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we're meeting today with Mauro Guillen a
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management professor at Wharton to talk
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about what's happening in emerging
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economies thanks for joining us thank
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you for having me can you discuss what's
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been happening very recently in emerging
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economies a lot of money has been
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flowing out there growth rates look like
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they're slowing down I realize it's hard
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to generalize but it's how it is
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happening to a lot of countries perhaps
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for different reasons and one of the
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explanations for this at least a partial
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explanation is that the Fed so called
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tapering off is a worry because that may
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mean that US interest rates would go up
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and look relatively more interesting
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than then the returns that investors are
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getting on their so-called hot money in
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these emerging economies so it's about
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these these financial flows rather than
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foreign direct investments in bricks and
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mortar and that sort of you're
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absolutely right I mean the fact that
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investors are anticipating that the
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Federal Reserve will change its policy
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in the near future it's obviously
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putting some pressure on those
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short-term hot money flows right into
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emerging economies and people of course
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don't want to be caught in the middle
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right of all of this and they tend to
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move their money to where it can get the
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highest possible yield I think that's a
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very important background factor I don't
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think it's the only one I mean what we
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see in many emerging economies just
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speaking broadly about them is that the
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current model of growth is kind of a
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coming exhausted right which is has been
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in many of these emerging economies
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export-led right so we've seen very
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little progress in most of these
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countries China India Brazil in terms of
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the development of a domestic market
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that would compensate for slower growth
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in terms of exports there's been some
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progress but not enough to essentially
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keep the economy going at you know very
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fast pace you know which is what
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happened throughout the last few years
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now we shouldn't forget it's remarkable
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that even during 2008 2009 2010 the
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financial crisis emerging economies
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continued growing as they did but now
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there are the crossroads and of course
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these backups have a very bad moment
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and there is also political turmoil in
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several of them as you know there are
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street protests in many of these
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economies Brazil most recently this
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rising income inequality which also adds
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to the to the problems and more broadly
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I think there are bubbles you know
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there's clearly a real estate bubble in
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several of the markets in Brazil there's
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clearly a real estate bubble in several
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areas in China or perhaps all over the
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country and so on and so forth so there
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are many imbalances that have been
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building up in several markets over the
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last ten years of rapid growth and then
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as you can imagine of course to just
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make things even worse the banking
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system always always suffers from the
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build-up of these bubbles and we're
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starting to see some in some of these
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markets that the percentage of
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non-performing loans it's also starting
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to increase and bad assets on the
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balance sheets of banks so yes we are at
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a crossroads there's a lot of
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uncertainty and I think right now right
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now I guess one of the biggest problems
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for emerging economies is that neither
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the u.s. nor europe which are
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traditionally the most important export
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markets are growing that much so this
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comes at a bad moment comes of a bad
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moment for everybody u.s. GDP growth was
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just upgraded from 1.72 2.54 i guess the
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second quarter so that's that's one
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hopeful sign who knows what will happen
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in Japan though there is an effort there
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to crank up the economy in ways that
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haven't been done in the last 20 years
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or so the so-called lost decades but and
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Europe is struggling just with its nose
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above the water so is there perhaps a
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grand shift even if it's a mild one
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happening where the emerging economies
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which had been sort of carrying the
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world economy or at least preventing a
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you know something worse than what
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happened are now sort of passing the
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baton to the developed countries where
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exactly the Pathan seems to be passing
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not perhaps fast enough because the u.s.
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that you just said is enjoying a little
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bit faster growth but not the kind of
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growth that we would like to have here
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in order to reduce unemployment and then
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Europe of course is just not enough so
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yes I mean this is much better from the
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point
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view of emerging economies than the
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situation a year ago or two years ago
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but I think the big question mark is
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whether it's big enough and I think it
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is very clear that all of the debate
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about the development of the domestic
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market domestic consumption market in
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the bricks in Mexico I think now has
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become very relevant because I don't
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think that these economies can continue
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enjoying high growth rates let's say
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into the next five or 10 or 15 years
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unless the domestic market in these
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countries become so much more important
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in other words that they switch away
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from an export-led model of growth to
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one that is more balanced between
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exports and domestic consumption which
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of the emerging economies would you
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worry about the most under the
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circumstances you've been talking about
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well I think there are reasons to be
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worried in each of the large emerging
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economies I think Brazil probably right
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now stands out as being the biggest
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underperformer Brazil was growing at you
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know six seven eight percent just a few
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years ago and now it's barely growing
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and we see over there many of these
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tensions and the overheating and I worry
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about Brazil also because Brazil is more
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vulnerable than the others because it is
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highly dependent on the hot money that
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has been coming into the country to
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cover the deficit that they have in
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their current account in their
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relationship in terms of trade and other
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kinds of flows I mean Brazil in spite of
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being a major export power it is still a
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country that imports more than what it
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is exports so they need money capital
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flows to come in and bridge the gap so I
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worry about Brazil and I think I worry
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about Brazil also because Brazil is
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forty percent of Latin America and if
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something bad happens in Brazil then
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that's going to have a big impact on on
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the region but having said that I think
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there's plenty to worry about in China
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these days and also in India India with
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all of its poverty and all of the need
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for more growth it's now very clearly
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very clearly under
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forming as well I don't worry that much
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about Russia quite frankly I think
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Russia it's you know to a very large
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extent shielded from much of these
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because well it is a you know an economy
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that generates enough export earnings
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and it is an economy that has such you
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know natural wealth vast natural wealth
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that unless they grossly mismanaged they
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will probably whether any kind of storm
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what about places like Indonesia and say
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Thailand those kinds of countries are
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they they go as China goes so go those
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countries is that what's most likely to
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happen well that's part of it but more
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importantly is the US and Europe because
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those are there more important most
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important export markets I mean Thailand
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and Indonesia Vietnam Malaysia these are
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countries that very much depend on the
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US market and also european markets for
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their exports having said that I think
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they have one advantage which is that I
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don't think you are seeing in those
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economies the kinds of bubbles that have
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emerged in places like Brazil or China
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thank you very much for joining us today
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thank
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you
