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Emerging economies have clawed their way back from the brink of financial collapse.

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Introduction

Emerging economies have clawed their way back from the brink of financial collapse. The issue of the development of emerging economies is vital, as it is necessary to know the reasons for financial crises and the ways out from them, because nobody wants the situation of the late 1990s to repeat. Now most of the countries which suffered from collapses are in a far better position to withstand external shocks from other markets and to avoid home made economic crises. A variety of factors including the macroeconomic adjustment and structural reform efforts by many emerging economies are responsible for a rebound of emerging markets. Emerging market economies tend to grow faster than their developed market counterparts, because they are at an early stage of development, and emerging market companies therefore offer the potential for rapid earnings growth and consequently enhanced returns. ...read more.

Middle

In the wake of the currency devaluations of 1997-1998, many emerging markets have reformed their currency regimes so that now many of pegged systems have been replaced by floating regimes. This helps them to prevent a repeat of the build-up of huge current account deficits and capital imbalances which were the root cause of the wave of devaluations. Furthermore, it has greatly enhanced the competitiveness of emerging market goods and services in world markets. As a result of other structural reforms implemented in response to the crises many emerging markets are now enjoying a virtuous circle of increasing investment and growth that is transforming their economic and business landscape. Korea, Mexico and Russia which have all, amazingly, produced positive returns in their equity markets last year, are examples of emerging markets which have learnt from their past difficulties and are now implementing business and market-friendly reforms. ...read more.

Conclusion

I suppose that the pace of this recovery depends on the further conscientious implementation of national economic and financial reforms, the development in the economies of their major partners, and the support of international financial and development institutions. Emerging economies should also manage the inflows and outflows of capital, recurring even to currency controls or partial foreign investments regulations. Emerging markets economies should continue with their liberalization of trade and financial policies, but they should also take the right measures to boost liquidity, such as: reducing short-term foreign debt and accumulating liquid reserves. I guess that economic isolation is not a rational option for emerging economies; they should insert themselves to the global system. Besides, emerging economies should get rid of bad economic habits: exorbitant current account deficits, excessive short-term foreign currency borrowing, and shaky banking systems. Thus, I consider, that sticking to these measures, will greatly help emerging economies to escape recessions and to resist to foreign attacks in future. ...read more.

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