Argentina ’s financial crisis may be ‘tip of the iceberg ’
The economic crisis engulfing Argentina could be the “tip of the iceberg in emerging markets”, according to a trade group of financial institutions.
Argentina is in talks with the International Monetary Fund about an emergency credit line after a series of dramatic interventions failed to stop markets selling off the peso.
Last night Argentina received a boost from investors after the central bank’s auction of $25 billion of short-term securities was hailed as a success.
The country’s central bank was forced to raise interest rates from 27.25 per cent to 40 per cent this month and spend $5 billion of foreign reserves to prop up the plummeting currency.
Senior economists at the Institute of International Finance,which is the global association of the financial industry with 450 members from 70 countries, warned this week that other emerging markets may face the same financial and economic problems.
“Rising global interest rates beg the question whether Argentina is an idiosyncratic case or a harbinger of things to come,” Robin Brooks, managing director and chief economist at the institute, co-wrote in a paper called The Deal with Argentina. “We worry that it might be the latter, with broad vulnerability across emerging markets to higher global yields.”The institute has warned that rising government bond yields in the US and a surging dollar would reduce foreign investment in emerging markets for the rest of the year. It reduced its 2018 inflow forecast for emerging markets by $43 billion to $1.22 trillion.