Krugman Joins Chorus of Doomsayers on Emerging-Market `Crisis'
Krugman says the current episode bears some resemblance to the Asian financial crisis in the late 1990s.
(Bloomberg) -- Paul Krugman is joining a growing contingent of economists and money managers from Carmen Reinhart to Mark Mobius in warning of a meltdown in emerging markets.
The Nobel Prize-winning economist said the current episode bears some resemblance to the Asian financial crisis in the late 1990s, when developing-nation stocks slid 59 percent and governments raised interest rates to exceptionally high levels.
"It’s become at least possible to envision a classic 1997-8 style self-reinforcing crisis: emerging market currency falls, causing corporate debt to blow up, causing stress on the economy, causing further fall in the currency," Krugman wrote on Twitter.
In fact, a dozen emerging-market currencies have fallen more since February than they did during the 2013 taper tantrum, which marked its five-year anniversary on Tuesday.
Still, Krugman was reluctant to forecast full-blown contagion.
"Are we seeing the start of another global financial crisis? Probably not -- but I’ve been saying that there was no hint of such a crisis on the horizon, and I can’t say that anymore," he wrote. "Something slightly scary this way comes."
To contact the reporter on this story: Ben Bartenstein in Lima at bbartenstei3@bloomberg.net
To contact the editor responsible for this story: Rita Nazareth at rnazareth@bloomberg.net
©2018 Bloomberg L.P.