Late Fed taper may do more harm than good for emerging nations
Tuesday, 15 October 2013 12:04
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Reuters: Emerging nationsheaved a sigh of relief when the Federal Reserve last month decided not to reduce its monetary stimulus.
By postponing the inevitable, the US central bank took pressure off emerging markets to implement reforms that could make them more resilient when the Fed does eventually reverse policy. “It’s very easy to get addicted to high global liquidity,” Guillermo Ortiz, chairman of Mexico’s largest locally owned bank, Grupo Financiero Banorte, told Reuters.
“I think it’s better to bite the bullet now to avoid a more painful withdrawal for EM countries in the future,” said Ortiz, who has served as both finance minister and central bank chief for Mexico.
Clear examples are the economies of Brazil and India, which have slowed sharply recently due in part to the lack of government action to remove bottlenecks of growth such as high taxes and cumber some
red tape. Emerging economies cried foul as the US central bank injected trillions of dollars into the financial system, sending a wave of speculative capital into their markets thatthreatened to drive up inflation and fuel asset bubbles.
