September 7

Analysis: An Economic Perfect Storm Is Battering Emerging Markets. Debt Crises Loom

By Jason Beaubien

The U.S. dollar strengthened to a 20-year high against a collection of foreign currencies this week, spelling more trouble for heavily indebted smaller nations around the world. The stronger dollar makes payments on loans owed in U.S. currency more expensive. This comes as some lower-income countries face mounting economic problems and others — including Sri Lanka, Lebanon and Zambia — have already defaulted on their international debts.

Last week, Argentina slapped sweeping new restrictions on imports of everything from whiskey to software to consulting services to try to contain inflation that’s running at over 70%. The South American nation has been hemorrhaging foreign currency and the strengthening U.S. dollar threatens to make that worse. In July, the value of the Argentine peso fell to a record low against the dollar on the black market.

Francesc Balcells, who manages emerging market debt at the Dubai-based Frontier Investment Management Partners, says U.S. interest rate hikes like we are seeing often spawn disaster for lower-income countries.

Photo courtesy of WorldFish.

Source: NPR (link opens in a new window)

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