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PS25
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The Hidden Debt Burden of Emerging Markets

To commemorate its founding 25 years ago, PS is republishing a selection of commentaries written since 1994. In the following commentary, Carmen M. Reinhart worried that the capital-flow reversal hitting these countries may be larger than we think.

LIMA – As central bankers and finance ministers from around the globe gather for the International Monetary Fund’s annual meetings here in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolized by the problems of the advanced economies struggling to recover from the 2008 financial crisis. Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.

While no two financial crises are identical, all tend to share some telltale symptoms: a significant slowdown in economic growth and exports, the unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal of capital inflows. To varying degrees, emerging economies are now exhibiting all of them.

The turning point came in 2013, when the expectation of rising interest rates in the United States and falling global commodity prices brought an end to a multi-year capital-inflow bonanza that had been supporting emerging economies’ growth. China’s recent slowdown, by fueling turbulence in global capital markets and weakening commodity prices further, has exacerbated the downturn throughout the emerging world.

25 years of the World's Opinion Page

Project Syndicate celebrates its 25th anniversary with PS 25, a collection of our hardest-hitting commentaries so far.

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Project Syndicate celebrates its 25th anniversary with PS 25, a collection of our hardest-hitting commentaries so far.

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