You often hear economists and investors talk thesedays about the ‘broken growth model’ in emergingmarkets. It isn’t a terribly precise term but it’s easy to see what people mean. The problem inEM is that none of the three possible sources of GDP growth – exports, or public domesticspending, or private domestic spending – have much going for them.
Exports from EM are hobbled by a collapse in the growth of global trade and the related fall inworld commodity prices. Public spending growth is weak because many governments are toonervous to loosen fiscal policy, fearing a loss of sovereign creditworthiness at a time when theoutlook for capital inflows isn’t encouraging. And private domestic spending is hampered bythe fact that credit markets in many countries are in ‘post-boom’ mode: neither domesticlenders nor borrowers have much in the way of risk appetite.
All this helps to explain why emerging markets GDP growth, on average, should fall below 4per cent this year for the first time since 2001.
这一切有助于解释,为何今年的新兴市场平均GDP增速应该会自2001年以来首次降到4%以下。
Faced with this state of affairs, you might think countries would be falling over themselves toreform their economies: reducing barriers to economic activity, de-clogging product markets,reducing regulation, making additional effort to seek new inflows of foreign direct investment.Yet most economists and investors with any knowledge of emerging markets would only beable to name two countries which have a definable reform strategy that is being more or lessimplemented: India and Mexico.
Why are so few countries embracing reform? To see why, you need to think back to the early2000s, when emerging economies were just, well, emerging from two decades ofintermittent financial crises. Looking back on the grim experiences of the 1980s and 1990s –crises in Latin America, Asia, Russia, Turkey and others – the biggest question at the start ofthe 2000s was ‘what on earth is it that’s making developing countries so susceptible to crisis?’And the answer seemed clear. The problem in emerging markets was overwhelminglydescribed as a problem to do with weak sovereign balance sheets: too much public debt, toomuch of it denominated in foreign currencies, and too much of it needing to be repaid too soon.
Structural reform was certainly part of the debate, but not too central to it.
那时,结构改革当然是辩论的议题之一,但并非核心议题。
This analysis spurred action: policymakers in developing countries made strenuous efforts tostrengthen their public sector balance sheets during the 2000s: reducing debt/GDP ratios,cutting the amount owed in dollars, accumulating foreign reserves and extending the maturityprofile of government bonds. Indeed, the 2000s saw a dramatic improvement in the health ofsovereign balance sheets: the average debt/GDP ratio in EM fell from over 60 per cent in theearly 2000s to just over 40 per cent nowadays.
That felt like enough, since the 2000s wrapped these countries in the warm embrace of rapidChinese growth, plenty of external financing, and unusually strong import growth in thedeveloped world. So, structural reform was crowded out by an intellectual emphasis on thecentral importance of balance sheets, aided by an exceptionally friendly world economy thatmade EM policymakers feel that whatever it was they were doing, it was working.
Now that the global economic temperature is much colder, what we’re learning is that having astrong sovereign balance sheet is at best a necessary – but not a sufficient – condition forenjoying stable growth. A business climate that supports animal spirits is needed too, more sotoday than any time in the recent past.
But it takes time for countries to reach that conclusion. Look at Mexico, for example. Onereason that Mexicans ended up electing a President in 2012 who was committed to properstructural reform – in energy, telecoms, education and labour above all – was that its economicperformance had been dismal for over 30 years.
The 1980s were ‘lost’ as a result of a debt crisis; the 1990s were overshadowed by China’s1993 devaluation and the subsequent Tequila crisis in late 1994; and in the 2000s Mexico wasone of the few countries in the developing world that failed to benefit from China’s rise, sinceChina’s membership of the World Trade Organisation (WTO) in 2001 allowed its exporters tocapture market share from, above all, Mexico. Between 1980 and 2010, emerging economiesas a whole enjoyed GDP growth of 4.5 per cent on average. Mexico rubbed along with just 2.6per cent. And it was this persistently weak economic performance which gave the countryplenty of time to come up with a diagnosis, and elect a President aiming to do something aboutit (not that his effort has been an unqualified success).
Let’s hope that it doesn’t take too many countries a generation to discover the need forstructural reforms, or the ‘growth model’ may stay broken for a depressingly long time.
But here’s a dilemma. One of the gravest structural deficiencies in EM is poor infrastructure.Yet improving this will almost certainly require funding from the public sector. So countries mayfind themselves with a difficult choice: is it better to maintain as strong a public balance sheet aspossible in order to keep your country’s borrowing costs low? Or is it worth tolerating higherpublic debt levels in order to finance infrastructure? The outlook for EM growth would be a lotmore rosy if there was an easy answer to that question.