It’s not all bad news. The Fed’s decision not to taper in September has given emerging markets more space to put their houses in order. Following Vice Chairman Janet Yellen’s nomination to replace Chairman Ben S. Bernanke, officials from South Korea to India expressed hope the central bank will consider the ripple effects when it pares stimulus.
China’s economy also expanded in July-September for the first time in three quarters, and Kasman noted that a pickup in growth in the developed economies may help provide an offsetting lift for the rest of the world.
‘Stress Test’
The market fallout after the Fed’s tapering signal in May nevertheless served as a “stress test” for these countries, which now know “where their weaknesses lie,” Naoyuki Shinohara, deputy managing director at the IMF in Washington, said in an interview.
Among those taking heed are Indonesia Finance Minister Chatib Basri, who said on Oct. 11 in Washington that he will deepen efforts to boost his nation’s productivity. “In bad times, you can start pushing for structural reforms” because there’s less political resistance, he said.
Some officials in developing nations say investors aren’t focusing enough on the details.
“The problem emerging markets have at times like this is getting the story, the truth, about fundamentals out,” Indian central bank Governor Raghuram Rajan said at a panel discussion in Washington this month.
Colombia is prepared for more differentiation, Finance Minister Mauricio Cardenas said in an interview. The country is “one of the best of the class,” he said, because of accelerating growth, contained inflation, a recent overhaul of payroll taxes and a current-account gap that is more than covered by foreign direct investment.
“The world won’t offer emerging markets the favorable conditions we’ve had,” Cardenas said. “The tailwinds that had pushed us along will need to be replaced with more power from our own engines.”