Not all emerging countries are equally afraid of tapering, i.e. the reduction of monetary stimulus by the Fed. While the BRICS are sounding the alarm about the repercussions of the reduction of stimuli on their economies, there is a small group of countries that is doing well and that it is well equipped to face the coming months of turbulence including countries such as Peru and Chile. From Cernobbio, where the Ambrosetti workshop at Villa d'Este is underway, Julio Velarde, governor of the Central Bank of Peru, distinguishes between emerging and emerging. “The difference is made by the fiscal surplus, the debt, if there is room for monetary policies and the fundamentals of the economy. The countries that are most affected are those with weak fundamentals” Velarde explained to Firstonline on the sidelines of the Ambrosetti workshop. “Peru in 2012 recorded a fiscal surplus of 2,2% of GDP and we expect a surplus in 2013 as well. These are resources that we can use if there is an economic slowdown by acting on fiscal policies. Furthermore, interest rates are also at 4,25% and can be reduced to support growth if needed. At the moment, however, we don't need it." While Brazil is in trouble, in Latin America Chile also has what it takes to face tapering with greater serenity: it has accounts in order, it has no public debt and its GDP is growing by 5,6% a year. Prospects to which the path of opening up to the market undertaken by the two countries together with Colombia and Mexico, which created a common market of four with zero customs duties in 2015, probably contributed. amidst global economic difficulties.
“Overall, Peru has the ammunition to weather a period of capital outflows,” Velarde points out. The fear of emerging countries, and in particular of the BRICS, arises precisely from the huge outflows of capital that these economies have experienced following the announcement by Ben Bernanke, chairman of the Fed, on the start of the reduction of stimuli. Investors are reviewing their risk positions and withdrawing investments from many emerging countries attracted by the prospects of higher returns in developed countries (fading stimulus leads to a strengthening of fixed income rates such as government bonds). Tapering thus puts countries such as China, Russia, India and Brazil at risk of financial shocks at a time when these economies are facing difficulties for various reasons. And there are already those who are wondering if we are at the beginning of a crisis of emerging markets. It is no coincidence that at the G20 in St. Petersburg, the leaders of Brazil, Russia, India, China and South Africa agreed to create a 100 billion dollar fund to deal with financial shocks and imbalances both from a macroeconomic and currency point of view. A problem that has been brought to the table of the G20. But that risks sharpening the divisions between emerging and underprivileged countries, while on the front of international relations the tension between Obama and Putin on the Syrian crisis is consumed. In fact, the message that came out of the summit was an invitation to the BRICS to put their own houses in order. “We have been discussing the effects of tapering on emerging markets since last year – explains Velarde – The market is betting that tapering will already start on 18 September and I think there is a probability that it will happen. Which is good but it has to be gradual. The countries most affected by tapering are those with weak fundamentals. But there is no alternative, the big emerging companies are destined to slow down due to their internal problems that need to be solved and it is not possible to say how long this phase will last. In some cases, as in India for example, it is also a matter of political choices. In any case, many countries have increased their reserves in recent years and can use them against financial shocks".
The problem then is that tapering adds to other problems on the carpet: As mentioned, there are the structural problems of the large emerging economies but also the scenario of a reduction in commodity prices which could create problems for commodity exporting countries. Not only due to the slowdown in China which decreases the demand for raw materials but also because if, with the Fed's tapering, interest rates increase, commodities lose their attractiveness as financial assets, as happened for gold. For Velarde there are three risks that worry him the most: 1) the possibility that the slowdown in China translates into a hard landing: the rebalancing of the economy towards the economy takes time and it will still take 2-3 years; 2) the risk that the positive signals we are seeing on the economy will disappear. "I think there is a recovery - he specifies - but we can't be sure yet"; 3) New problems in the Eurozone. “Now the Eurozone crisis is in the background but it cannot be forgotten”.
