Saturday, November 8, 2008
Emerging Market Country Advice
"However, most emerging markets are not all that badly run. Indeed, given the abysmal performance of a number of Western governments in recent weeks, the case can be made that many emerging markets are well run by Western standards, avoiding obvious mistakes that are common in the West. Brazil for example is fighting inflation the right way, with a benchmark Selic short-term interest rate of 13.75%, double its rate of inflation. ... Traditionally, emerging markets have suffered from a higher cost of capital than the rich West. ... The [US] in particular and the West in general have gone on a spending binge that has left the majority of the world's foreign exchange reserves in the hands of Middle Eastern and Asian governments. ... That suggests that competently run emerging markets should regard this crisis as a temporary hiccup, not a reason to despair, and certainly not a reason to jettison wholesale an economic model that has worked generally well for them and to retreat into Third World autarky and socialism. ... In the long run, emerging markets' advantages of labor costs will still be there, and if they preserve the essentials of a free-market system they will have in their domestic economies much of the savings base they need to succeed. ... Conversely, the prospects of Western economies would appear dismal. With inadequate savings bases, they are going to be permanently capital-short in a world where capital is both scarce and more expensive. ... As for emerging markets themselves, it is now clear that the advice they have received from Western institutions such as the World Bank has been largely misguided, and ill-suited to a world in which the global stability that had been promised proved so ephemeral. ... For domestic and international reasons, emerging markets need to establish solid property rights. ... Interest rates need to be kept significantly above the rate of inflation to encourage saving and discourage borrowing-fueled consumption, banking systems must be protected from collapse, taxation of capital must be kept at a low level. ... Government spending must be tightly controlled at all times. ... If population growth is too rapid (above 1% per annum approximately) steps should be taken to reduce it. ... Rapid population growth is incompatible with increasing living standards, and hence should be sharply discouraged", Martin Hutchinson (MH) at http://www.atimes.com/, 28 October 2008.
Compare MH's program for emerging market countries to current US government policy.