessandroR@iadb.org
Web page: http://www.iadb.org/RES/researcher.cfm?au_id=1071
============================================