2008-10-26 16:13:21
Hungary, Pakistan and the Ukraine Are All In Major Trouble
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Most people tend to focus on the rapidly deteriorating fortunes of the United States and Western Europe as a result of the global financial contagion.
However, things are REALLY bad in emerging markets such as Eastern Europe, Latin America and some parts of Asia. Many of these markets have done exceptionally well over the past decade, and suddenly they are seemingly crumbling into dust overnight.
A number of countries are currently engaged in talks with the IMF (International Monetary Fund) to receive loans. These loans would be granted for the sole purpose of keeping the financial systems of these countries afloat.
Iceland was recently granted a loan by the IMF after their banking system basically collapsed overnight, wiping out the net worth of many of their citizens.
The Ukraine was granted a $16.5 billion dollar loan earlier today. Their problems were intensified by the rapid drop in the price of steel - dropping exports and a run on the bank contributed to a significantly weaker currency. This created tremendous difficulties for the Ukrainian financial system and forced their government to seek a loan from the IMF.
Other countries are in desperate need of help and in current negotiations with the IMF. These countries include: Pakistan, Belarus and Hungary.
Countries such as Russia, Brazil and Argentina are buckling under the pressure of the global financial contagion. Argentina's situation is particularly dire.
What caused these emerging markets to suddenly buckle and crash?
Many of these emerging markets are heavily dependent on the export of their resources. With a global recession on the horizon, many of these markets are suffering from decreased demand for commodities and falling prices.
The rapid drop in exports has put pressure on many currencies. The US dollar has strengthened considerably over the past few months, and many emerging market currencies have taken a tremendous hit. Weak currencies have contributed to the precarious situation that many of these emerging markets now find themselves in.
The United States, for all of its faults, is being seen on the "safe haven" during this crisis. Many investors expect that the United States will be the first country to escape from the murky depths of the global recession, and these investors are pulling money out of the emerging markets and investing in the United States. Gold, oil and other commodities are all dropping like a stone - many investors are flocking to the US dollar as their safe haven during this crisis.
The IMF will be busy over the next few weeks, negotiating loans with some of the countries that were previously mentioned. It will be interesting to see what happens with these economies over the next 3-12 months.
Filed under: The Economic Meltdown
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