ANNUAL REPORT


Emerging markets didn’t start this fire, but they may be the best hope for putting it out.

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The global financial crisis was clearly stamped “Made in USA,” but the outlook for growth in emerging economies is being rapidly scaled back, proving that globalization is for real. We are all in this together. What started as a US housing market problem has morphed into a worldwide economic slowdown and could be turning into something worse. The crisis is still in the early stages in many developing nations.

Like a summer storm, the blue skies over the EM world turned suddenly dark in July. Then the heavens opened up, and global investors ran for cover. While many EM economies have seen this all before, they are better prepared than ever before to weather the deluge. They also have lessons to teach the developed economies about making it through the tough times, as is evident from the following series of reports covering the major developing regions of the world.

In Latin America, Brazil has fashioned a link between free-market policies and social spending that has helped to reduce poverty and chronic malnutrition among children—and established the country as a model for sustainable development. Meanwhile, the country has amassed more than $200 billion in foreign reserves and is looking to develop new offshore oil finds.

In Asia, the 1997-1998 financial crisis spawned needed economic reforms, leaving many economies in a stronger condition than previously. China’s boom has placed it in a position to cushion the downturn that many of its trading partners are suffering.

In the Middle East, major oil exporters are sitting on substantial current account surpluses. Sovereign wealth funds will provide an additional liquidity buffer, even if oil prices fall further. The region’s leaders have focused on diversifying their countries’ economies in recent years, and as oil prices plummet, their foresight may well pay off earlier than they anticipated.

The biggest economic problems in the EM world seem to be in Central and Eastern Europe, where high foreign debt levels have left a number of countries extremely vulnerable. But even here, there are some bright spots, such as the Czech Republic and Poland, which continue to do well.

Africa also has been hit hard by the global economic slowdown due to its heavy reliance on exports of primary goods. Despite persistent infrastructure problems and weak intra-regional trade, many countries in Southern Africa are beginning to diversify their economies.

Emerging markets have offered immense opportunities in the past, and it is clear that they will continue to drive much of the world’s growth in the future. Getting from here to there, however, will likely be on a bumpy road.

Gordon Platt