The protests in Turkey, Brazil and Egypt shouldn’t surprise you

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Αναδημοσιεύουμε τμήμα μιας συνέντευξης ενός στελέχους της Morgan Stanley Investment Management, γιατί συνδέει τη σημερινή οικονομική κατάσταση των BRICs  και γενικότερα των “αναδυόμενων οικονομιών” με τις ταραχές, με τη γλώσσα του κεφαλαίου φυσικά, αλλά η γλώσσα αυτή σ’αυτήν την περίπτωση είναι ιδιαίτερα χρήσιμη. (Η έμφαση με πλάγια σε ορισμένα σημεία δική μας)

Ezra Klein: So as I understand it, your view is that people shouldn’t be surprised to see protests in Brazil and riots in Turkey. It’s the long period of economic growth and political calm that preceded them that you consider surprising, or at least unusual. Is that right? 

Ruchir Sharma: Absolutely. The last decade gave us this misleading impression because growth was booming in every single emerging market and that was keeping everything calm. It gave the impression that this was a new era for the emerging world.

But a lot of that growth was driven by low interest rates and the commodities boom. The long-term growth rate of emerging markets is about 4 to 5 percent annually, but from 2003 to 2008 it was over 7 percent. At the same time, inflation, which used to be a big problem, collapsed.  But now all that’s reversing. In Brazil, for instance, growth is down and inflation is creeping back up. And that’s how you get a situation where a rise in bus prices can be the final straw that gets people into the streets.

EK: Much of the argument, however, has been that these countries got much better at building political institutions and managing economies over this period. The idea behind a higher permanent rate of growth is that they made structural improvements, not just cyclical ones, to the way they’re governed. Do you think that’s all illusory?

RS: I think that it’s true that some of these changes have been made, and for the better. But it’s very difficult to talk about all these countries as a homogenous entity. They’re 80 percent of the world’s population and 40 percent of the global economy. In the last decade, money was so easily available, the cost of credit was so low, and there was a lot of catch-up growth from the crises many of these countries had in the ’90s. But now that’s ending.

What’s happening now is things are changing. People (εννοεί τους καπιταλιστές…) are becoming more aware of the fact that these emerging economies have their own issues. Some of the political changes they made were really good, but some of them were made to look better by the easy money and the commodities boom.

EK: This would seem to suggest a vicious cycle: As people become more aware of the political and economic issues in these economies, capital will flow out of them, further worsening the economies, further exacerbating the issues.

RS: That’s exactly what happened last decade. Success begets success. More money flowed in; the cost of capital went down; the lower cost of capital led to faster growth and faster credit growth. Brazil had the biggest credit boom in its history between 2003 and 2008. Now the opposite can happen. Capital flows out; cost of credit goes up; that hurts growth. It can be a self-reinforcing cycle that moves for awhile.

EK: How much is what we’re seeing in emerging economies a hangover from the financial crisis? There were a lot of plaudits for how well these countries did even as the United States and Europe and Japan suffered. Are their current problems related to that period?

RS: That’s part of the reason. They used up their bullets in the immediate aftermath of the crisis. But they’re out of bullets now. I was in China two weeks ago, and there the clear concern is they’ve spent so much in terms of GDP growth and now they’re finding it harder to keep that going. At this point they’re having to spend $5 of debt to create $1 of GDP growth. So some of this is a slow-motion unwind of the financial crisis.

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