Emerging markets face structural issues, such as financial woes and changing trade patterns, that are reminiscent of those encountered in the 1980s and 1990s
EMERGING ECONOMIES hoping to grow their way into the ranks of the rich have faced a seemingly never-ending series of setbacks in recent years.have together dealt them serious blows. Over the past three years more than half the population of the emerging world lived in countries where income growth, on a purchasing-power-parity basis, lagged behind that in America—the first such episode since the 1980s.
Financial pressures pose the most acute threat. In the early 1980s the Federal Reserve raised interest rates dramatically as it sought to tame inflation. For poor economies that had borrowed heavily in the preceding years, the ensuing tightening in financial conditions and strengthening of the dollar were too much to bear. Waves of debt and banking crises followed.
Markets are already heaping pressure on vulnerable emerging economies. As capital flows to America to take advantage of higher rates, the dollar is strengthening: it is up by more than 10% over the past year. Funding costs in the emerging world are rising with it. The yield on the hard-currency debt of the median emerging economy has risen by more than a third since the summer.
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