Advanced Economies Pose Three Financial Risks to Developing Countries in 2011

As in recent years, the major risks for emerging market economies in 2011 will come not from the policies and actions of the countries themselves, but from developments in advanced economies. There are three major risks: the debt crisis in Europe and the ramifications of potential sovereign defaults, continued sluggish growth in the United States, and China’s role in the so-called “currency wars” that are adversely affecting many developing countries. Many developing countries have recently become notably resilient to adverse external shocks; with good macroeconomic policies and some good luck, they may be able to weather the storm, but the United States, Europe, and China have large roles to play in their success or failure to do so.

Preview