Why Argentinean housewife’s wallet got thin
“If you miss buying it right now, you might need to pay 273% increased price next month”
This notice is likely to be posted in front of Argentina’s super market. According to the data released from Argentina newspaper Clarin, the price of 1kg of Apple raised 273% on February compared with January and other commodities are no less different.
Argentina is known to be a high-inflation country which has hit record 20% over three consecutive years. Though the situation has already been bad, it turns out that it could be worse as the rate this year is expected to surpass 30%. Thus it is not difficult to imagine Argentinean housewives raising their eyebrows at their thin wallet.
What is happening in Argentina? The economic decline was chronic born of internal weaknesses but what triggers the recent situation is more global.
Starting from December, the U.S. Federal Reserve has gradually reduced the amount of its monthly bond purchases. In response, money flowed into emerging economies is now rapidly pouring out in pursuit for better returns, sparking a global concern over tapering risks looming in emerging markets.
Argentina is the obvious example that flounders due to high depreciation of Peso. With widening current account deficit and dearth of foreign reserves, the government is in trouble finding viable measures to take the nation out of the crisis including skyrocketing inflation.
The important thing is that the suffering is not only Argentina’s. It can be contagious.
Fed’s decision to scale back stimulus money has jolted many rising emerging markets so called Fragile Five (Brazil, India, Indonesia, South Africa, and Turkey.), which found to be extremely vulnerable to the recent curtailment. The reality is that many emerging countries have already gone through or could be fallen into the default crisis as Argentina. For instance, Turkey has also faced with rate hike.
Growing concern is that a series of economic woes of those developing markets could escalate into major threats to global economy, which also suggests possible challenges for Korea’s economy as to whether it can be safe from the contagion effect.
Korea has immunity
Despite the worries, Korea stands firm. With increased foreign reserves and current account surplus, Korea shows strong presence in dealing with emerging market crisis.
“Considering Korea’s solid fundamentals, like the current account surplus and sufficient foreign reserves, there will be little impact from the Fed’s decision.” says South Korean Finance Minister Hyun Oh-Seok, while pledging to keep monitoring on the situation.
The U.S. Federal Reserve also confirms Korea’s high resiliency in a monetary policy report released on Feb 12. In a survey that includes inflation rate, current account balance, and foreign reserves as index figures, Korea topped the list among 15 emerging countries as the lowest vulnerable, recording below the 5-point mark in contrast with Turkey and Brazil exceeding 10-point.
New Fed chief Janet Yellen reportedly made it clear that rising volatility in the emerging markets would not affect its decision to cut the stimulus. At the same time, the growing instability is less likely to hamper Korea’s economy with solid fundamentals. But still, with global economy at a critical turning point to a recovery, Fed’s next step and the reaction of emerging countries to the repercussion are crucial, calling for a sustained attention.
Bokyung (Bella) Kim