New Fed Policies Affect Developing Markets

This Newshour segment on Tuesday features a discussion on Turkey, India, Brazil, South Africa, and Indonesia, the so called “Fragile 5”, markets that have been growing but whose current state is rocky as a result of US federal monetary policy.

Eswar Prasad, an economist with Cornell University and the Brookings Institution, and author of the new book “The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance, described the state of the five nations to Newhour Host Jeffery Brown:

“They have more flexible exchange rates, which means they’re not trying to protect a particular level of the currency. They don’t have as much external data as they used to have a couple decades ago, and they have much more foreign exchange reserves, which means a lot more protection from financial crises.

But it is still a very rough road ahead for these emerging markets because now foreign capital has stopped coming in. Well, it is. It just isn’t coming in as the same quantities as before, which means they either have to tighten up their own domestic policies, especially budget policies, or they have to reduce their domestic consumption and investment.”


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