The Submerging-Market Threat
WASHINGTON, DC – It is time to put the rise of the emerging economies in perspective. The rapid economic growth in much of the developing world since the beginning of the century was fueled by a commodity boom and an overextension of credit. But, because the emerging-market boom was not accompanied by sufficient structural reforms, it was not sustainable.
Governments will suffer, too, as their foreign debt – boosted by fiscal and monetary expansion that yielded little growth – becomes much more burdensome, while the export stimulus from lower exchange rates will be small, owing to the absence of new capacity outside the commodity sectors. As countries come under pressure to make payments, multiple emerging-market debt crises are likely.