Emerging markets staring at debt crisis? Paul Krugman, Mark Mobius think so

A dozen emerging-market currencies have fallen more since February than they did during the 2013 taper tantrum

Paul Krugman
Paul Krugman
Bloomberg
Last Updated : May 24 2018 | 10:27 AM IST
Paul Krugman is joining a growing contingent of economists and money managers from Carmen Reinhart to Mark Mobius in warning of a meltdown in emerging markets.

The Nobel Prize-winning economist said the current episode bears some resemblance to the Asian financial crisis in the late 1990s, when developing-nation stocks slid 59 per cent and governments raised interest rates to exceptionally high levels.

"It’s become at least possible to envision a classic 1997-8 style self-reinforcing crisis: emerging market currency falls, causing corporate debt to blow up, causing stress on the economy, causing further fall in the currency," Krugman wrote on Twitter.

In fact, a dozen emerging-market currencies have fallen more since February than they did during the 2013 taper tantrum, which marked its five-year anniversary on Tuesday.

Still, Krugman was reluctant to forecast full-blown contagion.

"Are we seeing the start of another global financial crisis? Probably not -- but I’ve been saying that there was no hint of such a crisis on the horizon, and I can’t say that anymore," he wrote. "Something slightly scary this way comes."
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