A choice quote:
Of more pressing immediate concern is the fact that capital is currently flowing to many countries whether or not they are ready to receive it. There are large current account surpluses among emerging markets (a big change from 1997, when most emerging markets had deficits). Indeed, a number of large oil exporters and Asian exporters of manufacturers will have sizable surpluses for as long as we can forecast. This constitutes capital that has to be invested somewhere. We think capital from these countries is increasingly not flowing so much "uphill" to developed countries (as it did over the past 5 years), but rather "around the hill" to other emerging markets and poorer developing countries. But is everyone really ready to receive such large amounts of capital and to carefully manage its macroeconomic impact?
If I'm right, then the major risk today is not imminent crisis but rather that the capital flows arising from the global boom will not be well managed-leading to the buildup of vulnerabilities. Thus, the danger is that when the party ends - and it is hard to know when this will be - there will a lot of mopping up to do.
Take a gander here...
2 comments:
Interesting stuff. This parallels what happened in the dot com bubble, where too much money was chasing too few good ideas. 3-5 years is the typical time frame for correcting this type of issue.
From an investment point of view, the problem with developing countries is the lack of stability and, in turn, predictability. If increased investment can turn that around, well, goof for them. Unfortunately, stability and economic development are kind of a chicken-and-egg dilemma. There is no way to know what is the cause and what is the effect.
it is worth pointing out that investing in the "Asian Tigers" a few years ago would have paid off handsomely.
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