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Countering the Contagious West

NEWPORT BEACH – Imagine for a moment that you are the chief policymaker in a successful emerging-market country. You are watching with legitimate concern (and a mixture of astonishment and anger) as Europe’s crippling debt crisis spreads and America’s dysfunctional politics leave it unable to revive its moribund economy. Would you draw comfort from your country’s impressive internal resilience and offset the deflationary winds blowing from the West; or would you play it safe and increase your country’s precautionary reserves?

That is the question facing several emerging-market economies, and its impact extends well beyond their borders. Indeed, it is a question that also speaks to the increasingly worrisome outlook for the global economy.