Friday, October 24, 2008

Things on which I would have preferred to be wrong

I’m sitting in the airport in Beijing trying to catch up with the news. The world looks scarier and scarier. About one year ago I told a friend that the downsizing of the Fund was a crazy idea and that within two years there would be a crisis in East Europe (probably Hungary) and the Fund will be on the market hiring people in order to have enough bodies to send on mission. My friend told me that I was wrong and that the Fund no longer had a role to play. In fact, I was wrong. It only took one year for the crisis to come. I wonder when the Fund will start recruiting.

In September 2007, UNCTAD wrote an early report on the crisis, I think (but I am not 100% sure) that I was the one who wrote the following (thanks to Raja for digging it out): It is possible however, that the subprime crisis will become a full-blown financial market crisis cum recession. In this "perfect-storm" or crisis scenario, the US goes into a full-blown recession and, as happened in 1998, risk aversion skyrockets. Under this scenario, emerging markets would receive negative shocks on both the real (because of reduced demand for their exports) and financial sides (because of considerably higher spreads). Since most emerging market countries are now running current account surpluses, the crisis would not be as painful as the one that hit the emerging world in 1998. However, it could be painful for the small group of countries in East Europe and Central Asia, which are running large current account deficits. A perfect storm may even cause financial problems to some emerging countries that are running current account surpluses.

Last year, it looked too pessimistic, now it looks optimistic: It's painful for everybody.
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1 comment:

raja said...

Of course you wrote it 9with a little help from your friends) and can take the "credit" (who wants it these days!?) for being the first to use that term for what we are specifically seeing 12 months later. Put that in your file for the Nobel 15 years down the road.