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WorldMarch 3 2014

How Fed tapering has affected Argentina, Brazil and Chile

The tapering of the US Federal reserve's quantitative easing programme and a higher interest rates environment are mopping up liquidity from emerging markets, separating the top-in-class from the current-account-bingers. How does Latin America fare?
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How Fed tapering has affected Argentina, Brazil and Chile

Emerging markets are going through tumultuous times, as the tapering of the US Federal Reserve's quantitative easing programme has exposed countries that have been overly reliant on portfolio flows – or ‘hot money’ – to fund their current accounts. Lower levels of global liquidity along with better growth prospects and higher interest rates in the developed world have provoked an emerging markets sell-off. The currencies of developing countries have plummeted along with bond prices and stocks. In the two weeks to February 7, 2014, investors removed $12bn from developing country equities, as reported by Bloomberg.

Until early this year, Latin America was represented in a group of countries known as the ‘fragile five’ – so-called because of their exposure to the Fed's tapering – by Brazil (along with India, Indonesia, South Africa and Turkey). Now fresh concerns have added protectionist Argentina as well as Chile, traditionally a poster boy for economic development in the region, to the larger group of eight – which includes Russia too.

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Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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