Indonesia is hampered by inflation close to a four-year high and a record current-account shortfall. India is held back by cooling growth, elevated inflation, inadequate roads and other infrastructure, and distorted regulations. Standard & Poor’s in September reiterated it may downgrade the country’s credit rating to junk on risks including budget and current- account imbalances.
Turkey and South Africa now have current-account gaps bigger than 6 percent of GDP. Russia is hobbled by weaker global demand for its exports of oil, natural gas and metals and is growing at the slowest pace since a 2009 contraction.
Export Diversification
The Czech Republic, South Korea and Mexico are among nations that look better positioned to accommodate Fed-inspired higher interest rates, according to Goldman Sachs Group Inc. economists last month. Mexico’s current-account shortfall is 1 percent of GDP, and South Korea enjoys a surplus, which the Bank of Korea forecasts will reach a record this year as the country benefits from its drive toward export diversification.
S&P maintained its positive outlook for Mexico’s credit ratings this month on the prospect that President Enrique Pena Nieto’s economic programs will boost growth. He has proposed breaking a 75-year state monopoly on oil drilling, a plan that may unleash an energy-production boom and is attracting foreign investor interest in the country.
“What you will see is a lot more differentiation,” Marco Annunziata, a former IMF official and now chief economist at General Electric Co., said during the IIF discussion. “What’s important is to distinguish between one emerging market and another.”
‘Negative Spillover’
Policy makers already are tuning in. “Without doubt some decisions major advanced economies are taking have influence on other countries,” European Central Bank Executive Board member Joerg Asmussen said in an interview. Over the last few months, “the negative spillover effects were strongest in countries with a big current-account deficit and a delay in domestic reforms.”
The shake-up is prompting emerging-market leaders to urge that countries begin preparing for the Fed’s eventual moves.
“You can’t all have the same monetary policy, but we do need to have a much better conversation and a greater predictability of responses,” Singapore Finance Minister Tharman Shanmugaratnam said in Washington on Oct. 10.