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Latin America: The test that dare not speak its name

A strengthening dollar is going to make life harder for emerging markets, whether you want to hear it or not.


As rising US interest rates feed into a general deterioration of global markets’ sentiment towards emerging markets (as well as specific runs on the Argentine and Turkish currencies) the obvious question is: will this turn of the EM cycle be different?

In one immediate way, it undoubtedly is. And that is that journalists asking this question of bankers and investors should be ready for spiky reactions.

“Oh, is it that time in the cycle?” groaned one. “It’s out-dated, lazy journalism. Of course EM is solid. This isn’t 1982 or 1997. It’s 2018, and in every conceivable facet that matters, it’s completely different.”

Although tempted, I decided against provoking anyone any further and didn’t ask about potential contagion in Latin America from Argentina.

And I get it.

In my region, most countries have pretty open market economies. These are countries with free-floating currencies that absorb the pressure from a rising dollar. These are governments that finance mostly in local currency and have large FX reserves to cover dollar-denominated debt.


These are also economies with monetary space to execute counter-cyclical stimulus and (with notable exceptions) have narrow current account deficits.

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