Leaders Of Emerging Market Countries Are Going Into Denial
So far this year, $520 billion value has disappeared from emerging market equities. In Argentina, a devaluation of the peso last week meant to preserve international reserves sent prices surging. In Turkey, the Central Bank's move to hike overnight lending rates from 7.75% to 12% in order to stem the decline of the Turkish lira seemed to stabilize the currency, but then reversed. In China, recent data points have indicated that the country's growth is slowing.
But leaders in these countries don't seem interested in grappling with the hard economic challenges they face.
The main headline on the front page of leading Argentine newspaper, Clarin today is about a statement the head of President Cristina Fernandez's cabinet made about businesses that rose their prices - 'Capitanich criticizes the unpatriotic attitude of business leaders,' it reads.
Argentines have an ugly history with inflation. So ugly, that the government has been in hot water for doctoring inflation rates for years. Official statistics put it no where near the independant 30% rate, and non-governmental statisticians put December's rate at 4.26%, the highest in 12 months.
The problem to Capitanich, though, is that what Argentines are seeing is a destabilization of economic 'character' in the business community and speculation on the peso from big business and media. He's asking consumers to "defend the politics of price to defend our wallets," and the Secretary of Commerce has found 31 violations of a law called the 'Commercial Loyalty and Defense of the Consumer Act.'
Whatever that is.
In Turkey, Prime Minister Recep Tayyip Erdogan is blaming the foreign media and business lobby groups for the lira's decline.
Here's what he said to lawmakers on Tuesday, according to the Wall Street Journal.
"My dear brothers, these organizations have always stolen the national will in this country. They have pocketed the resource and energy of this country," Mr. Erdogan said. "Is it only BBC? Also The Wall Street Journal. Who are the bosses of these newspapers? Who own these newspapers?" he added.
Not so reassuring.
In China, the government has dispensed with the public statements and quietly created a new agency to police financial markets. It will be under the control of President Xi Jingping's office (of course) and will investigate "emerging threats" to financial markets, like hot money coming in from foreign investors and rocking the stock market.
From the South China Morning Post:
Some government agencies had been collecting evidence and data in recent years to prove how speculative foreign capital - "hot money" - moved through the underground banking system, rocking the stock market and affecting local investors' confidence in the mainland's economic development.
Investigating this type of activity used to be the responsibility of the State Administration of Foreign Exchange, but the Chief Investment Officer of that agency, a PIMCO vet named Zhu Changhong, was sacked shortly after news of the Xi's new agency broke.
Good to see everyone's really going after this problem.