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Emerging markets Scenario: There was high inflow of Capital from foreign iinvestors, so economy became overdependent on this source
Emerging markets: high risk of Banking crisis (when there is potential run on bank deposits), Currency Crisis(Sharp devaluation of Currency.
Contagion Effect: The currency crisi occurs due to irrational behaviours of the investors. This highlight the need for stringent regulations!
High level of foreign Debt. high external debt to export ratio of 400% Debt to GDP rose to 41.4% ; Projected GDP of 2.5% but sctuall -5.0%
Political Factors: High Corruption Levels, Ministry of Econoy turning against the president, two cabinet ministers resigning on corruption charges
Labor reforms: Health care programs and benefi cost a lot to the fiscal deficit
Privatization- Lead to the formation of two-tier economy: those exposed to international competion and those shielded by government
Banking sector: Return on Assets greater then 10%, return on Equity -0.7& Sovereign bonds used as debt instruments, Ineffective Swaps
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Alternate Solutions
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