KA111
13.07.2001, 10:05
Hier ein umfassend informierender Artikel über Dollarstärke und die aktuelle Situation der emerging Markets, von der u.a. der US-Bondmarkt profitiert. Droht eine globale Rezession?
Submerging markets, emerging crisis
TOKYO (CBS.MW) -- What a drag it is, being the world's only superpower. At least that's what the United States is finding out lately.
.
The U.S. economic slowdown and information-technology investment collapse are dragging down East Asian economies that have spent the last two years exporting their way out of financial crisis to recovery. A new contagion is spreading: From South Korea to Singapore, exports are falling sharply, economic growth is shrinking and currencies across the region are weakening.
If the strong U.S. dollar is proving to be of little help to Asia other than Japan, it's handcuffing Argentina, a basket case whose woes are now rippling through Brazil and may yet rattle other neighbors.
Argentina pegged its peso to the dollar a decade ago to rid the economy of hyperinflation. It worked. But a spate of growth gave way to recession three years ago and growth hasn't returned. Argentine exporters have found it harder to compete as the peso tracked an appreciating dollar.
Reforms last month to ease the pain by creating a kind of dual exchange-rate mechanism have spooked foreign investors. Argentina's economy minister, Domingo Cavallo, said the currency board binding the peso to the dollar would remain in place, but new subsidies for exporters and tariffs of equivalent value on imports in effect devalued the peso by 7 percent.
Living on borrowed money
Meanwhile, Buenos Aires has remained as addicted to inflows of U.S. and other foreign capital as East Asian tigers are hooked on the U.S. market for their IT shipments.
Argentina is paying dearly for its fix. The government was forced to pay 14 percent interest on three-month Treasury bills Tuesday -- more than double the rate it coughed up at its Feb. 20 bond auction. Now Argentine stock and bond markets are plunging because investors are pricing in the risks that Buenos Aires might default on its debt or devalue the peso.
Brazilian markets have been reeling from Argentina's distress all year. The local currency, the real, tumbled into unchartered territory against the dollar this week and was trading more than 30 percent below its early January level. In contrast, Mexico's reforms have helped a strengthening Mexican peso seem immune. But a 1.5 percent dip in the currency Wednesday attuned traders to the possibility that Mexico could also get sucked into the emerging-markets turmoil.
The wrong response
As different as the economic viruses in Latin America and Asia are, the fact that they share a link to the U.S. has some people thinking about a shared solution -- namely, that a weaker dollar would take pressure off both regions. This mistaken policy shift would hold even more charm for its supporters if they see current market turbulence provoking a broader crisis.
Things could indeed spin out of control. After all, a crushing debt problem in Turkey continues to pummel the lira, and Poland's zloty recently fell to a seven-month low. If currency jitters and the global slowdown intensify, panicky investors might race to a dollar haven, in turn tightening the vise on Argentina and developing Asia.
Proponents of a weaker dollar have allies. Sir Eddie George, head of the Bank of England and chairman of the Group of 10 central banks, recently blamed the strong dollar for causing imbalances in the world economy. Many U.S. manufacturers have dispatched lobbyists to convince Washington that the dollar is biting into profits from overseas business.
The only thing right about the analysis of dollar bashers is that they've identified the problem as global. But it's not a currency problem; it's a problem of insufficient demand and excess capacity. The solution is also global, with industrialized powers in each region leading the way with coordinated monetary easing while smaller economies emphasize structural reforms.
In six cuts over six months, the Fed has lowered interest rates by 2.75 percentage points to keep U.S. consumers spending and to get companies investing again as soon as inventories built up during the tech bubble clear. A strong dollar will let the Fed cut rates further without stoking inflation. Switching to a policy of talking down the dollar, however, would rob the Fed of the best means of revving what is a lonely engine of growth in the world economy today.
Better late than sorry
It's time that central banks in Europe and Japan wake up to the fact that if they'd eased monetary policy sooner, they would have arrested deteriorating conditions in their economies. Had they signaled to international investors a commitment to strong growth, they could have turned European and Japanese markets into magnets for capital flows. This would have kept the dollar from speeding up and away from the euro and the yen.
It's not too late for the ECB and the Bank of Japan to do their part now to prevent the global economic slowdown from causing more financial instability.
The BOJ's failure to act quickly and aggressively is the more serious. The Japanese market, like the U.S., is an important destination for exports from other Asian countries, but domestic demand in Japan is collapsing in large part because the BOJ for too long ignored deflation.
Governor Masaru Hayami has occasionally remarked that he doesn't want the yen to weaken too fast because it would hurt the neighbors. Well, never mind the Asian financial crisis of 1997-98; Singapore's dollar is flirting with an 11-year low and the new Taiwan dollar has just hit a 15-year low, both against the U.S. dollar. These exchange rates are not doing much for the competitiveness of the computers, semiconductor chips and electronic gear these neighbors are trying to sell to Japan or the U.S. The reason is demand, or the lack of it.
If the BOJ would print more money and adopt inflation targets, it would help to spur growth -- for the Japanese economy and in turn the region. Once investors are convinced of Japan's growth prospects, the yen would pick up and stabilize, just like Hayami wants.
Targeting domestic demand
Other East Asian countries have to do their bit as well. In emerging from crisis two years ago, they grew much too dependent on the U.S. tech investment boom. The bust is not as bad for them as the crisis four years ago. This time they have current account surpluses and healthier foreign-exchange reserves.
But South Korea, Singapore, Taiwan, Thailand, Malaysia and Indonesia wouldn't be slashing 2001 GDP forecasts by nearly as much as they have if they'd followed through on banking reforms, debt reduction, deregulation and corporate restructuring. These policies can still expand domestic demand and lessen reliance on exports. Unfortunately, they require sacrifices that are tougher to make when the economic chips are already down.
If the U.S. economy improves in the fourth quarter, East Asia's suffering will ease. Fortunately for the Argentine and Brazilian economies, they rely far less on exports to the U.S. market for growth. But exports still count when your current-account deficit is 3-4 percent of GDP and you can't kick the habit of mainlining foreign capital.
Brazil's foreign debt amounts to more than four times the value of exports. Argentina, whose debt accounts for at least a fifth of all tradable emerging-market bonds, tops Brazil with foreign debt of more than 400 percent of exports. Higher interest rates increase these debt burdens and, in Brazil's case, so does a tumbling currency.
Argentina's economy is headed for more trouble whatever becomes of its currency peg. Three years of recession have imposed little discipline on public finances. Economic growth is likely to remain elusive with interest rates on the rise.
Economy Minister Cavallo wants to convince creditors that past addictions can be cured. He has called for eliminating the country's fiscal deficit. Spending cuts will either deepen the slowdown or, perhaps more likely, be opposed by provincial governors from rival parties as the nation gears up for congressional elections in October.
Argentina is shaping up to be a hemispheric drag for the U.S., a mounting risk for foreign creditors and a fright for investors everywhere who are worried enough already that a global recession is just around the corner. Leading central bankers and finance ministers need to get their policy act in alignment, and swiftly.
Bill Clifford , Asia bureau chief of CBS.MarketWatch.com.
Gruß
KA111:)
Submerging markets, emerging crisis
TOKYO (CBS.MW) -- What a drag it is, being the world's only superpower. At least that's what the United States is finding out lately.
.
The U.S. economic slowdown and information-technology investment collapse are dragging down East Asian economies that have spent the last two years exporting their way out of financial crisis to recovery. A new contagion is spreading: From South Korea to Singapore, exports are falling sharply, economic growth is shrinking and currencies across the region are weakening.
If the strong U.S. dollar is proving to be of little help to Asia other than Japan, it's handcuffing Argentina, a basket case whose woes are now rippling through Brazil and may yet rattle other neighbors.
Argentina pegged its peso to the dollar a decade ago to rid the economy of hyperinflation. It worked. But a spate of growth gave way to recession three years ago and growth hasn't returned. Argentine exporters have found it harder to compete as the peso tracked an appreciating dollar.
Reforms last month to ease the pain by creating a kind of dual exchange-rate mechanism have spooked foreign investors. Argentina's economy minister, Domingo Cavallo, said the currency board binding the peso to the dollar would remain in place, but new subsidies for exporters and tariffs of equivalent value on imports in effect devalued the peso by 7 percent.
Living on borrowed money
Meanwhile, Buenos Aires has remained as addicted to inflows of U.S. and other foreign capital as East Asian tigers are hooked on the U.S. market for their IT shipments.
Argentina is paying dearly for its fix. The government was forced to pay 14 percent interest on three-month Treasury bills Tuesday -- more than double the rate it coughed up at its Feb. 20 bond auction. Now Argentine stock and bond markets are plunging because investors are pricing in the risks that Buenos Aires might default on its debt or devalue the peso.
Brazilian markets have been reeling from Argentina's distress all year. The local currency, the real, tumbled into unchartered territory against the dollar this week and was trading more than 30 percent below its early January level. In contrast, Mexico's reforms have helped a strengthening Mexican peso seem immune. But a 1.5 percent dip in the currency Wednesday attuned traders to the possibility that Mexico could also get sucked into the emerging-markets turmoil.
The wrong response
As different as the economic viruses in Latin America and Asia are, the fact that they share a link to the U.S. has some people thinking about a shared solution -- namely, that a weaker dollar would take pressure off both regions. This mistaken policy shift would hold even more charm for its supporters if they see current market turbulence provoking a broader crisis.
Things could indeed spin out of control. After all, a crushing debt problem in Turkey continues to pummel the lira, and Poland's zloty recently fell to a seven-month low. If currency jitters and the global slowdown intensify, panicky investors might race to a dollar haven, in turn tightening the vise on Argentina and developing Asia.
Proponents of a weaker dollar have allies. Sir Eddie George, head of the Bank of England and chairman of the Group of 10 central banks, recently blamed the strong dollar for causing imbalances in the world economy. Many U.S. manufacturers have dispatched lobbyists to convince Washington that the dollar is biting into profits from overseas business.
The only thing right about the analysis of dollar bashers is that they've identified the problem as global. But it's not a currency problem; it's a problem of insufficient demand and excess capacity. The solution is also global, with industrialized powers in each region leading the way with coordinated monetary easing while smaller economies emphasize structural reforms.
In six cuts over six months, the Fed has lowered interest rates by 2.75 percentage points to keep U.S. consumers spending and to get companies investing again as soon as inventories built up during the tech bubble clear. A strong dollar will let the Fed cut rates further without stoking inflation. Switching to a policy of talking down the dollar, however, would rob the Fed of the best means of revving what is a lonely engine of growth in the world economy today.
Better late than sorry
It's time that central banks in Europe and Japan wake up to the fact that if they'd eased monetary policy sooner, they would have arrested deteriorating conditions in their economies. Had they signaled to international investors a commitment to strong growth, they could have turned European and Japanese markets into magnets for capital flows. This would have kept the dollar from speeding up and away from the euro and the yen.
It's not too late for the ECB and the Bank of Japan to do their part now to prevent the global economic slowdown from causing more financial instability.
The BOJ's failure to act quickly and aggressively is the more serious. The Japanese market, like the U.S., is an important destination for exports from other Asian countries, but domestic demand in Japan is collapsing in large part because the BOJ for too long ignored deflation.
Governor Masaru Hayami has occasionally remarked that he doesn't want the yen to weaken too fast because it would hurt the neighbors. Well, never mind the Asian financial crisis of 1997-98; Singapore's dollar is flirting with an 11-year low and the new Taiwan dollar has just hit a 15-year low, both against the U.S. dollar. These exchange rates are not doing much for the competitiveness of the computers, semiconductor chips and electronic gear these neighbors are trying to sell to Japan or the U.S. The reason is demand, or the lack of it.
If the BOJ would print more money and adopt inflation targets, it would help to spur growth -- for the Japanese economy and in turn the region. Once investors are convinced of Japan's growth prospects, the yen would pick up and stabilize, just like Hayami wants.
Targeting domestic demand
Other East Asian countries have to do their bit as well. In emerging from crisis two years ago, they grew much too dependent on the U.S. tech investment boom. The bust is not as bad for them as the crisis four years ago. This time they have current account surpluses and healthier foreign-exchange reserves.
But South Korea, Singapore, Taiwan, Thailand, Malaysia and Indonesia wouldn't be slashing 2001 GDP forecasts by nearly as much as they have if they'd followed through on banking reforms, debt reduction, deregulation and corporate restructuring. These policies can still expand domestic demand and lessen reliance on exports. Unfortunately, they require sacrifices that are tougher to make when the economic chips are already down.
If the U.S. economy improves in the fourth quarter, East Asia's suffering will ease. Fortunately for the Argentine and Brazilian economies, they rely far less on exports to the U.S. market for growth. But exports still count when your current-account deficit is 3-4 percent of GDP and you can't kick the habit of mainlining foreign capital.
Brazil's foreign debt amounts to more than four times the value of exports. Argentina, whose debt accounts for at least a fifth of all tradable emerging-market bonds, tops Brazil with foreign debt of more than 400 percent of exports. Higher interest rates increase these debt burdens and, in Brazil's case, so does a tumbling currency.
Argentina's economy is headed for more trouble whatever becomes of its currency peg. Three years of recession have imposed little discipline on public finances. Economic growth is likely to remain elusive with interest rates on the rise.
Economy Minister Cavallo wants to convince creditors that past addictions can be cured. He has called for eliminating the country's fiscal deficit. Spending cuts will either deepen the slowdown or, perhaps more likely, be opposed by provincial governors from rival parties as the nation gears up for congressional elections in October.
Argentina is shaping up to be a hemispheric drag for the U.S., a mounting risk for foreign creditors and a fright for investors everywhere who are worried enough already that a global recession is just around the corner. Leading central bankers and finance ministers need to get their policy act in alignment, and swiftly.
Bill Clifford , Asia bureau chief of CBS.MarketWatch.com.
Gruß
KA111:)