On emerging-market outflows
"If you look at capital flows to EM, it’s also closely connected to volatility. It’s not just that interest rates were low but volatility was non-existent for a while. Volatility is on the rise and neither of those bode well for inflows to EM." "There used to be this larger barrier between internal and external debt. That’s been blurred, as we see with Argentina. Internal debt is increasingly being held by non-residents, making for bigger spillovers."
On Argentina’s talks with the IMF
"When you look back at episodes of turmoil, the countries that want a seal of approval for markets turn to the IMF. What will it do to President Mauricio Macri? That’s a separate issue. But from the market vantage point, it’s a signal from the government that they really want to play by the rules. They’re seeking liquidity support. It’s a form of reassurance." "The part that’s worrisome is the medium-term issue: there’s an internal one and external one. The internal one is chronic. Argentina needs to curb the wages of public employees. Unless it does that, it really becomes the old fashioned wage price spiral and it will be very difficult for them to not only close fiscal accounts but break inflation expectations. The external one is they have a 5 percent current account deficit. I don’t think they’ll get 5 percent of external financing." "It’s hard to see how all this turmoil, even in a favorable outcome, won’t lead to a recession. It’s fairly imminent and will be serious."
This article was provided by Bloomberg News.