martes, 11 de febrero de 2014

martes, febrero 11, 2014

Op-Ed Contributor

Don’t Rush to Blame the Fed

By KRISTIN J. FORBES

FEB. 5, 2014


CAMBRIDGE, Mass.Last week, Turkey’s central bank surprised investors by raising a key interest rate to 10 percent from 4.5 percent. It was a bold move to rein in inflation and calm the markets. But Turkey’s prime minister, Recep Tayyip Erdogan, has been vocal in blaming the “interest-rate lobby” — a supposed conspiracy of foreign bankers, and some economists and journalists — for volatility in stock prices and a steep decline in the lira.

Turkey is far from the only country to blame foreigners for recent market turmoil. Venezuela’s president, Nicolás Maduro, recently complained of a “psychological war from abroad.” The governor of the Central Bank of Brazil, Alexandre Antônio Tombini, describes rising interest rates in rich countries as a “vacuum cleaner” that indiscriminately sucks capital out of emerging markets.

Emerging markets are justified to be concerned about the recent sudden stop” in capital flows. In several economiesArgentina, Brazil, India, Indonesia, Russia, South Africa, Turkey investors have been dumping stocks, currencies have depreciated and central bankers have been sounding the alarm. This will no doubt slow growth and create challenges at home.

But for all the colorful language, this obsession with monetary policy in the developed world (code for the United States) is misplaced. Factors other than the “tapering” (the slowdown in asset-buying) by the Fed have been more important in determining why countries like Turkey have been hit hard over the past few months: underlying structural problems, inadequate policy responses and trends in the global economy.

While a vacuum sucks everything in its path, investors tend to be more discriminating. The last few months have been no different. Turkey has been at the forefront of selling pressure as a result of political challenges — a corruption scandal that has dogged Mr. Erdogan’s allies, and protests in defense of civil liberties and secularism — and a huge current account deficit, equal to about 7 percent of the country’s gross domestic product.

A current account deficit is one of the most obvious measures of a country’s reliance on foreign borrowing. Countries with larger deficits are more affected (and more likely to see their currencies drop) when United States interest rates rise, as evidenced since last spring’s taper turmoil,” when anxieties erupted over the prospect that the Fed would start slowing its giant stimulus program, known as quantitative easing.

Over the last few months, investors in emerging markets have become even more sophisticated

Countries are being assessed based on characteristics like their foreign reserve stockpiles, currency mismatches, recent credit growth, inflation and reliance on “hotmoney (speculative, short-term capital flows) relative to more stable foreign direct investment. Unfortunately Turkey does not perform well on any of these measures.

Government policy responses are also increasingly important. If Turkey allows its currency to depreciate, exporters will become more competitive, which should boost growth and reduce the current account deficit over time. 

If Turkey were to impose capital controls, this would slow growth for an extended period. Last summer, India saw firsthand that even small restrictions on capital outflows could prompt sharp negative market reactions. 
Turkey’s choice to raise interest rates will also slow growth over the next few quarters — but the drag should not last as long, especially if investors believe that the government is committed to sound economic policies.

One focus of these policies should be to build the confidence of domestic investors and of foreigners, too. The domestic investor base in many emerging markets has grown in size and sophistication and holds more internationally diversified portfolios. Decisions by these investors and savers to shift money abroad in response to political unrest or Fed tapering in Washington can quickly aggravate the effects of foreign capital withdrawals. But if Turkish citizens are confident in investment opportunities at home, they can play an important role in stabilizing their domestic market. A number of emerging markets, like Chile and South Korea, benefited from this stabilizing role of domestic investors during the financial turmoil in 2008.

A final important step is to recognize that American monetary policy is only one of many factors driving major shifts in global capital flows. Changes in expected global growth and global uncertainty both of which can be affected by events in emerging markets — have recently played an even more important role

The sell-off in emerging markets that began late last year, for example, was sparked by weak Chinese manufacturing data not the news of American monetary policy. The Federal Reserve’s announcement on Dec. 18 that it would slow its asset purchases to $75 billion a month, from $85 billion a month, had minimal effect on markets, partly because that move came amid increased confidence in the global economy and upgraded growth forecasts for large economies such as China. The sell-off this week, which has sent benchmark emerging market indexes to their lowest level since 2008, was sparked by weaker manufacturing data in the United States.

Indeed, my research shows that monetary policy in the United States isn’t nearly as omnipotent in shaping private capital flows to and from emerging markets as is commonly believed. From 1990 to 2013, higher interest rates in the United States actually corresponded to greater, rather than lower, private capital flows to emerging markets (as a share of G.D.P.). But global economic growth, and general macroeconomic risks, were far more influential in predicting the flow of capital to these countries.

That doesn’t mean that the Fed has no impact on the global economy. But it suggests that the world’s emerging markets need to pursue sound policies to protect their currencies and stock markets from plunging and to be more resilient in the face of global macroeconomic developments. If they do that, they can avoid the vacuum effect, and only get a light dusting.



Kristin J. Forbes, a professor of management and global economics at the M.I.T. Sloan School of Management, was a deputy assistant secretary of the Treasury from 2001 to 2002 and a member of the White House Council of Economic Advisers from 2003 to 2005.

0 comments:

Publicar un comentario