Emerging Markets Struggle in Crisis

The Washington Times (Washington, DC), November 11, 2008 | Go to article overview

Emerging Markets Struggle in Crisis


Byline: Andrew Salmon, THE WASHINGTON TIMES

SEOUL -- The financial crisis that began in the United States is hitting emerging markets hard and raising fears of increased protectionism in wealthy countries.

South Korea's stock market and foreign exchange reserves have plummeted in the past month, a pattern repeated from East Asia to Eastern Europe.

The impact has been to drive up the dollar against other currencies, making U.S. products more expensive and undermining the American export sector, one of the last bright spots in a sluggish economy in recent months.

The risk is that too many countries are left in a position like South Korea, where the currency, the won, has dropped 6 percent against the dollar in the past month, said Brad Setser, a fellow at the Center of Geoeconomic Studies of the Council on Foreign Relations in New York.

Singapore has entered a recession, and nations such as Ukraine and Georgia have been forced to seek help from the International Monetary Fund (IMF).

Growth has slowed in the biggest regional economic engines, China and India, though economists still expect them to expand by 6 percent to 7 percent and 8 percent to 9 percent respectively next year. Pakistan may be forced to turn to the IMF.

Korea is so far the hardest hit ... in terms of volatility and degree of bear sentiment toward the economy and currency over past months, said Joseph Lau, chief Korea economist for Credit Suisse

South Korea's foreign exchange reserves fell by $27 billion in October, while the stock market plunged nearly 30 percent.

Lee Tae-sik, South Korea's ambassador to the United States, said the country was coping and that he hoped the crisis would not jeopardize a U.S.-South Korean free-trade agreement yet to be ratified by the U.S. Congress.

What we should not do is revert to protectionist economic policies, Mr. Lee told editors and reporters of The Washington Times on Monday. Unless we have free trade and open economic interaction, the world economy will contract further and further.

South Korea is particularly vulnerable.

The contribution of trade to our GDP is over 70 percent, said Yoon Deok-ryong of the Korea Institute for International Economic Policy. Because of that, our economy is very sensitive to economic relations with other countries.

The U.S. Federal Reserve recently approved a $30 billion currency swap to help South Korea service its foreign debt of more than $400 billion. South Korea also announced a $10.5 billion economic stimulus package and enacted three central bank interest rate cuts to calm the financial and foreign exchange markets. …

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