This past week a few posts that fit right into the story, caught my eye. The first was a Project Syndicate post that describes the current bumpy ride for emerging markets, South Africa included.
some countries are at risk, especially those with large current-account deficits, large foreign capital inflows relative to the size of their financial markets, and low foreign-exchange reserves. Among the most vulnerable are Turkey, South Africa, Brazil, India, and Indonesia – a group that Morgan Stanley researchers have dubbed the “Fragile Five.”Bradford DeLong comments that in the wake of tapering in the U.S., emerging market central banks have three options:
- Raise interest rates to maintain the differential and their currencies, but at the cost of production and employment.
- Maintain interest rates and let the exchange rate deteriorate, hopefully boosting exports, production and employment.
- Split the difference.
Which brings us back to Zumanomics Revisited. When examining the deficits facing the SA economy, Prof Parsons' political economics background is a big advantage. He makes some key points about the trust deficit between business and labour and government. Trust is exactly what is needed for the highway scenario and the bumpy ride ahead in international financial markets.