Is the worst to come for emerging countries?

By: ispeculatornew
Date posted: 09.18.2009 (5:00 am) | Write a Comment  (1 Comment)

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polandflagIt has been written about somewhat but continues to be ignored by most.. There will be consequences to the massive actions taken by worldwide governments to avoid the collapse of the world economy. Governments around the world have spent or promised tens and hundreds of billions of dollars to stimulate their domestic economies. Of course, since governments main revenues are tax inflows they receive less revenues when the economy slowdowns. Add to that spending that increased and it is easy to imagine how not only the American government is running huge deficits. Poland, the most important country in Central/Eastern Europe by many measures has announced it projects a $20 billion deficit in 2010.

When governments run deficits, they must of course borrow and in almost all cases (except for the very very poor) that is done by issuing debt (bonds). So if all governments are issuing record amounts of debt at the same time, there can be issues to actually sell that debt with two major consequences:

-when the regular bond holders are done buying, governments must attract new ones, generally by raising the interest rates paid which for some countries can be manageable but for some others creates critical situations

-there will also be many countries that will simply be unable to sell their bonds because there is so much offer compared to the number of buyers. There have been signs that it would start to occur sooner than later but it still came to a surprise to many to see Poland being unable to sell over half of its bond issue last week. BNP Paribas has recommended selling Poland’s bonds which caused even more panic in the Central Europe country. “This is a direct consequence of a very dangerous fiscal outlook presented in the 2010 budget draft. We recommend selling Polish bonds across the curve”.

Poland has not been performing greatly in this recession but it is also far from the worst so if they are having trouble selling their bonds, are other emerging countries in trouble? Other countries in central and eastern Europe as well as in Asia are in much more critical situations and might need some help sooner rather than later.

One solution that has been discussed has been for organisations such as the World Bank and the IMF to provide loans for such countries but again the question remains; where will the funds come from? These organisations have been funded by the same countries that are suffering from deficits in the past few months/years! It will be interesting to see how this and future crisis will be dealt with but there is probably a lot more pain to come…

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1 Comment

  1. Pingback by Nice Weather Edition Of LinkStuff — September 21, 2009 @ 3:04 am

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