Are We Ready for the Next Emerging Market Crisis?

This summer’s market turmoil was a serious jolt to emerging markets, particularly commodity exporters and those countries with strong trade and financial ties to China. Fortunately, there are good reasons for comfort that the tail risks facing these countries do not rise to the level of the Asia financial crisis or the Great Recession. After early missteps, China’s policymakers have been more assured in recent weeks in signaling their commitment to near term stability and support for growth. Financial distress in emerging markets, the most serious channel for contagion, has yet to materialize. Moreover, bolstered by high reserve levels, more flexible and competitive exchange rates (see chart) and in some cases better policies, emerging market buffers against contagion have been strengthened.

 

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