China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

Emerging markets and a strong dollar

May 27, 2024

Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This inflow can be done in the three following ways:

¤ by receiving currency reserves via foreign direct investment (which often does not work as an available or sufficient financial source),

¤ by borrowing money in foreign currency (mostly in U.S. dollar, USD), or

¤ by selling stocks, bonds, etc to foreign investors (if such financial products exist in the emerging country and foreign demand for these papers is there).

Statistics show that emerging markets borrow the lion share of their foreign credits in USD which may be challenging in times when the American dollar is strong on global currency markets. This is actually the case. Serving existing debt in USD uses to be even much more challenging.

By the way: During a meeting the other day with American financial analysts, I heard the view that the USD historically tended to be strong when investments in research and development (R&D) in the U.S. were high. This is explained by an increasing demand for American technology stocks and also foreign action for FDI in the U.S., thus leading to a high demand for the dollar and therefore to the strengthening of the American currency. I am not quite sure about the general validity of this suggested correlation. But it can be observed that such conditions can be found these days.

Back to emerging markets. What we can see today is an increasing willingness of certain emerging markets to avoid or decrease new borrowing in USD. However, this is not easy to achieve since USD markets function by far as the biggest global supplier of new loans, also to emerging markets. 

The ongoing situation with the strong dollar is, of course, particularly difficult for emerging countries with high indebtedness in USD. Such countries may be found in all continents – countries that are or have been reporting growing pressure on their currencies in 2024 such as the Nigerian Naira, the Egyptian Pound, the Turkish Lira, the Indonesian rupee, the Argentine peso or the Brazilian real (watch for this the following IMF table: Of course, some of these and other weak currencies of emerging markets have also been impacted by other negative factors than the strong dollar, for example domestic political ones.

At the same time, there are also countries trying to reduce their exposure to the dollar (which also can be seen in the IMF table quoted above). Indonesia is such an example. However, such a trend will not be easy to achieve – but Thailand actually managed it in the past few decades. Perhaps another option may gain momentum as it is currently the case in South East Asia, i.e. trying to expand borrowing within the region at the expense of the USD.  

Conclusion: Analysts of emerging markets should watch the further development of the USD and its impact on indepted emerging markets.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

New reasons to cry for Argentina?

November 16, 2023

In my earlier professional life, I had the pleasure of having quite frequent visits to Argentina. Argentina is a wonderful country with gentle people and fascinating nature. And all these wonderful football (soccer) players. Unfortunately, it is hard to see how the economy could improve after the ongoing presidential election. Sorry to say that economic policy has been a disaster for many decades. It seems difficult to see promising policy changes in the near future.

The current economic situation

Before looking into the future, it may be worthwhile summarizing briefly the current state of Argentina’s economy. Here are some important indicators:

¤  GDP growth : -4.9 % Q2 (yoy)

¤  Unemployment: 6.2 % (June)

¤  Inflation (CPI): 143 % (Oct)

¤  Current account to GDP: -0.7 % (2022)

¤  Government debt to GDP: 85 % (2022)

Most worrisome among the five key indicators are high inflation and the weak development of GDP. The three other indicators look currently still acceptable.

Will developments turn better?

There are still two presidential candidates in the second election round on November 19. One is the current minister of economy, peronist Sergio Massa, mostly launched as candidate of the middle or even left. As a minister, Massa has already implied different regulations and controls of prices and imports.

The other candidate is the extreme libertarian, anarcho-capitalist Javier Milei – with lots of strange and extreme plans. Only his idea of closing down the central bank, the introduction of the U.S.dollar as Argentina’s currency and the neglect of global warming can make me scared.

After having studied the economic programs of the two remaining  candidates – the most business-oriented candidate has already failed – my political and economic worries about Argentina have not declined. It could be a good idea for the current and next President of the United States to co-operate more with this strongly urbanized and pressured country.

One hundred years ago, Argentina still belonged to the 10 wealthiest countries in the word. After this glorious time, the descente went on almost without interruption. Hard to see that the next president will achieve all the badly needed changes !


Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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Argentina in deep crisis again

August 23, 2019


Argentina åter i djup kris

Sammanfattning / Brief summary in Swedish

Resultatet av Argentinas primärval helt nyligen försatte landets finansmarknader i rent kaos. Utmanaren, peronisten Fernandez, vann tydligt över regerande presidenten Macris gruppering. Kort beskrivet står Fernandez politik för stark statlig styrning, medan Macri företräder tydliga marknadsliberala värderingar.

Orsaken till Macris valförlust är att hans saneringsförsök uppfattades som alldeles för hårt av väljarna. Följaktligen tyder en hel del på en Fernandez-seger vid presidentvalet den 27 oktober. Peronistisk ekonomisk politik har ständigt misslyckats under de senaste årtiondena. Men inte heller Macris insatser kan framstå som speciellt framgångsrika. Tyvärr finns det nu ytterligare en akut kris i vår redan tillräckligt krisdrabbade värld – förmodligen utan att sätta djupare globala spår. Men Argentina är Sydamerikas näst största ekonomi.


Though it not a new phenomenon, the world feels again sorry and worried about a new economic crisis in Argentina. Ruling president Mauricio Macri was recently defeated strongly in Argentina’s primary elections by the Peronist Alberto Fernandez, leftist candidate for the presidential election in October 27 this year.

Most observers think now that Fernandez will be the new president of Argentina. This is why financial markets reacted so chaotically on his recent landslide victory. Sure, Macri’s liberal economic policy has been very tough – obviously too tough – for the Argentine people. On the other hand, financial markets know that Peronist economic policy always failed in the past.

Thus, fears of renewed strong state interventionism was enough to provoke financial panic on August 12, the day after the primary elections. Enormous falls were noted for both the peso and the stock and bond markets – without contagion to other emerging markets. But Argentina is the second largest economy in South America.


The turmoil happened when the economy already for some time had been affected by an ongoing economic crisis. GDP fell by 5.8 percent in Q1 this year (Q4 2018: 6.1 percent). Inflation belongs to the highest in the world, in July over 50 percent

Very recently, Macri promised the voters to provide economic policy with a more social profile. Good news? Probably not good enough to prevent Fernandez from winning the forthcoming presidential election.

Unfortunately, there is still reason to cry for Argentina. I really wish to be wrong.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

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Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


Back to Start Page