Monday, October 19, 2026
News and Views from the Global South
FINANCE: Economic Crises go Free-Range
Marcela Valente
- Just a few months back financial crises could be attributed to one country or region, but in recent weeks economists have scanned the globe unable to identify any individual spot as the eye of the storm.
The fall of the main Latin American stock exchanges Monday, as June began, could no longer be put down to the lack of investor faith in the development of a single country, but rather as the product of factors generated in various countries and regions united by a common volatility of markets.
Today, not even the macroeconomic indicators are sure enough for forecasting purposes, as the high level of volatility mean a crisis may simply reflect the difficulties of a distant country, explained Argentine economist, Guillermo Calvo, the man who predicted the Mexican crisis in 1994.
The financial crisis in Southeast Asia, political problems in Indonesia, instability in Russia, investor fears over elections in Brazil, sanctions on Pakistan as a result of the nuclear tests or the devaluation of the yen in Japan, can all cause a debacle in an emerging country in Latin America or Asia.
In this context, the demand for financial aid is beginning to cause concern to investors, and also to the members of the International Monetary Fund who could be forced to pay out far beyond their capacity only to keep Russia calm.
In June, this tendency has meant more cautious investors have taken refuge in the US market, and only those prepared to sleep with one eye open have been tempted by the offer of low prices in emerging markets.
Calvo, professor in the University of Maryland in Washington, said Tuesday the situation in Russia “is very serious,” as the stock exchange has been falling and interest rates rising, but he warned the core of the problem is that “those investing in Russia are the same as in Argentina or Brazil.”
He said it is now extremely difficult to predict what will happen and economists can only warn there are countries which “could be caught by the current and drawn into difficulties” if they do not cleanse their financial systems to reinforce them, to meet the impact of a crisis with less risk.
Similar thoughts were aired by Pablo Guidotti, Argentina’s interior minister. The “Tequila Effect” – the shock waves from the financial collapse in Mexico – which ran down Latin America in December 1994, “gave the sensation of being a case of an isolated crisis which would not recur,” he said.
“The feeling now is that this type of crisis is going to be recurrent,” said Guidotti, specificall in relation to the performance of the Russian economy.
He stressed that as volatility is such a widespread phenomenon, it is not probable that capital will be withdrawn from the emerging markets which continue to provide good yields.
However, he admitted the growth in the Gross Domestic Product of Argentina will be two points lower than in 1997 this year, at around six percent.
In the case of Latin America, Guidotti stressed the countries reformed their social security systems, carried out privatisation plans and controlled runaway inflation and are now attracting strong investment, above all in the Southern Cone Common Market (Mercosur) nations of Argentina, Brazil, Uruguay and Paraguay.
But for stock dealers, and Calvo, macroeconomic indicators are no longer enough to go on. “While Asia and Russia continue like this, uncertainty will continue in the emerging markets,” one agent told IPS.
“It is already obvious the problem is not restricted to Asia nor is it an isolated incident, and the investors have taken refuge in the United States to await further tremors. They will see lower profits there but they know they are safe from the storm,” he added with skepticism.
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